Chaudhry v. Gallerizzo

• Citation: 174 F.3d 394
• Decision Date: 05 April 1999
• Docket Number: Nos. 98-1024,98-1595,s. 98-1024
• Parties: Mohammad H. CHAUDHRY; Diana M. Chaudhry, Plaintiffs-Appellants, v. Michael G. GALLERIZZO; Gebhardt & Smith, Defendants-Appellees. James E. Kiley, Jr., Appellant, Mohammad H. Chaudhry; Diana M. Chaudhry, Plaintiffs-Appellants, v. Michael G. Gallerizzo; Gebhardt & Smith, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 394

174 F.3d 394

Mohammad H. CHAUDHRY; Diana M. Chaudhry, Plaintiffs-Appellants, v. Michael G. GALLERIZZO; Gebhardt & Smith, Defendants-Appellees.

James E. Kiley, Jr., Appellant, Mohammad H. Chaudhry; Diana M. Chaudhry, Plaintiffs-Appellants, v. Michael G. Gallerizzo; Gebhardt & Smith, Defendants-Appellees.

Nos. 98-1024, 98-1595.

United States Court of Appeals,

Fourth Circuit.

Argued Dec. 1, 1998.

Decided April 5, 1999.

ARGUED: James Edward Kiley, Jr., Law Offices of James E. Kiley, Jr., P.C., Rockville, Maryland, for Appellants. Louis Jay Ebert, Gebhardt & Smith, L.L.P., Baltimore, Maryland, for Appellees. ON BRIEF: Mark M. Dumler, George R. Calhoun, Gebhardt & Smith, L.L.P., Baltimore, Maryland, for Appellees.

Before MURNAGHAN, LUTTIG, and KING, Circuit Judges.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge LUTTIG and Judge KING joined.

OPINION

MURNAGHAN, Circuit Judge:

Plaintiffs, Mohammad and Diana Chaudhry, filed the present action against Defendants Michael Gallerizzo and his law firm, Gebhardt & Smith, in the United States District Court for the District of Maryland, alleging various violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C.A. § 1692a, et seq. (West 1998). The district court granted a motion for judgment as a matter of law in favor of Defendants on all counts. In addition, the district court levied sanctions against Plaintiffs and their attorney for filing frivolous claims. We affirm.

I.

NationsBank, N.A. is a national banking association which maintains an office in Bethesda, Maryland. NationsBanc Mortgage Corporation ("NMC") is a national mortgage provider and is an affiliate of NationsBank, N.A. NMC's principal office is located in Dallas, Texas. NationsBank, N.A. and NMC are collectively referred to as "NationsBank."

In 1994, the Chaudhrys decided to move from their home on Barnwood Lane ("Barnwood Home") to a home they planned to build on Inglewood Drive in Potomac, Maryland (the "Inglewood Home"). After discussions with Richard Garrard, a NationsBank loan officer, the Chaudhrys took out a home equity line on their Barnwood Home to assist in the purchase of the lot for the Inglewood Home and obtained a construction loan from NMC for the actual construction of the Inglewood Home (the "Construction Loan"). ¹

When the Chaudhrys defaulted on the Construction Loan by, among other things, failing to pay the required monthly payments of interest, NationsBank transferred all of the Chaudhrys' personal and business loans to Special Assets, a division of NationsBank, N.A. that deals with problem loans. Special Assets retained Gallerizzo and Gebhardt & Smith to represent the interests of NationsBank in connection with the Chaudhrys' loan.

After Special Assets assumed responsibility, the Chaudhrys' attorney, James Kiley, scheduled a meeting for December 21, 1995. The Chaudhrys, Kiley, Michael Fodel, a supervisor in Special Assets, and Gallerizzo met at the Virginia offices of NationsBank, N.A. Unknown to Gallerizzo or Fodel, Kiley taperecorded the meeting. Throughout the course of the meeting, Gallerizzo emphasized that no oral agreements could be made at the meeting and that NationsBank would not agree to anything unless the parties signed a written agreement containing a release of any claims the Chaudhrys believed they had against the bank. The Chaudhrys refused to agree to such a release. Gallerizzo also indicated that NationsBank might require the Chaudhrys to pay the full balance of the Construction Loan if no agreement were reached. ²

After the December 21st meeting, Fodel instructed Gallerizzo to demand payment from the Chaudhrys. On December 22, 1995, Gallerizzo drafted a demand letter requiring the Chaudhrys to pay the amounts owed under the Construction Loan Documents within thirty days (the "Demand Letter"). The letter set forth the amount owed by the Chaudhrys for principal, interest and inspection fees. In addition, Gallerizzo advised the Chaudhrys that they were also obligated to reimburse the bank for all costs, expenses and attorneys fees which the bank incurred in connection with the matter. Gallerizzo did not demand payment of the attorneys fees or set forth a particular amount of attorneys fees.

