Stein v. Smith

• Decision Date: 15 May 2000
• Docket Number: No. 101,101
• Citation: 358 Md. 670,751 A.2d 504
• Parties: Charles F. STEIN, III, et ux. v. Robert E. SMITH, Jr., d/b/a Curtis Contractors, Inc.
• Court: Maryland Court of Appeals

751 A.2d 504

358 Md. 670

Charles F. STEIN, III, et ux. v. Robert E. SMITH, Jr., d/b/a Curtis Contractors, Inc.

No. 101, Sept. Term, 1999.

Court of Appeals of Maryland.

May 15, 2000.

Edward J. Gilliss (Edward U. Lee, III, Royston, Mueller, McLean & Reid, LLP, on brief), Towson, for petitioners.

J. Marks Moore, III (West & Moore, LLC, and Andrew M. Winick, Wilson, Elsner, Moskowitz, Edelman & Dicker, LLP, on brief), Baltimore, for respondent.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, RAKER, WILNER, CATHELL and HARRELL, JJ.

RODOWSKY, Judge.

In this case we hold that the statute of limitations is not tolled by the filing of an action in the name of a corporation whose charter had been forfeited and never revived, asserting a claim that was not a corporate asset at the time of forfeiture. Consequently, an amendment naming the last and sole owner as plaintiff in lieu of the defunct corporation, after the statute had run, does not relate back to when the action was instituted.

This action was instituted on May 7, 1997, in the Circuit Court for Anne Arundel County. The complaint named Curtis Contractors, Inc. as the sole plaintiff. The petitioners, Charles and Ann Stein (the Steins), were named as defendants. The complaint was pled in two counts. The first count alleged an express written contract between Curtis Contractors, Inc. and the Steins for the construction by Curtis Contractors, Inc. on the Steins' property of a therapy spa and related work. It further alleged amendments to that contract for the purpose of including additional work, and it sought judgment for the unpaid balance of the agreed price. Count II sounded in quantum meruit and sought the reasonable value of the work done and materials provided by Curtis Contractors, Inc. for the Steins.

The work was completed no later than May 29, 1994.¹ Consequently, the instant action was filed just short of three years after the cause of action accrued.

The Steins, who were not served until February 1998, moved to dismiss, asserting, inter alia, the lack of capacity of Curtis Contractors, Inc. to sue. In an accompanying memorandum, to which a certificate from the State Department of Assessments and Taxation (the Department) was attached as an exhibit, the Steins demonstrated that the charter of Curtis Contractors, Inc. had been forfeited on October 6, 1983, "for failure to file the necessary corporate personal property report or failure to pay any late filing penalties due."

The response to this defense was the filing on April 20, 1998, of an amended complaint which omitted Curtis Contractors, Inc. as plaintiff and named "Robert E. Smith, Jr. d/b/a [doing business as] Curtis Contractors, Inc." as sole plaintiff. It alleged that the respondent, Robert E. Smith, Jr. (Smith), was the sole owner, operator, proprietor, and principal of Curtis Contractors, Inc., and that, following the corporate charter's forfeiture in 1983, Smith had "continued to do business as a sole proprietor using the name Curtis Contractors, Inc."

The Steins moved for summary judgment, contending that the statute of limitations had run against Smith's claim. Smith's affidavit in opposition affirmed the facts alleged in the amended complaint that are recited above. Smith also made affirmation to the following:

"I have known Defendants Charles and Ann Stein on a personal basis since 1983. In addition, Charles Stein represented me as an attorney in various matters from 1984 to 1994. Charles Stein was and is intimately familiar with many of my business dealings including my construction business. Charles Stein was at all relevant times fully aware that I was the sole owner, proprietor and principal of Curtis Contractors, Inc."

The circuit court entered summary judgment in favor of the Steins, finding that the claims were barred by the three year statute of limitations provided by Maryland Code (1974, 1995 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article.

Smith appealed to the Court of Special Appeals where the judgment was reversed by a divided court in an unreported opinion. That court agreed with the Steins that "Curtis Contractors, Inc." lacked the capacity to recover against them for breach of contract. That did "not resolve, however, whether the relation back doctrine applies to Smith's amended complaint." The court said, "Although relation back cases generally concern a change in the cause of action or a party defendant, it is only the plaintiff in this case, not the defendant or the claim, that has changed. Nevertheless, we believe the underlying principles remain the same."

