Allied Investment Corp. v. Jasen

• Decision Date: 25 June 1999
• Docket Number: No. 134,134
• Parties: ALLIED INVESTMENT CORPORATION and Allied Venture Partnership v. Peter O. JASEN.
• Court: Maryland Court of Appeals

731 A.2d 957

354 Md. 547

ALLIED INVESTMENT CORPORATION and Allied Venture Partnership v. Peter O. JASEN.

No. 134, Sept. Term, 1998.

Court of Appeals of Maryland.

June 25, 1999.

John F. Kaufman (Richard M. Kremen, Piper & Marbury, L.L.P., on brief), Baltimore, for Petitioners.

No argument on behalf of Respondent.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, RAKER, WILNER, CATHELL and THEODORE G. BLOOM (retired, specially assigned), JJ.

CATHELL, Judge.

Allied Investment Corporation and Allied Venture Partnership, petitioners, appeal from the decision of the Circuit Court for Montgomery County dismissing, under Maryland Rule 2-322, their complaint against Peter O. Jasen, respondent, for declaratory judgment and an equitable accounting.

Although the facts are somewhat torturous, the business transactions at issue here, stripped of their factual complexity, are relatively simple. A guarantor of loans pledged to the lenders, petitioners, as collateral, all of his interests in a limited partnership and shares in a corporation, including the right to the proceeds from both. Security interests were documented by way of promissory notes and collateral assignments. The original borrower was replaced by a successor, but the guarantee remained and, despite certain modifications, the obligation of the guarantor remained essentially the same.

While the partnership and corporate interests remained as collateral for the loans, the guarantor sold, or purportedly sold, the same interests to respondent. Respondent then notified petitioners that the assignment of collateral to them was null and void. The lenders replied to respondent that their collateral interests were valid.

Petitioners filed suit against respondent requesting a declaratory judgment that (1) the collateral assignment to them of the partnership interest, including the proceeds, was valid, and (2) the collateral assignment of the shares of corporate stock to them was valid. Petitioners filed in the same suit a third count for an equitable accounting.

The trial court did not address any of petitioners' claims, finding that the suit was, in effect, an action for conversion and that the statute of limitations had expired with respect to such an action. The Court of Special Appeals affirmed. We shall reverse.

I. Facts

William H. Miller, acting as President of NNS Corporation, borrowed $1,000,000 from petitioners and DC Bancorp, on May 30, 1989. Mr. Miller guaranteed payment of the loan personally, providing collateral in part through a security interest in his limited partnership share in the Ashmere Chesapeake Limited Partnership (Ashmere Partnership), his fifty percent stock ownership of Ashmere Chesapeake Corporation (Ashmere Corporation), and the proceeds emanating from both. Petitioners and DC Bancorp subsequently purchased other previously-made loan obligations of NNS Corporation from other lenders not relevant to this proceeding. Payment of those loans also had been guaranteed personally by Mr. Miller.

NNS Corporation later sold its assets to another firm, after which petitioners and DC Bancorp entered into a Modification of Loans Agreement on February 20, 1991. Mr. Miller again guaranteed the modified loans personally with, among other things, his interests in the Ashmere Partnership and the Ashmere Corporation (hereinafter collectively referred to as the Ashmere Interests) and the proceeds from those interests. Mr. Miller also entered into a promissory note with petitioners and DC Bancorp, which provided a security interest in "all of [his] assets, funds, property and other rights owned." DC Bancorp later assigned all of its interests in these loan transactions to petitioners.

In an agreement dated March 20, 1991, Mr. Miller purported to sell his portion of the Ashmere Interests to respondent, a limited partner in the Ashmere Partnership and a holder of Ashmere Corporation stock. Petitioners allege that respondent "had knowledge of Miller's prior execution of the Collateral Assignment" of his share of the Ashmere Interests and their proceeds. Respondent sent a letter to petitioners on March 25, 1991, stating that Mr. Miller's assignment of Miller's portion of the Ashmere Interests as collateral was "null and void." Petitioners responded by a letter dated March 27, 1991, that the collateral assignment was valid. The parties exchanged further letters without resolution of the matter.

Petitioners filed a complaint in the Circuit Court for Montgomery County on January 28, 1997. The first count in the complaint requested the court to enter a declaratory judgment that Mr. Miller had validly pledged as secured collateral his share of the Ashmere Partnership and the proceeds resulting from that interest. The second claim requested a declaratory judgment that petitioner had a secured interest in Mr. Miller's shares of the Ashmere Corporation along with all distributions, dividends, and proceeds arising from that ownership. The third count requested an equitable accounting of the proceeds, distributions, and dividends of the Ashmere Interests, if any, received by respondent after March 1,1991.

