Allfirst Bank v. DEPT. OF HEALTH AND MENTAL HYGIENE

• Decision Date: 07 September 2001
• Docket Number: No. 1483,1483
• Citation: 780 A.2d 440,140 Md. App. 334
• Parties: ALLFIRST BANK, v. DEPARTMENT OF HEALTH AND MENTAL HYGIENE, et al.
• Court: Court of Special Appeals of Maryland

780 A.2d 440

140 Md. App. 334

ALLFIRST BANK, v. DEPARTMENT OF HEALTH AND MENTAL HYGIENE, et al.

No. 1483, Sept. Term, 2000.

Court of Special Appeals of Maryland.

September 7, 2001.

Michael G. Gallerizzo (Gebhardt & Smith, LLP, on the brief), Baltimore, for appellant.

Catherine Talbott, Assistant Attorney General (J. Joseph Curran, Jr., Attorney General, on the brief), Baltimore, for DHMH.

Nancy E. Gregor, Towson, for Caroline Center, Inc.

Argued before HOLLANDER, SONNER, THEODORE G. BLOOM (Retired, Specially Assigned), JJ. HOLLANDER, Judge.

The dispute in this appeal concerns the amount of attorneys' fees awarded by the Circuit Court for Prince George's County to Allfirst Bank ("Allfirst" or the "Bank"),¹ appellant, in connection with the default by the Caroline Center, Inc., appellee, of a secured loan made on May 6, 1997, in the amount of $350,000. At the relevant time, the Caroline Center, Inc. (the "Center," the "Borrower," or the "Caroline Center"), a private adult care facility, was in receivership, pursuant to proceedings initiated by the Department of Health and Mental Hygiene ("the Department"), appellee.

The Bank incurred attorneys' fees of almost $55,000 during a 15-month period when, as a secured creditor, it attempted to recover the monies owed by the Center. Although the terms of the loan obligated the Borrower to pay the Bank's attorneys' fees, the court only awarded Allfirst legal fees of $25,702.85, pursuant to an Order of July 26, 2000. This appeal followed. Allfirst presents four questions, which we have consolidated, rephrased, and reordered:

I. Did the circuit court err or abuse its discretion in awarding partial attorneys' fees to appellant, based on its finding that the attorneys' fees incurred by Allfirst after the initial hearing were unnecessary?

II. Did the circuit court deny appellant due process by holding a prompt hearing on the issue of attorney's fees, without prior notice, and without affording the Bank an opportunity to respond in writing or to present evidence in support of its claim for attorney's fees?

The Department has moved to dismiss the appeal, claiming that appellant has not appealed from a final judgment. For the reasons that follow, we shall deny the motion to dismiss, vacate the award of attorneys' fees, and remand for further proceedings.

FACTUAL BACKGROUND

The Caroline Center, a Maryland corporation, is a private adult care facility that was licensed in 1984 to house and care for developmentally disabled adults. See Md. Code (1982, 2000 Repl.Vol.), § 19-333(c)(2) of the Health-General Article ("H.G."). It is funded by the Department's Developmental Disabilities Administration. In 1999, the Center provided residential services to approximately 48 clients and day services to about 76 non-residential clients.

Addie Houston, the Center's Executive Director, resigned in 1994. Shortly thereafter, the Center hired Life Action Partnership, Inc. ("LAP"), a for-profit Maryland corporation, to manage the Center. Houston was President and sole stockholder of LAP.

On May 6, 1997, the Center obtained a line of credit from the First National Bank of Maryland, evidenced by a $350,000 Demand Business Purpose Promissory Note ("the Note") dated May 6, 1997, executed by the Center and payable to the Bank, along with a loan agreement of the same date. The loan was collateralized by a perfected first priority security interest and lien in almost all of the Center's nonreal estate assets, under a Security Agreement dated May 6, 1997. Financing statements were also executed by the Center in favor of the Bank.

Paragraph 10 of the Note is relevant here. It provides:

10. EXPENSES OF COLLECTION. Borrower shall pay all costs and expenses incurred by Bank in collecting sums due under this Promissory Note, including without limitation the costs of any lien, judgment or other record searches, appraisals, travel expenses and the like. In addition, if this Promissory Note is referred to an attorney for collection, whether or not judgment has been confessed or suit has been filed, Borrower shall pay all of the holder's costs, fees (including but not limited to, the holder's attorney's fees, charges and expenses) and all other expenses resulting from such referral.

(Emphasis added).

