Sanitary Facilities II, Inc. v. Blum

Moore, J., delivered the opinion of the Court. Several purchasers of Levitt homes in the Rock Creek Estates, II subdivision of Anne Arundel County prevailed below on a motion for summary judgment in a class action to remove a cloud on title. The appellant, Sanitary Facilities ⁹² II, Inc., is a private corporation whose sole remaining asset, allegedly acquired under a “Deed and Agreement” dated April 5, 1968, is a purported right to collect water and sewer charges from the homeowners over a thirty year period which would produce, if collected, some $855,000. It did not construct or install the facilities or pay for their construction or obligate itself to do so.

The corporation complains here that the Chancellor decided the motion for summary judgment erroneously and upon grounds neither advanced nor argued. Furthermore, it contends on appeal, as it did before the Chancellor, that appellant itself and not the appellees, is entitled to summary judgment. For the reasons stated below we affirm the decree. I Appellant (to which we will refer as “Sanitary”) was one of several wholly owned corporations of Richard Swirnow, a developer.

The property which is the subject of this controversy consisting of some 264 lots, was acquired (unsubdivided) on November 30, 1966 for $211,000 by Registered Realty, Inc. (“Registered”) from Rock Creek Holding Company, both corporations being owned and controlled by Swirnow. On April 5, 1968 several conveyances and reconveyances of the property were made by and between Registered, Sanitary and Babs, Inc. (“Babs”), the latter being also a Swirnow corporation. On that date, Registered conveyed the land to Sanitary and Sanitary then reconveyed to Registered by a so-called “Deed and Agreement” subject to “Sanitary Facilities Charges” to be paid by the ultimate owners of the lots. Registered then conveyed to Babs, which was to develop the lots, with a warrant by Babs to install the water and sewer facilities described in the Deed and Agreement.

The respective deeds were inscribed “No Stamps Required” and were executed by Swirnow as the president of the grantor corporations. (The Deed and Agreement was signed on behalf of Sanitary by Robert Warfield, Vice President, and by Swirnow as President of Registered Realty). There then occurred a time lapse until the summer and ⁹³ fall of 1970. In August of that year Babs entered into a contract with Cosle Contractors, Inc. to construct the water and sewer facilities for $324,609.00.

In October of 1970, Levitt and Sons, Inc. appeared on the scene for the first time — not directly but through a wholly owned subsidiary, Windward Enterprises, Inc., which purchased the land from Babs by a sales agreement dated October 21, 1970 for $982,600. The obligations of the Cosle Construction Contract were assumed as part of the purchase price. The deed was executed by Swirnow as President of Babs. Paragraph four of the Agreement of Sale between Babs and Windward provided as follows: “Sanitary Facilities Charges — the parties understand that there has been imposed upon the Property certain obligations dealing with charges for water and sewer facilities. . . .

Seller covenants and warrants that, at Buyer’s request, Seller will cause all obligations . . . including, but not limited to, the lien of the sanitary facilities charges, to be released of record or waived in a manner satisfactory to counsel for Buyer on all lots contained in the Property.” Windward did not request and obtain release of the lien of the Sanitary Facilities Charges as above provided prior to settlement and its apparent inability to obtain it after the settlement has resulted in this litigation. The water and sewer facilities were constructed and installed by Cosle and the entire cost was paid by Windward. Appellant, it is conceded, had nothing to do with the construction of the water and sewer facilities and paid no part of the costs. Approximately one year later, on September 23, 1971, Windward conveyed the lots to Levitt.

Scarcely two weeks thereafter, on October 6, 1971, Max Angus Bloom, as President of Sanitary filed among the Land Records of Anne Arundel County a so-called “Declaration” entitled “Schedule of Frontfoot Computations,” which computed the charges on each of the lots. The total charges were $28,500 annually, ⁹⁴ payable annually for thirty years. In March 1973, bills for the first annual assessment were mailed by Sanitary to the purchasers of the Levitt homes and on May 8, 1973 this action was instituted. The bill of complaint sought a declaration that the Sanitary Facilities Charges constituted a cloud upon the plaintiffs’ title and prayed for injunctive relief against their collection.

