Thacker v. Hale

ADKINS, Judge. The issue before us is whether a court has revisory power under Md. Rule 2-535(b) to strike a clause allowing a wife to accelerate the balance due on an installment monetary award in the event that the husband misses an installment. The Circuit Court for Baltimore County concluded that Maryland law does not authorize such acceleration, and that the acceleration provision in the 1989 divorce judgment of Sheila F. Thacker, appellant, and Edwin F. Hale, Sr., appellee, was either an “irregularity” subject to revision under Md. Rule 2-535(b), or an unenforceable “nullity.” Thacker challenges the circuit court’s order striking the acceleration clause from the judgment, presenting two questions for our review: I. Did the trial court err in striking the acceleration clause from the judgment on the ground that it was either an “irregularity” or “mistake” within the mean ²¹⁰ ing of Md. Rule 2-535(b), or an unenforceable “nullity”?

II

Did the circuit court err in holding that the acceleration clause in the parties’ 1989 divorce judgment was an unenforceable penalty that altered the amount and method of payment of the monetary award in that judgment? We shall not resolve the second issue, because we conclude that, even if the acceleration clause was an impermissible penalty, the circuit court did not have revisory power to strike it twelve years after the divorce judgment became enrolled. FACTS AND LEGAL PROCEEDINGS On November 17, 1988, the Circuit Court for Baltimore County entered a final judgment dissolving the marriage of Thacker and Hale. The judgment included a $3,932,752 monetary award to Thacker.

In paragraph 11(c), the court directed Hale to pay Thacker $3,000,000 of this award in annual installments of $200,000.00 per year during the first ten years immediately following the date of this Judgment and $100,000.00 per year for the next succeeding ten years, with the first such payment to be made on December 31,1989 and subsequent payments thereafter to be made on the last day of each and every succeeding year until the $3,000,000.00 balance is paid in full[.] Under paragraph 11(d), Thacker had the right to accelerate the balance due on the monetary award if Hale failed to make any of the scheduled payments. In the event of [Hale’s] default in making any of the above payments when due on account of this monetary award, at [Thacker’s] election, the entire balance outstanding on account of the aforesaid monetary award shall become immediately due and payable by [Hale] to [Thacker][.] We shall refer to this as the “acceleration clause.” Hale immediately moved to alter or amend the judgment, but his motion did not contest the acceleration clause. The court partially granted that motion, and reduced, inter alia, ²¹¹ the total amount of the monetary award. It then revised the terms of Hale’s payment obligation as follows: [Pjaragraph (11) of the aforesaid Judgment dated November 17, 1988 is amended to reduce the monetary award granted in favor of [Thacker] to be paid by [Hale] to the sum of $3,657,752.00, said sum to be payable as provided in paragraph (11) of the aforesaid Judgment dated November 17, 1988, with the exception of sub-paragraph (c), which ... is hereby deleted and substituted in lieu thereof is the following new sub-paragraph (c), namely: “(c) The $2,725,000.00 balance of the monetary award shall be paid by [Hale] to [Thacker] in annual installments of $136,250.00 per year during the 20 years immediately following the date of this Amendment to Judgment, with the first such payment to be made on December 31, 1989, and subsequent payments thereafter to be made on the last day of each and every next succeeding year until the $2,725,000.00 balance is paid in full[.]” The court explicitly “ratified and confirmed” all other provisions of the November 17 judgment, including the acceleration clause in paragraph 11(d).

