State v. Braverman

ARTHUR, J. Maryland landowners brought a class action against the State, alleging a taking in violation of the Maryland Constitution. After several years of litigation, two motions for summary judgment, and an appellate ruling in a related case, the landowners ultimately prevailed, and the Court of Appeals affirmed the decision in their favor. Upon a request by the landowners’ attorneys, the circuit court ordered the State to pay $5 million in attorneys’ fees. The State appealed.

We reverse. Factual and Procedural History A. Introduction: Ground Leases and the 2007 Modifications to the Ground Lease System This case is the latest chapter in the litigation that grew out of the 2007 legislative modifications to Maryland’s centuries-old system of financing real estate purchases through the use of “ground leases.” See generally State v. Goldberg, 437 Md. 191 , 85 A.3d 231 (2014); Muskin v. State Dep’t of Assessments and Taxation, 422 Md. 544 , 30 A.3d 962 (2011). In very brief summary, a ground lease is a 99-year, perpetually renewable lease, by which an owner rents land to a lessee, who is allowed to use and improve the land much as a typical landowner would. Ground leases are quite common in residential real estate in Baltimore City and have been employed in other areas of the State as well.

Under a ground lease, the lessee agrees to pay a specified amount of yearly rent, as well as taxes and other assessments. If the lessee defaults, the ground-lease owner may become entitled to reenter the property and eject the tenant, terminate the lease, and take possession of the land and any ²⁴⁷ improvements. When the ground-lease owner successfully enforces the right of reentry, the lessees lose any equity that they had accrued. In late 2006, the Baltimore Sun ran a series of articles highlighting what it considered to be grave and unfair abuses by ground rent owners.

Among other things, the articles reported that tenants had been evicted, and had lost all of their equity, after they failed to make ground-rent payments totaling far less than the value of their homes. Galvanized by the articles, the General Assembly unanimously passed two laws that altered the ground-rent system in the 2007 legislative session. Chapter 290 mandated that the lessors record their leases in a central registry upon pain of losing their reversionary interests and having fee-simple title vest in their lessees. Chapter 286, the provision at issue in this case, eliminated an action for ejectment in most cases involving a failure to pay ground rents on residential real estate.

In place of the action for ejectment, Chapter 286 established a lien-and-foreclosure remedy, similar to the remedy for mortgage foreclosures. Under the lien-and-foreclosure remedy, the tenants would not lose their equity if the proceeds of the foreclosure sale exceeded the unpaid rent and the recoverable costs. After the 2007 legislation, the market for ground leases, previously seen as a stable, low-risk investment, dropped drastically. B. The Early Phases of this Litigation On November 1, 2007, William Braverman, Stanley Goldberg, and 47 other plaintiffs filed suit in the Circuit Court for Anne Arundel County to challenge Chapter 286.

After several amendments, their complaint alleged that the legislation resulted in both the physical and regulatory taking of property without just compensation in violation of the federal and State constitutions and that it violated the Contract ²⁴⁸ Clause 1 and the Tenth Amendment of the United States Constitution. 2 The sole defendant was the State of Maryland. The State removed the case to federal court, but the court on its motion exercised its discretion to remand the case to the circuit court. The circuit court rejected the State’s effort to transfer the case to Baltimore City on grounds of improper venue and forum non conveniens. The court did, however, dismiss all claims that alleged a physical taking of property.

In addition, the court certified the case as a class action for purposes of liability, but not damages. 3 After several years of litigation, in September 2010, both parties filed cross-motions for summary judgment. On January 6, 2011, the circuit court denied the motions, stating “that the evidence presents genuine and novel questions of law as to whether Chapter 286 constitutes a taking.” C. The Muskin Decision Meanwhile, a challenge to Chapter 290, the registration provisions of the 2007 legislation, was wending its way through the courts. On October 25, 2010, the Circuit Court for Baltimore City upheld Chapter 290. Exactly one year later, however, a divided Court of Appeals reversed.

Muskin v. State Dep’t of Assessments and Taxation, 422 Md. 544, 554 , 30 A.3d 962 (2011). In a 5-2 decision, the Muskin Court held that, by extinguishing ground rents and transferring title to lessees as a penalty for the failure to record ground leases, the legislation abrogated vested rights and took private property without just compensation in violation of the Maryland Consti ²⁴⁹ tution. Id. at 553 , 30 A.3d 962 ; id. at 560 , 30 A.3d 962 ; id. at 563 , 30 A.3d 962 ; id. at 565 , 30 A.3d 962 . 4 Judge Adkins, joined by former Chief Judge Bell, dissented. Id. at 568 , 30 A.3d 962 (Adkins, J., dissenting).