On January 4, 1996, Kiley wrote to Gallerizzo, disputing the amounts that NationsBank claimed were due. Pursuant to the FDCPA, he requested that Gallerizzo verify the amounts claimed in the Demand Letter. After receiving Kiley's January 4th letter, Gallerizzo telephoned Jeffrey Richman, another bank representative in Special Assets, and requested that he confirm the sums that were owed for principal, interest and inspection fees. By letter dated January 18, 1996, Gallerizzo sent Kiley a verification of the indebtedness and assured Kiley that the Chaudhrys did, in fact, owe the verified sums. The next day, Gallerizzo again wrote to Kiley and set forth the amounts necessary to pay off the Construction Loan. Subsequently, in a telephone conversation, Gallerizzo asked Kiley whether he had the information he requested. Kiley responded that he had received everything he needed except for verification of the attorneys' fees. Gallerizzo discussed with Richman the amount that NMC would accept from the Chaudhrys in payment of NMC's attorneys' fees. On or about January 19, 1996, Richman instructed Gallerizzo to accept from the Chaudhrys $8,600, an amount less than the actual attorneys' fees incurred by NMC through that date.

In the course of investigating allegations set forth in Kiley's January 4th letter, Gallerizzo identified an issue which he believed could potentially result in liability for NMC. Because NationsBank, N.A. was acting as the servicing agent for NMC and because the Chaudhrys had threatened to sue NMC as the agent of NationsBank, N.A., Gallerizzo believed that any potential claim against NationsBank, N.A. could result in a claim against NMC. In order to advise NMC, Gallerizzo instructed an associate of Gebhardt & Smith to research the issue and prepare a research memorandum regarding his findings (the "Research Memorandum"). A redacted portion of the Research Memorandum was admitted into evidence. Gallerizzo billed NMC for the fees incurred in researching the Chaudhrys' potential defense, and sent the bills to Richman at the offices of NationsBank, N.A.

On January 22, 1996, Kiley wrote to Gallerizzo and indicated that he still needed verification of the attorneys' fees. Relying on this letter and his earlier telephone conversation with Kiley, Gallerizzo forwarded copies of the legal bills of Gebhardt & Smith but did not forward any additional information regarding the inspection fees. Believing the legal bills contained privileged information, Gallerizzo used a black marker to redact portions of several time entries on the bills.

Also on January 22, 1996, the Chaudhrys' settlement attorney, Diane Fox, forwarded a request to NationsBank for a payoff figure on the Construction Loan, claiming that a meeting to refinance the loan was scheduled on January 25, 1996. At the request of NationsBank, Gallerizzo forwarded to Fox a payoff letter dated January 24, 1996.

The Chaudhrys filed the present action on April 8, 1996, alleging violations of the FDCPA and common law fraud claims. ³ At the initial pre-trial proceedings, the Chaudhrys demanded unredacted versions of Gebhardt & Smith's legal bills. The Chaudhrys also demanded the release of the Research Memorandum prepared by Gebhardt & Smith that discussed possible violations of federal statutes. When Gallerizzo objected to the disclosure of the information, the Chaudhrys filed motions to compel production.

District Judge Marvin J. Garbis reviewed in camera the unredacted legal bills and the Research Memorandum. ⁴ With respect to the legal bills, Judge Garbis confirmed that the items redacted revealed the federal statutes researched by Gebhardt & Smith. The first statute researched was the FDCPA. Consequently, Judge Garbis upheld the claim of privilege but determined that, because the Chaudhrys had filed suit, there was no harm in disclosing the fact that Gallerizzo had researched the Act. However, Judge Garbis ruled that the other federal statute, which was the subject of the Research Memorandum, was privileged and refused to disclose the research. Judge Garbis produced a redacted version of the first page of the Research Memorandum which did not reveal the research conducted.

A split bench and jury trial commenced on October 27, 1997. At trial, the Chaudhrys, in part, argued that Gallerizzo had misled them at the December 21st meeting by indicating that he would provide them with the amount of interest due which, if paid, would cure the loan default. They also maintained that some of the legal fees demanded from them was for legal services unrelated to the loan default and, thus, not chargeable under the Construction Loan. With the agreement of counsel, the trial judge decided to submit to the jury limited special verdict questions on these two issues. The court first asked the jury if Plaintiffs had proven by a preponderance of the evidence that Gallerizzo had made false, deceptive, or misleading statements at the December 21st meeting. The court then asked if Plaintiffs had proven by a preponderance of the evidence that the legal fees demanded from them were in excess of the amount properly chargeable to them. The jury returned a verdict in favor of Gallerizzo on issue one, but ruled against him on issue two. With respect to issue two, the jury found that the fees were not properly chargeable to the Chaudhrys and that Gallerizzo had knowingly and intentionally attempted to collect the excessive amount. After a hearing on post-trial motions, the court denied the Chaudhrys' motion for judgment as a matter of law as to issue one, granted Gallerizzo's motion for judgment as a matter of law on issue two, and entered judgment in favor of Gallerizzo on...