Creamer v. Helferstay

• Decision Date: 13 November 1980
• Docket Number: No. 270,270
• Citation: 47 Md.App. 243,422 A.2d 395
• Parties: Ronald E. CREAMER, Ind. & T/A Weinberg & Green et al. v. Charles HELFERSTAY et al.
• Court: Court of Special Appeals of Maryland

Page 243

47 Md.App. 243

422 A.2d 395

Ronald E. CREAMER, Ind. & T/A Weinberg & Green et al. v. Charles HELFERSTAY et al.

No. 270.

Court of Special Appeals of Maryland.

Nov. 13, 1980.

J. Alan Galbraith, Washington, D.C., with whom were Wilbur D. Preston, Jr., Richard C. Whiteford, M. Natalie McSherry, Whiteford, Taylor, Preston, Trimble & Johnston, Baltimore, Md., Brendan V. Sullivan, Jr., Michael S. Sundermeyer and Williams & Connolly, Washington, D.C., on brief, for appellants.

David D. Freishtat, Baltimore, with whom were Paul Mark Sandler and Freishtat, Schwartz & Sandler, Baltimore, on brief, for appellees.

Argued before WILNER, COUCH and WEANT, JJ.

WILNER, Judge.

On July 9, 1976, a Declaration was filed in the Superior Court of Baltimore City that touched off this long, complex, bitter, and most unfortunate litigation. The docket entries alone, to this point, comprise 47 pages, giving some indication of the time, effort, and expense invested by the parties, their counsel, and the court. And there has yet been no trial on the merits.

It is not necessary, in this appeal, to recount the underlying charges and counter-charges in any significant detail. Suffice it to say that, as of October 15, 1979, the case was in this posture:

(1) In a Second Amended Declaration, four individuals who had been partners in a venture known as Route 29-Lewis Property (RLP), on behalf of themselves and 24 of their co-partners, sued Weinberg & Green (W&G), a Baltimore law firm, alleging negligence (Count I), breach of contract (Count II), and fraud (Count III) arising from the manner in which the firm dealt with RLP, its property, and certain of its partners. ¹

(2) In a Counterclaim, W&G sued seven of the plaintiffs, including one of the four "real" plaintiffs (Helferstay), alleging, in essence, that, to the extent W&G acted in such manner as to cause loss to the plaintiffs, it was because the counter-defendants failed to disclose certain information to W&G that would have allowed or caused the firm to take alternative courses of action.

Although W&G was by no means enamored with the charges of negligence or breach of contract, it not unexpectedly took the sharpest exception to the claim of fraud. Indeed, W&G formed and made clear a determination not to discuss, or even to consider, settlement of the litigation so long as the allegation of fraud remained extant. It was a matter of strongly felt principle, or, as W&G puts it, an "implacable resolve."

This resolve, though understandable, was nevertheless a significant stumbling block to any settlement negotiations. The plaintiffs had made their own "implacable resolve"-not to accept less in settlement than substantial reimbursement for their losses, after payment of attorneys' fees. In other words, they demanded "to be made whole." The problem was that the expense of the litigation made it uneconomical for the plaintiffs to pay their attorneys on an hourly basis, and so they agreed to a contingency fee arrangement based on the amount of ultimate recovery-initially 40%, subsequently increased to 50%. Thus, in order to achieve their economic goal of near total recoupment, they would have to effect a recovery nearly twice that which would accrue from compensatory damages alone. Only through the fraud count, from which substantial punitive damages might be recovered, could that result possibly be achieved. The negligence and contract actions, which, even if successful, would produce neither reimbursement for attorneys' fees nor punitive damages, would simply not suffice in that regard.

Thus, it was that two immovable objects were in stalemate. The plaintiffs needed the fraud claim to achieve their minimum objective and the defendant (W& G) refused even to consider a settlement with that claim open.

This was the situation on October 15, 1979, when the parties appeared before Judge David Ross in connection with certain pretrial matters. Facing the prospect of a four-month trial, Judge Ross suggested a possible "framework of a settlement"-that "if the plaintiffs were to, in effect, confess not guilty as to fraud allegations ... (t)hat might open up the opportunity to settle on the claim of negligence."

The parties pursued that suggestion. At the invitation of W&G, the parties, and their counsel, met on October 23, 1979; and, after some four hours of discussion, they arrived at what they thought would be an appropriate mechanism to resolve the impasse, and thus the litigation. The agreement reached, which was committed to writing and signed the next day (October 24), was in five parts, as follows: ²

(1) The plaintiffs agreed to release W&G from any claim of fraud or conspiracy and to dismiss, with prejudice, Count III of their Declaration, in which such claims were made.