The bill was accompanied by eleven exhibits together with a motion for summary judgment and a supporting memorandum. Sanitary’s answer substantially admitted the factual allegations of the bill and the authenticity of the exhibits, contesting principally those allegations setting forth plaintiff-appellees’ interpretations of and conclusions from the basic documents. In its answer and in its opposition to the summary judgment motion, defendant-appellant prayed the court to render a decree that the charges are valid and to provide for their enforcement. The critical documents involved in this case are two — the Deed and Agreement between Sanitary and Registered dated April 5, 1968 and the Agreement of Sale between Babs and Windward dated October 21,1970.

(a) The Deed and Agreement This seven page document recites in several whereas clauses that “the developer” (Registered) intends after subdivision of the land to provide the lots with water and sewer pipes in the street, house connections and meters and to enter into an agreement with Anne Arundel County whereby the County would agree not to impose any connection charges and front foot benefit assessments, that the County would provide maintenance after construction and provide also the water to be supplied and used by the individual lot owners and paid for by them as used. The purpose of the Deed and Agreement was stated to be: “. . .to make the covenant and agreement to pay the Sanitary Facilities Charges a covenant and agreement running with and binding upon each lot and upon present and future owners and occupants of the ⁹⁵ same and each of their respective heirs, representatives, successors and assigns. ...” (Emphasis added.) The specific covenants (the recited consideration therefor being $5) include inter alia the following agreements: (1) Each of the lots shall be subject to the Deed and Agreement and annual Sanitary Facilities Charges “representing annual charges for the construction and installation of water and sewer pipes,” and the latter shall constitute a “lien or encumbrance” on the land with respect to which such charges are made. (2) The charges shall begin on January 1 of the second year following conveyance by Registered Realty of the individual lots and continue for thirty years, payable in advance on January 1 of each succeeding year. (3) The charges shall be computed by multiplying $2.20 times the front footage of each individual lot in accordance with a recorded plat of the subdivision.

After the recordation of the subdivision plat, Sanitary shall declare a “Schedule of Front Foot Computations” and “each grantee, it or their successors or assigns, shall be liable for the annual charge” so computed. (4) All charges shall be payable to Sanitary, its successors and assigns, Sanitary being authorized to pledge, assign, hypothecate, mortgage or encumber the revenue. (5) No sale, lease or transfer of the land or the lots subdivided therefrom shall be made otherwise than subject to the aforesaid “covenants, agreements, restrictions, ⁹⁶ conditions and charges,” and the same “shall run with and bind the land . . . the Developer, its successors and assigns and the present and future owners of the land . . . and each of their respective personal representatives, executors, administrators, heirs, and assigns.” (Emphasis added.) (b) Agreement of Sale between Babs and Windward 1 In this thirteen page agreement dated October 21, 1970 Windward agreed, inter alia, to reimburse Babs for the sum of $24,310.68 paid by Babs to Cosle Construction Company for the construction of water and sewer facilities and to assume the payment of Cosle’s water and sewer installation contract in an amount warranted not to exceed $300,298.32. The full text of paragraph four of the agreement is as follows: “Sanitary Facilities Charges — The parties understand that there has been imposed upon the Property certain obligations dealing with charges for water and sewer facilities, as more particularly set forth in a Deed and Agreement dated April 5, 1968, by and between Sanitary Facilities, II, Inc. and Registered Realty, Inc., which deed and agreement has been recorded among the Land Records of Anne Arundel County in Liber MSH 2160, folio 303, a copy of which is attached hereto, made a part hereof and marked ‘Exhibit E’.

