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Opinions: Maryland Court of Appeals

Administrative Law

Timeliness of appeal

BOTTOM LINE: Former commissioner’s petition for an administrative hearing to appeal Agency’s denial of retirement benefits was properly rejected by Agency as time barred because petition was filed more than 180 days after Agency gave notice that its decision denying benefits was final.

CASE: Carven v. State Retirement & Pension System of Maryland, No. 58, Sept. Term, 2009 (filed Oct. 26, 2010) (Judges Battaglia, Greene, Adkins & Barbera) (Judges Bell, Harrell & Murphy dissenting). RecordFax No. 10-1026-20, 33 pages.

FACTS: The Employees’ Pension System (EPS) and the Judges’ Retirement System (JRS) are separate benefit-providing systems within the State Retirement and Pension System of Maryland (SRPS). Both systems are administered by the SRPS Board of Trustees (Board). In addition to the Board, the General Assembly created the State Retirement Agency (Agency), as an agency of the Board, “to carry out the administrative duties of the several systems” within the SRPS. Maryland Code (2004 Repl.Vol., 2007 Cum.Supp.), §§21-117, 21-119 of the State Personnel & Pensions Article (SPP).

During the time period relevant to this case, membership in the EPS was available to, among others, “regular employee[s] whose compensation is provided by State appropriation or paid from State funds” and “appointed or elected official[s] of the State,” and membership in the JRS was available to, among others, judges on the appellate, circuit, and district courts, as well as commissioners of the State Workers’ Compensation Commission (WCC). See SPP §§23-201(a), 27-201. Elizabeth Carven instituted this case after the death of her husband, Arthur Carven, to contest the denial of his application for JRS membership while he served as a WCC commissioner.

From 1979 until 1987, Carven served as an Assistant State’s Attorney. In 1987, he was appointed to serve as the Executive Assistant for Public Safety, and he later served as Assistant Attorney General until his retirement in 1996. At that time, Carven had accrued 16 ½ years of service credit, qualifying him to receive retirement benefits through the EPS. After retiring, Carven practiced law in the private sector until he was appointed County Attorney for Harford County in 1998.

As County Attorney, Carven’s income exceeded the EPS earnings limitation, and, consequently, his retirement allowance ceased. The Agency notified Carven that he was ineligible for additional service credit as County Attorney even though Harford County was a participating employer within the SRPS. Carven served as County Attorney for five years until he was appointed to the WCC in 2004. When Carven notified the SRPS of his employment with the WCC, however, the Agency informed him that he remained subject to an earnings limitation that prevented him from collecting his retirement allowance. The Agency also notified him that he could not become a member of the JRS because, as an EPS retiree, he was ineligible to rejoin any State system.

Carven wrote to the Board requesting entry into the JRS, arguing that the Agency’s position was unfair because the prohibition on re-enrollment was meant to prevent employees from earning service credit in the same system from which they were already receiving a retirement allowance, and EPS retirees participating in the JRS would earn service credit in a system entirely separate from the system from which they had been receiving their retirement allowance. The Agency responded that EPS retirees are not permitted to rejoin any State system if they are re-employed by the State, including the JRS. The Agency also noted that Carven could request an administrative appeal of this action by submitting, within 180 days, a Petition, and that if he failed to do so, he would have no further right to appeal.

Rather than request an administrative appeal, however, Carven sought a legislative remedy. In July 2005, Delegate Kevin Kelly, on Carven’s behalf, wrote to Robert Zarnoch, then Counsel to the General Assembly, requesting an opinion as to whether a Commissioner could voluntarily forgo his service allowance during his term on the WCC and thereafter receive creditable service in the JRS during his term on the Commission. Robert McDonald, Chief Counsel of Opinions and Advice in the Attorney General’s Office, responded that the Commissioner may not voluntarily give up his service retirement allowance under EPS in order to earn creditable service in the JRS during his term with the Commission. McDonald further advised that, to rectify the situation, it would be necessary to obtain corrective legislation. Carven attempted to secure such legislation twice, but was unsuccessful.