Muskin did not directly concern Chapter 286 and its replacement of the right of reentry with the lien-and-foreclosure remedy. Nonetheless, in reaching its decision, the Muskin majority implied that the owner of a ground lease had a vested right in the right of reentry. For example, the Court stated: “A ground lease creates a bundle of vested rights for the ground rent owner, a contractual right to receive ground rent payments and the reversionary interest to re-enter the property in the event of a default or if the leaseholder fails to renew.” Muskin, 422 Md. at 559 , 30 A.3d 962 (emphasis added). The Court added: “These two rights cannot he separated from the other, together they are the essence of this unique property interest, and as such, vested rights analysis must consider them together.” Id. at 559-60, 30 A.3d 962 (emphasis added).

On the other hand, the Muskin Court recognized “an exception” to the “general prohibition” against abrogating vested rights. Id. at 561 , 30 A.3d 962 . The exception, wrote the Court, “applies solely to remedies and rules of evidence.” Id. Under the exception, “the Legislature has the power to alter the rules of evidence and remedies, which in turn allows statutes of limitations and evidentiary statutes to affect vested property rights.” Id.

(citations omitted). In short, Muskin did not clearly decide the question of whether the General Assembly had impermissibly deprived ground-lease owners of a vested right, or whether it had merely altered the applicable remedies, when it substituted the lien-and-foreclosure remedy for the right of reentry that was implemented through an action for ejectment. ²⁵⁰ D. Summary Judgment and Affirmance on Appeal Immediately after the Muskin decision, the plaintiffs in this case renewed their motion for partial summary judgment on the claim that Chapter 286 violated the Maryland Constitution by abrogating their vested right to reenter the leased property in case of a default. On December 20, 2011, the circuit court granted their motion. After the grant of summary judgment on the State constitutional claims, the plaintiffs secured a final judgment by having the court dismiss all remaining claims, including any individual claims for damages by the two named plaintiffs, on mootness grounds.

The State appealed, and a divided Court of Appeals affirmed. State v. Goldberg, 437 Md. 191, 199 , 85 A.3d 231 (2014). In reaching its decision, the Goldberg majority rejected the State’s contention that Chapter 286 abrogated no vested rights, but simply substituted the new lien-and-foreclosure for the previous remedy of ejectment, which facilitated the right of reentry. Instead, the majority held that the legislation unconstitutionally impinged upon a vested right to reenter the leased premises and to terminate the lease.

Id. at 216-17 , 85 A.3d 231 . Two judges dissented. Id. at 217 , 85 A.3d 231 (Adkins, J., dissenting); id. at 227 , 85 A.3d 231 (Watts, J., dissenting). On remand, the State agreed not to enforce the unconstitutional statute.

The court awarded no damages. E. The Fee Award Class counsel represented the class on a contingent-fee basis, under which no fee would be due or payable unless the action were successful. The fee agreement did not identify a percentage of any recovery that would accrue to counsel in the event of settlement, trial, or appeal. See Md. Lawyers’ R. of Profl Conduct 1.5(c).

Instead, counsel agreed that if the lawsuit were certified as a class action (as it was), they would “apply to the court for any success fee.” ²⁵¹ In response to the Court of Appeals’ decision in Goldberg , the plaintiffs filed a fee petition in the circuit court. In the petition, class counsel requested over $5,560,000.00 in fees, $109,925.45 in costs, and a “fee multiplier” of 1.5 times the fee award, or more than $2,780,000.00, because of the undesirability of the representation, the State’s refusal to resolve the case, and the amount of value restored to the class. 5 After an evidentiary hearing, the circuit court ordered the State to pay $5 million in fees. In reaching that decision, the court employed a number of theories: 42 U.S.C. § 1988 , which authorizes an award of attorneys’ fees in an action to enforce the provisions of a number of federal statutes; the common-fund doctrine, under which class counsel may receive a fee from the monetary recovery that they generate for the class; Md.Code (1974,2015 Repl.Vol.), § 12-106 of the Real Property Article (“RP”), which allows a court to award reasonable legal fees that a prevailing “defendant” has “actually incurred” in a condemnation action; and Md. Rule 1-341, which allows a court to award the “reasonable expenses, including reasonable attorneys’ fees,” that a party has “incurred” because the opposing party has maintained or defended a case in bad faith or without substantial justification. The State appealed.

Question Presented This case boils down to one question: Did the circuit court err in concluding that attorneys’ fees were authorized in this case? We answer this question in the affirmative. The circuit court had no legal authority to award any amount of attorney’s ²⁵² fees. We reverse. 6 The Circuit Court Had No Authority to Award Fees A. Attorneys’ Fees “We generally adhere to the ‘American Rule,’ in which each party is responsible for its own legal fees, regardless of who wins in the litigation.” Henriquez v. Henriquez, 413 Md. 287, 294 , 992 A.2d 446 (2010) (footnote and citations omitted).