Relying principally on Zappone v. Liberty Life Insurance Co., 349 Md. 45, 706 A.2d 1060 (1998), the Court of Special Appeals said that "prejudice to the opposing party is a hallmark of relation back cases involving the substitution of a defendant due to misnomer." The court reasoned that there was no prejudice to the Steins because the facts out of which the dispute had arisen had not changed, the legal theories of liability had not changed, and the Steins had a personal and professional relationship with Smith. The court analyzed that there had been a "substitution of Smith's name for that of the Corporation in the First Amended Complaint." This, said the court, "is indistinguishable from any other case in which a plaintiff substitutes one party for another, after realizing that the original complaint named the wrong entity."

The dissenting judge believed that Maryland Rule 2-341(c)(5) controlled because the case presented a nonjoinder, as opposed to a misnomer. Rule 2-341(c) in relevant part provides:

"An amendment may seek to ... (4) correct misnomer of a party, (5) correct misjoinder or nonjoinder of a party so long as one of the original plaintiffs and one of the original defendants remain as parties to the action."

The dissenting judge was "not prepared to ignore the traditional understanding that Curtis Contractors[, Inc.] was a separate legal entity from [Smith] and to reward [Smith] for his blatant disregard of applicable corporate law except when it is to his advantage to do otherwise."

The Steins petitioned for the writ of certiorari which we granted. Curtis Contractors, Inc. v. Stein, 356 Md. 494, 740 A.2d 612 (1999). We shall reverse. Because the original complaint was filed by a nonentity and was a nullity, there was nothing to which the amended complaint could relate back.

The provisions of the Maryland corporation statutes dealing with the forfeiture of charters came into the law, initially by Chapter 244 of the Acts of 1890, "as a tax measure." Cloverfields Improvement Ass'n v. Seabreeze Props., Inc., 280 Md. 382, 387, 373 A.2d 935, 938 (1977). In 1983, when the charter of Curtis Contractors, Inc. was forfeited, the grounds for forfeiture were stated in Maryland Code (1975), § 3-503 of the Corporations and Associations Article (CA). It provided, except as to a tax collectable locally, that the Comptroller "shall certify to the Governor a list of every Maryland corporation which has not paid a tax due by it before October 1 of the year after the tax became due." CA § 3-503(a)(1). Further, it provided that the Department "shall certify to the Governor a list of every Maryland corporation which has not filed an annual report with the Department as required by law or has not paid franchise or gross receipt taxes before October 1 of the year after the report was required to be filed or the taxes were due." CA § 3-503(b). Currently, the certification is made by the Comptroller to the Department. Md.Code (1957, 1993 Repl.Vol.), CA § 3-503(a)(1).² Since 1983 there has been no change of substance relevant to the instant matter with respect to the duties of the Department. See CA § 3-503(c).³

In 1983 the effect of forfeiture was set forth in Md.Code (1975), CA § 3-503(c). It read:

"When he receives the lists, the Governor shall issue a proclamation declaring that the charters of the corporations are repealed, annulled, and forfeited, and the powers conferred by law on the corporations are inoperative, null, and void as of the date of the first publication of the proclamation, without proceedings of any kind either at law or in equity."

(Emphasis added).⁴ One of the powers of Curtis Contractors, Inc. that became "inoperative, null, and void" upon forfeiture of its charter was the power to sue. CA § 2-103(2).

Upon forfeiture, and "until a court appoints a receiver, the directors of the corporation become the trustees of its assets for purposes of liquidation." CA § 3-515(a). During that period the directors-trustees may "[s]ue or be sued in their own names as trustees or in the name of the corporation." CA § 3-515(c)(3). This latter provision is not applicable in the case before us. Any contract or restitutionary rights that arose in favor of Smith, who allegedly conferred a benefit on the Steins, arose long after forfeiture of the Curtis Contractors, Inc. charter and was not an asset of that corporation at the time of forfeiture.

Filing of articles of revival is the procedure for reinstating a forfeited corporate charter. CA §§ 3-507 through 3-512. From the time of forfeiture until October 1, 1991, in order for Curtis Contractors, Inc. to have articles of revival accepted by the Department, it was necessary for Smith to file all annual reports and to pay "[a]ll State and local taxes, except taxes on real estate, and all interest and penalties due ... whether or not barred by limitations." Md.Code (1975), CA § 3-510. Effective October 1, 1991, per Chapter 8 of the Acts of that year, it also became necessary for those seeking reinstatement to pay, in addition, "[u]nemployment insurance contributions, or reimbursement payments." CA § 3-509. Further, the revival of a corporation's charter validates contracts done in the name of the corporation while the charter was void and restores, unless otherwise divested, all assets and rights of the corporation to the same...