Relating to Real Estate
Relating to Real Estate - Recent Cases Issue - Part 2 - July 11, 2013
- What Are Your Damages and What Did You Say to Your Attorney?
- Malicious Tree Planting Almost Costs $290,000
- May I Practice Acupuncture in My Condo Unit?
- A Fraud is a Fraud
- Who is a “Member of the Public”?
- What Duty Does a Title Agency Owe to Its Customer?
What Are Your Damages and What Did You Say to Your Attorney?
If you are ready to read an 89 page treatise on the law of damages, CR-RSC Tower I, LLC v. RSC Tower I, LLC, 429 Md. 387, 56 A.3d 170 (2012), is the case for you. In this case the Court of Appeals awarded $36 million of damages and $3.6 million of attorneys’ fees to the tenants under two ground leases who claimed that the lessor improperly refused to supply clean estoppels and contested their building permits. An unusual aspect of the case is that the tenants were allowed to discover and introduce into evidence communications between the defendants and their attorney.
Obviously, there must have been serious grounds for the lessors to refuse to supply the estoppels and run the jeopardy of such large damage awards. The tenants wavered between planning apartment buildings and condominiums, and the lessors contested Montgomery County’s approval of the site plan and the issuance of building permits. The tenants arranged for a life insurance company to invest $30 million of equity and to provide an $85 million construction loan, conditioned on the lessors providing clean estoppels. This the lessors refused to do, and the loan did not close, the building permits expired, and in the interim the building code was amended in ways detrimental to the tenants.
The tenants filed suit in March, 2009. When in discovery the lessors said that refusal of the estoppels was based on conversations with counsel, the tenants moved to compel discovery from the attorneys, and the Court allowed this. The result was that the tenants found an email from one of the lessors telling the attorneys, “Just make sure you stop the bastards….” One can suppose that this prejudiced the jury against the lessors.
Judge Adkins embarked on a detailed and protracted discussion of “general” and “consequential” damages, and how they are to be calculated. She analyzed the nature of claims for lost profits and said that when a claim is for consequential loss, it should be calculated as the losses that may reasonably be supposed to have been in the contemplation of both parties at the time of making of the contract. And she explained that a claim for lost income from business operations that would have been earned but for the breach is a claim for consequential damages. This brings into play the rule that damages are to be calculated as of the time of the breach, and any post-breach change in market conditions is irrelevant. Therefore, the tenants were prevented from introducing evidence that the real estate market “tanked” after the date of breach. Accordingly, the tenants’ 2006 projections of profits were not valid.
On the attorney-client privilege issue, the lessors contended that they did not formally raise an “advice of counsel” defense, but merely adverted to it in deposition testimony. They asked, if truthful deposition responses amount to a waiver of the attorney-client privilege, how can any party defending against a claim of bad faith preserve the privilege and still comply with its discovery obligations? The tenants responded by saying that if a defendant voluntarily chooses to establish his blamelessness by pointing to advice of counsel, the privilege is waived as to that advice.
The Court quoted extensively from a deposition to show affirmative use of the attorney-client privilege as “a dodge against candid answers”. It then held that “what defendants cannot do is defend a charge of bad faith by referencing specific communications with attorneys that purportedly provided a good-faith basis for certain actions, and then refuse to allow any further investigation into those communications.”
Judge Battaglia dissented on the lost profits issue, saying that by excluding evidence of post-breach conditions in the real estate market, the tenants were awarded damages based upon projections that the lessors were not permitted to rebut.
The other shoe dropped on April 1 when the sellers filed suit against their attorneys for giving bad advice in this case.
For questions about this, please contact David Fishman at (410) 576-4234.
