Shah v. HealthPlus, Inc.

THIEME, Judge. This is an appeal from an order of the Circuit Court for Prince George’s County dismissing appellant’s third amended complaint. For the reasons set forth herein, we shall vacate the judgment of the lower court and remand for further proceedings. ³³⁰ FACTS On 7 November 1974, a group of physicians formed the Prince George’s County Health Services Foundation, Inc., as a nonprofit, non-stock, individual practice association (“IPA”). Each physician initially contributed a minimum of $500 to capitalize the IPA and, as a result thereof, attained the status of a “participating member.” Under the bylaws of the IPA, this status was conferred indefinitely, subject to termination for good cause.

Simultaneously, the members of the IPA also formed HealthPlus, Inc., a health maintenance organization, to provide marketing and other integral administrative support to the IPA. The operations of the two entities were so intertwined that they could be viewed as one and the same. In April of 1984, the Board of Directors of the IPA (“the Board”) voted to convert the IPA into a for-profit, stock corporation. Correspondence dated 28 September 1984 was sent to the members, indicating that each would be issued stock subsequent to the return of enclosed shareholders’ and physicians’ (or specialists’) agreements.

Appellants make numerous contentions with respect to this letter. Some allege that it was received. Some contend that it was not received. Others allege that the letter was received without enclosure; still others contend that the letter was received and the enclosed documents were executed and returned, despite appellees’ claims that they were never received.

In 1992, HealthPlus made a tender offer to purchase the outstanding stock of the IPA members. Appellants, learning of this offer, ejected to receive distributions accordingly. When no payments were received, Dr. Gita Shah wrote the IPA, therein documenting her membership, and demanded payment for her proportional share. Return correspondence to Dr. Shah indicated that there was no record of her returning the shareholders’ agreement in 1984.

Consequently, Shah had never been issued any stock and no longer had a membership interest in the IPA entitling her to any distribution. Other members, when made aware of Dr. Shah’s experi ³³¹ ence, also demanded that the IPA “make good” on the tender offer. Each received a letter similar to that received by Dr. Shah. A complaint was filed in the Circuit Court for Prince George’s County.

During the course of discovery, the complaint was twice amended. The court granted appellees’ motion to dismiss appellants’ third amended complaint. In lodging its timely noted appeal from that judgment, appellants propound the following issues for this Court’s adjudication: 1. Whether appellants, members of the nonstock, nonprofit corporation, Prince George’s Health Services Foundation, Inc., had property interests in that corporation. 2.

Whether the Board of Directors of the IPA owed legal duty to protect appellants’ property interests when the IPA converted from a non-stock, nonprofit corporation into a for-profit, stock corporation. 3. Whether the Board of Directors of the IPA breached the legal duties it owed to appellants by initially failing to, and later refusing to, issue to appellants stock in the new for-profit corporation, notwithstanding the fact that other members had received such stock. 4. Whether appellants’ claims against appellees are barred by the statute of limitations. 5. Whether the motions court erred in dismissing appellants’ third amended complaint.

We shall answer “No” to question four and “Yes” to question five, and, accordingly, vacate the lower court’s order of dismissal without reaching the merits of the other issues posed. DISCUSSION We recently stated in Warner v. Lerner, 115 Md.App. 428, 431 , 693 A.2d 394 (1997): ³³² Upon [an] appeal from the granting of a motion to dismiss filed under Maryland Rule 2-322(b)(2), an appellate court must assume the truth of all well-pleaded relevant and material facts in the complaint, as well as all inferences that can reasonably be drawn therefrom. Odyniec v. Scheider [Schneider], 322 Md. 520, 525 [ 588 A.2d 786 ] (1991). Dismissal is proper only if the alleged facts and permissible inferences, so viewed, would nonetheless fail to afford relief to the plaintiff if proven.

