Billman v. State of Md. Deposit Ins. Fund Corp.

• Decision Date: 01 September 1989
• Docket Number: No. 96,96
• Citation: 88 Md.App. 79,593 A.2d 684
• Parties: Tom J. BILLMAN, et al. v. STATE OF MARYLAND DEPOSIT INSURANCE FUND CORPORATION, et al. On Remand,
• Court: Court of Special Appeals of Maryland

Page 79

88 Md.App. 79

593 A.2d 684

Tom J. BILLMAN, et al. v. STATE OF MARYLAND DEPOSIT INSURANCE FUND CORPORATION, et al.

On Remand No. 96, Sept. Term, 1989.

Court of Special Appeals of Maryland.

Aug. 8, 1991.

Certiorari Denied December 20, 1991.

John R. Fornaciari (Robert E. Hebda, Robert M. Disch, Steele & Fornaciari and Eckert, Seamans, Cherin & Mellott, Washington, D.C., on the brief), for appellants, Billman, Crysopt Corporation, Epic Holdings Ltd. and Epicenter Consolidated, Ltd.

Clayton C. McCuistion, pro se.

Leonard Meltz, pro se.

Neil J. Dilloff (Jonathan D. Smith and Piper & Marbury, on the brief, J. Joseph Curran, Jr., Atty. Gen. and Dennis M. Sweeney, Deputy Atty. Gen. of counsel), Baltimore, Md., for appellees.

Argued before WILNER, C.J., FISCHER, J. and LAWRENCE F. RODOWSKY, Associate Judge of the Court of Appeals, Specially Assigned.

LAWRENCE F. RODOWSKY, Judge, Specially Assigned.

Appellee, State of Maryland Deposit Insurance Fund Corporation (MDIF), is the receiver of Community Savings & Loan, Inc. (CSL), a Maryland chartered, capital stock savings and loan corporation. In an action for damages based on breaches of the duties of loyalty and care owed to CSL by its officers and directors, MDIF obtained judgments, jointly and severally, against appellants, Tom J. Billman (Billman), Clayton C. McCuistion (McCuistion), and Leonard Meltz (Meltz), in excess of $112 million, against appellant, Crysopt Corporation (Crysopt), for approximately $94 million, and against two holding companies of CSL, which are also appellants, for $109 million. ¹

On an earlier consideration of this appeal, this court reversed the judgment and remanded for a new trial because documents which had not been admitted into evidence mistakenly had been delivered to the jury room where they were available to the jury during its deliberations. Billman v. State of Maryland Deposit Ins. Fund Corp., 80 Md.App. 333, 563 A.2d 1110 (1989). Finding that the error was not prejudicial, in light of the record as a whole, the Court of Appeals reversed. State of Maryland Deposit Ins. Fund Corp. v. Billman, 321 Md. 3, 580 A.2d 1044 (1990). The appeals are now before this court on remand from the Court of Appeals for the purpose of considering the issues which were not decided in the prior opinions.

CSL was one among a myriad of corporations and partnerships affiliated with Equity Programs Investment Corporation (EPIC), a syndicator of tax shelter limited partnerships which invested in residential real estate. Billman was the founder of EPIC and a controlling principal in the EPIC group of corporations and partnerships. Crysopt is a holding company wholly owned by Billman.

Appellants claim that many errors were committed in the proceedings below. The nature of MDIF's claims and an outline of the proof supporting those claims may be found in the Court of Appeals opinion, supra. Throughout this opinion we shall set forth facts, additional to those found in the Court of Appeals opinion, to the extent necessary to present the issue under consideration and the grounds of its disposition.

I

By a preliminary motion under Maryland Rule 2-322, Crysopt challenged personal jurisdiction. Crysopt, a Delaware corporation, maintained its principal business office in Alexandria, Virginia during the relevant period. The Circuit Court for Montgomery County denied the motion. Crysopt claims that was error.

Md.Code (1974, 1989 Repl.Vol.), § 6-103 of the Courts and Judicial Proceedings Article, the Maryland long arm statute, provides in relevant part as follows:

"(a) Condition.--If jurisdiction over a person is based solely upon this section, he may be sued only on a cause of action arising from any act enumerated in this section.

(b) In general.--A court may exercise personal jurisdiction over a person, who directly or by an agent:

....

(3) Causes tortious injury in the State by an act or omission in the State[.]"

The breaches of fiduciary duty owed to CSL by the individual defendants in this case were torts. See Restatement (Second) of Torts § 874 (1977) ("One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation."). The theory of MDIF's complaint against Crysopt is that Crysopt "was among the means and instrumentalities by which" Billman and others committed the tort or series of torts. It was on that theory that the case went to the jury against Crysopt, and the verdicts against Crysopt must be viewed as based on that theory. The tort victim, CSL, had its principal place of business in Montgomery County, Maryland.