(2) W&G agreed to dismiss, with prejudice, its counterclaim, and to release all counter-defendants from any claim related to RLP.

(3) W&G agreed to forebear and release the plaintiffs from and with respect to any claim W&G might have against them for malicious prosecution or abuse of process arising out of the litigation.

(4) W&G "further agree(d) to enter into good faith settlement negotiations with respect to Counts I and II of the Seconded Amended Declaration immediately upon execution of this Agreement ... and the filing of notices of dismissal by all parties."

To "facilitate settlement negotiations and as evidence of its intent to enter into good faith negotiations," W&G agreed (i) that its independently retained counsel, Williams & Connolly, and the two W&G partners most directly involved in the litigation (Messrs. Creamer and Garfink) would withdraw from participation in the settlement negotiations, and (ii) that W&G would be represented in the negotiations by Howard Miller, a W&G partner, and by Richard Whiteford and Natalie McSherry, members of the firm retained by W&G's liability insurance carrier in connection with the malpractice claim.

(5) An "integration" clause, worded as follows: "This Agreement ... and various Notices of Dismissal (attached as exhibits) constitute the entire agreement of the parties. There are no additional promises made by the parties except those expressly set forth in this agreement."

With this Agreement, the parties also signed the dismissals called for in paragraphs 1 and 2, these being filed with the court on Thursday, October 25, 1979. Negotiations, of a sort, commenced that same evening, with a 21/2 hour meeting between David Freishtat, counsel for plaintiffs, and Miller, Whiteford, and McSherry, representing W&G. A second session was held the next day, Friday. Both of those meetings were taken up largely with an explanation by Freishtat of the plaintiffs' version of the facts of the case for Miller's elucidation and benefit; there was little discussion of "dollars," and no offer of money was made by or on behalf of W&G. At a third session, on Sunday morning (October 28), Miller presented an offer of $80,000.

Freishtat, believing such an offer to be not only wholly unacceptable but an indication of bad faith on the part of W&G, immediately terminated the meeting, ended all discussion of settlement, and, the next day, moved to rescind the agreement of October 24 and to strike the dismissals filed pursuant to it. After an evidentiary hearing, the court granted that relief. On December 31, 1979, it entered an Order, accompanied by a Memorandum Opinion, rescinding the October 24 agreement and striking the dismissals filed on October 25 pursuant to it. What is before us now is W&G's appeal from that order.

In considering the issues raised by W&G, it is, of course, important to understand why the court acted as it did. Only then can we determine whether it committed reversible error in its findings of fact or in its conclusion and application of law.

The crux of the problem, as noted, was the conflict of "implacable resolves" pertaining to the fraud claim. Plaintiffs contended that they made crystal clear to W&G both before and during the October 23 negotiating session, and that W&G fully understood, that plaintiffs would not abandon the fraud claim unless assured of a recovery well in excess of that which, at best, could flow from the negligence and contract actions. In that regard, they advised W&G that the amount needed to provide full compensation, after attorneys' fees, was $550,000, whereas the maximum recovery under the non-fraud counts was only $275,000, which, for purposes of settlement, was wholly unacceptable. The fraud claim was viewed by the plaintiffs as the "leverage" to achieve their minimum demands. W&G, on the other hand, would not discuss "dollars" in any way until the charge of fraud was formally withdrawn.

This dilemma was resolved, according to the plaintiffs, by W&G intimating to them, in unmistakable fashion, that "dollars" were not a problem. If the fraud claim were withdrawn, W&G indicated, the negligence claim could be settled "on a business basis"-i. e., taking into account not the merits of the claim but rather the cost to W&G of defending it. That cost, everyone agreed, would substantially exceed the maximum recovery (and thus exposure to W&G) if plaintiffs prevailed at trial on the non-fraud counts. Taking into account the cost of attorneys' fees and the loss of productivity of W&G partners in a four-month trial, not to mention possible appeals, it was estimated by both sides that the cost of defense to W&G would range from $375,000 to over $500,000. Thus, a settlement effected on that basis could produce a recovery in excess of the value of the non-fraud counts on their merits and within a range acceptable to the plaintiffs.

This, plaintiffs asserted, was the quid pro quo for their agreeing to give up their "leverage"-the promise by W&G to negotiate the remaining claims on a "business basis," understanding that the minimum acceptable figure would have to be one that, after payment of attorneys' fees, would ...