Morris v. Osmose Wood Preserving, 340 Md. 519, 531 , 667 A.2d 624 (1995); Faya v. Almarez [Almaraz], 329 Md. 435, 443 [ 620 A.2d 327 ] (1993). 115 Md.App. at 431-32 , 693 A.2d at 395 . Thus, when reviewing an original pleading, we cannot sustain its dismissal if the facts therein set forth present, on their face, a legally sufficient cause of action. Paragraph 27 of appellants’ third amended complaint states that “plaintiffs learned for the first time in 1992 and 1993 that their ownership interests had been extinguished due to their alleged failure to return the shareholder’s agreement—an agreement of which they were unaware.” (Emphasis supplied.) Assuming this statement to be true under the Warner standard, and under the discovery rule and duty to inquire, discussed infra, limitations did not begin in the action underlying this appeal until 1992. The trial court, in its memorandum opinion and order, stated: “[T]hat these plaintiffs had actual knowledge that [the] IPA had converted to a stock corporation and of their option to take stock in the corporation.

Further, they had actual knowledge of the necessity to sign and return a “shareholders agreement” in order to be issued a stock certificate. Therefore, any cause of action to be recognized as stockholders accrued at the time the defendant failed to provide the requisite shareholders agreement and issue a stock certificate. We hold that the three year statutory period mandated by § 5-101 of the Courts and Judicial Proceedings article began to run in 1984.” ³³³ The trial court’s order of dismissal improperly and erroneously made a factual determination on the merits, inasmuch as at that stage of the litigation such an adjudication was inappropriate. Although Maryland Rule 2-322(c) permits the disposition of a motion to dismiss, within whose adjudication the court consults matters outside the pleadings, to be treated as one for summary judgment, pursuant to Maryland Rule 2-501, the trial judge clearly ruled on the motion to dismiss appellants’ claims.

The dismissal resolved factually facial disputes raised within the four corners of the complaint despite the fact that until 1992 appellants specifically claimed a lack of knowledge as to the deprivation of their interests in the IPA. And while the record does not suggest that the lower court relied on any extrinsic material in reaching its conclusion, its findings not only went beyond and contravened the allegations of the complaint, but also deprived the parties of their day in court to litigate contested matters. Not only is this strictly prohibited on a procedural basis, but it is also contrary to the very notions of our system of justice. We accordingly hold that the trial court committed reversible error by dismissing appellants’ third amended complaint.

Statute of Limitations Normally, appellate adjudication of the propriety of a motion to dismiss is limited to just that. Looking beyond that issue in the case sub judice, a question of both law and fact was superfluously answered by the trial court. As an instructive matter, we think it incumbent upon this Court to comment on the resolution of that issue so as “to guide the trial court or to avoid the expense and delay of another appeal.” Maryland Rule 8-131(a). And while an adjudication on the merits has not yet occurred, we shall nonetheless discuss that issue, confining ourselves to those matters relied upon by the lower court in its memorandum opinion.

Assuming the factual conclusion of the lower court to be correct, the analysis set forth herein is for the edification of all concerned parties. If during litigation alternative conclusions are made, our discussion will only apply to the extent that the facts warrant. ³³⁴ The circuit court’s dismissal of appellants’ case was largely-predicated upon the expiration of the statute of limitations. Appellants’ demand for relief, as stated in paragraph 34 of their third amended complaint, states: Plaintiffs request the court to enter judgment in favor of plaintiffs and against defendant for the amount of money which was due plaintiffs] for any dividends or other distributions of profit and or capital. Plaintiffs further request that the court enter an order: (a) declaring that plaintiffs are shareholders of defendant corporations with all the rights and privileges of shareholders; (b) directing that all records pertaining to plaintiffs’ status as members of defendant corporations be corrected to reflect that plaintiffs have full rights as shareholders; (c) directing that all necessary documents pertaining to the plaintiffs’ status as shareholders^] including any shareholders’ agreements, stock certificates, or stock registers[,] be accomplished (sic) to reflect plaintiffs’ status as shareholders; (d) ordering other and further relief as may be deemed appropriate in order to provide plaintiffs full and complete relief.