Exceptions are available only by contract, by statute or court rule, or (in rare instances) under a well-established common-law principle. See Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435 , 445 & n. 3, 952 A.2d 275 (2008). 7 The circuit court premised its award of fees on four legal grounds. The applicability of those grounds is a question of law, which we review on a de novo basis. See Barufaldi v. Ocean City, Maryland Chamber of Commerce, 206 Md.App. 282, 295-96 , 47 A.3d 1097 (2012).

To the limited extent to which the award depends on factual findings, we review the decision for clear error. See Inlet Assocs. v. Harrison Inn Inlet, Inc., 324 Md. 254, 267 , 596 A.2d 1049 (1991) (concerning Rule 1-341). ²⁵³ B. 42 U.S.C. § 1988 42 U.S.C. § 1988 allows the court to award attorney’s fees to the prevailing party in: any action or proceeding to enforce a provision of sections 1981, 1981a, 1982, 1983, 1985, and 1986 of [title 42], title IX of Public Law 92-318 [ 20 U.S.C.A. § 1681 et seq.], the Religious Freedom Restoration Act of 1993 [42 U.S.C.A. § 2000bb et seq.], the Religious Land Use and Institutionalized Persons Act of 2000 [42 U.S.C.A. § 2000cc et seq.], title VI of the Civil Rights Act of 1964 [42 U.S.C.A. § 2000d et seq.], or section 13981 of [title 42]. 42 U.S.C. § 1988 (b). The circuit court concluded that the plaintiffs were entitled to an award of fees under § 1988 because, it said, they had brought a “substantial claim” under 42 U.S.C. § 1983 . To the contrary, the plaintiffs neither alleged nor could have alleged a § 1983 claim against the State of Maryland.

Section 1983 provides, in pertinent part, as follows: Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress____ Although the plaintiffs alleged that Chapter 286 violated the federal Constitution in several respects, they did not expressly or even implicitly set forth a claim for relief under § 1983— i.e., a claim that a “person” acting “under color of’ Maryland law had deprived them “of any rights, privileges, or immunities secured by the Constitution and laws” of the United States. More important, the plaintiffs had no viable § 1983 claim against the sole named defendant in the case — the State of Maryland — because the United States Supreme Court has held that a State is not a “person” under § 1983. Will v. Michigan Dep’t of State Police, 491 U.S. 58, 71 , 109 S.Ct. 2304 , 105 L.Ed.2d 45 (1989). ²⁵⁴ Had the plaintiffs asserted § 1988 claims against the State officials who administered Chapter 286, they might have obtained a different result. See, e.g., Hafer v. Melo, 502 U.S. 21, 23 , 112 S.Ct. 358 , 116 L.Ed.2d 301 (1991) (holding that “state officials sued in their individual capacities are ‘persons’ for purposes of § 1983”).

If a plaintiff raises alternative grounds for relief under § 1983 and state law, but the court rules in the plaintiffs favor only on state-law grounds, the plaintiff is ordinarily entitled to attorneys’ fees as long as “the § 1983 ground was substantial and grew out of the same facts.” Cnty. Exec. of Prince George’s Cnty. v. Doe, 300 Md. 445, 456 , 479 A.2d 352 (1984); accord Maryland Green Party v. State Bd. of Elections, 165 Md.App. 113, 125 , 884 A.2d 789 (2005). We must, however, decide the case not on the basis of what the plaintiffs might have done, but on the basis of what they actually did. The plaintiffs named one and only one defendant — the State of Maryland.

The State is not a “person” within the meaning of § 1983. As a matter of law, therefore, the circuit court had no authority to award fees against the State under § 1988. 8 C. The Common-Fund Doctrine Under the “common-fund doctrine,” class counsel are paid out of the monetary recovery that they generate for ²⁵⁵ the class. See, e.g., Hess Constr. Co. v. Bd. of Educ. of Prince George’s County, 341 Md. 155, 166 , 669 A.2d 1352 (1996) (stating that an equity court has “the power to direct payment of counsel fees out of a fund that has been created by the efforts of counsel”); Bowling v. Brown, 57 Md.App. 248, 268 , 469 A.2d 896 (1984) (allowing fees “where a common fund, benefitting the public, has been created as a result of litigation”).

The circuit court employed the common-fund doctrine to support its award of fees to class counsel. The court erred, because the common-fund doctrine does not apply in this case for at least two reasons. First, by definition, the common-fund doctrine requires a fund. In this case, however, the judgment resulted in the invalidation of the statute, but not in any actual monetary recovery or fund.

