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Opinions – 3/26/12: Maryland Court of Special Appeals

Civil Procedure

In banc panel

BOTTOM LINE: CJ §1-403(c) was not violated where the case was heard in banc and a majority of the nine judges qualified to act decided each of the issues on appeal.

CASE: Exxon Mobil Corporation v. Ford, No. 1804, September Term, 2009 (filed Mar. 6, 2012) (per curiam). RecordFax No. 12-0306-12, 8 pages.

FACTS: Residents of Jacksonville in Baltimore County were awarded substantial damages as a result of a gasoline leak from an underground storage tank. An appeal of that decision by ExxonMobil Corporation was heard in banc by nine members of the Court of Special Appeals.

On February 9, 2012, the in banc Court affirmed in part and reversed in part the judgment of the circuit court, reducing the damage award by more than half. In five separate opinions, the in banc Court divided on most issues by a 5-4 vote, although six judges voted to uphold most of the property damage award. On two issues, the Court was unanimous.

The Residents moved to reconsider the February 9th decision asserting that it violated CJ §1-403(c).

The Court of Special Appeals denied the motion for reconsideration.

LAW: “A hearing or rehearing before the court in banc may be ordered in any case by a majority of the incumbent judges of the court. Six judges of the court constitute a quorum of the court in banc. The concurrence of a majority of the incumbent judges of the entire court is necessary for decision of a case heard or reheard by the court in banc.” CJ §1-403(c). “[T]he plain-meaning rule does not force us to read legislative provisions in rote fashion and in isolation.” Kaczorowski v. Baltimore, 309 Md. 505, 514 (1987). Results of statutory interpretation that are unreasonable, illogical or inconsistent with common sense should be avoided. Id. at 516.

In addition, when “a statute is phrased in broad general terms, it suggests that the legislature intended the provision to be capable of encompassing circumstances and situations which did not exist at the time of its enactment.” Kindley v. Governor, 289 Md. 620, 625 (1981). And the General Assembly is presumed to have intended that all enactments operate together as a “consistent and harmonious body of law.” Farmers & Merchants National Bank of Hagerstown v. Schlossberg, 306 Md. 48, 61 (1988).

Constitutional provisions governing judicial vacancies, notably Article IV, §5A, and rules governing judicial disqualification, particularly Rule 2.11 of the Maryland Code of Judicial Conduct, necessarily determine what constitutes “a majority of the incumbent judges of the entire court.”

In Board of Commissioners v. Wachovia Loan & Trust Co., 55 S.E. 442 (N.C. 1906), the North Carolina Supreme Court considered a requirement that a town board create a public debt only after a three-fourths vote of “the entire board” in light of the fact that one board member had resigned. The court refused to adopt a rigid view of the words “entire board,” concluding that it meant “all the members of the board in existence, and not all those originally elected.” Id. at 444. See also City of Nevada v. Slemmons, 59 N.W. 2d 793 (Iowa, 1953).

At issue in City of Alamo Heights v. Gerety, 264 S.W. 2d 778 (Tex. App. 1954), was whether a rezoning had obtained the vote of three-fourths of “all” the members of the legislative body, when one member of the council “disqualified himself by reason of interest.” Id. at 778-79. The Texas court concluded that a disqualification had to be treated “as though it were a vacancy” and thus “all” members of the legislative body meant “all the members in esse and qualified to act.” Id. at 779-80.

These authorities treat vacancies and disqualification the same — as reducing the number of members required to take official action to those “entitled” or “qualified” to vote, regardless of statutory language requiring the votes of “all,” “the whole number of’ or “the entire” body. This is the proper interpretation of CJ §1-403(c).

In Department of Human Resources v. Howard, 397 Md. 353 (2007), in concluding that §1-403(c) did not permit retired judges to serve on in banc panels, Judge Harrell noted in dicta the impact of the 1973 Code Revision of §1-403(c): “Before the revision, if seven judges of the 13 member court were absent, the court could not have acted in banc for lack of a majority unless judges were specially assigned to fill temporarily the vacant seats[;] the post-revision interpretation allows a four-member majority of the 6 filled seats to decide a case in banc.” Id. at 365, n. 16.

