Watson v. Watson

GARRITY, Judge. In addition to reviewing the trial court’s determination that certain property was fraudulently conveyed by the appellants to prevent the collection of a judgment, we shall examine the award of attorney fees against counsel. Facts On May 14, 1980, the appellee, Stacey Sue Watson (Stacey) obtained a judgment in the amount of $1,769.00 against her former husband, the appellant Rufus S. Watson, Jr. (Rufus) in the District Court of Maryland for Prince George’s County. 1 When the judgment remained unpaid, Stacey’s attorney, Arthur G. House (House), conducted supplemental proceedings pursuant to the judgment. During the course of the supplemental proceedings, Rufus showed House a deed dated November 29, 1979, which purported to convey residential property titled solely in Rufus’s name to Rufus and his present wife, Teresa S. Watson (Teresa), as tenants by the entireties.

House, however, noticed that the “deed” lacked an acknowledgement. As a result, House caused a writ of fieri facias to be levied on the appellant’s property. ⁴⁸⁷ On June 2, 1981, Rufus and Teresa Watson filed a two-count declaration against Stacey, House, Donald H. Hadley (House’s partner), and James V. Aluisi, Sheriff of Prince George’s County. Count I alleged wrongful attachment and Count II prayed that the named defendants be enjoined from taking further action against the property. The defendants demurred to the declaration alleging that there was probable cause for the issuance of the writ in that the deed was unacknowledged at the time it was shown to House and, therefore, was null and void.

The plaintiffs argued at the hearing that although the deed was unacknowledged, it was sufficient to pass title and, therefore, precluded attachment. The court (Levin, J.) sustained the demurrer with leave to amend. The only changes made in the amended declaration were to correct the dates of the supplementary proceeding and the issuance of the writ. The court subsequently sustained the defendant’s demurrer without leave to amend as to Count I. In the first appeal, we affirmed the lower court’s dismissal of Count I and remanded for a ruling on Count II.

(Watson v. Watson, appeal No. 193, September Term, 1982, Ct. of Sp.App., January 19, 1983). Rufus Watson sold his house prior to trial on Count II and deposited in the court registry proceeds from the sale sufficient to satisfy the judgment. An Order of Condemnation for $2,729.79 of the deposited funds was issued. 2 The court, however, granted the plaintiffs’ motion to stay the Order pending appeal of the court’s ruling on Count II. The defendants moved for costs and attorney fees for the defense of Count I. The court (Ahalt, J.), finding a lack of substantial justification for the bringing of a wrongful attachment suit, awarded attorney fees pursuant to Md. Rule 1-341 in the amount of $18,851.03.

This ruling led to the plaintiffs’ second appeal to this court where we held the award should not include an amount for legal work per ⁴⁸⁸ formed on Count II until Count II was finally resolved. We vacated the award for counsel fees and remanded for further proceedings. (Watson v. Watson, No. 76, Sept. Term, 1985, Ct. of Sp.App., January 30, 1986.) Upon remand, the lower court reduced the award to $15,548.22 and entered judgment against the plaintiffs and (for the first time) jointly against their attorney, Dale A. Cooter, Esq. The plaintiffs’ third appeal was from this judgment; however, because there remained issues outstanding, the appeal did not arise from a final appealable judgment and we granted the defendants’ motion to dismiss pursuant to Rule 1035b.l.

We will review the issue of those attorney fees in this appeal. 3 Subsequently, this court affirmed the lower court’s dismissal of Count II, which sought injunctive relief. The plaintiffs filed a petition for a writ of certiorari, which the Court of Appeals granted on January 23, 1985. The Court held that the unacknowledged deed was not per se invalid as a matter of law and might have passed equitable title depending upon “the facts concerning the dates of the marriage, of the agreement, of the execution of the deed and of its delivery.” Watson v. Watson, 304 Md. 48, 64 , 497 A.2d 794 (1985). The Court opined that, such facts “should be the subject of examination, cross-examination, and fact finding,” and remanded the case without affirmance or reversal.

