Ellerin v. Fairfax Sav. Ass'n

• Decision Date: 01 September 1988
• Docket Number: No. 595,595
• Citation: 78 Md.App. 92,552 A.2d 918
• Parties: Charles ELLERIN, et al. v. FAIRFAX SAVINGS ASSOCIATION R. Bruce ALDERMAN, et al. v. FAIRFAX SAVINGS ASSOCIATION. ,
• Court: Court of Special Appeals of Maryland

Page 92

78 Md.App. 92

552 A.2d 918

Charles ELLERIN, et al. v. FAIRFAX SAVINGS ASSOCIATION

R. Bruce ALDERMAN, et al. v. FAIRFAX SAVINGS ASSOCIATION.

No. 595, Sept. Term, 1988.

Court of Special Appeals of Maryland.

Feb. 1, 1989.

David Freishtat (Freishtat & Sandler, Baltimore, on the brief for appellants, Charles Ellerin, et al.)

Alvin I. Frederick, Lloyd J. Snow and Eccleston and Seidler, Baltimore, on the brief for appellants, R. Bruce Alderman and White, Mindel, Clarke and Hill.

Steven M. Caplan and Mary T. Keating (Sherry H. Flax, Judith D. O'Neill and Weinberg and Green on the brief), Baltimore, for appellee.

Argued before MOYLAN, ROSALYN B. BELL and KARWACKI, JJ.

ROSALYN B. BELL, Judge.

Two appeals are combined in this opinion. Both appeals arise from Fairfax Savings Association's loan of over $5,000,000 to Sherwood Square Associates to develop a shopping center complex in historic Westminster. Fairfax Savings Association sued Charles and Naoma Ellerin, Louis and Gloria Seidel, and Tri-Ess, Inc. for $2,300,000 in payment guaranties included in the loan (Guaranty Cases), as well as Charles Ellerin and Louis Seidel, the general partners of Sherwood Square Associates, (Partnership Cases) for the amount left due on the loan when they stopped making payments.

In the first appeal, R. Bruce Alderman, the attorney who represented Sherwood Square Associates at the loan closing, presents one issue:

--Does an attorney have a right to intervene in an action in order to protect his interest in a subsequent legal malpractice action which may be filed against him?

Based on these particular circumstances, we hold that the trial court did not err in denying Alderman's intervention motion.

In the second appeal, Charles and Naoma Ellerin, Louis and Gloria Seidel, and Tri-Ess, Inc., contest the jury's verdict of over $2 million in favor of Fairfax Savings Association. They present the following questions:

--Did the trial court err in instructing the jury that ratification of specific fraudulent provisions in a contract by the defrauded party barred that party from recovering any damages resulting from the fraud?

--Should the trial court have admitted evidence that Fairfax Savings Association waived its right to require an architect's certificate to show completion?

--Did the trial court err in determining as a matter of law that there was 120,000 square feet of leasable space where damages were to be based on a "rent roll" formula in which leasable square footage was a component?

--Did the trial court err in granting Fairfax Savings Association's summary judgment motion in the Partnership Cases?

We reverse and remand for a new trial. For clarity, we analyze the two appeals in separate sections. But first, we set forth the somewhat complex factual and procedural background common to both.

Charles Ellerin and Louis Seidel (Partners) were the general partners in Sherwood Square Associates (SSA), a limited partnership. ¹ Fairfax Savings Association (Fairfax) loaned SSA $5.7 million so that SSA could acquire and renovate a group of very old buildings in a historic section of the City of Westminster (City). These buildings, known as the Barrel House Buildings, were essentially empty shells when the project began.

The loan transaction was structured in the following manner. The City issued two Industrial Revenue Bonds (IRBs), the first in the amount of $3,050,000 and the second for $1,800,000, both of which were acquired by Fairfax. Fairfax also made a conventional loan of $850,000 to SSA. SSA repaid the conventional loan before this litigation ensued. The City assigned all its rights in regard to the IRBs to Fairfax, ² but did, however, maintain an interest in the successful rehabilitation of the buildings, as shown by the Development Agreement entered into by the City and SSA. ³ By the terms of this agreement, SSA agreed that the renovated property would contain "approximately 120,000 square feet of space, for use as retail and commercial facilities...." SSA subsequently assigned an interest in the Development Agreement to Fairfax.