Thus, seven votes were not required for the Court to reach the decision it did in the February 9, 2012 per curiam. A majority of the nine judges qualified to act in this case decided each of the issues on appeal.

COMMENTARY: In 2005, the U.S. Supreme Court amended Rule 35 of the Federal Rules of Appellate Procedure (FRAP) so that a disqualified judge was not included in determining the number of judges required to order a case to be heard en banc in a circuit of the U.S. Court of Appeals. The amendment resolved a conflict among the circuits: seven circuits followed the “absolute majority” approach, where disqualified judges were counted in the base in calculating whether a majority voted to hear a case en banc; and six circuits followed the “case majority” approach, where disqualified judges were not counted.

The Advisory Committee on Appellate Practice Notes explain why the minority rule was preferable: “First, under the absolute majority approach, a disqualified judge is, as a practical matter, counted as voting against hearing a case en banc. This defeats the purpose of recusal. Second, the absolute majority approach can leave the en banc court helpless to overturn a panel decision with which almost all of the circuit’s active judges disagree. For example, in a case in which 5 of a circuit’s 12 active judges are disqualified, the case cannot be heard en banc even if 6 of the 7 non-disqualified judges strongly disagree with the panel opinion. This permits one active judge…effectively to control circuit precedent, even over the objection of all of his or her colleagues.”

The federal en banc scheme differs from in banc review authorized by State law. Nevertheless, if the Residents’ view was adopted, it could render useless to court and litigant the in banc review mechanism.

PRACTICE TIPS: When the in banc statute was enacted in 1970, the Maryland Rules provided few grounds for disqualification of a Maryland judge. Now, the grounds for disqualification are many and all encompassing. See Rule 2.11. of the Maryland Code of Judicial Conduct. The General Assembly in enacting §1-403(c) would have intended it to be construed consistently with the evolving Maryland Rule on judicial disqualification.

Civil procedure

Expert witness opinion

BOTTOM LINE: Trial court abused its discretion in granting defendant a new trial based on its conclusion that opinion of plaintiff’s expert witness, a vocational rehabilitative counselor, was not supported by a sufficient factual basis, because counselor’s many years of experience, knowledge of the labor market, and skill in performing employment assessments qualified her at least to testify before the jury so that jury could weigh the evidence and reach a verdict, and in granting defendant a new trial, court interjected itself and confused the weight of the evidence with its admissibility.

CASE: Yiallouros v. Tolson, No. 2773, Sept. Term, 2011 (filed Mar. 2, 2012) (Judges Eyler, D., MATTRICIANI & Rodowsky (retired, specially assigned)). RecordFax No. 12-0302-04, 21 pages.

FACTS: On March 15, 2006, Yiannis Yiallouros was on call as a maintenance worker for the Montgomery County Housing Opportunities Commission and traveling southbound in his automobile when he collided with John Tolson, who was turning left from the northbound lanes. Yiallouros sustained serious injuries in the crash. He underwent surgery for his injuries, and began physical therapy.

After a rehabilitation program, a therapist determined that Yiallouros had certain physical limitations. Yiallouros had to use crutches for several months before returning to light duty on February 19, 2007. In March of 2007, however, the Housing Commission discharged Yiallouros because there was no permanent light duty work and he could no longer perform the tasks required by his normal position. Yiallouros applied for work with several employers but secured no interviews or offers.

In 2009, Yiallouros filed a negligence action against Tolson in circuit court, alleging that Tolson was liable for damages including pain and suffering, medical expenses, loss of present and future earnings, and loss of consortium. At trial, Yiallouros and his wife testified that Yiallouros suffered from boredom and the frustration of knowing that he could no longer work outside or inside the home, no longer enjoy his daily walks with his wife, and no longer entertain their friends, as was their habit. Yiallouros’s wife testified that they now argued more frequently and had considered separation and divorce.

