Serio v. Baystate Properties, LLC

JAMES A. KENNEY, III (Retired, Specially Assigned), J. On October 29, 2007, Baystate Properties, LLC (“Baystate”), appellee, filed a complaint in the Circuit Court for ⁵⁴⁹ Baltimore County against Vincent Serio, appellant, who is the sole member of Serio Investments, LLC (“Serio Investments”). Baystate sought to hold Serio personally liable for amounts due to Baystate under a contract with Serio Investments. Serio engaged Shanell Harleston as counsel for the litigation, but about eight weeks before the trial date, Harleston notified him of her intent to withdraw as his attorney, which Serio opposed. On July 22, 2009, prior to beginning a bench trial, the circuit court granted Harleston’s motion to withdraw as Serio’s counsel and denied Serio’s subsequent request for a brief continuance.

At the end of the trial, the circuit court entered judgment in favor of Baystate against Serio personally in the amounts of $131,438.34 and $10,380.00. Serio presents the following questions for our review, which we have slightly reworded: 1. Did the circuit court abuse its discretion by granting appellant’s trial counsel’s motion to withdraw as counsel on the day of trial and then denying appellant’s request for a brief continuance to secure new trial counsel? 2. Did the circuit court err by finding Serio personally liable for the debts of Serio Investments, a limited liability company solely owned by Serio, absent a finding of fraud? 3.

Did the circuit court err by not enforcing an express waiver of personal liability, executed by and between Baystate and Serio Investments? For the following reasons, we shall affirm in part and reverse in part the judgment of the circuit court. FACTS AND PROCEEDINGS On December 14, 2006, Timothy Wenzel, Managing Member of Baystate, entered into a contract (the “Agreement”) with Serio, as Managing Member of Serio Investments, to build houses to certain specifications on two lots identified as 1901 and 1903 Hillside Drive (the “Hillside Drive Lots”), which were owned by Serio individually. Serio Investments, identified in the Agreement as “Lender,” was to “provide an escrow account ... from which [Baystate] will receive payments ⁵⁵⁰ according to the agreed upon draw schedule” for its work.

Upon the sale of the improved lots to a third party, Baystate would be paid an additional $25,000 for each house. As work progressed, Wenzel drafted multiple addenda to the Agreement representing changes to the work requested that, in aggregate, obligated Serio Investments to pay Baystate an additional $43,638.33. Each addendum, when first presented by Wenzel, referenced Serio personally, but Serio revised those references and both parties signed the addenda, with Serio signing as the Managing Member of Serio Investments. In June of 2007, Serio presented Wenzel with a handwritten waiver by Baystate and Serio Investments of any claims for personal liability under the Agreement.

Wenzel typed that document and both Wenzel and Serio, on behalf of Baystate and Serio Investments respectively, executed the document. Shortly thereafter, payments to Baystate began to slow. When Wenzel contacted Serio regarding the payments, he was assured that the properties would soon be sold. In fact, the 1901 Hillside Drive Lot had sold on June 29, 2007 for $380,000.00.

The 1903 Hillside Drive Lot was sold on October 11, 2007, but, because the buyers subsequently defaulted on a mortgage, Serio received only approximately $20,000.00 on the sale. According to Baystate, none of the proceeds from the sale of the Hillside Drive Lots were deposited into the Serio Investments account. On October 29, 2007, Baystate filed a complaint against Serio and Serio Investments in the Circuit Court for Baltimore County (Case No.: 03-C-07-012440) (the “Finished Houses case”) for money owed on the Hillside Drive Lots, and an action in the District Court for Baltimore County (Case No.: 03-C-08-3835) (the “Empty Lot case”) to recover for work done on an unimproved lot adjacent to the Hillside Drive Lots. Incidentally, two of Baystate’s subcontractors filed actions against Baystate in the District Court to recover for work done on the finished houses.