On June 17, 2006, Carven completed a written application for JRS enrollment, and, on September 7, 2006, after Carven’s death, Mrs. Carven received a letter from the SRPS informing her that, under Maryland law, Carven was ineligible for membership in the JRS. In January 2007, Mrs. Carven filed a Petition for an administrative hearing, but the Agency denied her request based, in part, on Carven’s failure to request a hearing within 180 days of the May 2004 letter notifying him of his ineligibility for membership.

The circuit court reversed the Board’s determination that Carven’s Petition was untimely but upheld the Board’s decision to deny the membership application.

Mrs. Carven appealed to the Court of Special Appeals, but the Court of Appeals granted certiorari and reversed the judgment of the circuit court, holding that Carven’s Petition was, as the Board originally found, time barred.

LAW: COMAR provides that “[a] petition for hearing shall be filed within 180 days of the date that a claimant is given notice of an Agency action[.]” The regulation appears in COMAR Title 22 “State Retirement and Pension System,” Subtitle 3 “Board of Trustees,” Chapter 4 “Procedures for Hearings by or for the Board of Trustees.” COMAR B(2) defines “claimant” as “a participant or a participating employer that has filed a request for a hearing.”

The SRPS correctly pointed out, however, that within that same chapter, the regulations refer to a “claimant” as someone who may request a hearing but has not yet done so. For example, COMAR provides that a “claimant” shall file a petition for a hearing within 180 days of receiving “notice of an Agency action.” In that context, the “claimant” has yet to file for a hearing, but the regulation refers to the aggrieved party as a “claimant.” Likewise, COMAR provides that, “[i]n a contested case, a claimant may request a hearing by submitting a petition for a hearing…within the time limitations specified in Regulation .06B of this chapter.” Again, “claimant” refers to an aggrieved party who has yet to request a hearing.

To limit the definition of “claimant” as it appears in these regulations to a participant or participating employer who has filed a request for a hearing would yield a nonsensical result. COMAR essentially would authorize a participant who already has filed a request for a hearing to “request a hearing by submitting a petition for a hearing[.]”

“In construing a statute, we seek to avoid constructions that are illogical, unreasonable, or inconsistent with common sense.” Md. Nat’l Capital Park & Planning Comm’n v. Anderson, 395 Md. 172, 182 (2006). Thus, COMAR was not construed to apply only to participants or participating employers who have filed a request for a hearing. The Court applied to COMAR, however, the portion of the COMAR definition of “claimant” establishing that the right to a Board hearing must be asserted by a “participant” or “participating employer.” See COMAR B(2) (defining “claimant” as “a participant or a participating employer that has filed a request for a hearing”).

Because a term must be construed in light of the context in which it is used, efforts to ascertain the plain meaning of “claimant” as used in COMAR were not concluded by merely inserting “participant” or “participating employer” where COMAR, the time limitation regulation, refers to a “claimant.” When construing statutory language, the relevant provisions are considered “within the context of the statutory scheme as a whole.” Crofton Convalescent Ctr. v. Dep’t of Mental Health & Hygiene, 413 Md. 205, 217 (2010). Thus, to interpret “claimant” as it appears in COMAR it was necessary to refer to the other regulations within that chapter and related statutory provisions.

“A petition for hearing shall be filed within 180 days of the date that a claimant is given notice of an Agency action[.]” COMAR As stated above, the Board has defined the term “hearing” as “a contested case hearing as defined by the Administrative Procedure Act, State Government Article, Title 10, Subtitle 2, Annotated Code of Maryland.” COMAR 22.03.04 .02B(5). Under the APA, a contested case “means a proceeding before an agency to determine…a right, duty, statutory entitlement, or privilege of a person that is required by statute or constitution to be determined only after an opportunity for an agency hearing[.]” SG §10-202(d). Accordingly, “claimant” was construed as it appears in COMAR to apply to a “participant” or “participating employer,” who, upon receiving notice of an Agency action, has a statutory, regulatory, or constitutional right to “a proceeding before an agency to determine…a right, duty, statutory entitlement, or privilege.” SG §10-202(d).