Crysopt's role in the EPIC "reorganization" of February 28, 1985, sufficiently demonstrates that Crysopt caused tortious injury to CSL in Maryland. In summarizing that role we shall refer to the two tiers of holding companies of CSL collectively as "EPIC Holdings," as did the Court of Appeals. Billman, 321 Md. at 18, 580 A.2d 1044. Billman owned eighty percent of the stock of EPIC Holdings, and McCuistion owned twenty percent. In the reorganization Billman received assets valued in excess of $31 million, including all of the stock of Crysopt.

Between January 9 and February 25, 1985, CSL paid to EPIC Holdings $1.5 million in tax allocation payments and $7,999,998 in dividends. EPIC Holdings then utilized those payments when it infused $14 million of immediately available funds into Crysopt. Nearly $9 million of those funds were deposited to an account of Crysopt at CSL on February 19, 1985, which was drawn down to $63,000 by early March 1985. Parts of the tortious injury allegedly suffered by CSL were the tax allocation payments and the February 7, 1985, illegal dividend of $7,999,998. ² Also included in the assets of Crysopt was the stock of Batts Neck Corporation, which, through a number of subsidiary corporations, owned valuable real estate on the Eastern Shore. The net worth of Batts Neck Corporation was $1.2 million. In addition to the $14 million in cash and the stock of Batts Neck Corporation, Crysopt had other assets valued at the time of the reorganization at $16.5 million.

Essentially, because Billman controlled Crysopt, Crysopt acted through Billman. There is no issue concerning Maryland's jurisdiction over Billman. When Billman utilized Crysopt in transactions which violated Billman's duties to CSL, Crysopt was acting in Maryland to the same extent that Billman was. The nexus here between the contacts supporting an exercise of personal jurisdiction and the nature of the action brought is extremely strong. Cf. Camelback Ski Corp. v. Behning, 307 Md. 270, 513 A.2d 874 (1986), vacated and remanded, 480 U.S. 901, 107 S.Ct. 1341, 94 L.Ed.2d 512 (1987), on remand, 312 Md. 330, 539 A.2d 1107, cert. denied, 488 U.S. 849, 109 S.Ct. 130, 102 L.Ed.2d 103 (1988). There was personal jurisdiction over Crysopt.

II

Appellants contend that their "recoupment" counterclaims were improperly dismissed and that their "recoupment" defenses were improperly stricken. The argument is an effort to bring this case within the holding of State v. Hogg, 311 Md. 446, 535 A.2d 923 (1988). In Hogg, MDIF sued as successor to Maryland Savings-Share Insurance Corporation (MSSIC), the private insurer of deposits in Maryland chartered savings and loans. MSSIC had been statutorily merged into MDIF. See 1985 Maryland Laws (First Special Session), Ch. 6, uncodified § 4. The action was against former officers and directors of MSSIC. The Hogg opinion used the term, "recoupment," to describe the principle "that, by initiating an action for money damages, a sovereign who has not by statute consented to suit against it, consents to a reduction of its claim for any amount payable to the defendants by a private party in the position of the sovereign which arises out of the same transaction or occurrence sued upon." 311 Md. at 457, 535 A.2d 923. Hogg held that " 'recoupment[ ]' does not offend Maryland's sovereign immunity." Id.

The appeal in Hogg was noted by MDIF from the refusal by the trial court to strike the defendants' recoupment defense. That appeal was permitted only under the collateral order doctrine, thereby limiting the issue before the Court of Appeals to whether sovereign immunity would be infringed were the case to be tried with recoupment as a viable defense. 311 Md. at 471 and n. 11, 535 A.2d 923. Thus, the Hogg Court had no occasion to consider whether any duty was owed to the defendants in Hogg by the State and its agencies there involved.

The matter now before us was tried on MDIF's second amended complaint. MDIF prosecuted the action as receiver of CSL. See Billman, 321 Md. at 5, 580 A.2d 1044. The theory of the complaint was that Billman and others caused loss to CSL by unlawful loans to EPIC entities (Count I), by unlawful loans to "Insider Partnerships," i.e., those composed of officers and directors of EPIC affiliated entities, including most of the defendants (Count II), by unlawfully paying dividends (Count III), by unlawfully prepaying to EPIC Holdings moneys for taxes (Count IV), by unlawfully paying certain fees to related entities (Count V), and by certain acts of waste (Count VI).

Appellants filed counterclaims against MDIF, expressly including MDIF in its capacities as conservator and receiver of CSL, as regulator, as insurer, and as successor to MSSIC. The counterclaims also invoked Maryland Rule 2-331(c) in an attempt to join additional parties as counterclaim defendants. These were the Maryland Board of Savings and Loan Commissioners (Commissioners) and its Chairman, the Maryland Division of Savings and Loan Associations (DSL) and its Director, the Maryland Department of Licensing and Regulation and its Secretary, the Director of MDIF, and the Governor of Maryland. The theory of the counterclaims was that the counterclaim defendants owed duties, based in contract, general tort law, statutes, and constitutions, to the...