O'Hara v. Kovens

• Decision Date: 03 February 1986
• Docket Number: No. 30,30
• Citation: 503 A.2d 1313,305 Md. 280
• Parties: James Francis O'HARA III et al. v. Irvin KOVENS et al. Sept. Term 1985.
• Court: Maryland Court of Appeals

Page 280

305 Md. 280

503 A.2d 1313

James Francis O'HARA III et al. v. Irvin KOVENS et al.

No. 30 Sept. Term 1985.

Court of Appeals of Maryland.

Feb. 3, 1986.

Paul Mark Sandler (W. Michael Mullen, Zvi Greismann and Freishtat & Sandler, on brief) Baltimore, for appellants and cross appellees.

M. Albert Figinski (Arnold M. Weiner, H. Russell Smouse, Donna C. Sanger and Melnicove, Kaufman, Weiner & Smouse, P.A. and Michael E. Marr and Marr, Bennett & Carmody on brief) Baltimore, for appellees and cross appellants.

Argued before SMITH, COLE, RODOWSKY, COUCH and McAULIFFE, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals (retired) and W. ALBERT MENCHINE, Associate Judge of the Court of Special Appeals (retired) Specially Assigned.

RODOWSKY, Judge.

This is a case of alleged fraud on the sellers of corporate stock. In the trial court the defendants obtained summary judgment against all of the sellers based on a statute of limitations defense. Those judgments were affirmed as to certain sellers by the Court of Special Appeals. O'Hara v. Kovens, 60 Md.App. 619, 484 A.2d 275 (1984). We granted cross-petitions for certiorari, 303 Md. 20, 491 A.2d 586, primarily to consider the respective functions of court and jury in determining whether the plaintiffs knew or should have known of the wrong more than three years before suit.

The suit was brought by James Francis O'Hara, III (James) and Michael Patrick O'Hara (Michael), individually and as guardians of the property of their mother, Josephine M. O'Hara (Josephine). Josephine died while the action was pending in the trial court and James and Michael, as her personal representatives, now assert her claim on behalf of her estate. For a number of years prior to December 31, 1971, the O'Haras were stockholders in Southern Maryland Agricultural Fair Association, Inc. (Marlboro) which owned the Marlboro racetrack. The combined holdings of the O'Haras represented approximately 30% of the then outstanding stock of Marlboro. On December 31, 1971, the O'Haras, together with members of two other families whose holdings in Marlboro represented approximately an additional 52% of the outstanding stock, sold and delivered approximately 82% of Marlboro's stock to Ernest N. Cory, Jr. for $12 per share, in cash. The sellers knew that Cory, a Prince George's County, Maryland attorney, was acting in the transaction for an undisclosed principal or principals. Defendants in this suit are former Governor Marvin Mandel W. Dale Hess, Harry W. Rodgers, III, William A. Rodgers, Irving T. Schwartz, Eugene B. Casey, Irvin Kovens, and Cory (collectively, the Kovens Group). The complaint, alleging that the Kovens Group engaged in a conspiracy to defraud the plaintiffs in the December 31, 1971 sale, was filed November 22, 1978. ¹ Plaintiffs prayed a jury trial. To comply with the statute of limitations, the plaintiffs' respective causes of action could not have accrued earlier than November 21, 1975.

The Circuit Court for Baltimore City held that all three claims were time barred. In the Court of Special Appeals judgment against Josephine's estate was reversed, for reasons relating to mental disability, while the other judgments were affirmed. The facts and legal arguments are such that, if Michael's claim is not barred by limitations, none of the other claims is barred by limitations.

There are certain undisputed, historical facts which set the background for the contentions of the parties. Prior to, or during, the 1971 session of the Maryland General Assembly, Marlboro and an entity (Hagerstown) which also conducted horse racing with parimutuel betting had agreed that Hagerstown would sell to Marlboro eighteen racing days theretofore utilized for the Hagerstown meeting. Those eighteen days, together with eighteen days previously allocated to Marlboro, would allow thirty-six days of racing by Marlboro. Transfer of the Hagerstown days was subject to legislative approval. Approval at either the 1971 or 1972 session of the Maryland General Assembly would have satisfied the approval condition in the contract. H.B. 1128, enacted at the 1971 legislative session, conferred the necessary approval. On May 28, 1971, then Governor Mandel, expressing concerns about the wisdom and constitutionality of the legislation, vetoed H.B. 1128. ² Following the sale by the plaintiffs of their stock in Marlboro the General Assembly on January 12, 1972, overrode the veto. Also at the 1972 legislative session a bill which would have increased beyond thirty-six the number of racing days allocated for the benefit of Marlboro died on the last day of the session. In December 1972 Marlboro merged with another corporation (Bowie) which conducted horse racing with parimutuel betting at the Bowie racetrack. On November 24, 1975, the federal government filed indictments against Governor Mandel and others, except Schwartz and Casey, of the Kovens Group. The events and transactions described above ultimately were the subject of testimony at criminal trials. ³ From at least the time of the veto override on January 12, 1972, through the key limitations date here of November 21, 1975, these events and transactions were also objects of great interest, and subjects of much reporting, on the part of the press.