Second, the common-fund doctrine envisions that the class members themselves will pay class counsel out of the recovery that they receive. In this case, however, the court ordered the State, and not the class members, to pay class counsel’s fees. The circuit court erred in employing the common-fund doctrine in a case that generated no common fund and in ordering payment from outside a common fund. The circuit court itself recognized that “no common-fund has actually been created.” Nonetheless, the court reasoned that class counsel had “restored” an estimated $60 million in value to Maryland landowners.

On the premise that it would be “impractical to seek reimbursement from the class,” the court ordered the State to pay $5 million in fees. In that aspect of its decision, the circuit court relied on Brewer v. School Bd. of Norfolk, 456 F.2d 943 (4th Cir.1972), which employed what that court called “a quasi-application of the ‘common fund’ doctrine.” Id. at 951. In Brewer, the plaintiffs had secured free busing to facilitate an earlier desegregation order against the school board. Although the order yielded a pecuniary benefit to the students, the court recognized that it did not generate a common fund or result in a monetary recovery.

Id. Nonetheless, because the “basic ²⁵⁶ purpose” of the order was “to secure transportation without cost or deduction,” the court required the school board to pay the students’ attorneys’ fees. Id. at 952 (emphasis in original). Brewer is of questionable viability in 2016.

Brewer was decided at a time when federal courts were devising federal common-law theories to compensate prevailing parties for the attorneys’ fees that they incurred in civil rights cases and other litigation against governments and governmental officials. The Supreme Court put an end to those efforts in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 269 , 95 S.Ct. 1612 , 44 L.Ed.2d 141 (1975), when it held that federal law recognizes only statutory exceptions to the American Rule. “[CJourts,” the Supreme Court wrote, “are not free to fashion drastic new rules with respect to the allowance of attorneys’ fees to the prevailing party in federal litigation or to pick and choose among plaintiffs and the statutes under which they sue and to award fees in some cases but not in others, depending upon the courts’ assessment of the importance of the public policies involved in particular cases.” Id. 9 In light of Alyeska, it appears that the Brewer court overstepped its authority. We would likewise overstep our authority by extending Maryland’s common-fund doctrine to a situation without a fund. Applying the common-fund doctrine where there is no fund is not just uncommon; it is unheard of in Maryland (or anywhere else within the last 44 years).

We do not start today. 10 ²⁵⁷ The intangible value restored to the class is not a “fund.” But even if it were, the common-fund doctrine would only allow an award of fees off the top of the fund, not on top of it. By reducing the class members’ recovery, the doctrine allocates costs between the class and its counsel. It does not allocate costs between the respective parties. Class counsel cannot use the common-fund doctrine to collect fees out of nothing.

Nor can the class employ the common-fund doctrine to require its adversary to pay the class counsel. As a matter of law, therefore, the circuit court erred in relying on the common-fund doctrine to support the award of fees in this case. D. Section 12-106 of the Real Property Article Subtitle 1 of Title 12 of the Real Property Article contains the general rules for eminent domain proceedings. Section 12-106(a) states that in those proceedings u[t]he plaintiff shall pay all the costs in the trial court.” (Emphasis added.) Section 12-106(b) states that “[t]he costs in a condemnation proceeding include ...

(5) [a]n allowance to the defendant, as fixed by the court, for the reasonable legal, appraisal, and engineering fees actually incurred by the defendant because of the condemnation proceeding, if the judgment is for the defendant on the right to condemn.” (Emphasis added.) In plain English, § 12-106(b)(5) compels the court to shift the costs of a condemnation proceeding from the defendant to the plaintiff. (Emphasis added.) Despite the plain language of § 12-106(b)(5), however, the circuit court concluded that the statute authorized an award of fees to the plaintiffs from the defendant. The circuit court’s interpretation is untenable. Nothing about this statute is ambiguous, debatable, or open to interpretation. “Defendant” does not mean “plaintiff,” and ²⁵⁸ “plaintiff’ does not mean “defendant.” Unless words are to become untethered from all meaning, § 12 — 106(b)(5) cannot be read to authorize a court to require the State, as the defendant, to pay the plaintiffs’ attorneys’ fees.

Section 12-106 envisions an award of fees to the defendant because it applies in a proceeding in which the State, or one of its instrumentalities or political subdivisions, exercises the right to acquire “private property for public use by condemnation” (RP § 12-101) in accordance with the rules governing “actions for acquisition of property by condemnation under the power of eminent domain” (Md. Rule 12-201(a)) in Title 12, Chapter 200, of the Maryland Rules. In those proceedings, the State is the plaintiff; the property owner, whose private property is taken