Seller covenants and warrants that, at Buyer’s request, Seller will cause all obligations imposed by the terms of Exhibit E, including, but not limited to, the lien of the sanitary facilities charges, to be released of record, or waived in a manner ⁹⁷ satisfactory to counsel for Buyer, on all lots contained in the Property.” Paragraph twelve of the agreement of sale, entitled “Termination,” provided that if Windward defaulted, Babs’ sole remedy was forfeiture of the deposit. Conversely, Windward’s rights were stated as follows: “In the event that Buyer terminates by reason of a right provided herein, or upon the breach by Seller of any warranty or representation contained herein, which breach is discovered by Buyer prior to Closing, all monies paid or deposited, whether in escrow or otherwise, shall be refunded to Buyer immediately, and upon the making of such refund, this Agreement shall terminate and neither party shall thereafter have any rights hereunder against the other.” As previously stated, for reasons not disclosed in the record before us, Windward did not obtain prior to closing the release or waiver of the Sanitary Facilities Charges in accordance with paragraph four above quoted nor in accordance with paragraph 8 (B) of the Agreement of Sale which provided for good title, “except for (i) the Sanitary Facilities Charges Deed and Agreement, unless prior to Closing Buyer has requested Seller to remove such charges as of the date of Closing. . . .” Swirnow in an affidavit in opposition to the appellees’ motion for summary judgment made the following statement: “Had Windward made such a request, there would have been no settlement, and no further liability between the parties, as set forth in paragraph 12 [termination clause above quoted] of said Agreement.” The Swirnow affidavit contains the following additional affirmations pertaining to his version of the facts relating to the charges: (1) He first decided “to arrange for the installation of certain water, sewer and storm drainage facilities rather than have them installed by ⁹⁸ the County, which would thereafter bill the cost of the same to the individual lots over an extended period of time.” (2) Simultaneously, he also concluded it would be “economically feasible and desirable for his operation to impose on each lot, and retain after sale an annuity.” (Emphasis added.) (3) He caused the documents of April 5, 1968, supra, to be prepared and executed to accomplish this purpose and “to leave the right to collect the annuities in a separate company where it [sic] would not be a subject of merger, as a result of later conveyancing.” Furthermore, since Swirnow “controlled all the corporate entities at that time, it was not material which of the companies which he then controlled held the right to collect the charges, and which was the developer, and which had the obligation for, or paid for the costs of installation . . . these were purely internal matters.” (4) Since April 5, 1968, “he has substantially disposed of his ownership in the Defendant corporation, Sanitary Facilities, II, Inc., and is no longer the substantial owner or controller thereof, nor is he an officer.” (5) He never represented to Windward or Levitt . that he had the capacity or authority to release or waive the Sanitary Facilities Charges, nor did Windward request prior to closing that Babs remove the charges, as provided for in paragraph 8 (B). II The Chancellor’s memorandum opinion took note of the “lengthy and learned” memoranda which had been submitted by counsel, in connection with the motion for summary judgment, concerning the legal status and effect ⁹⁹ of the Sanitary Facilities Charges. He found, however, “a quicker way to cut the knot” and held as follows: “About the release of the charges, Swirnow says: ‘Had Windward made such a request, there would have been no settlement.’ Perhaps not.

But, presumably, there would quickly have followed Windward’s short, simple, and successful specific performance suit; that course still appears to be open. Since that has not occurred, the Plaintiffs have standing to require specific performance [citing cases]. Having that standing with relation to the Babs-Windward contract, they also have standing to seek a declaration of their rights under that contract. “Paragraph 4 of the contract requires Babs to secure a release of record of the charges imposed by the Sanitary-Registered Deed and Agreement. Babs has not done so, though Swirnow’s affidavit asserts that ‘it was not material which of the companies which he then controlled held the right to collect the charges.’ Swirnow then argues, by reference, that he had no power to secure the release.

Though he does not say so, his alleged impotence must be supposed to arise from the fact that Babs and Sanitary are separate corporations. “It is true that rarely will a court look behind a corporate veil. But a court of equity will do so without hesitation to prevent fraud or injustice [citing cases]. Failure to pierce the veils here and decree that Swirnow should perform, in a specific performance suit, would allow him to perpetrate a fraud upon the Plaintiffs. It follows that, since this is not a suit for specific performance, the Plaintiffs are entitled to a declaration that the ‘Sanitary Facilities Charges’ allegedly created by the ‘Deed and Agreement’ of 5 April 1968 are null and void.” While he thus avoided one thicket, we apprehend that he became entangled in another.

The limitations on summary ¹⁰⁰ judgment procedure under Rule 610 have been frequently stated by the Court of Appeals. A hearing on the motion is not a substitute for trial but to determine whether a trial is necessary. The purpose of the hearing is not to determine disputed facts but whether a genuine dispute as to any material fact exists. Lipscomb v. Hess, 255 Md. 109 , 257 A. 2d 178 (1969).

If facts are susceptible of more than one inference, the inferences must be drawn in the light most favorable to the person against whom the motion is made and in the light least favorable to the moving party. Lawless v. Merrick, 227 Md. 65 , 175 A. 2d 27 (1961); Howard Cleaners of Baltimore, Inc. v. Perman, 227 Md. 291 , 176 A. 2d 235 (1961); Shaffer v. Lohr, 264 Md. 397 , 287 A. 2d 42 (1972). In this case the narrow holding of the court was that Sanitary was bound by the