Brown & Sturm v. Frederick Rd.

• Citation: 768 A.2d 62,137 Md. App. 150
• Decision Date: 05 March 2001
• Docket Number: No. 85,85
• Parties: BROWN & STURM, et al. v. FREDERICK ROAD LIMITED PARTNERSHIP, et al.
• Court: Court of Special Appeals of Maryland

768 A.2d 62

137 Md. App. 150

BROWN & STURM, et al. v. FREDERICK ROAD LIMITED PARTNERSHIP, et al.

No. 85, Sept. Term, 2000.

Court of Special Appeals of Maryland.

March 5, 2001.

Charles E. Iliff, Jr. (Stephan Y. Brennan, Iliff & Meredith, P.C., Baltimore, and Philip J. McNutt and Hughes & Bentzen, PLLC, Rockville, on the brief), for appellants.

Albert D. Brault (Brault, Graham, Scott & Brault, LLC on the brief), Rockville, for appellees.

Argued before SALMON, KENNEY and RAYMOND G. THIEME, Jr. (Ret'd, Specially Assigned), JJ. RAYMOND G. THIEME, Jr., Judge, Ret'd, Specially Assigned.

This is an appeal from the judgment of the Circuit Court for Montgomery County rejecting the efforts of appellants to recover legal fees in the amount of $4,810,919.75 pursuant to a reverse contingency fee agreement for representation before the United States Tax Court during 1987 and 1988. Appellants, attorneys R. Edwin Brown and Rex L. Sturm, and their respective law firm of Brown & Sturm, represented and provided legal advice to the children of Lawson and Cordelia King ("the senior Kings"), who bought the 438-acre farm of their parents and subsequently incurred massive tax deficiencies after their parents died. Brown & Sturm had represented both the senior Kings in implementing that sale. Appellants filed this action against their daughter Elizabeth J. Jacobs,¹ her sister Lois K. Aschenbach, and Frederick Road Limited Partnership ("Frederick Road"), a partnership involving Aschenbach (collectively, "appellees").

The case sub judice is related to a separate legal malpractice action filed against Brown & Sturm by Aschenbach and Frederick Road. That action is now pending in the Circuit Court for Montgomery County, following a decision by the Court of Appeals in Frederick Road Ltd. P'ship v. Brown & Sturm, 360 Md. 76, 756 A.2d 963 (2000) (reversing summary judgment in favor of Brown & Sturm). This case is also related to Brown & Sturm's claim in United States Bankruptcy Court for the District of Maryland to recover its fee from Jacobs' and Aschenbach's brother, William I. King, and Field Farms Limited Partnership ("Field Farms"), of which Jacobs was a member. The Bankruptcy Court rejected Brown & Sturm's claim, and the United States District Court and United States Court of Appeals for the Fourth Circuit affirmed.

In the instant case, the court below rejected appellees' motion for summary judgment and held a nine-day bench trial between January 12 and February 20, 1999. Following trial, the court issued a lengthy memorandum opinion and order favoring appellees on one of their three original theories,² that a confidential relationship existed between the parties at the time of the retainer agreement and Brown & Sturm failed to meet its burden of proving such fee agreement was voluntary and reasonable. Appellants now ask:

1. Did the court below err when it found that the retainer agreement between the parties was not voluntary?

2. Did the court below err when it found that the retainer agreement between the parties was not reasonable?

On cross-appeal, appellees ask:

1. Did the court below err when it found that collateral estoppel did not apply to this action?

2. Did the court below err when it declined to rule that the fee was unethical and unreasonable as a matter of law?

To these questions we answer "no" and explain.

Facts

The trial court issued the following findings of fact, which we paraphrase.

Appellant R. Edwin Brown is an attorney licensed to practice in Maryland. At the time of the trial below, he had been engaged in private practice for fifty-seven years, specializing in condemnation and other land valuation cases. Brown has handled 500 such cases during his career and has tried many of them before juries. Throughout his career, he has worked with appraisers in the process of determining land values. Appellant Rex L. Sturm is an attorney licensed to practice in Maryland, Nebraska, and the District of Columbia. At the time of the trial, he had been engaged in the private practice of law for thirty years, twenty-nine of which had been as Brown's partner in Brown & Sturm.