Baystate moved to have Builder Services, Inc. v. Baystate Properties, LLC (Case No.: ⁵⁵¹ 080400420382007) and Harford Insulation v. Baystate Properties, LLC (Case No.: 080400372032007) (the “Subcontractor cases”) removed to the circuit court and consolidated with the Finished Houses case. On March 4, 2009, the court granted a Joint Motion to Consolidate the Finished Houses and Empty Lot Cases and set the Finished Houses case along with Empty Lot case and Subcontractors Cases in for trial on July 22, 2009. On July 21, 2009, Serio Investments, LLC filed for bankruptcy under Chapter 7, staying all creditor actions against the LLC. Serio engaged Shanell Harleston and the Harleston Law Firm, LLC, to represent both Serio and Serio Investments in the litigation.

On May 12, 2009, Harleston contacted Serio by letter to inform him that her recent employment with the federal government necessitated the closing of her private practice, and of her intent to withdraw as his attorney in the Baystate litigation. Subsequently, Harleston filed, under Maryland Rule 2-132, a Motion to Withdraw Appearance as Counsel in the Circuit Court for Baltimore County. Because the clerk’s office did not correctly docket that motion, it was not ruled on until the day of the trial. Prior to the beginning of the trial, the circuit court considered Harleston’s motion to withdraw and Serio’s opposition to that motion.

The court concluded that Harleston had fulfilled her obligations to Serio and granted her request to withdraw as counsel. Serio then asked the court for a brief continuance, but the court, finding that Serio was long aware of his need to secure substitute counsel, denied the request. In the court’s view, Serio’s failure to act until the week of trial was unreasonable, and that he would have to proceed pro se. Both parties waived their right to a jury trial, and at the conclusion of the bench trial, the court did not find fraud but, to enforce a paramount equity, held Serio personally liable for the obligations of Serio Investments.

The court entered judgment on July 29, 2009, in favor of Baystate and against Serio individually in the amounts of $131,438.34 for the Finished Houses case and $10,380.00 for the Empty Lot case, exclusive of costs. This timely appeal followed. ⁵⁵² DISCUSSION In this case, we are asked to consider: (1) whether the circuit court abused its discretion in permitting Serio’s counsel to withdraw on the day of the trial without allowing Serio a brief continuance to secure new counsel and, if not, (2) whether the personal liability shield accorded to limit liability companies should have been disregarded and Serio held personally liable for the monies owed to Baystate by Serio Investments’ obligations. Recognizing the deference we owe to the circuit court’s factual determinations, we will discuss these issues in turn. Counsel’s Withdrawal Serio contends (1) that Harleston’s withdrawal violated her ethical duties under the Maryland Rules of Professional Conduct; (2) that the circuit court’s denial of his request for a continuance effectively denied him “a meaningful opportunity to secure new counsel after the Court grants an attorney’s request to withdraw their representation;” and (3) the clerk’s subsequent notification under Rule 2-132, six days after judgment was entered, rendered the Rule “meaningless.” Rule 2-132 governs the striking of an attorney’s appearance and imposes notification obligations on the moving attorney and clerk of the court.

It states, in pertinent part: (b) By motion. When the client has no other attorney of record, an attorney wishing to withdraw an appearance shall file a motion to withdraw. Except when the motion is made in open court, the motion shall be accompanied by the client’s written consent to the withdrawal or the moving attorney’s certificate that notice has been mailed to the client at least five days prior to the filing of the motion, informing the client of the attorney’s intention to move for withdrawal and advising the client to have another attorney enter an appearance or to notify the clerk in writing of the client’s intent to proceed in proper person---- The court may deny the motion if withdrawal of the appearance would cause undue delay, prejudice, or injustice. ⁵⁵³ (c) Notice to employ new attorney. When the appearance of the moving attorney is stricken and the client has no attorney of record and has not mailed written notification to the clerk of an intention to proceed in proper person, the clerk shall mail a notice to the client’s last known address warning that if new counsel has not entered an appearance within 15 days after service of the notice, the absence of counsel will not be grounds for a continuance.

