Walker v. Haywood

ADKINS, Judge. This is an appeal from the ratification of an auditor’s report disallowing in part attorney’s fees and certain other expenses incurred in connection with the foreclosure of a deed of trust and related bankruptcy proceedings. Appellants charge that the disallowance, or most of it, was the consequence of two court policies that were in fact unauthorized rules of court improperly applied. While we agree that the trial judge misapplied the policies and reverse, we disagree with appellants on the rule of court question.

I. Background Appellants John C. Walker, III, and John W. Gill, Jr., are substitute trustees under a deed of trust executed by appellees Henry and Georgia M. Haywood. The noteholder is appellant National Permanent Bank, F.S.B. In 1983 the Haywoods defaulted under the note secured by the deed of trust and promptly filed a Chapter 13 bankruptcy proceeding in the United States Bankruptcy Court for the District of Maryland. National Permanent engaged counsel to protect its interest in the bankruptcy and to obtain relief from the automatic stay against lien enforcement imposed by 11 U.S.C. § 362 (a). The latter objective was achieved on March 14, 1984, when the bankruptcy court lifted the automatic stay and authorized National Permanent to institute foreclosure proceedings.

Foreclosure was forthwith sought in the Circuit Court for Prince George’s County and the property subject to the deed of trust was sold in due course. The sale was ratified on June 21, 1984, and the case referred to the auditor. Appellants submitted to the auditor a proposed account that requested, among other items, allowance for the following: ⁵ 1. Attorney’s fees for services rendered in the foreclosure proceeding $ 900.00 2.

Advances paid by Permanent in connection with the bankruptcy proceeding attorney’s fees $1,225.00 title search 125.00 appraisal fee 150.00 telephone and postage 20.00 1,520.00 3. Interest on advance 53.79 $2,473.79 The auditor allowed only $750 for item 1 — the attorney’s fees in the foreclosure. This action was pursuant to a policy we shall shortly discuss. Pursuant to another policy, he allowed only $500 of the $1,225 attorney’s fees claimed in item 2 — advances in connection with the bankruptcy case.

In item 2 he also disallowed the $125 title search fee and the $20 telephone and postage expense. And he rejected all of item 3 for reasons not disclosed in the record. Thus, appellants ended up with $1,073.79 less than they had claimed. The amended audit showed a surplus of $27,-589.37 after deduction of all claims allowed.

Appellant excepted. Md.Rule 2-543(f). A hearing was had pursuant to Rule 2-543(g). In addition to producing evidence about the policies that had guided the auditor, appellants introduced extensive testimony as to the reasonableness and propriety of the fees and other sums disallowed.

They also requested allowance of fees and expenses incurred in connection with the exceptions. Appellee Henry Haywood was at the hearing but in no way attempted to contradict the evidence or to oppose appellants’ contentions. On October 18, 1984, the court overruled the exceptions and ratified and confirmed the audit because it was “of the ⁶ opinion and persuasion that the amended [audit] conforms in all respects to the established, current policies of this Court....” II. Appellants’ Contentions Appellants advance a number of reasons to support their assertion that the trial court erred.

These may be summarized as follows: 1. Neither a judicial circuit nor a circuit court has authority to adopt a policy that is in effect a court rule and that limits attorney’s fees to a fixed hourly rate in all foreclosure proceedings. 2. When a deed of trust provides that all foreclosure expenses, including attorney’s fees are secured by the lien thereof, the circuit court may neither a. enforce a policy prescribing a predetermined hourly rate for attorney’s fees that is less than the prevailing community rate, nor b. disallow all such expenses incurred by the note-holder subsequent to the filing of the auditor’s amended report. 3. Neither a judicial circuit nor a circuit court has authority to adopt a policy that is in effect a court rule and that limits attorney’s fees in bankruptcy proceedings to a predetermined amount. 4.

When a deed of trust provides that all litigation expenses, including attorney’s fees, are secured by the lien thereof, the circuit court may neither a. enforce a policy prescribing a $500 limit for attorney’s fees incurred by the noteholder in a bankruptcy proceeding, nor b. disallow other ordinary and necessary expenses incurred by the noteholder for the protection of its interests in the bankruptcy proceedings. 5. When a deed of trust provides for interest on an advance made by the noteholder pursuant to the terms ⁷ thereof the court may not disallow interest claimed by the noteholder on the advance. We shall address these contentions seriatim.

III

The Policy as to Attorneys’ Fees in Foreclosure Proceedings At the hearing on exceptions to the audit, court auditor John Middleton described the unwritten policy to which appellants object as such that routine regular attorney’s fees, without any specific court order, are limited to $750 for work done in this court ... in foreclosure. According to Mr. Middleton, the policy is based upon a judicial recognition that the average amount of work in a foreclosure case will not exceed ten hours, and the allowance for the work done is the rate of no more than $75 an hour. Ten times $75 is $750. It is this policy that appellants claim is a rule of court and one that neither the Seventh Judicial Circuit nor the Circuit Court for Prince George’s County had authority to adopt. “The power of courts other than the Court of Appeals to make rules of practice and procedure, or administrative rules, shall be subject to the rules and regulations adopted by the Court of Appeals or otherwise by law.” Md.Const., Art. IV, § 18(a).