Central to this controversy are the personal guaranties signed by the Partners at the loan settlement--two identical 16-page documents, one for each IRB. These personal guaranties were signed by Charles Ellerin, his wife Naoma Ellerin, Louis Seidel, and his wife Gloria Seidel; Louis Seidel's signature appears again for Tri-Ess Corporation (Guarantors). (Tri-Ess was the general contractor on the project and was owned by Charles Ellerin and Louis Seidel.) All signatures were witnessed by attorney R. Bruce Alderman of the law firm of White, Mindel, Clarke and Hill, who represented the Guarantors, the Partners, and SSA at settlement. Mortgages on the property and buildings provided additional security for the loan.

The twin documents entitled "Completion Guaranties" provided that the Guarantors would complete the project and personally guarantee repayment on the IRB loans. The maximum the Guarantors could be required to repay was $2.3 million--$1.15 million on each IRB. The guaranty provided that this liability would be reduced proportionately as the property was leased, i.e., a "rent roll" formula. The Guarantors' liability was to terminate when the project was completed and 70 percent of its total square footage was leased. ⁴

Given that the project met with reverses, one needs no lengthy experience to predict what happened next. SSA defaulted on the loan and Fairfax filed complaints against Charles Ellerin and against Louis Seidel as the general partners of SSA on November 26, 1985. Fairfax also filed complaints against the Guarantors, based on the previously described personal payment guaranties. Judgments by confession were docketed the next day. The Guarantors filed motions to vacate the confessed judgments, claiming, inter alia, that Fairfax had fraudulently hidden the two 16-page guarantees amidst the many and varied settlement documents at the closing. The Guarantors also claimed that the documents, which had been pre-approved, had been changed between the approval and settlement. They also claimed that they had signed the documents under duress, without an opportunity to read them, because Fairfax had told them that the deal could not be consummated unless the documents were signed. On December 30, 1985, the Guarantors filed an affirmative suit against Fairfax, including counts of fraud, duress, and negligent misrepresentation, and claiming $6 million in compensatory and $10 million in punitive damages against Fairfax. An extremely lengthy motions battle ensued--it is sufficient for our purposes here to note that ultimately the Guarantors' affirmative suit took on the guise of a counterclaim. The Guaranty cases were consolidated, the Partnership cases were consolidated, and the trial judge ordered that they be tried in sequence.

R. Bruce Alderman and the law firm in which he was then a partner, White, Mindel, Clarke and Hill (who, the reader may remember, represented the Guarantors, the Partners, and SSA at the closing), ⁵ filed a motion to intervene in the litigation on July 30, 1987. Alderman asserted that, because both the Guarantors and Fairfax had threatened to sue him (and his law firm) if they lost the case, he had a right to intervene under Rule 2-214(a) to protect his interests. The trial judge, after a hearing on August 18, 1987, denied Alderman's motion.

A jury trial began on September 2, 1987. Fairfax offered the executed loans as evidence, as well as testimony from Richard Jacobs, the Fairfax loan officer who worked with the Partners and attorneys, preparing documents for the loan closing. The gist of Jacob's testimony, based on his close work with the principals, was that it had always been understood that the Guarantors would be required to guarantee payment on the IRBs because, in the project's initial stages the main buildings were just empty shells and insufficient to secure such a large loan. Jacobs stated that the executed guaranties accurately reflected the terms as ultimately agreed upon during a telephone conference call about a week before the loan closing.

Ellerin and Seidel testified that Ellerin and Alderman conducted all the loan negotiations with Fairfax. Apart from the guarantee that the facility would be completed, the only part of the loan they agreed to guarantee personally was the $850,000 conventional loan. Ellerin testified that it was his understanding that the loans were to be settled in strict accordance with the terms of the three Commitment Letters Fairfax had sent to Ellerin and Seidel on December 21, 1982. ⁶

Ellerin testified that he did not read the Commitment Letters, which had been sent to his wife in Florida, but his wife read one of the IRB Commitments to him over the telephone. Ellerin then told Seidel of their contents. Based on their belief that the Commitment Letters controlled all the terms of the loan, and their reliance on Alderman's statement that he had reviewed the loan documents, neither partner read any of the documents signed at the closing. Ellerin testified that he discovered the personal guaranties in October of 1984, after a conversation in which Fairfax's president, Malcolm Berman, referred to them. ⁷

Ellerin testified that he experienced severe stress and stomach pain after learning of the personal guaranties, although visits to physicians revealed nothing physically wrong. Ellerin did not, however, inform anyone from Fairfax that the personal guaranties were a surprise to him, because "... I thought it would be wise not to say anything, at least get the project finished and paid for.... I made a decision to try to make the project succeed, and to go forward and get it leased up and get enough income where Fairfax got paid; and there wouldn't be a legal battle to avoid."

At the close of all the evidence, the trial judge granted Fairfax's motion for judgment on the Guarantors' duress defense,...