Malicious Tree Planting Almost Costs $290,000
Long v. Mastromarco, No. 2552, Sept. Term 2009 (Md. Court of Special Appeals, Jan. 5, 2012), cert. denied, 426 Md. 429 (May 11, 2012), discussed a fight between neighbors having lots on the Magothy River that resulted in a jury verdict of $290,000 based on claims of nuisance and tortious interference with prospective economic advantage. This verdict included $80,000 for punitive damages. Two neighbors, who obviously do not get along, brought their fight to the Circuit Court for Anne Arundel County. It appears that Mr. Long planted four pine trees and a holly bush near the boundary with the Mastromarcos. This was alleged to be done with malice, and the trees and bush were claimed to interfere with the Mastromarcos’ view of the Magothy River. They claimed to have both an express and implied easement of light and air, alleged that the trees constituted a nuisance, and that they also interfered with prospective economic advantage. The trial court found that there was no express or implied easement of light and air, but allowed the claims of nuisance and tortious interference to go to the jury.
The jury was obviously unimpressed with the defense in the case because it found necessarily that the trees were planted with malice and awarded large damages, including punitive damages. The trial judge found that there was no implied easement of light and air, and the judge therefore granted a judgment N.O.V. on this claim. However, he let the matter go to the jury on the claims of nuisance. The Court of Special Appeals, in an opinion written by Judge Zarnoch, found that because the Mastromarcos had no easements, they had no rights in land that would support a claim for nuisance. Without a property right, appellees had no cognizable claim for nuisance. The court adverted to the fact that some states have a law on “spite fences,” but Maryland has no such statute.
On the claim of tortious interference, the court found that while the Longs were certainly not good neighbors, they did not engage in any illegal conduct while planting the trees, nor was there any evidence of an economic advantage that was harmed. Thus, the entire judgment was reversed. Although the Mastromarcos applied for cert. from the unreported decision of the Court of Special Appeals, their petition was denied.
For questions about this, please contact David Fishman at (410) 576-4234.
May I Practice Acupuncture in My Condo Unit?
Murphy v. Kendall Overlook Condominium II, Inc., No. 1035, Sept. Term 2009 (Md. Court of Special Appeals, Mar. 19, 2012), looked at the practice of what are called “no impact” businesses in condominium units, which has been a continuing issue and problem in Maryland. The General Assembly adopted §11-111.1 of the Real Property Article of the Maryland Code to allow family childcare businesses and other no-impact home-based businesses in condominium units under certain circumstances. The language of the statute is troublesome -- in the Murphy case, the Court of Special Appeals took 58 pages of detailed discussion to decide that it will take an 80% vote of unit owners to amend a Declaration to allow such businesses, but only a simple majority of owners to enforce such rules once they have been adopted. The discussion by Judge Kenney in this unreported case does make it clear that a condominium may adopt prohibitions after a unit owner has purchased his or her unit. This has been a very difficult issue in many places. It is another illustration of the caption from a New Yorker cartoon, “Welcome to Condoville and the Illusion of Owning Your Own Property.”
For questions about this, please contact David Fishman at (410) 576-4234.
VanSickle v. K Bank, No. 1613, Sept. Term 2010 (Md. Court of Special Appeals, Feb. 28, 2012), was decided under the Maryland version of the Uniform Fraudulent Conveyances Act (“MUFCA”). It is long and well-reasoned, and in view of the paucity of decisions under the Maryland Act, it is difficult to understand why the opinion is not published. It contains a rather detailed discussion of the elements of a fraudulent conveyance. Particularly, it discusses at some length whether a bank is an “existing creditor” of the transferor of property. The debtor in VanSickle argued that the bank did not suffer compensable injury until its mortgagor stopped making payments on a loan. The transfer took place eight days before there was a default in payment, and, therefore, the bank was not a creditor who could make a complaint under the MUFCA.
It is established that a conveyance is only fraudulent as to existing creditors, and this law goes back at least to the case of Ward v. Hollins, 14 Md. 158 (1859). But in VanSickle, the borrower took a loan from the bank based on faulty information the borrower supplied as to the value of the collateral. The court decided that the bank suffered a compensable injury when it issued a loan secured by collateral of less value than it was led to believe the collateral had. This made the bank a creditor of the transferor prior to the transfer of money to Mr. VanSickle.
VanSickle argued that the transfer was made to pay an antecedent debt. The court spent a long time discussing the lack of evidence as to the details of the antecedent debt, finally deciding that the claim of an antecedent debt was wholly unsupported. Therefore, the transfer was fraudulent.