For the purposes of COMAR, Carven was a “participant” when he received the Agency’s May 2004 letter informing him that he was ineligible for JRS enrollment. SPP §20-101(cc) defines “participant” as “a beneficiary, designated beneficiary, former member, member, or retiree who is or may become eligible to receive a benefit of any type from the several systems.” Even assuming arguendo that Carven was not a “member” when he received the letter, he was a retiree who “may [have] become eligible to receive a benefit of any type from the several systems.” Id.

Having been a “participant” when he received the letter, Carven had a right to “a proceeding before an agency to determine…a right, duty, statutory entitlement, or privilege.” See SG §10-202(d). Carven’s membership in the JRS was a mandatory condition of employment that commenced when he began his post as a commissioner. See SPP §27-201 (providing that “a member of the [WCC]” is a member of the JRS). As such, Carven had a statutory entitlement to JRS membership as soon as he began serving as a commissioner.

“It is the nature of the dispute, rather than the stage of the proceedings, that determines whether or not a matter is a contested case.” Modular Closet Sys., Inc. v. Comptroller of the Treasury, 315 Md. 438, 444 (1989). Specifically, a contested case exists when “the nature of the dispute entitles the parties to a hearing to determine their rights and duties.” Id. at 445. Whether Carven submitted a membership application was not determinative of whether he had a right to a hearing. Instead, the issue was whether the Agency’s letter communicated a final decision of the matter and whether that decision immediately affected Carven’s entitlement. Even though he had not filed an application, the Agency nevertheless decided the matter conclusively. The SRPS informed Carven twice that he was ineligible for membership and based its decision on grounds unrelated to Carven’s failure to file a membership application or any information that would be contained therein.

Thus, the Board properly determined that, when Carven received the Agency’s May 2004 letter informing him that he was ineligible for JRS membership, the “nature of the dispute” was such that Carven’s entitlement had been denied finally, effective immediately, thereby granting Carven a right to appeal that decision by petitioning for a “contested case” hearing. See SG § 10-207(a), (b)(4). Therefore, it was held that, because Carven was a “participant” who possessed a statutory entitlement when he received the Agency’s letter and the nature of the dispute at that time was such that he was entitled to a hearing, Carven was a “claimant” for the purposes of the time limitation set forth in COMAR The Agency’s letter conformed to the APA notice requirements, that letter constituted notice of an Agency action as contemplated by COMAR, and the 180-day time limitation ran as of the date of that letter.

Accordingly, the Board’s denial of Mrs. Carven’s Petition was affirmed.

COMMENTARY: Nothing in the record indicated that the Board’s decision was preliminary or established a basis upon which Carven could have reasonably believed the decision was preliminary or pending the submission of his membership application. The letter expressly stated that, “as a retiree of the EPS, you are prohibited from earning any service credit in the JRS for your current service as a Commissioner” and referred to the Agency’s decision as “the result” of the dispute. The letter also clearly stated that the director trusted that he had “fully explained why [Carven] [was] not eligible to accrue any service credit” in the JRS and immediately thereafter informed Carven of his right to appeal. Additionally, and most importantly, the letter conformed to the APA’s notice requirements by stating the issues involved, listing the statutory sections upon which the decision was based, and, as mentioned, advising Carven of his opportunity to request an administrative appeal. See SG §10-207(b).

These facts undermined Mrs. Carven’s contention that the “informal” nature of Carven’s efforts prior to receiving the May 2004 letter rendered the Agency’s decision preliminary or something less than an “Agency action.” Hence, regardless of Carven’s intent or belief about the informal nature of his inquiry prior to receiving that letter, he could not reasonably have believed after receiving the letter that the Agency’s decision was merely advisory or preliminary, pending additional action on his part.

DISSENT: According to the dissent, Mrs. Carven’s Petition was not time barred and, accordingly, the case should have been remanded to the circuit court with directions to reverse the decision of the Board.

