Catler v. Arent Fox, LLP

• Decision Date: 03 September 2013
• Docket Number: 2349 Sept. Term, 2011.,Nos. 538,s. 538
• Citation: 71 A.3d 155,212 Md.App. 685
• Parties: James CATLER, et al. v. ARENT FOX, LLP, et al. Herschel M. Blumberg, et al. v. Arent Fox, LLP, et al.
• Court: Court of Special Appeals of Maryland

212 Md.App. 685

71 A.3d 155

James CATLER, et al.

v.ARENT FOX, LLP, et al.

Herschel M. Blumberg, et al.

v.Arent Fox, LLP, et al.

Nos. 538, 2349 Sept. Term, 2011.

Court of Special Appeals of Maryland.

May 30, 2013.

Reconsideration Denied Sept. 3, 2013.

Jeremy W. Schulman (Kristin E. Draper, Alan B. Sternstein, Shulman, Rogers, Gandal, Pordy & Ecker, PA, Potomac, MD, John D. Pels, Jennifer O. Schiffer, Pels Anderson, LLC, Bethesda, MD), on the briefs, for Appellant.

John Buckley, Jr. (Enu A. Mainigi, William T. Burke, Thomas P. Windom, Williams & Connolly, LLP, Washington, D.C., Jeffrey M. Schwaber, Deanna L. Peters, Stein, Sperling Bennett, DeJong, Driscoll, PC, Rockville, MD), on the briefs, for Appellee.

Panel: MATRICCIANI, KEHOE and EMORY A. PLITT, JR., (Specially Assigned), JJ.

MATRICCIANI, J.

These consolidated appeals arise from a central factual situation but raise wholly disparate legal issues. In the interests of clarity, we begin by noting that the underlying dispute began on October 27, 2010, when Herschel Blumberg,¹ on his behalf, for the estate of his wife, for his daughter Marjorie Blumberg, and for the corporate entities that they control, filed suit against appellees Arent Fox LLP, Arent Fox PLLC, and Gerard Leval, (collectively, “Arent Fox”) in the Circuit Court for Montgomery County. The five-count complaint alleged legal malpractice, breach of fiduciary duty, breach of contract, fraudulent concealment, and constructive fraud.

During pre-trial discovery, appellees sent subpoenas duces tecum to non-parties James Catler, Mark Blumberg, and Susan Blumberg Levin in an effort to obtain relevant documents. The non-parties objected to certain requests for document production on the grounds of protective privilege. The circuit court found that no privilege applied to the documents in question and ordered their production. As permitted by statute, the nonparties noted timely appeals from the various orders of the circuit court.² That appeal is reflected in the caption to this opinion.

The contested documents were then produced, and, based on the discovery, the Arent Fox appellees proceeded to file a number of motions seeking summary judgment in the case. In total, appellees filed one motion to dismiss (which the court treated as a summary judgment motion under Maryland Rule 2–322(c)) and nine motions for summary judgment, each pertaining to a separate theory or issue. At the close of a two day hearing on the motions, the circuit court granted all of appellees' motions for summary judgment. Appellants noted a timely appeal from those orders. That is the second appeal now before us. On February 13, 2012, this court ordered that the appeals be consolidated.

Questions Presented

The non-party appellants present eight questions for our review which we combine and rephrase for clarity as: ³

I. Did the circuit court err in ordering the production of documents over which the non-parties asserted a claim of privilege?

For the reasons that follow, we answer no and affirm the decisions of the circuit court.

The real party appellants present seven questions for our review with respect to the grants of summary judgment. We combine the questions and rephrase them as: ⁴

II. Did the circuit court err by awarding summary judgmenton all issues in favor of appellees Arent Fox?

For the reasons that follow, we answer no and affirm the decisions of the circuit court.

Factual and Procedural History

Herschel Blumberg, as appellants ⁵ note, “was a revered Prince George's County real estate developer and internationally recognized philanthropist.” By 1971, with appellees acting as outside counsel, appellants had successfully developed the cornerstone of their holdings—a three-building office complex called Prince George's Metro Center. In 1998 and 1999, appellants began work on a long envisioned plan to expand the Prince George's Metro Center development. The expansion plan included two condominium towers, a fifth office building,⁶ a student housing facility to be called Student Towers, retail space, a movie theater, a parking garage, and a plaza space. The new development also implemented a name change from Prince George's Metro Center to University Town Center. As part of the development plan for University Town Center, appellants decided on a scheme for refinancing certain loans, for accessing equity in existing properties and transferring it to the new project, and for incurring new debt obligations. During the financial restructuring that took place, appellants entered into a series of inter-company loans and received the proceeds from two externally sourced loans.