Yiallouros called Dr. Jeffrey Phillips, an orthopedic specialist, to present his opinion on Yiallouros’ disability. To complement the doctor’s testimony, Yiallouros offered the opinion of Lianne Friedman. Tolson chose not to conduct voire dire or to demand a hearing to determine her qualifications, and the court designated her as an expert in the field of vocational rehabilitation counseling and employment. Friedman rendered her opinion that, due to a combination of factors, but mostly because of his injury, Yiallouros was not placeable or employable, and had sustained a total loss of earning capacity. Yiallouros’s other expert, Thomas Borzilleri, a Ph.D. economist, opined that the present value of Yiallouros’s future lost earnings was between $330,607 and $404,787.

The jury returned a verdict for Yiallouros and awarded him damages for past medical expenses, lost wages, loss of future wages, pain and suffering, and loss of consortium. Tolson filed a motion for remittitur or new trial on the issue of damages, arguing that the court erred and the jury was improperly influenced by expert testimony of the vocational rehabilitation witness. The court granted the motion for a new trial.

The court convened a second trial, and Tolson demanded a hearing to determine Friedman’s qualifications as an expert under Rule 5-702. The court concluded the hearing by ruling that, although there were “weaknesses in her predicate for rendering her opinion,” it could not find that Friedman’s opinion was without any factual basis, and that the jury should not be deprived of her opinion.

The second jury found that Tolson was negligent but that Yiallouros was contributorily negligent and awarded no damages. The court denied Yiallouros’ motions for judgment notwithstanding the verdict and for new trial.

Yiallouros appealed to the Court of Special Appeals, which held that the circuit court erred in granting Tolson’s motion for a new trial, and remanded the case to circuit court.

LAW: The breadth of a trial judge’s discretion to grant or deny a new trial is not fixed and immutable; rather, it will expand or contract depending upon the nature of the factors being considered, and the extent to which the exercise of that discretion depends upon the opportunity the trial judge had to feel the pulse of the trial and to rely on his own impressions in determining questions of fairness and justice. Buck v. Cam’s Broadloom Rugs, 328 Md. 51, 58-59 (1992). In the present case, the range of discretion of the trial judge was necessarily at its broadest. The motion for a new trial did not deal with the admissibility or quality of newly discovered evidence, nor with technical matters. Instead, it asked the trial judge to draw upon his own view of the weight of the evidence; the effect of an accumulation of alleged errors or improprieties by defense counsel, no one of which may have been serious enough to provoke a request for, or justify the granting of, a mistrial; and the allegedly inadequate verdict, in determining whether justice would be served by granting a new trial.

The trial court held that it had erroneously admitted testimony from Yiallouros’ vocational expert, who lacked an adequate factual basis for her opinions. While an ordinary fact witness merely states his or her recollection of past events, an expert opinion draws from given facts to reach a conclusion that cannot be tested directly. In this case, for instance, there was no way to determine at present what the future held for Yiallouros, and yet the law of damages entitled him to the benefit of his future earnings. See Adams v. Benson, 208 Md. 261, 271 (1955).

Believing that question to be beyond the ken of the average layman, Yiallouros called on an expert, Lianne Friedman, to predict his future lost earning capacity based on the expert’s knowledge of Yiallouros’ abilities and market demand. Under Rule 5-702, it was required the Friedman’s opinion have a “sufficient factual basis,” which was the crux of the matter now before the Court of Special Appeals. Stripped to its essence, Friedman’s opinion was a proposition, drawing a conclusion from a set of facts using logical inference. As such, it was subject to three primary criticisms, each falling along the spectrum of discretion: first, that Friedman misrepresented her knowledge of the given facts; second, that the given facts were objectively untrue; and third, that the conclusion did not follow logically from the given facts.

The first of these generic attacks on expert testimony was essentially a question of truthfulness, which would ordinarily depend upon the opportunity the trial judge had to feel the pulse of the trial and to rely on his own impressions in determining questions of fairness and justice. However, there was no indication or argument that Friedman was actively misrepresenting such fundamental matters as her curriculum vitae or the fact that she had studied and dealt with the relevant labor markets. See In re Adoption/Guardianship of Tatianna B., 417 Md. 259, 268 (2010).