PRACTICE TIPS: An agency decision based on regulatory and statutory interpretation is a conclusion of law. See Adventist Health Care, Inc. v. Md. Health Care Comm’n, 392 Md. 103, 121 (2006). “[E]ven when reviewing an agency’s legal conclusions, an appellate court must respect the agency’s expertise in its field.” Crofton Convalescent Ctr. v. Dep’t of Mental Health & Hygiene, 413 Md. 205, 215 (2010).

Civil Procedure

Certiorari jurisdiction

BOTTOM LINE: The Court of Appeals could not exercise certiorari jurisdiction over the defendants’ cases because the Court of Special Appeals reached no conclusions or decisions regarding the merits of the defendants’ claims on appeal, but simply granted the application for leave to appeal.

CASE: Stachowski v. State; Stockstill v. State, Nos. 52 & 16, Sept. Term, 2008 (filed Oct. 22, 2010) (Judges Bell, Battaglia, Greene & ELDRIDGE (retired, specially assigned)) (Judges Harrell, Adkins & Rodowsky (retired, specially assigned) dissenting)). RecordFax No. 10-1022-20, 42 pages.

FACTS: In 2005, Kenneth Stachowski was charged in the district court with theft under $500 for passing a bad check. Upon his request for a jury trial, the case was transferred to the circuit court and was given case number 8089. Stachowski made full restitution prior to the trial. Stachowski then waived a jury trial and pled guilty.

As the trial took place, the circuit court also heard de novo appeals from the district court in three violation of probation cases (cases 8150, 8151, and 8152), which were based upon three district court prosecutions charging Stachowski with violations of Maryland’s home improvement laws. Stachowski was found guilty, was placed on probation, and was ordered to make restitution to the victims.

Stachowski did not appeal from the convictions in the district court home improvement cases. Later, however, the district court determined that Stachowski was in violation of probation because of his failure to make restitution. Stachowski appealed to the circuit court from the district court orders revoking probation.

The circuit judge revoked probation in case numbers 8150, 8151, and 8152, and imposed sentences in those cases as well as in the bad check case (number 8089). The court required, as a condition of probation in case number 8089, that Stachowski also make restitution to the three victims in the home improvement appeals.

Stachowski appealed all four cases to the Court of Special Appeals, which transferred the three home improvement cases to the Court of Appeals. Stachowski filed in the Court of Appeals a “supplemental” certiorari petition, asking the Court to review the circuit court’s judgments in the home improvement cases. The Court initially denied the petition, but, on motion for reconsideration, the Court granted the petition and issued a writ of in the three home improvement cases. The Court dismissed the writ of certiorari, Stachowski v. State, 403 Md. 1 (2008), which finally terminated appellate proceedings in the three home improvement cases.

Stachowski also filed in the Court of Special Appeals an application for leave to appeal in the present case, the bad check prosecution. The Court of Special Appeals denied the application. Stachowski filed a motion for reconsideration, and the Court of Special Appeals recalled the order, granted the application for leave to appeal and transferred the case to its regular appeal docket. At the same time, however, the Court of Appeals, on its own motion, ordered that a writ of certiorari should issue in the present case. Stachowski v. State, 405 Md. 348 (2008).

Subsequent to the initial oral argument, however, the Court noticed a jurisdictional issue which had not previously been raised by the parties or by the Court. Consequently, it issued an order directing the parties to file supplemental briefs, and reargue the case, on the issue of whether the Court of Appeals had jurisdiction to decide the case on its merits in light of CJ §12-202.

A similar set of procedural facts occurred with respect to Wayne Stockstill. In September 1980, Stockstill was convicted in the circuit court of rape and was sentenced to life imprisonment. An assault conviction was merged into the rape conviction for purposes of sentencing. More than 20 years later, as a result of a proceeding under the Maryland Uniform Postconviction Procedure Act, CP §§7-101 through 7-301, the circuit court allowed Stockstill to file, pursuant to Rule 4-345, a belated motion for modification of his sentences. Stockstill’s sentences were modified and included supervised probation upon his release. Stockstill was paroled on May 12, 2005.