The court entered the amended judgment on December 16, 1988. Thacker then moved to alter or amend the December 16 judgment. She specifically asked the court to enhance her option to accelerate the balance due on the monetary award in the event that Hale’s “assets do become liquidated.” In doing so, she noted that “[t]he Amendment to Judgment made no provision for accelerated payment except in the event of [Hale’s] default in making any [installment] payments [on the monetary award] when due.” Hale filed a written opposition to Thacker’s motion, arguing that the December 16 amendment “only changed the figures in the payment schedule, not the basic design or character of that schedule, which as ordered by this Court has never called for accelerated payments except in the event of default.” The court denied Thacker’s motion, explaining that “through the provisions of paragraph (11) of the Judgment and Amendment to Judgment ²¹² ... specifically including sub-paragraph (d) of paragraph (11), ____the current provisions of the Judgment ... and other available protections of law are sufficient to insure the payment of the monetary award herein made.... ” Neither Thacker nor Hale appealed the judgment, which became enrolled thirty days later. We shall refer to this enrolled judgment as the “1989 divorce judgment.” Nearly twelve years later, on November 27, 2000, Thacker filed a motion to accelerate the entire unpaid balance of the monetary award, which she alleged was $1,271,666.45.

She asserted that Hale had never made any of the annual payments by the December 31 deadline established in the judgment. Instead, she claimed, Hale made partial payments spread out as late as the May following the December 31 payment date. She set out the exact dates and amounts of Hale’s payments on the monetary award. “As to the $136,250 installment that was due on December 31, 1999, Mr. Hale has made two partial payments to date of $45,416.67 each, but has failed and refused to pay the balance!,]” leaving “$45,416.66 in arrears as of the date of [the] [m]otion.” Thacker admitted that she “originally acquiesced in the delayed partial payment procedure early in 1991 in the face of a threat by Mr. Hale that he would declare bankruptcy if she insisted on immediate payment in full of the December 31, 1990 installment.” In subsequent years, she continued to acquiesce to such partial payments “as long as [they] were being made within three or four months of their due date.” But by November 2000, Thacker alleged, Hale had not yet fully paid the annual installment that was due and payable on December 31, 1999. He purportedly withheld payment “in an apparent attempt to coerce Ms. Thacker into entering into a cash settlement of all of Mr. Hale’s payment obligations, including both the alimony award and the monetary award[.]” Thacker found Hale’s settlement proposals “unacceptable,” and proceeded to “exercise[ ] her election under Paragraph 11(d) ... to declare the entire balance outstanding on account of the monetary award immediately due and payable[.]” She ²¹³ asked the court to reduce the remaining balance of the monetary award to judgment.

On January 26, 2001, Hale filed an opposition to Thacker’s motion to accelerate. For the first time, he argued that “the Maryland Marital Property Act ... does not permit this [c]ourt to ‘accelerate’ payment on the unpaid balance of a marital award where a court has provided for payment of the award over a period of time and where the balance is not yet due and owing.” Citing McClayton v. McClayton, 68 Md.App. 615 , 515 A.2d 231 (1986), he contended that the court’s authority was limited to entering a judgment for any installment payments that were due and owing. Because “(fjuture installments on a monetary award are not ‘due and owing,’ ” the trial court had “exceed[ed] its statutory authority” by including the acceleration clause in the judgment. He maintained that “[sjuch an action” was, “ ‘if not a total nullity, at least an ‘irregularity’ within the meaning of Rule 2-535(b).’ ” See id. at 621 , 515 A.2d 231 .

Hale eventually made all the installment payments due through December 31, 2000. 1 On February 28, 2001, he filed a motion to revise the 1989 divorce judgment, by deleting the acceleration clause. The circuit court agreed with Hale that the acceleration clause was an unenforceable penalty. In a written opinion, it concluded that Thacker’s exercise of the acceleration clause “would retroactively alter both the method and amount of payment of the structured monetary award.” Noting that “the present value of the $1,090,000 to be paid to her is considerably less than that sum,” the court found it “patently inequitable to provide her with such a reward in view of the insubstantial nature of (Hale’s] past failures to adhere strictly ²¹⁴ to the specified due dates of payments.” Accordingly, the court granted Hale’s motion to revise the judgment by striking paragraph 11(d). Because ... the acceleration clause is not a device permitted by the Family Law Article, it ought not to have been included in the Judgment of Divorce.

Accordingly, the [cjourt also finds it to be an irregularity and thus subject to attack by [Hale] under Rule 2-535, albeit more than 30 days after entry of the Judgment.... Even if this [c]ourt’s interpretation of Rule 2-535 is deemed erroneous, the acceleration clause is essentially a nullity.... Thacker now appeals this ruling. DISCUSSION Maryland Code (1984, 1999 Repl.Vol.), section 8-205 of the Family Law Article (“FL”) governs the entry of a monetary award.