The notice shall also warn the client of the risks of dismissal, judgment by default, and assessment of court costs. (Emphasis added). Rule 2-508(a), which addresses the court’s ability generally to continue a trial or proceeding, states: [O] n motion of any party or on its own initiative, the court may continue a trial or other proceeding as justice may require. (Emphasis added).

The Maryland Rules of Professional Conduct (“MRPC”) establish the ethical duties and obligations of a Maryland attorney. See e.g., Atty. Griev. Comm’n v. Bleecker, 414 Md. 147 , 994 A.2d 928 (2010).

MRPC Rule 1.16 governs an attorney’s termination of representation and states, in relevant part: (c) A lawyer must comply with applicable law requiring notice to or permission of a tribunal when terminating representation. When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating representation. (d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interest, such as giving reasonable notice to client, allowing time for employment of other counsel, surrendering papers and property to which client is entitled.... According to a Comment to MRPC Rule 1.16(c), an attorney should not represent a client in a matter that the attorney cannot perform to completion and has the option to withdraw if withdrawal can be completed without material adverse effect to the client’s interests. ⁵⁵⁴ To grant or deny a motion to withdraw as counsel or a motion for continuance is “in the sound discretion of the trial court.” Das v. Das, 133 Md.App. 1, 31 , 754 A.2d 441 (2000) (quoting Thanos v. Mitchell, 220 Md. 389, 392 , 152 A.2d 833 (1959)).

We review the trial court’s decision for an abuse of discretion and “unless [the] court acts arbitrarily in the exercise of that discretion, [its] action will not be reviewed on appeal.” Id. at 26, 754 A.2d 441 . We will reverse the circuit court only in “exceptional instances where there was prejudicial error.” Thanos, 220 Md. at 392 , 152 A.2d 833 . See also Das, 133 Md.App. at 26 , 754 A.2d 441 . An abuse of discretion occurs “where no reasonable person would take the view adopted by the court” or if the court acts “without reference to any guiding rules or principles.” North v. North, 102 Md.App. 1, 13 , 648 A.2d 1025 (1994).

Harleston complied with the procedural requirements of the Maryland Rules in terminating her representation. To effectuate a withdrawal as counsel, an attorney must mail notice to the client, “informing the client of the attorney’s intention to move for withdrawal and advising the client to have another attorney enter an appearance[.]” Rule 2-132(b). On May 12, 2009, she mailed a letter to Serio informing him that her employment with the federal government would necessitate closing her private practice and withdrawing as counsel. 1 She advised Serio to secure alternate counsel. This letter triggered the five-day notice period required “prior to the filing of the motion [to withdraw.]” Id.

The motion to withdraw as counsel along with a copy of the letter to Serio and a certificate of service indicating that Serio was provided written notice of Harleston’s intent to withdraw was filed with the circuit court on June 9, 2009, over a month after Serio had first been notified of Harleston’s intent to withdraw. ⁵⁵⁵ Serio argues that the circuit court abused its discretion because “the raison d’etre, and common sense import of subsection (c) of the Rule, is to ensure that a litigant is given a meaningful opportunity to secure new counsel after the Court grants an attorney’s request to withdraw their representation.” (Emphasis in original). In his view, a “meaningful opportunity” would be at least 15 days because the clerk’s warning under subsection (c) provides a 15-day window for entry of an appearance by new counsel. Serio cites Renshaw v. State, 25 Md.App. 270, 333 A.2d 363 (1975) and Johnson v. State, 274 Md. 29 , 333 A.2d 37 (1975), for the proposition that “[t]he meaning of the Rule depends upon ‘the reasonable intendment of the language used in light of the purpose to be effectuated])]’ ” Johnson, 274 Md. at 41 , 333 A.2d 37 (quoting Brown v. State, 237 Md. 492, 504 , 207 A.2d 103 (1965)). Both of these cases concern an indigent defendant’s right to counsel in a criminal trial.