In November 2006, however, Stockstill was found to have violated three conditions of probation. The circuit court revoked Stockstill’s probation and the court reinstated the previous sentence. Stockstill appealed to the Court of Special Appeals. Prior to any proceedings there, the Court of Appeals sua sponte issued a writ of certiorari and set the case for argument. Stockstill v. State, 404 Md. 659 (2008).

Again, after briefing and argument, the Court of Appeals noticed the same jurisdictional issue presented by the Stachowski case. It directed the parties to file supplemental briefs on the issue of whether this Court can exercise jurisdiction in light of CJ §12-202.

The Court of Appeals dismissed the writs of certiorari in both cases.

LAW: Although none of the parties raised a jurisdictional issue in these cases, the Court of Appeals is obligated to address sua sponte the issue of whether it can exercise jurisdiction. See Miller & Smith v. Casey PMN, 412 Md. 230, 240 (2010).

Under CJ §12-202 “[a] review by way of certiorari may not be granted by the Court of Appeals in a case or proceeding in which the Court of Special Appeals has denied or granted” leave to appeal in five categories of cases. The two categories applicable to the present cases are “(4) Leave to appeal from a final judgment entered following a plea of guilty in a circuit court” and “(5) Leave to appeal from an order of a Circuit Court revoking probation.” The Stachowski case fell into the fourth category, and the Stockstill case fell into the fifth category.

The Court has consistently construed §12-202 as meaning “that the limitation upon this Court’s jurisdiction set forth in §12-202…relates only to the action of the Court of Special Appeals in granting or denying an application for leave to appeal.” Williams v. State, 292 Md. 201, 210 (1981). “Except for the non-reviewability of that specific action [granting or denying the application for leave to appeal], we have jurisdiction over the type of cases listed in § 12-202 to the extent that such jurisdiction is conferred by § 12-201 or other statutory provisions. Therefore, in the present case, although we may not review the Court of Special Appeals’ exercise of discretion in granting the State’s application for leave to appeal, we are authorized to review that court’s decision on the merits remanding the case to the trial court.” Id. at 210-211.

Williams was an action under the Maryland Uniform Postconviction Procedure Act. See §12-202(1). Williams had originally been convicted of second degree murder and assault with intent to murder, and the circuit court in the post-conviction action awarded him a new trial on the ground that his right to be present at every stage of his criminal trial had been violated. The State filed in the Court of Special Appeals an application for leave to appeal. The intermediate appellate court granted the State’s application and summarily remanded the case to the circuit court for that court to determine whether Williams had waived his right to be present at his criminal trial. Williams filed a petition for a writ of certiorari which the Court of Appeals granted.

The Court’s opinion initially reviewed the legislative history of §12-202, pointing out that the statutory language prior to the 1974 re-codification in the Courts and Judicial Proceedings Article read indicated that the “exception [to a certiorari petition] related only to ‘the denying or granting’ of the leave to appeal application.” Id. at 207. “If the Court of Special Appeals granted an application, this Court clearly was given authority to review the merits of the Court of Special Appeals’ decision.” Id.

The State’s position in Williams, however, was that the 1974 re-codification was intended to change the law and deprive the Court of Appeals of jurisdiction to review the merits of a case after the Court of Special Appeals granted leave to appeal. The Court disagreed with the State’s argument, holding that the statutory language had the same meaning after 1974 as it did before 1974. Id. at 208.

The principal case relied upon in Williams was Jourdan v. State, 275 Md. 495 (1975), a post-conviction action in which the petitioner was challenging his criminal conviction on double jeopardy grounds. The circuit court in the post-conviction action set aside the conviction and sentence. The State filed an application for leave to appeal. The Court of Special Appeals granted the State’s application for leave to appeal, transferred the case to its regular appeal docket, and remanded the case to the circuit court. The Court of Appeals granted Jourdan’s petition for a writ of certiorari and reversed the judgment of the Court of Special Appeals.