Id. at 65 , 497 A.2d 794 . Thereafter, the case proceeded to trial on Count II, in accordance with the Court of Appeals decision, to determine whether the conveyance was legitimate or had been made to . prevent the collection of a judgment. The Circuit Court for Prince George’s County (Blackwell, J.) found that Rufus and Teresa Watson, the appellants herein, had in fact engaged in “both constructive and actual fraud” in the conveyance of the property and ruled that the ⁴⁸⁹ writ of fieri facias was effective against any transfer of title between Rufus and Teresa Watson. In addition, the court awarded Stacey Watson $2,000 in attorney fees for her defense of Count II.

Judge Blackwell, however, did not make an assessment for part of these fees against the appellants’ attorney, Cooter, as Judge Ahalt had in Count I. The court, however, provided the appellants thirty days to present “any reasons why they contend such fees and costs should be assessed against their attorney.” The appellants, plaintiffs below, present the following questions for our review: I. Should the burden of proof for Count II have been shifted for plaintiffs to prove the absence of a fraudulent conveyance?

II

Was the award of attorney fees for Count I proper when there was no segregation of fees between Counts I and II?

III

Should the award of attorney fees for Count I have been assessed against counsel when there was no prior notice given to counsel and no finding of bad faith or lack of substantial justification?

IV

Should attorneys fees have been awarded for Count II on grounds of a factual finding of a fraudulent conveyance? V. Should plaintiffs’ counsel have been ordered to inform plaintiffs of a conflict of interest for the award of attorneys fees as to Count II. I. Fraudulent Conveyance The Court of Appeals remanded this case to the lower court because it believed “the facts concerning the dates of the marriage, of the agreement, of the execution of the deed and of its delivery should be subject to examination, cross-examination, and factfinding.” Watson, 304 Md. at 65 , 497 A.2d 794 . The Court instructed that first there be a finding of whether there was “a contract to convey.” If there were such a contract, then there should be a finding ⁴⁹⁰ of “whether a conveyance made pursuant to that contract was void as a fraud on creditors.” A trial limited to answering the questions posed by the Court of Appeals was held.

The lower court (Blackwell, J.) found that although there had been a contract to convey, Rufus Watson’s transfer of his house to himself and Teresa was that of a fraudulent conveyance. The appellants contend, however, that the lower court improperly shifted the burden of proof to them to show that the transfer was not fraudulent. In determining whether a conveyance is fraudulent, the burden of proof is initially on the party attacking the transaction as fraudulent. It is, however, “well established in this State that facts and circumstances may be such as to shift the burden to the grantee to establish the bona fides of the transaction.” Berger v. Hi-Gear Tire & Auto, 257 Md. 470, 475 , 263 A.2d 507 (1970) (citations omitted).

The reason being that: [A] creditor attempting to set aside a conveyance as fraudulent can seldom prove as an independent fact the knowledge of or participation in the fraud of the grantor by the grantee. That knowledge or participation must be gathered from the various facts and incidents composing the transactions and its environment. The primary presumption here, as elsewhere, is in favor of innocence and good faith, but a state of facts may be shown which will negative that presumption, and cast upon the grantee the burden of proving his good faith and nonparticipation in the fraudulent purpose of the grantor. Id.

(quoting McCauley v. Shockey, 105 Md. 641, 646 (1907)). In the case at bar, a reading of the lower court’s opinion indicates that credibility was the key issue in the finding of fraud. Rufus’s testimony was termed “often incredible” and “[t]he court [found] little, if any, evidence to support [Teresa’s] professed innocent participation in the transaction—but much to the contrary.” The Berger court noted that: ⁴⁹¹ The facts which are recognized indicia of fraud are numerous, and no court could pretend to anticipate or catalog them all. Among the generally recognized badges of fraud are the insolvency or indebtedness of the transferor, lack of consideration for the conveyance, relationship between the transferor and the transferee, the pendency or threat of litigation, secrecy or concealment, departure from the usual method of business, the transfer of the debtor’s entire estate, the reservation of benefit to the transferor, and the retention by the debtor of possession of the property.