Moreover, “... courts [other than the District Court] may make ... rules of practice and procedure subject to and not inconsistent with any rule of the Court of Appeals” and such rules generally must “be adopted pursuant to the limitations and procedures prescribed by the Maryland Rules, unless authority to adopt rules is expressly granted by public general law.” Courts and Judicial Proceedings Art., § l-201(b). Since there is no public general law expressly granting rule-making power to the Seventh Judicial Circuit or to the Circuit Court for Prince George’s County, we must look to the rules adopted by the Court of Appeals with respect to local rule-making. ⁸ For present purposes, our search need not encompass the entire history of this subject in Maryland. We place the topic in perspective by turning to former Md.Rule l.f., adopted by Rules Order of July 18, 1956, effective January 1, 1957. That rule, supplanting earlier statutory and rule provisions, permitted the “judges of the several [circuit] courts and, in Baltimore City, the Supreme Bench of Baltimore City,” to adopt rules of practice and procedure “not inconsistent with any general rules adopted by the Court of Appeals or with any statute then in force.” Md.Code Ann. (1957 Cum.Supp.).

Former Rule l.f., it will be observed, did not limit the subject matter of local rules (except to the extent that they had to be rules of practice and procedure) nor did it prescribe any method by which local rules had to be adopted or published. A significant change in these arrangements was produced by a Rules Order of February 10, 1969, effective April 1, 1969. By that order Rule l.f. was amended to abolish local (county) rules, but to permit “circuit-wide rules” adopted “by action of a majority of the judges of the judicial circuit concerned.” The circuit rules were to “have a numbering system and arrangement consistent with the system and arrangement of the Maryland Rules.... ” Upon adoption by a circuit, they were to “be forwarded to the Court of Appeals and to the Director of the Administrative Office of the Courts.” The Court of Appeals had power “to modify or abrogate [any such] rule.” The Director of the Administrative Office was required to publish them. A Rules Committee note indicates that these procedures were intended to reduce the “number of varying and sometimes confusing practices now existing in different jurisdictions” and to assure ready availability of circuit rules through the publication mechanism.

Md.Code Ann.Vol. 9B (1971). This provision, like its predecessor, did not limit subject areas for circuit rules. It did eliminate local or county rules and require that any circuit rule be adopted by a majority of the judges of the circuit. Since the rules had to be forwarded to the Court of Appeals and to the Director of the Adminis ⁹ trative Office, they had to be in writing.

And their publication was required. Matters continued under this dispensation until another major amendment of Rule l.f. by Rules Orders of October 1, 1980, and December 24, 1980, both effective January 1, 1981. The new rule l.f. rescinded all circuit and local rules in effect on December 31, 1980, except for those dealing with six enumerated subject areas. It once again permitted the adoption of local or county rules as well as circuit rules, but only in one or more of the designated areas.

The former provisions as to method of adoption of rules, forwarding to the Court of Appeals, and publication of rules were dropped. Md.Code Ann., Maryland Rules (1983). The 1981 version of Rule l.f. on July 1, 1984, became current Md.Rule 1-102 without substantive change, except that the permitted subject areas for local or circuit rule-making were reduced from six to five. Md.Rule 1-102 provides: Unless inconsistent with these rules, circuit and local rules regulating (1) court libraries, (2) memorial proceedings, (3) auditors, (4) compensation of trustees in judicial sales, and (5) appointment of bail bond commissioners ..., are not repealed.

No circuit and local rules, other than ones regulating the matters and subjects listed in this Rule, shall be adopted [emphasis supplied]. Appellants aver that the policy they view as a rule falls afoul of these provisions because the policy or rule is a limitation on attorney’s fees — an area in which circuits and circuit courts are not empowered to act. We do not see it that way. The policy may be seen as a regulation of the auditor’s conduct — a direction to the auditor that in routine foreclosure proceedings he may not allow fees in excess of $750 absent an order of court.

So read, the policy relates to auditors, a matter within the local and circuit rule-making authority. Nor is it an absolute ceiling on fees. In appropriate circumstances, greater fees may be allowed by a “specific court order” as Mr. Middleton explained when ¹⁰ describing the policy. But the basic problem with appellants’ argument on this point is that the policy, so far as the record before us discloses, was not adopted as a rule. 1 As we have seen, neither present Rule 1-102 nor the immediately-preceding version of former Rule l.f. contain any express provisions as to how local or circuit rules are to be adopted!

