DeShields v. Broadwater

• Decision Date: 01 September 1994
• Docket Number: No. 34,34
• Citation: 659 A.2d 300,338 Md. 422
• Parties: Shirley DeSHIELDS et al. v. Tommy BROADWATER, Jr. JACK'S LIQUORS, INC. v. Phunlop SRIUTHAI et ux
• Court: Maryland Court of Appeals

Page 422

338 Md. 422

659 A.2d 300

Shirley DeSHIELDS et al. v. Tommy BROADWATER, Jr.

JACK'S LIQUORS, INC. v. Phunlop SRIUTHAI et ux.

No. 34 Sept. Term, 1994.

Court of Appeals of Maryland.

June 8, 1995.

George Harper, Upper Marlboro, for appellants.

Carlton M. Green, College Park, for appellee.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, BELL and RAKER, JJ.

BELL, Judge.

This is a case of first impression with respect to the application of the related doctrines of lis pendens and equitable conversion. Specifically, the issue this case presents is whether, prior to the initiation of litigation respecting its ownership, the execution of a contract for the purchase of real property, coupled with a downpayment of less than ten percent of the purchase price, preclude lis pendens notice of the subsequent litigation from affecting the contract purchaser's interest--whether, in other words, the interest the purchaser acquires is unaffected by the results of the subsequent litigation. The Circuit Court for Prince George's County ruled in favor of Tommy Broadwater, Jr., the purchaser (the "appellee"), holding that, by virtue of equitable conversion, the purchase occurred before, rather than pending, the litigation. It thus rejected the argument made by Shirley DeShields and Jack's Liquors, Inc., collectively, "the appellants," that lis pendens is applicable to subject the appellee's purchase to the decree passed in the litigation initiated by Jack's Liquors. We granted certiorari, on our own motion, while the appellants' appeal was pending in the Court of Special Appeals. We shall affirm the judgment of the circuit court.

I

At the core of this case is the property known as 5361 Sheriff Road, Fairmont Heights, Prince George's County, Maryland, out of which the commercial establishment known as Jack's Liquors, Inc. is operated. Before April 27, 1985, the property was owned by Charles and Marnette Jackson. ¹ On that day it was purchased by Phunlop Sriuthai and his wife, Chitra, for $190,000.00. Charles Jackson took back a $165,000 purchase money deed of trust, secured by the property, payable in 30 years.

The property was subsequently sold to the appellee. On January 30, 1989, the appellee entered into a contract of sale with the Sriuthais to purchase the property for $135,000. Although the contract called for settlement within 60 days or earlier, at the option of the appellee, and despite a title search having confirmed the Sriuthais' fee simple title, subject to the deed of trust, settlement was not held until July 12, 1989, due to difficulties encountered in surveying the property. As required by the contract of sale, the appellee paid $10,000 down, which was placed in his attorney's escrow account. At the settlement, pursuant to the contract, the appellee paid the balance due under the deed of trust ² and received, in return, an executed release of the deed of trust. He also paid the taxes that were due on the premises. ³ No further money was due or payable to the Sriuthais under the contract.

Phunlop Sriuthai had earlier purchased, on March 23, 1984, Jack's Liquors, Inc. from Shirley DeShields. ⁴ The contract of sale stated that the purchase price was $100,000, $40,000 of which was to be paid in cash and the remainder by assuming 36 1/2 percent of the monthly payments on a $134,000 Small Business Administration loan. The contract also provided for an option to purchase the remainder of the capital stock. If exercised, that purchase price would also be $100,000, payable part in cash and part by assuming the balance of the Small Business Administration loan.

A little less than two years later, DeShields sued Sriuthai for breach of contract, breach of fiduciary duties, and conversion. The breach of contract count alleged Sriuthai's failure to pay off the assumed portion of the Small Business Administration loan, while the breach of fiduciary relationship related to his purchase of the subject property "without disclosing to [DeShields] any information regarding the purchase price and its impact on the financial condition and prospects of Jack's Liquors, Inc." The conversion count was premised upon the obligation of Sriuthai to pay DeShields one-half of the profits derived from Jack's Liquors, Inc., an obligation, she alleged, Sriuthai failed to meet. The lawsuit was settled almost three years later, but prior to the appellee's entering into the contract for the purchase of the subject property. The settlement agreement provided, inter alia, that DeShields, acting as chief executive officer, would assume control of the corporate affairs of Jack's Liquors, Inc. Another provision of the agreement pertinent to the case sub judice, given the trial court's findings, was that Jack's Liquors agreed to pay rent to the Sriuthais for a five year period, with an option to renew. ⁵

After the appellee had contracted to purchase the subject property, Jack's Liquors, Inc. filed suit against Phunlop and Chitra Sriuthai, asking the court to establish a constructive trust on the subject property and award it damages. This was done on March 28, 1989. The suit alleged that the Sriuthais "conspired to use Corporate funds to acquire for their own use a Corporate opportunity to acquire ownership of the premises." The appellee, who was not joined as a defendant in that action, later moved to intervene.