By the end of 2005, appellants were in the midst of constructing University Town Center. In appellees' words, “it had always been the appellant entities['] plan to start construction using their own funds and then, once substantial progress has been made, to obtain bank financing to continue and complete the project.” By refinancing the mortgages on the buildings comprising Prince George's Metro Center, the Blumberg entities drained 40 million dollars of their own equity. The equity available through the refinancing was distributed through, and alternatively taken from, an entity called the Blumberg Family Limited Partnership. Monies were loaned among the companies, ultimately financing the early stages of development.⁷ After the internal money was exhausted, the Blumberg entities searched for external funds to continue with construction.

To supplement the internally sourced funds, the companies negotiated, through former Vice President of Finance and Chief Financial Officer Samuel Tucker, the terms of an 83 million dollar loan from Wells Fargo, and a 57 million dollar loan from Key Bank. In May of 2006, the Blumberg entities began negotiating with Wells Fargo, closing the resulting loan on November 9, 2006. The Key Bank loan closed on April 30, 2007.⁸

Although Arent Fox provided legal advice to the Blumberg entities throughout the time they negotiated with Wells Fargo, Mr. Leval, the Arent Fox partner chiefly responsible for appellants' representation, only ran a conflicts check in July of 2006—months after negotiation of the loan's terms was underway—uncovering the fact that Arent Fox represented Wells Fargo in unrelated transactions. Wells Fargo executed a written waiver of the conflict, but it is contested whether or not Mr. Tucker, on appellants' behalf, executed a sufficient waiver.⁹ Appellants contend, moreover, that the loans required most of the Blumberg entities' property to be pledged as collateral. For example, Dewey LLC, one of appellants' entities owned by the Blumberg children, was required to pledge its land holdings as collateral, even though it did not directly receive the proceeds of the loan distribution. The loans ultimately fell into default, the collateral was foreclosed upon, and the expansion project was not completed to appellants' expectation or satisfaction.

Possibly predating, but definitely running concurrent to the financing and construction, was appellants' concern for Mr. Blumberg's mental state. As appellants contend, “in the early 2000[']s, as planning for the [University Town Center] project proceeded, Mr. Blumberg began to show troubling signs of a cognitive decline.” The record is replete with examples like that provided by former Senior Vice President and Chief Operating Officer Christopher Hanessian—“I voiced concerns about [the risks of construction, Mr. Blumberg's mental state, and undertaking the loans] ¹⁰ to Messers. Leval, Blumberg and Tucker on numerous occasions prior to the Wells Fargo loan in 2006 and prior to the companies' own investment of capital in the project.” In April and June of 2007, Mr. Blumberg visited medical professionals about his condition, resulting in a diagnosis of dementia on June 8, 2007.¹¹

In their five count complaint filed on October 27, 2010, appellants alleged malpracticeon behalf of appellees, arguing generally that appellees had a duty to prevent their incompetent client ¹² from entering into the loan transactions, or alternatively had a duty to have a guardian appointed for Mr. Blumberg. Specifically, appellants state that because of appellees' “roles as attorneys for the [appellants], [appellees] owed [appellants] a duty of diligence, competence, honesty and loyalty, and to remain free of conflicts that could compromise [appellees'] ability to at all times act in the best interest of [appellants].” Appellants contend that appellees breached their fiduciary duties by “deviati[ng] from the standard of loyalty generally afforded to clients by other similarly situated lawyers.” Additionally, appellees allegedly breached their contract with appellants by “failing to diligently and competently provide legal services, and to protect [appellants'] interests above all others.” Appellants made the further allegation that appellees “had a duty to disclose the existence” of letters of intent (“LOI”) by various developers to buy one of the University Town Center buildings, Student Towers but did not do so.

At the close of pre-trial discovery, appellees filed nine motions for summary judgment and one motion to dismiss. Each motion pertained to a separate theory: ¹³ (1) the statute of limitations bars appellants' claims; (2) Arent Fox had no duty to provide business advice; (3) Arent Fox did not breach a duty to have a guardian appointed for Mr. Blumberg; (4) appellants' claims are barred by contributory negligence and the doctrine of in pari delicto; (5) the conflicts alleged by appellants are either “illusory” or waived; (6) Arent Fox did not conceal any letters of intent; (7) Arent Fox did not conceal from appellants knowledge of their financial status; (8) there is no distinct cause of action for breach of fiduciary duty; ¹⁴ (9) the claim for malpractice does not support a breach of contract claim; and (10) appellants failed to prove causation. After a two day motions hearing, the...