Respondent moved to dismiss the complaint for failure to state a claim pursuant to Maryland Rule 2-322. Respondent argued that counts one and two of the complaint were actually a tort claim for conversion and therefore subject to the general three-year statute of limitations.¹ See Md.Code (1974, 1998 Repl.Vol.), § 5-101 of the Courts & Judicial Proceedings Article. The circuit court agreed and dismissed counts one and two with prejudice. The circuit court also dismissed count three because the dismissal of counts one and two left "no basis" for an equitable accounting.

On appeal, the Court of Special Appeals affirmed, holding that Mr. Miller's assignment of his Ashmere Interests to respondent amounted to a claim for conversion that was time-barred by the statute of limitations. Allied Inv. Corp. v. Jasen, 123 Md.App. 88, 99-100, 716 A.2d 1085, 1090 (1998). That court also held that count three was properly dismissed because the statute of limitations had "extinguished the underlying rights the equitable remedy of accounting" pertained to and because the doctrine of laches applied. Id. at 110-11, 716 A.2d at 1095-96. We granted a writ of certiorari to address the following issues presented by petitioners:

1. Whether Maryland law recognizes a claim for conversion of an intangible limited partnership interest which is not merged into or identified with some tangible document of title, but with respect to which any dividends, profits or other distributions which may have issued have been received and retained by the defendant[.]

2. Whether Maryland law recognizes a claim for conversion of corporate stock represented by a certificate which remains in the plaintiff's possession, but with respect to which any dividends, profits or other distributions which may have issued have been received and retained by the defendant[.]

3. Whether an assertion of a claim to an intangible asset, with no accompanying assertion of dominion or control over any tangible object or document into which the intangible asset is merged or identified, gives rise to a claim for conversion under Maryland law[.]

II. Dismissal

A. Standard of Review

In reviewing a motion to dismiss for failure to state a claim under Maryland Rule 2-322(b)(2), trial and appellate courts must assume the truth of all well-pleaded, relevant, and material facts in the complaint and any reasonable inferences that can be drawn therefrom. Bobo v. State, 346 Md. 706, 708, 697 A.2d 1371, 1372 (1997) (citing Stone v. Chicago Title Ins. Co., 330 Md. 329, 333, 624 A.2d 496, 498 (1993); Odyniec v. Schneider, 322 Md. 520, 525, 588 A.2d 786, 788 (1991)); Board of Educ. v. Browning, 333 Md. 281, 286, 635 A.2d 373, 376 (1994) (citing Faya v. Almaraz, 329 Md. 435, 443, 620 A.2d 327, 331 (1993)). "Dismissal is proper only if the alleged facts and permissible inferences, so viewed, would, if proven, nonetheless fail to afford relief to the plaintiff." Bobo, 346 Md. at 709, 697 A.2d at 1373 (citing Morris v. Osmose Wood Preserving, 340 Md. 519, 531, 667 A.2d 624, 630 (1995)). Thus, an appellate court reviewing a dismissal must determine whether the trial court was legally correct. Id.

B. Dismissal of Declaratory Judgment Actions

Section 3-406 of the Courts & Judicial Proceedings Article provides:

Any person interested under a ... written contract, or other writing constituting a contract, or whose rights, status, or other legal relations are affected by a ... contract ... may have determined any question of construction or validity arising under the ... contract... and obtain a declaration of rights, status, or other legal relations under it.

Section 3-407 allows a contract to "be construed before or after a breach of the contract." Granting a motion to dismiss a declaratory judgment action without declaring the rights of the parties rarely is appropriate. Post v. Bregman, 349 Md. 142, 160, 707 A.2d 806, 814 (1998); Broadwater v. State, 303 Md. 461, 465, 494 A.2d 934, 936 (1985); State v. Burning Tree Club, Inc., 301 Md. 9, 17-18, 481 A.2d 785, 789 (1984); Borders v. Board of Educ., 259 Md. 256, 258-59, 269 A.2d 570, 571 (1970); Woodland Beach Property Owners' Ass'n v. Worley, 253 Md. 442, 447-48, 252 A.2d 827, 830 (1969); Hunt v. Montgomery County, 248 Md. 403, 408-10, 237 A.2d 35, 37-39 (1968). "Ordinarily the only place a [dismissal] has in the declaratory process is to challenge the legal availability of the remedy sought to be used." Hunt, 248 Md. at 408, 237 A.2d at 37. This Court has said that

[t]he test of the sufficiency of the [complaint for declaratory judgment] is not whether it shows that the plaintiff is entitled to the declaration of rights or interest in accordance with his theory, but whether he is entitled to a declaration at all; so, even though the plaintiff may be on the losing side of the dispute, if

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