Defendants at trial were Elizabeth J. Jacobs, Lois K. Aschenbach, and William I. King, all of whom are the children of the late W. Lawson and Cordelia E. King (collectively, "the King children" or "the King siblings"). Jacobs is also a general partner in defendant Field Farms, although neither Jacobs nor Field Farms is a party to this appeal. Aschenbach is a general partner in appellee Frederick Road. Appellants also named as defendants the Frederick Road General Partnership, its partners, and the trustees of the Aschenbach Children's Trust. As the trial court noted, however, no evidence was produced at trial regarding the liability of these defendants, and defendant Conrad V. Aschenbach, as personal representative of the Estate of Robert V. Aschenbach, prevailed on summary judgment by showing that the claim against decedent had not been filed timely.

A Sale of the King Farm

In 1981 Lawson and Cordelia King owned a 438-acre farm in Montgomery County. During that year, August C. Bonsall, long-time certified public accountant to both William King and Lawson King, recommended that the elder King sell the farm to his children or to a partnership created by the children. The purpose of the sale was to keep the property in the family and to reduce the enormous estate taxes that the children would pay if they inherited the farm from their parents. After changing his mind a few times, Lawson King finally decided to sell to the children.

In late September 1981, Bonsall contacted Stanard Klinefelter, Esq., of the firm of Piper & Marbury and advised him of the proposed sale. Bonsall told Klinefelter that the land had been appraised "for farm use only" at $550,000,³ and such price could be used as the sale price in this transaction, provided that a three-year agricultural easement was placed on the property. Klinefelter informed Bonsall that his plan was badly flawed, for any tax liability would be based not on the parcel's agricultural value, but instead on the fair market value for its highest and best use.⁴

Accordingly, Bonsall authorized Klinefelter to investigate other alternatives, and he did. He approached G. Van Velsor Wolf, Esquire, a senior partner in Piper & Marbury's Estates and Trusts Department, and they began researching other options. The senior Kings had a long association with Wolf, having depended upon his advice and representation in tax and estate planning matters for several years. After Wolf and his colleagues developed several alternatives, two meetings took place—one in November 1981, with Wolf, Bonsall and Lawson King, and the other on January 2, 1982, with Wolf, Bonsall and Klinefelter.⁵ King approved one of the proposals during the November meeting,⁶ but by January, he wavered in his intentions again, and Bonsall reported to the lawyers that he was reluctant to sell the farm. Klinefelter heard nothing further from Bonsall after the January meeting.

Unbeknownst to the Piper & Marbury attorneys, King—egged on by Bonsall— proceeded to sell the farm to his children pursuant to the "badly flawed" estate plan. Brown and his firm Brown & Sturm were retained to handle the settlement. Brown had known Lawson King since high school and had represented him during the 1970's in a condemnation case.

Bonsall directed Brown to determine the sale price for the farm. Bonsall sent a contract of sale to Brown for review, covering 418 of the 438 acres of the parcel. (The senior Kings retained the family home and surrounding acreage.) Based on the parcel's agricultural value and using appraisals of three different evaluators, Brown determined that the King children should pay nearly $600,000 for the farm. After Brown reviewed the contract, the senior Kings and King children signed it on February 3, 1982. As Bonsall recommended, William King and Elizabeth Jacobs formed Field Farms and Lois Aschenbach formed Frederick Road to take title to the farm. As part of the settlement, Sturm prepared assignments of the contract from the King siblings to their respective partnerships. The settlement took place on March 5.

When Klinefelter did not hear back from Bonsall by late February or early March 1982 regarding King's estate plan, he called the accountant. Klinefelter then learned, for the first time, that a contract of sale had been executed and settlement was either imminent or had just taken place. Klinefelter and Wolf then sought to convince Lawson King and his children to reverse the transaction or "correct" the sale. Wolf met separately with Lawson King, the children, and Brown, then memorialized these meetings in three letters, all dated May 17, 1982. In his meetings with the members of the King family, Wolf emphasized that the IRS would not accept the agricultural value appraisals, and that it would require a new valuation of the farm reflecting fair market value based upon the highest and best use for the land.

In his meeting with Brown, Wolf learned that Brown had been thus far unable to record the deed from the senior Kings to the children's partnerships, because Montgomery County taxing authorities believed that the sale price, upon which the County transfer tax would be imposed, was far below the fair market value of the farm. An assistant county attorney had advised Brown that the State Department of Assessments and Taxation ("SDAT") appraised the farm, without improvements, as of March 16, 1982, at $9,746,100. Brown also had been advised that the County might "request a professional real estate appraiser to make an appraisal of the property." Thus, at his meeting with Wolf, Brown agreed that he would "continue to pursue the new lead for obtaining a valid and viable `fair market value'" and that no further effort to record the deed would be made while he was negotiating with the County over that value.

In his letter of May 17...