The theory of the O'Haras' case is that there was a conspiracy between Governor Mandel and others of the Kovens Group which antedated May 28, 1971. Plaintiffs in essence contend that the alleged conspirators planned (1) to have the Mandel veto depress the value of Marlboro stock below the price it would have commanded had H.B. 1128 been signed into law, (2) to acquire the stock at a depressed price, and then (3) to restore its value by having Governor Mandel "himself and through his agents" induce the General Assembly to override the veto.

Because defendants' motion for summary judgment raised only the limitations defense, we are not concerned with the sufficiency of any undisputed facts to prove any element of plaintiffs' deceit theory, or whether any alleged facts, if proved, would establish a cause of action. The burden which the defendants assumed by their motion was to show that there was no dispute of any fact material to the limitations issue and that they were entitled to judgment on limitations grounds as a matter of law. Maryland Rule 2-501.

general law re limitations

The three years within which a civil action at law must be filed measures "from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced." Md.Code (1974, 1984 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article (Courts Article). Poffenberger v. Risser, 290 Md. 631, 636, 431 A.2d 677, 680 (1981) held that "the discovery rule [is] applicable generally in all actions and the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong." This latter alternative contemplates ... awareness implied from

"knowledge of circumstances which ought to have put a person of ordinary prudence on inquiry [thus, charging the individual] with notice of all facts which such an investigation would in all probability have disclosed if it had been properly pursued." [Id. at 637, 431 A.2d at 681.]

Also relevant is Courts Article § 5-203 which provides:

If a party is kept in ignorance of a cause of action by the fraud of an adverse party, the cause of action shall be deemed to accrue at the time when the party discovered, or by the exercise of ordinary diligence should have discovered the fraud.

In order to benefit from this statute, a claimant need not show, in addition to the fraud complained of, a separate fraud which conceals the fraud complained of. Wear v. Skinner, 46 Md. 257, 267 (1877); see also Brack v. Evans, 230 Md. 548, 187 A.2d 880 (1963); Citizens National Bank v. Leffler, 228 Md. 262, 179 A.2d 686 (1962); Piper v. Jenkins, 207 Md. 308, 113 A.2d 919 (1955); Berman v. Leckner, 188 Md. 321, 52 A.2d 464 (1947); New England Mutual Life Insurance Co. v. Swain, 100 Md. 558, 60 A. 469 (1905).

In James v. Weisheit, 279 Md. 41, 367 A.2d 482 (1977), we dealt with a defense of limitations to a common law fraud action prior to the general adoption of the discovery rule in Poffenberger, supra. There we said:

This Court has determined that deceit actions accrue when the wrong is discovered or when with due diligence it should have been discovered, see Citizens Bank v. Leffler, 228 Md. 262, 269, 179 A.2d 686, 690 (1962); Sears v. Barker, 155 Md. 323, 330, 141 A. 908, 911 (1928); cf. Leonhart v. Atkinson, 265 Md. 219, 224, 289 A.2d 1, 4 (1972) (applying this rule to professional malpractice cases), assuming, of course, that all elements of the cause of action exist at that time. [279 Md. at 45 n. 4, 367 A.2d at 485 n. 4.]

James and Courts Article § 5-203 literally speak of accrual occurring when the wrong should have been discovered. This phraseology raises the question whether the period required for any investigation which should have been prompted by notice and which would have led to the discovery of the fraud precedes the date of accrual and is to be excluded from the three-year period of limitations. The facts in our prior cases have not involved a relatively extended period of discovery so that we have not focused on this aspect of the discovery rule. For example, in James, the plaintiff knew for more than three years before suit all of the facts comprising the alleged fraud. Specifically, that plaintiff, the holder of a take-back, second mortgage, knew that the amount of the allegedly fraudulently imposed first mortgage lien greatly exceeded the amount to which the plaintiff had agreed to subordinate. We held that accrual of the deceit action was not postponed until the plaintiff learned whether foreclosure of the first mortgage produced a deficiency on the second mortgage debt.

The Court of Special...