Likewise, with regard to the third category of attack on expert opinion, “validity,” the trial court had no reason to pass judgment on such issues, for no one argued that it was impossible or impermissible to infer future market demand from knowledge of present conditions and trends, or that Yiallouros’ physical capabilities also could not be forecasted.

Rather than attack Friedman’s representations of her substantive knowledge, or the logical validity of her conclusions, Tolson grounded his argument on the substantive falsity of her “factual basis,” taking as proof that her testimony contradicted several medical assessments of Yiallouros’ capabilities. To that end, Tolson correctly stated that Yiallouros indicated that he believed he was physically capable of performing alternative employment, and that Yiallouros’ treating physician advised that Yiallouros was medically capable of performing and opined that Yiallouros could work in a position that was less physically taxing. However, Friedman plainly opined that while Yiallouros was physically capable of performing many jobs, he was otherwise incapable because he lacked the skill, training, and experience that those positions demanded. Although Yiallouros had considerable work experience, his expert testified that from her experience and knowledge of the labor market as well as various professional assessments of his physical limitations, Yiallouros could no longer be employed in physically demanding jobs and he was not equipped with the requisite skills for sedentary employment. Thus, there was no contradiction between this opinion and the medical opinions given at trial.

When the court granted Tolson’s new trial motion, it interjected itself and confused the weight of the evidence with its admissibility. As the second trial court determined, Friedman’s many years of experience, her knowledge of the labor market, and her skill in performing employment assessments qualified her at least to testify before the jury so that it could weigh the evidence and reach a verdict.

Accordingly, the Court of Special Appeals reversed in part the trial court’s ruling granting Tolson a new trial, and remanded the case for a new trial limited to non-economic damages or other proceedings.

COMMENTARY: While the trial court erred in finding that the expert testimony was contradicted and thus could not form a sufficient factual basis for any opinion, the question of non-economic damages was an independent factual matter, and there was no reason to reverse the circuit court’s ruling thereupon. The presiding judge drew from his many years of experience as a lawyer and a jurist, as well as his immediate observations of the relevant evidence, to conclude that the non-economic damages awarded were grossly excessive. Specifically, the jury awarded precisely $224,010 for each, an amount which, when added to Yiallouros’ economic damages, brought the total award to the round figure of $925,000.

The inescapable conclusion was that the jury determined its award for economic damages and then awarded non-economic damages as an exercise in arithmetic “guesswork,” failing to consider what amounts would actually compensate a reasonable person for the pain and suffering of his physical injuries, as a matter separate and distinct from any alleged loss of consortium. See Quality Discount Tires, Inc. v. Firestone Tire & Rubber Co., 282 Md. 7, 24 (1978).

Thus, the trial court’s ruling granting a new trial on the issue of non-economic damages was affirmed.

PRACTICE TIPS: In Maryland, expert testimony may be admitted, in the form of an opinion or otherwise, if the court determines that the testimony will assist the trier of fact to understand the evidence or to determine a fact in issue. In making that determination, the court shall determine: (1) whether the witness is qualified as an expert by knowledge, skill, experience, training, or education; (2) the appropriateness of the expert testimony on the particular subject; and (3) whether a sufficient factual basis exists to support the expert testimony.

Corporations & Partnerships

Piercing corporate veil

BOTTOM LINE: Absent a finding of fraud, the circuit court erred by finding defendant personally liable for the debts of the limited liability company solely owned by him.

CASE: Serio v. Baystate Properties, LLC, No. 1441, September Term, 2009 (filed Mar. 8, 2012) (Judges Matricciani, Graeff & KENNEY, JAMES A., III, (retired, specially assigned)). RecordFax No. 12-0308-00, 26 pages.