With regard to the Court’s granting the certiorari petition, the Court of Appeals held: “Under [CJ] §12-202(1), this Court has no jurisdiction to review a decision of the Court of Special Appeals granting or denying leave to appeal in a post-conviction proceeding. However, once the Court of Special Appeals grants leave to appeal in such a case and transfers the case to its appeal docket, the matter takes the posture of a regular appeal, and we do have jurisdiction under § 12-201…to review the Court of Special Appeals’ decision on the appeal itself.” Id. at 506 n. 4

Williams pointed out that §12-202 had been re-enacted with amendments twice since the opinion in Jourdan was rendered. On neither occasion did the General Assembly change the interpretation of §12-202 set forth in Jourdan.

The General Assembly has acquiesced in the Court’s interpretation of §12-202 for thirty-five years since the Jourdan case was decided in 1975. See, e.g., Moss v. Director, 279 Md. 561 (1977); Cianos v. State, 338 Md. 406 (1995); McElroy v. State, 329 Md. 136, 145 (1993). If, in 1981, it was “particularly inappropriate to depart from the principle of stare decisis and overrule our prior interpretation of the statute” Williams, 292 Md. at 210, it would be even more inappropriate today. See Grayson v. State, 354 Md. 1 (1999).

Accordingly, because the Court of Special Appeals simply denied or granted Stockstill’s and Stachowski’s applications for leave to appeal without deciding any of merits of the application, in light of CJ §12-202, the Court of Appeals could not exercise jurisdiction.

COMMENTARY: Stachowski and Stockstill relied upon the fact that “the Court of Special Appeals transferred the case to the regular appeal docket” as the jurisdictional basis authorizing this Court to issue writs of certiorari. See Jourdan, 275 Md. at 506 n. 4.

Stachowski and Stockstill focused on the first part of this sentence from Jourdan, but they overlooked the remainder of the same sentence which states that the Court of Appeals has “jurisdiction under [CJ] § 12-201 to review the Court of Special Appeals’ decision on the appeal itself.”

In all of the prior cases where the Court of Special Appeals granted or denied an application for leave to appeal, and where the Court exercised certiorari jurisdiction, the Court of Special Appeals had rendered a decision concerning the merits or viability of the appeal or the rights or status of a party. Furthermore, the Court of Special Appeals’ decisions in all of those prior cases were final judgments and terminated the cases in the intermediate appellate court. See Grayson, 354 Md. at 12; Cianos v. State, 338 Md. 406 (1995); McElroy v. State, 329 Md. 136 (1993).

In addition, in Williams, the Court of Appeals specifically held that the Court of Special Appeals’ action in placing the case on its appeal docket had no significance with regard to this Court’s jurisdiction. Id. at 211 n. 3.

Finally, Stockstill’s and Stachowski’s interpretation of §12-202 would never limit the Court’s certiorari jurisdiction with respect to grants of leave to appeal. The §12-202 limitation on certiorari jurisdiction would only apply to denials of leave to appeal.

DISSENT: According to the dissent, the majority erroneously interpreted the legislative history and line of cases to suggest that when an appeal falls within one of the five statutory categories of CJ §12-202, and the Court of Special Appeals has granted leave to appeal, the Court of Appeals must await a decision on the merits and may not exercise its bypass jurisdiction under CJ §12-203. This decision is an abrupt departure from thirty-five years of decisions holding that §12-202 applies only to bar review of the intermediate appellate court’s decision to grant or deny leave to appeal.

Contract Law

Attorneys’ fees

BOTTOM LINE: In a contractual debt-collecting case, it was improper to use the lodestar method in calculating attorneys’ fees; instead, Maryland Rule of Professional Conduct 1.5 was the proper rubric for determining a reasonable fee.

CASE: Monmouth Meadows Homeowners Association, Inc. v. Hamilton, Nos. 43, 44 & 46, Sept. Term, 2009 (filed Oct. 25, 2010) (Judges Bell, Harrell, Battaglia, Greene, Murphy, ADKINS & Barbera). RecordFax No. 10-1025-22, 23 pages.

FACTS: As a condition of membership in three homeowners associations, the Monmouth Meadows Homeowners Association, the Constant Friendship Homeowners Association, both in Harford County, and the Montpelier Hills Homeowners Association, in Prince George’s County (collectively, the Associations), residents were contractually obligated to pay annual assessments to the Associations. Delinquent assessments resulted in charged interest on past due amounts plus late fees. The residents were also contractually required to pay costs and attorneys’ fees incurred by the Associations in the pursuit of delinquent assessment payments.