Several sections of the Security Agreement are also pertinent:

I. DEFINITIONS

* * *

F. Obligations. The term "Obligations" means collectively the obligations of [Caroline Center] to pay to Bank: ... (iii) the expenses of retaking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by Bank of Bank's rights in the event of a default by Borrower or any Other Obligor, together with Bank's attorneys' fees, expenses of collection, and court costs.

* * *

II. GRANT OF SECURITY INTEREST

A. Collateral. As security for all Obligations of Borrower to Bank, and in consideration of advances from Bank to Borrower, [Caroline Center] hereby grants and pledges to [Allfirst] a continuing security interest in all of [Caroline Center's] Equipment, Inventory and Receivables, together with all the Other Property of the [Caroline Center].

* * *

VI. REMEDIES

A. Specific Rights and Remedies. In addition to all other rights and remedies provided by law and the loan documents, [Allfirst], upon the occurrence of any default, may: (i) accelerate and call due the unpaid principal balance of any promissory note evidencing any of the Obligations, and all accrued interest and other sums due as of the date of default....

B. Costs of Collections. Upon the occurrence of any default, [Allfirst] shall be entitled to recover from [Caroline Center] attorneys' fees equal to fifteen percent (15%) of the unpaid balance of the Obligations at the time of default (to the extent not prohibited by law), plus court costs and other expenses which may be incurred by Bank in the enforcement or attempted enforcement of its rights hereunder, whether against any third party, [Caroline Center], or any Other Obligor. Expenses recoverable from [Caroline Center] shall (to the extent not prohibited by law) include costs of collection including salaries, out-of-pocket travel, living expenses and the hiring of agents, consultants, accountants, or otherwise. All sums of money thus expended, and all other monies expended by Bank to protect its interest in the Collateral (including insurance, taxes or repairs) shall be repayable by [Caroline Center] to [Allfirst] on demand, such repayment to be secured as provided above in paragraph II.

(Emphasis added).

The Center acknowledges that it experienced a "period of mismanagement and financial instability." On or about May 6, 1999, LAP notified the Department that it would be unable to meet the Center's payroll for May 21, 1999, because Allfirst refused to release funds to the Center for that purpose. As a result, the Department provided the Center with funds to continue its operations.

After reviewing documentation submitted by the Center, the Department notified the Center and LAP on May 14, 1999, that it had reason to revoke the Center's license due to the Center's financial problems. Nevertheless, the Department sought to assist the Center with its management and financial problems, so that it could continue to provide services to its clients. To that end, appellees attempted to negotiate a forbearance agreement with the Bank, without success. Instead, on May 27, 1999, the Bank demanded immediate payment of the $350,000 due and owing under the Note, which was then in default.

By letter of May 28, 1999, the Bank contacted the Center regarding the default, stating that the Center "has been in default thereunder for a significant period of time. For these reasons, [Allfirst] is immediately entitled to exercise and enforce various rights, remedies and recourse under Loan Documents and applicable law ..." Indeed, Allfirst immediately seized approximately $43,000 from the Center's checking account.

On the same date, May 28, 1999, the Department and the Center entered into a Consent Agreement, which incorporated a plan to restore financial stability to the Center. For fiscal year 2000, the Caroline Center expected to receive its first quarterly payment from the Department on July 1, 1999. Until then, pursuant to the Consent Agreement, the Department agreed to provide the Center with approximately $575,000 in operating funds, to enable it to provide services through June 30, 1999. The Department provided the Center with financing of $558,700 on June 3, 1999.

Pursuant to H.G. § 19-334, the Department filed a "Petition for Appointment of Receiver" (the "Petition") on June 2, 1999, to allow the Center to continue to operate and furnish care to its disabled residential and non-residential clients in Prince George's and Montgomery counties and on the Eastern Shore, who ranged in age from 17 to 77. In the Petition, the Department averred that the Center was insolvent, in imminent danger of closing, and that a receiver was needed for the welfare of the Center's clients. Further, the Department alleged that it wanted to "protect the consumers and assume the rights of all creditors," which required "time," due to the Center's many problems. In its brief, the Department explains that it filed the Petition "to protect the remaining assets of the Caroline Center, preserve monies paid by the Department to support continuing operations, and to ... resolve other issues of management and finances." On the same day, the court appointed Maryland First Financial Services Corporation, Inc. as the receiver (the "Receiver").

On June 11, 1999, the Receiver moved to stay all actions against the Center, claiming that "a stay is necessary to permit the Receiver to identify and assess the financial obligations of the Center, develop a plan for orderly administration of the Center's facilities, and ensure the health, safety and well-being of the clients of the Center without...