FACTS: On December 14, 2006, Timothy Wenzel, Managing Member of Baystate Properties, Inc., entered into a contract (the Agreement) with Serio Investments, LLC, as Managing Member of Serio Investments, to build houses to certain specifications on two lots identified as 1901 and 1903 Hillside Drive (the Hillside Drive Lots), which were owned by Serio individually. Serio Investments, identified in the Agreement as “Lender,” was to “provide an escrow account…from which [Baystate] will receive payments according to the agreed upon draw schedule” for its work. Upon the sale of the improved lots to a third party, Baystate would be paid an additional $25,000 for each house.

As work progressed, Wenzel drafted multiple addenda to the Agreement representing changes to the work requested that, in aggregate, obligated Serio Investments to pay Baystate an additional $43,638. Each addendum was signed by Serio as the Managing Member of Serio Investments.

In June of 2007, Serio presented Wenzel with a handwritten waiver by Baystate and Serio Investments of any claims for personal liability under the Agreement. Wenzel typed that document and both Wenzel and Serio, on behalf of Baystate and Serio Investments respectively, executed the document.

Shortly thereafter, payments to Baystate began to slow. The 1901 Hillside Drive Lot sold on June 29, 2007 for $380,000. The 1903 Hillside Drive Lot was sold on October 11, 2007, but, because the buyers subsequently defaulted on a mortgage, Serio received only approximately $20,000 on the sale. According to Baystate, none of the proceeds from the sale of the Hillside Drive Lots were deposited into the Serio Investments account.

Baystate sued Serio and Serio Investments in the circuit court for money owed on the Hillside Drive Lots (the Finished Houses case), and an action in the district court to recover for work done on an unimproved lot adjacent to the Hillside Drive Lots (the Empty Lot case).

Serio engaged Shanell Harleston and the Harleston Law Firm, LLC, to represent both Serio and Serio Investments in the litigation. On May 12, 2009, Harleston contacted Serio by letter to inform him that her recent employment with the federal government necessitated the closing of her private practice, and of her intent to withdraw as his attorney in the Baystate litigation. Subsequently, Harleston filed, under Rule 2-132, a motion to withdraw appearance as counsel in the circuit court.

Because the clerk’s office did not correctly docket the motion to withdraw, it was not ruled on until the day of the trial. The court granted Harleston’s request to withdraw as counsel. Serio’s request for a continuance was denied.

Both parties waived their right to a jury trial. The court did not find fraud but, to enforce a paramount equity, held Serio personally liable for the obligations of Serio Investments. The court entered judgment in favor of Baystate and against Serio individually in the amounts of $131,438 for the Finished Houses case and $10,380 for the Empty Lot case.

The Court of Special Appeals reversed.

LAW: “Except as otherwise provided by this title, no member shall be personally liable for the obligations of the limited liability company, whether arising in contract, tort or otherwise, solely by reason of being a member of the limited liability company.” CA §4A-301

Case law has recognized the availability of an action to disregard a limited liability entity congruent with the equitable remedy of piercing the corporate veil. See McCleary v. McCleary, 150 Md. App. 448, 458 (2002). However, “although the courts will, in a proper case, disregard the corporate entity and deal with substance rather than form, as though a corporation did not exist, shareholders generally are not held individually liable for debts or obligations of a corporation except where it is necessary to prevent fraud or enforce a paramount equity.” Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc., 275 Md. 295, 310 (1975).

According to the trial court, the evidence did not support a finding of fraud, but it was “sufficient to establish a paramount equity.”

In Hildreth v. Tidewater, 378 Md. 724 (2006), the trial court found Hildreth, who was the sole shareholder, director and officer of HCE, Inc. (HCE), personally liable for contracts entered into by HCE. The trial court based its decision on the notion of enforcing a paramount equity and the Court of Special Appeals affirmed.

The Court of Appeals reversed. The Court acknowledged prior “favorable references” to the “synthesis” of when a corporate entity will be disregarded: first, where the corporation is used as a mere shield for the perpetration of a fraud; second, in order to prevent evasion of legal obligations; and third, where the stockholders themselves, or a parent corporation owning the stock of a subsidiary corporation, fail to observe the corporate entity. Id. at 735 (quoting Brune, MARYLAND CORPORATION LAW AND PRACTICE, §371).