(a) Grant of award. — Subject to the provisions of subsection (b) of this section, ... the court may ... grant a monetary award ... as an adjustment of the equities and rights of the parties concerning marital property.... (b) Factors in determining amount and method of payment. ... — The court shall determine the amount and the method of payment of a monetary award ... after considering each of [ten enumerated factors, plus] any other factor that the court considers necessary or appropriate to consider in order to arrive at a fair and equitable monetary award.... (c) Award reduced to judgment. — The court may reduce to a judgment any monetary award made under this section, to the extent that any part of the award is due and owing. Decisions regarding the method of payment of a monetary award lie within the sound discretion of the trial court.

See Grant v. Zich, 53 Md.App. 610, 614 , 456 A.2d 75 (1983), aff'd, 300 Md. 256 , 477 A.2d 1163 (1984). But even in matters of discretion, a court must exercise its discretion in accordance with correct legal standards. See Gallagher v. ²¹⁵ Gallagher, 118 Md.App. 567, 576 , 703 A.2d 850 (1997), cert. denied, 349 Md. 495 , 709 A.2d 139 (1998). Under section 8-205(b), a court may permit a monetary award to be paid in installments over time.

See Ross v. Ross, 90 Md.App. 176, 189 , 600 A.2d 891 , cert. vacated, 327 Md. 101 , 607 A.2d 933 (1992). The question presented by this case is whether, in conjunction with such an order, and in the exercise of statutory authority to prescribe the amount and terms of payment, the court also may give the obligee spouse an option to accelerate future installment payments in the event that the obligor spouse fails to make an installment. The circuit court and Hale say no, because such an acceleration clause constitutes an impermissible financial penalty that changes both the amount and method of payment prescribed in the divorce judgment. The circuit court found that “acceleration would ... unjustly reward [Thacker] with a windfall,” which Hale figures to be approximately $270,000.

Thacker challenges that characterization, arguing that the acceleration clause “was an integral part of the ‘method of payment’ contemplated by [the court] when [it] entered the divorce decree in 1988[.]” Thacker vigorously asserts that “the only windfall in this case is the one Mr. Hale received when [the original divorce court] allowed him to spread out payment of the monetary award over 20 interest-free annual payments[,]” even though the amount of the award was “painstakingly calculated” based on the value of the marital property at the time of the divorce. All agree that there is no Maryland precedent regarding the validity of such a “self-executing” acceleration clause. We are asked to provide an authoritative answer to it. We shall not do so, because that answer is not necessary to resolve this appeal.

If we assume, without deciding or suggesting, that it was error to include such an acceleration clause in the 1989 divorce judgment, nevertheless, the circuit court reviewing that judgment had no power to revise it twelve years after it was enrolled. We shall hold that the circuit court erred in ²¹⁶ striking the acceleration clause from the judgment. Our reasons are many, as set forth below. A. No Revisory Power Under Rule 2-535(b) Maryland Rule 2-535 prescribes the circumstances in which a court may revise an enrolled judgment in a civil action.

See Andresen v. Andresen, 317 Md. 380, 387 , 564 A.2d 399 (1989). Derived from common law, Rule 2-535(b) provides that, “[o]n motion of any party filed at any time, the court may exercise revisory power and control over the judgment in case of fraud, mistake, or irregularity.” 2 “[T]he right of the court to revise or vacate [a] judgment [is limited] to the specific grounds set forth in the ... rule.” Id. “[0]ur cases have rigorously emphasized the finality of judgment” when considering revision requests under Rule 2-535. Id. at 387-88 , 564 A.2d 399 . “The rationale behind strictly limiting a court’s revisory power is that in today’s highly litigious society, there must be some point in time when a judgment becomes final.” Tandra S. v. Tyrone W., 336 Md. 303, 314 , 648 A.2d 439 (1994). Accordingly, after a judgment becomes enrolled, which occurs 30 days after its entry, a court has no authority to revise that judgment unless it determines, in response to a motion under Rule 2-535(b), that the judgment was entered as ²¹⁷ a result of fraud, mistake, or irregularity.