Rule 2-132(c) does require the clerk, after an attorney’s appearance is stricken, to notify a litigant for whom there is no attorney of record that, if no counsel’s appearance has been entered in 15 days, the absence of counsel will not be grounds for a continuance. And, except in the case of a “motion ... made in open court,” Rule 2132(b) requires that a motion to withdraw not be filed for “at least five days” after the mailing to the client of the intention to withdraw, but the Rule does not preclude the filing of a motion to withdraw within five days of trial. Thus, we are not persuaded that the Rule mandates a 15-day continuance after an attorney’s appearance is stricken to permit a client without an attorney of record to secure new counsel. Instead, it permits denial of a motion for withdrawal, whenever filed, if withdrawal would cause “undue delay, prejudice, or injustice.” This is consistent with Rule 2-508(a), which provides that a “court may continue a trial ... as justice may require.” (Emphasis added).

Although, subsection (c) does not expressly address what happens when a motion to withdraw is not ruled on until the day of trial, it appears that the granting or denial of both the motion to withdraw and a request for a continuance is in the ⁵⁵⁶ discretion of the court, and is to be exercised in light of the circumstances. This Court, in Das, supra, found that a client who did not act to secure substitute counsel following notification of an attorney’s intent to withdraw is not entitled to a continuance. In that case, a wife initiated an action for absolute divorce against her husband. The attorney, engaged by the husband, later notified the husband of “her impending withdrawal by letter” and “advis[ed] him to ‘immediately obtain alternative counsel and have them enter their appearance.’ ” 133 Md.App. at 24 , 754 A.2d 441 .

The husband did not respond to the attorney’s letter, and after waiting “considerably more than five days,” the attorney filed her motion to withdraw as counsel. Id. at 24-25 , 754 A.2d 441 . The circuit court granted the motion on June 3 and the trial commenced on August 11. When the husband later moved to vacate the entry of default in the divorce action, in which he argued the circuit court acted improperly in granting his attorney’s withdrawal, we held that the husband had “slept on his rights and lost the opportunity to protest [his attorney’s] withdrawal.” Id. at 25 , 754 A.2d 441 .

We said the husband’s argument, “that he lacked the notice he needed to retain new counsel[,] strains credibility,” and the need to employ new counsel came as “no surprise” because of the attorney’s letter and the Court’s Notice to Employ New Counsel. Id. at 26 , 754 A.2d 441 . Moreover, and as the husband admitted in his testimony, he “expect[ed] to be represented by new counsel in this case.” Id. While Das addressed a situation where notice to employ new counsel was issued by the clerk of the court approximately 60 days before trial, the Court’s reasoning provides some guidance in this case.

Serio was notified on February 5, 2009, that the trial date for this case was set for July 22, 2009. On May 1, 2009, Harleston issued an announcement to her clients, including Serio, that she was closing her office. She followed up the announcement with a Rule 2-132 letter to Serio on May 12, 2009, in which she stated her need to withdraw because her employment with the federal govern ⁵⁵⁷ ment prevented her from seeing the litigation to its conclusion, and her health issues undermined her ability to effectively carry out the representation. 2 According to Serio, he attempted to follow up and file an opposition to that motion before the trial date, but did not do so because, as a result of improper docketing, the court did not show the motion as having been filed. But, by Serio’s own admissions, he was aware of the trial date and fully understood Harleston’s intent to withdraw.

In fact, he testified that it was “clear that [Harleston] had no intention of coming [to trial].” Yet, aware of his need to secure counsel and the approaching trial date, Serio did not seek to engage counsel until shortly before trial. 3 The circuit court concluded: I do not find it reasonable that Mr. Serio waited until apparently just recently to contact another lawyer. He’s had all of May, all of June and three weeks in July to have another lawyer get involved in this matter. The circuit court found that Harleston had met the requirements imposed by Rule 2-132(b) and that Serio had had ⁵⁵⁸ adequate time to secure a substitute attorney but be failed to do so. In the court’s view, it was not “reasonable that Mr. Serio waited until apparently just recently to contact another lawyer.