While the first ground addresses fraud, the second and third grounds are “subsumed [] in the doctrine of paramount equity.” Hildreth, 378 Md. at 739.

As to the third ground, sometimes referred to as the “alter ego” doctrine, id. at 736, the Court indicated that “with great caution” and only “in exceptional circumstances” could a corporate entity be disregarded if the plaintiff shows: (1) “[C]omplete domination, not only of the finances, but of policy and business practice in respect to the transaction so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own,” (2) that “such control [was] used by the defendant to commit fraud or wrong, to perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights” and (3) that such “control and breach of duty proximately caused injury or unjust loss.” Id. at 735 (quoting 1 Fletcher, Fletcher Cyclopedia of the law of Private Corporations, Sec. 41.10 at 583-86 (1999 Rev. Vol.)).

The Hildreth Court found no support in the record to justify holding the shareholder personally liable for the corporate obligation. “[T]here is no evidence that [Hildreth’s] conduct in any way influenced Tidewater to enter into the contractual arrangement from which this debt arose. Tidewater knew that it was dealing with a corporation, and it had satisfied itself that the corporation had substantial contracts and assets, that it had two business locations in the State, that it had numerous employees and that it was not a ‘one man show.’” Id. at 737.

There is great reluctance to disregard the corporate entity in a clear business-to-business transaction. See, e.g., Home News, Inc. v. Goodman, 182 Md. 585, 593-94 (1944). Furthermore, the corporate veil will not be pierced to redress the breach of a contractual obligation in the absence of fraud when the party seeking to pierce the corporate shield has dealt with that corporation in the course of its business on a corporate basis. See Turner v. Turner, 147 Md. App. 350, 426-28 (2002).

In Hildreth, the Court found the plaintiff and “a valid, subsisting corporation entered into a commercial contract and [the aforementioned corporation] later became unable to satisfy its obligation under that contract. That is unfortunate, but it is not a basis for making someone else liable for the corporate debt.” Hildreth, 378 Md. at 738-39. See also Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc., 275 Md. 295 (1975).

In this case, the circumstances the court relied upon were that Serio personally owned and sold the two lots individually. Regarding financial solvency, the circuit court found that Serio Investments possessed no assets and very little cash. In the circuit court’s view, Serio’s failure to deposit the funds from the sale of the Hillside Drive lots into Serio Investments, and the fact that Serio Investments later filed for Chapter 7 bankruptcy, evidenced an intent to evade the company’s legal obligations to Baystate.

Serio Investments fulfilled the contract with Baystate until the collapse of the housing market caused problems. Baystate was an established building contractor who understood and agreed that it was doing business with another limited liability company, as reflected in the Agreement, later addenda, and their continuing course of business.

Under these circumstances, the circuit court abused its discretion in finding Serio personally liable for the obligations of Serio Investments.

COMMENTARY: To effectuate a withdrawal as counsel, an attorney must mail notice to the client, “informing the client of the attorney’s intention to move for withdrawal and advising the client to have another attorney enter an appearance[.]” Rule 2-132(b).

Furthermore, except in the case of a “motion…made in open court,” a motion to withdraw must not be filed for “at least five days” after the mailing to the client of the intention to withdraw, but the Rule does not preclude the filing of a motion to withdraw within five days of trial. Rule 2-132(b). The court may deny the motion if withdrawal of the appearance would cause “undue delay, prejudice, or injustice.” Rule 2-132(b).

Rule 2-132(c) requires the clerk, after an attorney’s appearance is stricken, to notify a litigant for whom there is no attorney of record that, if no counsel’s appearance has been entered in 15 days, the absence of counsel will not be grounds for a continuance.

Although subsection (c) does not expressly address what happens when a motion to withdraw is not ruled on until the day of trial, it appears that the granting or denial of both the motion to withdraw and a request for a continuance is in the discretion of the court, and that discretion is to be exercised in light of the circumstances.