Tiffany Hamilton, Bode and Bonike Thomas-Ojo, and Kevin Tillery (collectively, the Residents), members of the Associations, failed to pay the assessments in a timely fashion. Consequently, the Associations directed the law firm of Nagle & Zaller, P.C. to collect on the debt.

Nagle & Zaller contacted the Residents in writing in an effort to resolve their situations, but the Residents did not make payments sufficient to settle their debts. Accordingly, the Associations established and recorded liens on the Residents’ properties in accordance with the Maryland Contract Lien Act (CLA). See RP §§14-201 to 206. The liens included principal and interest on the assessments owed, court costs, and attorneys’ fees. The Associations notified the Residents of the liens in writing, and demanded payment of the debts, as well as attorneys’ fees pursuant to the Residents’ contractual agreements.

The Associations then initiated suits against the Residents in the district court, sitting in Harford and Prince George’s counties. The Associations won affidavit judgments against the Residents.

The Associations also sought attorneys’ fees from the Residents in those courts, calculated according to the “lodestar method.” The district court, in each instance, elected not to calculate attorneys’ fees under the lodestar method, but rather chose to award fees as a flat percentage of the amounts of principal sought in each case. The Associations appealed these decisions to the proper circuit courts.

The circuit courts used different approaches in awarding fees in their respective cases. In the Hamilton and Tillery cases, the circuit court awarded the fees that the Associations initially requested with the filing of the notice of intent to file a lien, plus fees incurred in the district court litigation, but nothing for the appeals.

In the Thomas-Ojos’s case, the circuit court discussed the lodestar method, found that it was not bound to use it, and also took into consideration the guidance presented by Rule 1.5 of the Maryland Lawyers’ Rules of Professional Conduct. That court concluded that the fees requested were unreasonably high for the work actually required, and accordingly reduced the fee award to $300. The court also declined to award fees incurred on appeal.

The Court of Appeals affirmed.

LAW: Previous holdings with respect to attorneys’ fees have emphasized that trial courts must routinely undertake an inquiry into the reasonableness of any proposed fee before settling on an award. See Myers v. Kayhoe, 391 Md. 188, 207 (2006). Contractual clauses providing for awards of specific amounts of attorneys’ fees are generally valid and enforceable. See id. at 207. Even where such a provision is not explicitly limited to reasonable fees, however, “trial courts are required to read such a term into the contract and examine the prevailing party’s fee request for reasonableness.” Id. “The party requesting fees has the burden of providing the court with the necessary information to determine the reasonableness of its request.” Id.

A court that uses the lodestar method to calculate a fee award begins by multiplying the number of hours reasonably spent pursuing a legal matter by “a reasonable hourly rate” for the type of work performed. See Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). This amount is then adjusted by the court, depending on the effect of numerous external factors bearing on the litigation as a whole. The Supreme Court has approved a list of 12 factors to be considered in a lodestar analysis in federal court. See Blanchard v. Bergeron, 489 U.S. 87, 91 n. 5 (1989).

The lodestar method of calculating attorneys’ fees is generally appropriate in the context of fee-shifting statutes. Friolo v. Frankel, 373 Md. 501, 504-05 (2003). Fee-shifting provisions frequently apply in “complex civil rights litigation involving numerous challenges to institutional practices or conditions.” Id. at 525. A court’s application of the lodestar method in these cases “is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that [other methods] would provide inadequate compensation.” Krell v. Prudential Life Ins. Co. of Am., 148 F .3d 283, 333 (1998).

The cases here did not involve a fee-shifting statute. The CLA simply permits attorneys’ fees provided for in a contract or awarded by a court for breach of a contract to be enforced by establishment of a lien. See RP §14-203. The enactment of RP §14-203 merely reflects that the General Assembly chose to facilitate the enforcement of legitimate private contractual obligations. The procedure set forth in the statute for creating the lien does not imbue these private contracts with public interest significance of the level protected by the enactment of other fee-shifting statutes. See Friolo, 373 Md. at 526.