Default judgment was entered against the Sriuthais on January 28, 1991. On April 17, while the appellee's motion to intervene, filed on March 21, 1991, was pending, the court entered judgment against the Sriuthais for $124,000 and appointed the appellants' attorney trustee to convey, by quit claim deed, their interest in the subject property, an ex parte hearing having previously been held on April 3, 1991. That judgment was partially vacated as to Phunlop Sriuthai, on motion of the appellants, based upon defective service of process, on November 8, 1991, the same date on which the appellee's motion to intervene was denied. In the meantime, having unsuccessfully attempted to negotiate a lease arrangement for Jack's Liquors, Inc., with DeShields, the appellee filed a complaint for possession of real property against the appellants. In that complaint, he sought an order requiring the appellants to quit and surrender the premises and damages for the fair rental value of the premises since July 12, 1989. On the appellee's motion, this action was consolidated with Jack's Liquors, Inc.'s constructive trust action against the Sriuthais.

The trial court found as a fact that when he contracted to purchase the premises, the appellee did not know that Jack's Liquors contemplated suing the Sriuthais, or that it claimed any interest or title in the subject property. Consequently, the court concluded that the appellee was a bona fide purchaser for value of the subject property. In support of that conclusion, it noted, in addition to the February, 1989 title search, that sometime in January, 1989, but prior to the date of the contract of sale, DeShields showed the appellee a copy of the settlement agreement between Sriuthai and DeShields. It will be recalled that that agreement contained provisions requiring Jack's Liquors to pay the Sriuthias' rent, thus seeming to recognize them as landlord of such property. Moreover, the court found that Sriuthai informed the appellee that DeShields did not want to purchase the property. Furthermore, the court was satisfied that

[d]uring the period between January 30, 1989 and July 12, 1989, Mr. Broadwater had several conversations with Ms. DeShields. The first conversation was on January 30, 1989 when Mr. Broadwater told Ms. DeShields that he had purchased the property. Ms. DeShields appeared happy about the purchase and assured Mr. Broadwater that 'we'll be friends.' Within two weeks of the purchase, Ms. DeShields again reassured Mr. Broadwater by saying words to this effect: 'You'll be my landlord and we'll get along well.'

The circuit court also found as a fact that the appellee did not learn of the litigation between Jack's Liquors and the Sriuthais until after July 12, 1989. It was convinced by a preponderance of the evidence that DeShields informed appellee of the suit within a week after the settlement on the property. The court similarly concluded that no agent of the appellee had any knowledge of the suit prior to July 12, 1989.

The court held that the appellee, through equitable conversion, acquired his interest in the subject property prior to the initiation of the litigation relating to it. Consequently, the court concluded that lis pendens had no applicability to the appellee's purchase.

II

The doctrine of lis pendens is well-established in Maryland. ⁶ See Corey v. Carback, 201 Md. 389, 403-04, 94 A.2d 629, 638 (1953); Hall v. Jack, 32 Md. 253, 263-64 (1870); Applegarth v. Russell, 25 Md. 317, 320 (1866); Inloes' Lessee v. Harvey, 11 Md. 519, 524-25 (1857); Feigley v. Feigley, 7 Md. 537, 563 (1855); Warfel v. Brady, 95 Md.App. 1, 7, 619 A.2d 171, 174, cert. denied, 331 Md. 88, 626 A.2d 371, cert. denied, 510 U.S. 977, 114 S.Ct. 470, 126 L.Ed.2d 422 (1993); Permanent Financial Corp. v. Taro, 71 Md.App. 489, 492, 526 A.2d 611, 612, cert. granted, 311 Md. 193, 533 A.2d 670 (1987) appeal dismissed, January 26, 1988; Angelos v. Maryland Casualty Company, 38 Md.App. 265, 268, 380 A.2d 646, 648 (1977). It literally means a pending lawsuit, referring to the jurisdiction, power, or control which a court acquires over property involved in a lawsuit pending its continuance and final judgment. Warfel, 95 Md.App. at 7, 619 A.2d at 174; Angelos, 38 Md.App. at 268, 380 A.2d at 648; Black's Law Dictionary 840 (5th Ed.1979). Under the doctrine, an interest in property acquired while litigation affecting title to that property is pending is taken subject to the results of that pending litigation. Applegarth, 25 Md. at 320; Inloes' Lessee, 11 Md. at 524-25; Angelos, 38...