Serio was notified on February 5, 2009 that the trial date was set for July 22, 2009. On May 1, 2009, Harleston issued an announcement to her clients, including Serio, that she was closing her office. She followed up the announcement with a Rule 2-132 letter to Serio on May 12, 2009 informing him that her employment with the federal government would necessitate closing her private practice and withdrawing as counsel. She advised Serio to secure alternate counsel. This letter triggered the five-day notice period required “prior to the filing of the motion [to withdraw.]” Rule 2-132(b).

The motion to withdraw as counsel along with a copy of the letter to Serio and a certificate of service indicating that Serio was provided written notice of Harleston’s intent to withdraw was filed with the circuit court on June 9, 2009, over a month after Serio had first been notified of Harleston’s intent to withdraw. Thus, Harleston complied with the procedural requirements of the Rules in terminating her representation.

By Serio’s own admissions, he was aware of the trial date and understood Harleston’s intent to withdraw. Yet, Serio did not seek to engage counsel until shortly before trial.

The circuit court did not abuse its discretion by granting Harleston’s motion to withdraw and denying Serio’s request for a continuance. See Das v. Das, 133 Md. App. 1, 31 (2000).

Landlord/Tenant

Jury trial

BOTTOM LINE: In consolidated case involving action by landlord against tenants in which landlord sought to regain possession of property from “Tenant Holding Over” and action by tenants against landlord seeking damages for harassment and for breach of the covenant of quiet enjoyment or warranty of habitability, tenants were entitled to jury trial because claims were both legal and equitable in nature, tenants met threshold damages amount for a jury trial, and they made a timely demand for a jury trial; however, because circuit court properly disposed of case by directed verdict, court’s error in striking tenants’ demand for jury trial was rendered harmless.

CASE: Sandler v. Executive Management Plus, Nos. 0732, 0752, Sept. Term, 2010 (filed Mar. 1, 2012) (Judges Zarnoch, HOTTEN, Sharer & Frederick (retired, specially assigned)). RecordFax No. 12-0301-01, 27 pages.

FACTS: On September 29, 2009, tenants Theodore Sandler and Abbie Fields entered into a one-year residential lease with Executive Management Plus for a single family home in Potomac, Maryland. The lease contained a renewal clause. After the term of the lease was up, a dispute arose between the parties regarding whether Sandler and Fields properly exercised the renewal clause to extend the lease for another year. Executive Management Plus asserted that Sandler and Fields modified the original lease, creating a counter-offer for the renewal term, which Executive Management Plus did not accept.

On September 29, 2009, Executive Management Plus served the tenants with a Notice to Vacate. On November 4, 2009, Executive Management Plus filed a “Complaint and Summons against Tenant Holding Over” (“THO”) in district court, seeking possession of the property. On November 6, 2009, Sandler and Fields filed a Petition in Action of Rent Escrow and for Injunction in district court, alleging the presence of certain conditions and defects in the leased premises, including mold, flaking paint, building code violations, and environmental department violations. The tenants sought an injunction against harassment and damages for breach of the covenant of quiet enjoyment or warranty of habitability.

The rent escrow case came before the district court on December 9, 2009. Because the THO case had not been called, the district court continued both cases to December 16, 2009. In the meantime, one of the tenants asked about moving for a jury trial. After the hearing on December 9, 2009, Sandler filed a written jury trial request. On December 16, 2009, the district court sent both cases to the circuit court for jury trials.

The two cases were subsequently consolidated at tenants’ request. On March 24, 2010, the consolidated cases went before another circuit court judge for a hearing on several motions and for trial. The court reversed the consolidation order and granted Executive Management Plus’s motion to strike the jury trial demand. The cases each went to trial before another circuit court judge on May 12 and 13, 2010. In each case, the court granted Executive Management Plus’s motions for directed verdicts, which were essentially motions for judgment.

Sandler and Fields appealed both decisions to the Court of Special Appeals, which affirmed the decisions of the district court.