Irrespective of the fact that only injunctive relief is demanded by appellants, an accounting is the only vehicle by which the relief prayed for can be attained. Although to date no Maryland court has decided the issue of the nature of an accounting action in the context of the timeliness of the commencement of suit therefor, “it seems clear than an action seeking an accounting is an action in equity.” In re Peebles’ Estate, 27 Cal.App.3d 163 , 103 Cal.Rptr. 560, 562 (1972) (citations omitted). See also, Chambers v. Blickle Ford Sales, Inc., 313 F.2d 252, 259 (2nd Cir.1963) (because action against directors for accounting is equitable, tort statute of limitations inapplicable); Sialkot Importing Corp. v. Berlin, 295 N.Y. 482 , 68 N.E.2d 501, 503 (1946) (procedures governing equitable actions apply to an action for an accounting); Trinity Co-op. ³³⁵ Apts., Inc. v. J.S. Bldg. Corp., 25 A.D.2d 891 , 270 N.Y.S.2d 644, 645 (1966) (action for accounting damages and other relief was in equity); Lester v. Ennis, 25 Misc.2d 334 , 202 N.Y.S.2d 878, 881 (NY.Sup.1960) (an action for an accounting is equitable in nature); In re McCabe’s Estate, 80 Cal.App.2d 828 , 188 P.2d 72 , 75 (1947) (proceeding for accounting is equitable in nature); but see Belcher v. Birmingham, Trust Nat.

Bank, 348 F.Supp. 61 (N.D.Ala.1968) (in action against fiduciaries to both corporation and shareholders for salaries wrongfully paid, traditional standard of limitations apply under Alabama law). We shall therefore view appellants’ elaim as one for an accounting, and apply the law of equity in our resolution of the case sub judice insofar as it relates to limitations. Alleco, Inc. v. Harry & Jeanette Weinberg Foundation, Inc., 340 Md. 176 , 198 n. 6, 665 A.2d 1038 (1995) (an action for an accounting is equitable); Adams v. Coates, 331 Md. 1, 10 , 626 A.2d 36 (1993); Mervis v. Duke, 175 Md. 300, 305 , 2 A.2d 11 (1938). In the most recent case on point, Santa Claus Industries, Inc. v. First National Bank of Chicago, 216 Ill.App.3d 231 , 159 Ill.Dec. 657 , 576 N.E.2d 326 (1991), the Illinois appellate court held that “an accounting action ... sounds in both law and equity, thereby invoking the applicability of the defense of limitations.” Id. 159 Ill.Dec. at 660 , 576 N.E.2d at 329 .

Santa Claus involved an assignor’s action for an accounting and for fraudulent concealment against an assignee bank. The allegation of fraudulent concealment is clearly an action at law, thus explaining the dual characterization of the case applied by the Illinois bench and distinguishing that case from the one sub judice. Guided by prudence in the apportionment of the label of “law and equity” insofar as it relates to Santa CIoms, we believe that while the portion of the action seeking an accounting is of an equitable nature and, in and of itself, is not subject to a defense of limitations, when coupled with the portion charging fraudulent concealment, an action to which limitations is applicable, the entire suit must comply with the civil procedures applicable to the more restrictive of the two counts in terms of limitations. Speculatively expanding on Justice Campbell’s opinion in this case, we think it likely that had the ³³⁶ legal claim not been joined to the accounting claim the statute of limitations would not have governed.

Because the 3-year statute of limitations set forth in Courts and Judicial Proceedings § 5-101 solely applies to actions “at law,” we hold that the trial court erred in dismissing appellants’ complaint, inasmuch as the accounting demanded by appellants was equitable in nature. We think it necessary to impart guidance to the lower court inasmuch as a conclusion as to appellants’ acquisition of actual knowledge was subsumed in its original order of dismissal. In light of our holding above, as well as the trial court’s collateral finding concerning the accrual of appellants’ knowledge, a defense of laches will likely be generated by HealthPlus on remand. As a further basis for our continued analysis in this regard, we wish to preclude any future potentially erroneous interposition by the trial court of its earlier determination with respect to appellants’ knowledge.