Although it has been said that a single badge of fraud may stamp a transaction as fraudulent, it is more generally held that while one circumstance recognized as a badge of fraud may not alone prove fraud, where there is a concurrence of several such badges of fraud an inference of fraud may be warranted. Id. [257 Md.] at 476, 263 A.2d 507 (emphasis added) (quoting 37 Am.Jur.2d, Fraudulent Conveyance, § 10 (1968)). Seven of the above nine noted indicia of fraud were found in the instant case by the lower court. Rufus was indebted at the time of the claimed transfer and did not have enough money to satisfy Stacey’s modest judgment.

Rufus and Teresa lived together with their children and shared expenses of their household. Rufus was indebted to Stacey on a note and faced the threat of litigation if the note were not paid. The deed between the plaintiffs was kept secret, unacknowledged, undelivered, and unrecorded until January, 1981. Although the deed was dated November 29, 1979, before the plaintiffs were married, and although the plaintiffs’ premarital agreement dated November 19, 1979, stated that Rufus’s real property “has this day been conveyed to the parties as tenants by the entireties,” the plaintiffs testified that the deed was executed sometime around December 5, 1979, after they were married.

Rufus, by his premarital agreement, attempted to transfer his entire estate while reserving his ownership and retaining possession. We hold that the confluence of the indicia of ⁴⁹² fraud and the inference of fraud which they generate were sufficient to support the trial court’s decision to shift to the plaintiffs the burden to show their transaction was bona fide. The appellants contend that “[c]ounsel for Stacey, House, did not present one witness and chose merely to cross-examine plaintiffs’ witnesses.” They further argue that “there was absolutely no evidence whatsoever” to contradict their testimony that the Watson house was transferred for a promise to marry. It is clear that the trier of fact elected not to believe the testimony of the appellees.

Absent a showing that the finding of the trial judge was clearly erroneous, we shall affirm his ruling. Md.Rule 1086.

II

Attorney Fees as to Count I The appellants argue that the assessment of attorney fees on remand for Count I was improper because the appellees failed to segregate the fees for Count I and Count II. The appellants contend that the appellees’ attorney Joseph Cunningham (Cunningham) “merely took his prior affidavit for fees (the basis which served for the previous award of $18,851.30 that was vacated by this court) and imposed a cut-off of February, 1983, the date of the first memorandum opinion in this case by this court.” We disagree. The per curiam opinion filed by this court stated: [T]he bill for counsel fees as submitted by appellees is so intertwined with respect to both counts of the declaration as to require evidence as to what part of the charges relate to which count. We have an entirely different view insofar as the attorney fees incurred by the appellees Arthur G. House and Donald H. Hadley for defense of themselves.

Their defense is not interwoven with Count II. Since the hearing judge found that the suit against them was ⁴⁹³ brought without substantial justification, he was empowered to award fees to House and Hadley. Md.Rule 1-341. Watson v. Watson, No. 76, Sept. Term, 1985, Ct. of Sp.App., January 30, 1986.

(emphasis added). At the hearing on attorney fees, Cunningham was asked by the appellants’ attorney, “How much is it that is claimed at this point in attorney fees for the representation of Mr. Hadley and Mr. House on Count I of the law suit?” Cunningham responded: The figure is—if you will give me a minute—for my time $4,218.75 for the period of from February 1981 when you filed suit against my clients through February 1983 when the Court of Special Appeals rendered its decision, its first decision in the matter having to do with Count I as to the malicious prosecution count that was brought against the attorneys and their client. As to that same time period, the associates that worked on the case under my supervision, amassed a total of $10,969.60. Exhibits as to both of the breakdowns for myself and the associates are attached to the affidavits so that you have it by specific task, specific period during the year and specific amount of time allocated to each task.

Finally, for the same period that I have just adverted to, there were costs incurred of $360.45 again broken down on an exhibit attached to the affidavit we have submitted to you, Mr. Cooter. I don’t have a