We reject appellants’ suggestion that the publication provisions of Md.Rule 1225 c apply to local or circuit rules. It may well be that sound policy supports the publication of local and circuit rules. Weinstein, Reform of Federal Court Rulemaking Procedure, 76 Col.L.Rev. 905, ABA Standards Relating to Court Organization, § 1.32 p. 73 (1974), and Roney, “The Bar Answers the Challenge,” 62 ABAJ 60, 64 (1976). And see Fullerton v. Bank of the United States, 1 Pet. 612, 613 , 26 U.S. 604 , 7 L.Ed. 280 (1828) (“Written rules are unquestionably to be preferred, because their commencement, and their action, and their meaning, are most conveniently determined____”).

But Md. Rule 1225, like its predecessor, former Rule 4, by its very terms applies only to the Court of Appeals. 2 Nevertheless, we think that at the very least a local or circuit rule must be adopted by a formal order concurred in by a majority of the judges of the circuit court or circuit involved. That was the practice of most, if not all, circuit ¹¹ courts prior to the 1969 version of Rule l.f. It was also the practice of the Court of Appeals prior to the adoption of Rule 4. That procedure serves to establish the provisions of the rule in question beyond cavil, sets the effective date of the rule and evidences the fact of its adoption.

It also facilitates appropriate publication of the rule. Whether or not publication is a sine qua non of local rule-making (see note 2, supra) it is clearly good practice. Weinstein, supra, 76 Col.L.Rev. 907, 963-64 (1978). The record before us discloses virtually nothing as to any procedure used when the purported rule was allegedly adopted.

As we have noted, the policy in question here was unwritten. According to Mr. Middleton, it was established “[b]y Judge Meloy during his tenure on the bench ... at least seven years” prior to the October 1984 hearing on the exceptions. 3 It was “continued under the two judges who have succeeded him in his work with respect to the liaison for auditing matters.” This tells us of a policy adopted by at most three individual judges of the (in 1984) fourteen-judge Circuit Court for Prince George’s County. Whether a majority of that bench or a majority of the then-eighteen judges of the Seventh Judicial Circuit even adopted or ratified the policy or rule does not appear on the record. While it is true that the testimony contains occasional references to a “court policy” there is no evidence as to when or how the court approved it.

The closest we come to that is a comment by the hearing judge that “within the last ... two or three months” the Seventh Circuit Judicial Conference ratified the $75 an hour rate for fees. But this speaks only to the hourly rate; it says nothing of the $750 alleged ceiling or of the other aspects of the policy as explained by Mr. Middleton. There is simply not enough before us to permit us to conclude that the policy was adopted as a rule either of the Seventh Judicial Circuit or of the Circuit Court for Prince George’s County. ¹² Appellants seek to overcome this difficulty by asserting that “a settled practice adhered to for many years and well known constitutes a rule____” Detroit Heating and Lighting Co. v. Kemp, 182 F. 847 (C.C.D.Md.1910). See also Patton v. Evans, 92 Utah 524 , 69 P.2d 969, 970 (1937).

This may well be true, although we certainly do not suggest that courts may evade the strictures on local and circuit rule-making by informally adopting policies which are in fact rules. 4 It may also be true that the policy before us has been “adhered to for many years” — seven years at least. But there is no indication in the record as to how “well known” it is. And in any case, for the reasons we have just explained, there is nothing in the record before us to indicate that it is a court policy that might achieve status as ¹³ a rule. See Fullerton, 1 Pet. at 613 , and Payne v. Garth, 285 F. 301 (8th Cir.1922).

We hold, therefore, that the policy in question is neither a rule nor a court policy. It is no more than a policy adopted by Judge Meloy and, apparently, two other judges. As such, it was not binding on the judge who heard the exceptions to the audit. In any case, as we shall now explain, the hearing judge misapplied the policy.

IV

Disallowance of Attorney’s Fees and Other Foreclosure Expenses Provided for in Deed of Trust As we noted early on, the hearing judge rejected appellants’ exceptions as to attorney’s fees in the foreclosure. By doing so, he disallowed $150 of the $900 claimed for those services. He also disallowed similar expenses claimed by appellants for work in connection with the exceptions. The exceptions referred to those expenses, and proof of them was submitted at the exceptions hearing. 5 The judge did so because he thought the amended audit “conforms in all respects to the established, current policies of this Court.” We have concluded that the record in this case does not show any “established ... policy” of the court binding on the hearing judge.

See Ralkey v. Minnesota Mining & Mfg. Co., 63 Md.App. 515, 522-23 , 492 A.2d 1358 (1985) (trial judge not bound by prior ruling of another trial judge in same case). But in any event, the judge erred because he misconstrued the policy. That policy, as we have observed, was directed to the auditor.

The auditor pointed out that the $750 “fee limit” applied only in the absence of a “specific court order.” The judge himself seems to have recognized this when at one point during the hearing he remarked “Mr. Middleton, the auditor, has been stating to you what his authority is, as an auditor, without referring it to a judge.” But what appel ¹⁴ lants did was refer “it” to a judge by excepting to the audit via the Md.Rule 2-543(f) procedure. When that happened, the question was no longer what authority the auditor