Under the equitable doctrine of laches, a lack of diligence on the part of a party who fails to assert his rights may result in his being equitably precluded from later asserting these same rights if the opposing party has incurred prejudice or injury. 1 Staley v. Staley, 251 Md. 701 , 248 A.2d 655 (1968). The assertion of laches as an affirmative defense to an equitable action must be evaluated on a case by case basis. Schaeffer v. Anne Arundel County, 338 Md. 75 , 656 A.2d 751 (1995); LaValley v. Rock Point, 104 Md.App. 123, 130 , 655 A.2d 60 , cert. denied, 339 Md. 354 , 663 A.2d 72 (1995). Coupled with a showing of prejudice and unnecessary delay by the party raising the defense, laches is appropriate when one fails to act with due diligence in the pursuit and enforcement of his rights.

Hill v. State, 86 Md.App. 30 , 585 A.2d 252 (1991). ³³⁷ In Jaworski v. Jaworski, 202 Md. 1 , 95 A.2d 95 (1953), the Court of Appeals held that, prior to the filing of a complaint for declaratory relief, continuous efforts by parties to an action toward the resolution of a controversy existing between them did not amount to a defense of laches. In Jaworski , the defendants, a brother and sister, were aware that the plaintiff, another brother, was erecting a home on land that had been bequeathed collectively to the parties by their deceased father, but had not yet been divided among them. But for ongoing “continuous efforts” by the parties to adjust their differences, laches might have been appropriate. With regard to laches, Judge Hammond, writing for the Court, espoused: “He who is silent when he ought to have spoken, will not be heard to speak when he ought be silent.” Jaworski, 202 Md. at 10 , 95 A.2d 95 .

Similar to the fashion in which “the statute of limitations begins to run when the potential plaintiff is on ‘inquiry notice’ of such facts and circumstances that would ‘prompt a reasonable person to inquire further,’ ” Doe v. Archdiocese of Washington, 114 Md.App. 169, 188 , 689 A.2d 634 (1997), delay relates to and is often a determinative factor in laches. Given the similarity of the two terms with regard to their respective applications, it is plausible to interchange them for the purposes of our discussion, bearing in mind that the employment of the term “statute of limitations” in this regard is purely as a term of art and for purposes of explanation only. 2 Shah takes the position that the statute of limitations did not begin to run until 1992, when appellants acquired actual knowledge of the alleged wrong, that their previously held membership interests in the IPA had been extinguished ³³⁸ in consequence of the failure to return the shareholders’ and physicians’ agreements. When a question arises as to the commencement of the statute of limitations in a given action, a judicial inquiry must be made to determine legally and factually the date upon which the suit accrued. Poffenberger v. Risser, 290 Md. 631, 633-34 , 431 A.2d 677 (1981).

The Poffenberger Court, referring to Harig v. Johns-Manville Products, 284 Md. 70, 83 , 394 A.2d 299 (1978), acknowledged that “plaintiffs may, in appropriate circumstances, ‘be blamelessly ignorant’ of the fact that a tort has occurred and thus, ought not be charged with slumbering on rights they were unable to ascertain.” Poffenberger, 290 Md. at 635 , 431 A.2d 677 . Some eighty years ago, in Hahn v. Claybrook, 130 Md. 179 , 100 A. 83 (1917), the Court of Appeals pointed out that it was realized that notwithstanding the employment of due diligence, not every claim, particularly medical malpractice claims, can be discovered within the applicable period of limitations. Thus, under the then newly formulated “discovery rule,” the cause of action accrues when the plaintiff knows, or reasonably should have known of the wrong. Poffenberger, 290 Md. at 634-35 , 431 A.2d 677 .

This rule has been held to now be generally