Accordingly, the lodestar method is an inappropriate mechanism for calculating fee awards in private, contractual debt-collecting cases.

However, that does not mean that the time spent by the lawyers and a reasonable hourly rate should not be an important component of a court’s analysis. Rule 1.5(a) of the Maryland Lawyers’ Rules of Professional Conduct lists eight factors that should be considered in determining the reasonableness of a fee. “The time and labor required” is listed first amongst those eight factors for determining a reasonable fee.

Courts should use the factors set forth in Rule 1.5 as the foundation for analysis of what constitutes a reasonable fee when the court awards fees based on a contract entered by the parties authorizing an award of fees.

In the Thomas-Oojos’s case, the district court had awarded fees equal to 15 percent of the amount of principal requested at trial. The circuit court correctly found that it was not bound to employ the lodestar method and, instead, it considered the eight factors enumerated in MRPC Rule 1.5.

Based on those factors, including the ordinary nature of the suit, the absence of opposition, the relative inexperience of the attorney, and the small principal amount involved, the circuit court reduced the fee award to $300.

Moreover, the Nagle & Zaller fee schedule is a hybrid one, which sets a flat fee for the rote tasks, increased by hourly charges for attorney time outside of these tasks. The circuit court may well have considered the resulting fee too high, particularly because the tasks for which flat fees were assigned had no component for labor expended, and could have been performed by administrative assistants or paraprofessionals. The Association had the burden of establishing that these flat fee amounts were reasonable for the task performed. See Myers, 391 Md. at 207.

Although $300 is certainly close to the low end of the range of the circuit court’s discretion, the court used the correct legal standard in evaluating the reasonableness of the fee, and did not abuse its discretion.

In Tillery’s case, the court explicitly rejected the application of an arbitrary 15 percent of principal sought as a reasonable fee award. Instead, the court considered the services performed by the law firm, including the 1.8 hours that an attorney spent at the district court trial. The court declined to award the fees requested by the Association for legal work after that point.

Because this case did not call for the lodestar method, the trial court was not required to consider appellate fees incurred in successfully challenging the original fee award. See Friolo, 375 Md. at 526. Of course, a circuit court, in its discretion, may award fees incurred in an appeal challenging a district court’s fee award.

In Hamilton’s case, Nagle & Zaller claimed $3,280 in attorneys’ fees, but the court awarded only $1,345. The court declined to award the balance of the fees requested, which represented charges for the de novo appeal.

Accordingly, where the circuit court acted within its discretion in both the Tillery and Hamilton cases, the judgments of the circuit court were affirmed.

COMMENTARY: In awarding attorneys’ fees when the legal costs are passed on to a third party to the contract agreeing to the fees, trial courts may choose to consider the terms of the contract between the passing party and its attorneys (e.g., between the Associations and Nagle & Zaller). Trial courts are not bound by the monetary amounts in such contracts, however, and need not cleave to the contracts at all if they improperly influence the fee award. If a trial court chooses to consider contract terms, it also should carefully consider the nature of the work performed, and whether there is a risk that certain rote tasks (for example, the filling out and sending of form letters) are being billed at a higher than reasonable rate.

The Court here did not opine on the reasonableness of the fee agreement between the Associations and their attorneys for the purposes of determining any ethical violation by Nagle & Zaller. The Rules of Professional Conduct place limitations on how much attorneys may charge their clients and MRPC 1.5 is used as a rubric for that reasonable fee analysis. When courts are asked to award “reasonable attorneys’ fees” against a person or entity not privy to the fee agreement, they act in a different role than a court reviewing a charge by the Attorney Grievance Commission that a specific fee agreed to by an attorney’s client was not reasonable.

PRACTICE TIPS: Where an attorney is entitled to reasonable fees under the terms of a contract, that attorney is not permitted to define that amount by use of a percentage of judgment. See Meyer v. Gyro Transp. Sys., 263 Md. 518, 531 (1971).