For questions about this, please contact David Fishman at (410) 576-4234.
Who is a “Member of the Public”?
Lipitz v. Hurwitz, 207 Md. App. 206, 52 A.3d 94 (2012), cert. granted, 429 Md. 528 (Dec. 14, 2012), involved a contest between William Hurwitz, who owns two properties in the Caves Valley Golf Club, and Flora and Roger Lipitz, Trustees, with whom he signed a contract to buy their house for more than $4 million. The usual provision in an Homeowners Association (HOA) contract that the purchaser will receive HOA disclosures was included in the contract, but it was deleted by addendum, perhaps because Mr. Hurwitz already owned two properties in the same development. Lipitz alleged that he offered to give all the disclosures to Hurwitz, but that Hurwitz declined them, saying that he already owned two properties in Caves Valley.
Hurwitz thereafter changed his mind about the purchase and did not go to closing. He defended a suit for specific performance by the Lipitzes on the grounds that he is a “member of the public” as defined in the Maryland HOA Act and therefore was entitled to various disclosures which were not given to him. The Court of Special Appeals agreed despite the contention by the Lipitzes that there is a distinction between members of the public and members of the HOA.
The Court of Appeals granted cert., and the case will be argued before it in September.
For questions about this, please contact David Fishman at (410) 576-4234.
What Duty Does a Title Agency Owe to Its Customer?
100 Investment Limited Partnership v. Columbia Town Center Title Co., 430 Md. 197, 60 A.3d 1 (2013), concerned the sale of a parcel of land to two different buyers, and the failure of two title agencies to discover the earlier conveyance when reporting to later buyers and when issuing policies of title insurance. The Court of Appeals framed the issue in this case as whether there is a duty imposed on title companies in tort, and whether a title agency owes a duty of reasonable care to its customer in conducting a title search.
The title agencies involved contended that their relationship with their customers is contractual in nature and that a tort duty should not be imposed. They argued that their relationship with their customers is limited to issuing a title binder and title insurance policy and is not “sufficiently intimate” to warrant tort liability. The title agents had the nerve to argue that there is no expectation on behalf of its customer to rely on the information contained in the title commitments or policies. The title agencies admit that the law generally recognizes a tort duty of care in contractual dealings with professionals such as physicians, attorneys, architects and accountants, but they urged that this duty not be extended to a title agency.
The Court of Appeals felt the need to go back to two landmark cases written by Judge Cardozo for the New York Court of Appeals in the ‘20s and ‘30s, Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922), and Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931), two tort cases that are probably familiar to students in every law school in the country.
While the parties agreed that the title agencies were engaged to do title work for two land sale transactions, they differed as to whether there existed an “intimate nexus” between the customer and the title agency.
This transaction gave rise to multiple lawsuits in several different courts, both federal and state. The Court of Appeals decided that the title agencies had a duty to exercise reasonable care in conducting the title searches and transmitting that information to their customers. It found that it is appropriate to apply the tort negligence standard to individuals or entities who examine title for compensation. It relied in part on the dissenting opinion by Judge Meredith in the Court of Special Appeals in finding a tort duty and applying the standard applicable to attorneys and accountants to title examiners. The final holding is that the title agencies owed a duty of care to their customers in conducting the title searches and issuing the title commitments.
Additionally, the Court of Appeals held that the limitation of damages contained in the title insurer’s policy of title insurance was binding and effective to prevent Chicago Title Insurance Company from being vicariously liable for the negligent acts of its agents.
For questions about this, please contact David Fishman at (410) 576-4234.
EDITOR’S NOTE: These case summaries are based on the “The 2012 Real Estate Case Hit Parade,” which David Fishman prepared and presented to the Maryland State Bar Association’s Commercial Real Estate Attorneys Discussion Group on April 16, 2013 at the MSBA Headquarters and to the Baltimore County Bar Association’s Real Property Committee on May 8, 2013 at the Country Club of Maryland. David has compiled annual Hit Parades for many years.