See id. The evidence necessary to establish fraud, mistake, or irregularity must be clear and convincing. See id. Maryland courts “have narrowly defined and strictly applied the terms fraud, mistake, [and] irregularity,” in order to ensure finality of judgments.

See Platt v. Platt, 302 Md. 9, 13 , 485 A.2d 250 (1984). Moreover, the party moving to set aside the enrolled judgment must establish that he or she “act[ed] with ordinary diligence and in good faith upon a meritorious cause of action or defense.” Id. The circuit court explicitly relied on our decision and language in McClayton v. McClayton, 68 Md.App. 615 , 515 A.2d 231 (1986), in determining that the acceleration clause in the 1989 divorce judgment was an “irregularity” that may be stricken under Rule 2-535(b). In McClayton , we addressed a different question raised but not answered by the monetaiy award provisions of FL section 8-205 — whether a court may award post-judgment interest on installments of a monetary award that would not be payable until a future date.

More than 30 days after it ordered a monetary award payable in installments, the trial court entered a judgment in the full amount of the monetary award, including the installments that were scheduled to be paid in the future. The judgment provided that future installment payments could be made on the originally ordered schedule, but that post-judgment interest would run against each unpaid installment from the due date of the installment. We held that the trial court erred in entering a judgment for the future installment payments because, under FL section 8-205(c), the court had authority to “reduce to a judgment any monetary award” only “to the extent that any part of the award is due and owing.” See id. at 621 , 515 A.2d 231 . Because future installments were not yet due and owing, the court erred in entering judgment on them.

See id. at 622-24 , 515 A.2d 231 ; see also Skrabak v. Skrabak, 108 Md.App. 633, 658 , 673 A.2d 732 , cert. denied, 342 Md. 584 , 678 A.2d 1048 (1996)(court may not enter judgment encompassing future installments due on monetary award). ²¹⁸ But it is what we did about the improper judgment in McClayton that is so relevant to this appeal. We concluded that the court’s error in exceeding its statutory authority to reduce future installment payments due on the monetary award to a separate judgment “was, if not a total nullity, at least an ‘irregularity’ within the meaning of [Md.] Rule 2-535(b).” McClayton, 68 Md.App. at 621 , 515 A.2d 231 . We vacated the enrolled judgment, because the court “had no statutory authority to reduce such a monetary award to a separate judgment.” Id. at 624 , 515 A.2d 231 . In this case, the reviewing court agreed with Hale that McClayton provided analogous authority for striking out the acceleration provision of the 1989 divorce judgment.

It reasoned that the acceleration clause was an impermissible financial penalty that improperly alters the method and amount of payment of the monetary award. Using the language of McClayton , the circuit court granted Hale’s motion to strike the acceleration clause from the judgment on alternative grounds that (1) it was “an irregularity and thus subject to attack ... under Rule 2-535,” or, (2) if that “interpretation of Rule 2-535 is deemed erroneous, the acceleration clause is essentially a nullity, as it cannot be enforced without improperly altering the method and amount of payment of the monetary award.” This was error, because the court lacked revisory power under either of those rationales. 1. Not An “Irregularity” Not surprisingly, Thacker attempts to distinguish McClay-ton by characterizing its “irregularity” language as mere dictum. We are not persuaded that it is dictum, given our mandate to vacate the disputed portion of the judgment.

Nor do we find the interpretation of McClayton espoused by the circuit court and Hale to be an inaccurate or unfair reading of that case. Thus, we acknowledge that both our language and our decision in McClayton might be understood to support the proposition that a trial court’s erroneous inclusion of an imper ²¹⁹ missible term relating to a monetary award may be an “irregularity” that can be stricken under Rule 2 — 535(b). As an alternative to her “dictum” argument, Thacker calls into question the precedential value of McClayton . This challenge has more merit.