Therefore, to the extent that there might be prejudice to Mr. Serio by proceeding pro se ... it’s his own fault.” Under these circumstances, we are not persuaded that the circuit court’s grant of Harleston’s motion to withdraw and the denial of Serio’s request for a continuance constituted an abuse of discretion. 4 Piercing the Veil of the Limited Liability Company Serio’s second contention is that the circuit court erred in piercing the personal liability shield provided by a limited liability company in the absence of a finding of fraud. He argues, “[cjourts should be very reluctant, and have been reluctant to set aside these [limited liability] entities to achieve some rough notion of fairness absent conduct amounting to fraud.” In appellant’s view, the “underlying claim [is] nothing more than a simple breach of contract claim between two (2) Maryland limited liability companies,” and while the breach may be unfortunate, it is not a basis to hold him personally liable for Serio Investments’ obligations. Section 4A-301 of the Corporations and Associations Article states, “[e]xcept as otherwise provided by this title, no member shall be personally liable for the obligations of the limited liability company, whether arising in contract, tort or otherwise, solely by reason of being a member of the limited liability company.” Our case law has recognized the availability of an action to disregard a limited liability entity congruent ⁵⁵⁹ with the equitable remedy of piercing the corporate veil. See McCleary v. McCleary, 150 Md.App. 448, 458 , 822 A.2d 460 (2002) (reversing the circuit court for improperly “pierc[ing] the LLC’s veil of limited liability” and classifying an entity’s asset as a marital asset of the sole member for the purposes of determining a marital property award based upon the appellant’s sole membership interest in the LLC).

See also Paul Lieberman, West’s Legal Forms: BUSINESS ORGANIZATIONS with Tax Analysis, § 1.8 (3rd ed.2000), which states: In any case in which a party seeks to hold the members of a limited liability company personally responsible for the alleged improper actions of the limited liability company (cf. their own actions), case law which interprets the conditions and circumstances under which stockholders of a corporation are held liable is to be applied, including laws regarding piercing the corporate veil of a corporation.... In any case, members of the limited liability company are not personally liable under a judgment, decree, or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company. In this opinion, we look to case law discussing piercing a corporate veil for instruction. According to the Court of Appeals in Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc., 275 Md. 295 , 340 A.2d 225 (1975): [T]he most frequently enunciated rule in Maryland is that although the courts will, in a proper case, disregard the corporate entity and deal with substance rather than form, as though a corporation did not exist, shareholders generally are not held individually liable for debts or obligations of a corporation except where it is necessary to prevent fraud or enforce a paramount equity.

Id. at 310 , 340 A.2d 225 (citations omitted). This standard has been so narrowly construed that neither this Court nor the Court of Appeals has ultimately “found an equitable interest more important than the state’s interest in limited shareholder ⁵⁶⁰ liability.” 5 Residential Warranty v. Bancroft Homes Greenspring Valley, Inc., 126 Md.App. 294 , 807 n. 13, 728 A.2d 783 (1999) (quoting G. Michael Epperson & Joan M. Canny, The Capital Shareholder’s Ultimate Calamity: Pierced Corporate Veils and Shareholder Liability in the District of Columbia, Maryland, and Virginia, 37 Cath. U.L.Rev. 605, 621 (1988)). See also id. at 309 , 728 A.2d 783 (“Maryland is more restrictive than other jurisdictions in allowing a plaintiff to pierce a corporation’s veil.”).

Piercing the corporate veil is an equitable action. Hildreth v. Tidewater, 378 Md. 724, 735 , 838 A.2d 1204 (2006). In our review, findings of fact decided by the trial court will be upheld unless clearly erroneous, but “the trial court’s balancing of the equities [is reviewed] for an abuse of discretion.” Royal Investment Group, LLC v. Wang, 183 Md.App. 406, 440 , 961 A.2d 665 (2008). According to the trial court, the evidence did not support a finding of fraud, but it was “sufficient to establish a paramount equity” and “that there would be an inequitable result involving fundamental fairness” if the “corporate veil” was not pierced.

In reviewing that finding, the court considered the following: (1) Serio individually owned the Hillside Drive lots