LAW: The right to a jury trial in Maryland is afforded by Articles 5 and 23 of the Maryland Declaration of Rights. On appeal, tenants argued that the circuit court erred by denying their right to a jury trial.

The actions before the Court were not limited to claims for equitable relief. As such, Sandler and Fields would have been entitled to a jury trial in each case provided they alleged a sufficient amount in controversy and fulfilled other prerequisites for demanding a jury trial. See Martin v. Howard County, 349 Md. 469, 471-472 (1998). The gravamen of Executive Management Plus’s “Complaint and Summons against Tenant Holding Over” was that Executive Management Plus desired to gain possession of the premises. This claim was a claim at law. For a party to be entitled to a jury trial for a claim at law, the action must involve an amount in controversy that exceeds $10,000, the threshold jurisdictional amount in effect at the time the claim was filed. See C.J. §4-402(e)(1); see also Carroll v. Housing Opportunities Commission, 306 Md. 515, 517 (1986).

The general federal rule has long been to decide what the amount in controversy is from the complaint itself, unless it appears or is in some way shown that the amount stated in the complaint is not claimed in good faith. In deciding this question of good faith, it must appear to a legal certainty that the claim is really less than the jurisdictional amount to justify dismissal. Carroll, 306 Md. at 523-24. In the present THO case, at the commencement of the THO action, the tenants’ claim of entitlement to continued possession under a lease, the terms of which included more than three monthly rent payments in excess of $3,700, demonstrated an amount in controversy to justify a trial by jury. See Purvis v. Forrest Street Apts., 286 Md. 398, 403-4 (1979). Thus, in regard to the tenants’ complaint for damages for breach of the covenant of quiet enjoyment and warranty of habitability in the rent escrow action, the tenants would have been entitled to a jury trial.

In sum, the actions involved both equitable and legal claims. An action for possession from a tenant holding over has been recognized as an action at law. The damages claim for breach of the covenant of quiet enjoyment and warrant of habitability, though related to the rent escrow claim, were cognizable at law and satisfied the jurisdictional threshold. Although this was a close case, the jury trial demands in each case were timely. And, while presenting a close question, Sandler and Fields satisfied the amount in controversy threshold for the THO case.

Accordingly, the circuit court erred by striking the jury trial demands. However, because this error was harmless, the decision of the circuit court was affirmed.

COMMENTARY: A Maryland court will not demand jury consideration of an issue which is determinable by directed verdict. United States v. Williams, 441 F.2d 637, 644 (5th Cir. 1971). Moreover, the question whether evidence is sufficient for submission to a jury is procedural. Id. When a trial court would have been required to direct a verdict on certain issues, there is no constitutional right to have twelve jurors sit idle and functionless in a jury-box. United States v. 243.22 Acres of Land, 129 F.2d 678, 684 (2d Cir. 1942). Where the facts will allow but one conclusion or inference, a judge properly may remove the issue from the jury. Parfait v. Central Towing, Inc., 667 F.2d 1189, 1190 (5th Cir. 1982).

Here, the circuit court first ruled that Sandler and Fields were tenants holding over because a new lease had not been executed. The court ruled that the parties had not reached an agreement that would support a finding of a continuation of the leasehold for an additional year. A review of the lease that tenants returned to Executive Management Plus indicated changes to the document that could only be construed as a counter-offer. With respect to the complaint under the Rent Escrow Act and for damages arising out of the alleged breach of the covenant of quiet enjoyment and the warranty of habitability, the court ruled that the tenants did not produce sufficient evidence to support their claim as a matter of law. The court ruled that it was essentially dismissing the action. This ruling, not challenged on appeal, addressed the damages claims that would arise from conditions and defects in the leased premises. As such, there was no error in the circuit court’s entries of judgment.

PRACTICE TIPS The Maryland Legislature has increased the jurisdictional threshold for jury trials in a civil action to $15,000. Specifically, the right of trial by jury of all issues of fact in civil proceedings in Maryland courts of law, where the amount in controversy exceeds the sum of $15,000, shall be inviolably preserved. A jury demand must be made by a separate written pleading.

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