To the extent that McClayton may be construed to stand for the proposition that the erroneous inclusion of an impermissible term in the monetary award provisions of a divorce judgment is an “irregularity,” we conclude that it is wrong. We agree with Thacker that, to the extent that McClayton stands for that proposition, it is “in direct conflict with the myriad cases that were decided before and after that opinion by both the Court of Appeals and this Court.” We explain. “When determining whether an irregularity occurred, a trial court must consider the totality of the circumstances. From an appellate standpoint, we review the decision of the trial court for an abuse of discretion.” Gruss v. Gruss, 123 Md.App. 311, 320 , 718 A.2d 622 (1998). “Irregularity” has a narrow judicial definition in Rule 2-535(b) jurisprudence. See Early v. Early, 338 Md. 639, 652 , 659 A.2d 1334 (1995).

It means “a failure to follow required process or procedure.” Id. Under our cases, an irregularity which will permit a court to exercise revisory powers over an enrolled judgment has been consistently defined as the doing or not doing of that, in the conduct of a suit at law, which, conformable to the practice of the court, ought or ought not to be done[.] As a consequence, irregularity, in the contemplation of the Rule, usually means irregularity of process or procedure, and not an error, which in legal parlance, generally connotes a departure from truth or accuracy of which a defendant had notice and could have challenged. Weitz v. MacKenzie, 273 Md. 628, 631 , 331 A.2d 291 (1975) (citations omitted). Irregularities warranting the exercise of revisory powers most often involve a judgment that resulted from a failure of process or procedure by the clerk of a court, including, for example, failures to send notice of a default ²²⁰ judgment, to send notice of an order dismissing an action, to mail a notice to the proper address, and to provide for required publication.

See Early, 338 Md. at 652 , 659 A.2d 1334 ; Hardy v. Hardy, 269 Md. 412, 416 , 306 A.2d 244 (1973); Gruss, 123 Md.App. at 320 , 718 A.2d 622 . Applying this narrow concept of “irregularity,” the Court of Appeals consistently has rejected attempts to exercise reviso-ry power over judgments that have been called into question on their merits, rather than on the basis of questionable procedural provenance. The Court has refused to characterize challenges to the substance of judgments that were obtained through appropriate procedures as “irregularities.” In Weitz, 273 Md. at 631 , 331 A.2d 291 , the Court reversed an order setting aside a confessed judgment against a guarantor who established that the note was ambiguous as to which obligations were being guaranteed. In Autobahn Motors, Inc. v. City of Baltimore, 321 Md. 558, 563 , 583 A.2d 731 (1991), the Court reversed an order revising a judgment of condemnation in order to correct the city’s erroneous measurements.

Indeed, in the Court of Appeals’ most recent Rule 2-535(b) decision, issued after oral argument in this case, we see further support for such a narrow construction of “irregularity.” In Hagler v. Bennett, 367 Md. 556 , 790 A.2d 6 (2002), a mother sought relief from a default judgment entered years earlier. The judgment creditor had sued to obtain repayment of a business loan to the Haglers’ two sons. The note was signed by the two sons and the mother, but the creditor mistakenly believed that one of the signatories was the father, who shared the name of one son. It sued the other son, the mother, and the father.

When they did not answer the complaint, the creditor obtained a default judgment against all three, filed a lien against the parents’ home, and later sought to execute on the home. The Court of Appeals affirmed the trial court’s denial of the mother’s motion to vacate the judgment. See id. at 564 , 790 A.2d 6 . Rejecting the mother’s argument that “ ‘a judgment ²²¹ entered against a non party is void, and should be treated as a nullity whenever brought to the Court’s attention,’ ” the Court held that there was no reason to disturb the enrolled judgment.

The District Court acquired personal jurisdiction over [the father] when process was served on him. There was no invalidity in either the process or the service of it. His name matched the name on the summons and complaint, and he was served at the address noted. His defense went to the merits — he was not liable because he never signed the note and therefore never assumed the obligation upon which suit was brought. [The father] had a lair opportunity to raise that defense but neglected to do so, and