Donegal Assocs., LLC v. Christie-Scott, LLC

• Citation: 248 Md.App. 448,241 A.3d 1011
• Decision Date: 19 November 2020
• Docket Number: No. 385, Sept. Term, 2019,385, Sept. Term, 2019
• Parties: DONEGAL ASSOCIATES, LLC v. CHRISTIE-SCOTT, LLC
• Court: Court of Special Appeals of Maryland

248 Md.App. 448

241 A.3d 1011

DONEGAL ASSOCIATES, LLC

v.CHRISTIE-SCOTT, LLC

No. 385, Sept. Term, 2019

Court of Special Appeals of Maryland.

November 19, 2020

Argued by: Shale D. Stiller (Michael Bakhama, DLA Piper LLP (US), on the brief) all of Baltimore, MD, for Appellant

Argued by: Megan O'Connor (Lewicky, O'Connor, Hunt & Meiser, LLC on the brief) all of Fulton, MD, for Appellee

Panel: Graeff, Arthur, Woodward, Patrick L. (Senior Judge, Specially Assigned), JJ.

Graeff, J.

In 2005, Christie-Scott, LLC ("Christie-Scott"), appellee, purchased Victoria & Albert Hair Studios and assumed the salon's lease with the landlord, Donegal Associates, LLC ("Donegal"), appellant. In October 2016, the commercial lease ended. Christie-Scott remained in the space and continued to pay rent, while the parties engaged in negotiations regarding a new lease. In June 2017, Christie-Scott notified Donegal that it did not intend to renew the lease because it was moving the business to another location.

On November 6, 2017, Donegal repossessed the property. The following day, Christie-Scott filed a complaint in the Circuit Court for Howard County. On May 2, 2019, the circuit court issued an order finding Donegal liable for conversion of appellee's property, and it awarded Christie-Scott $139,938.87 in compensatory damages, minus unpaid rent, for a total of $96,633.96. The court also awarded Christie-Scott $1,000,000 in punitive damages.

On appeal, Donegal presents the following questions for this Court's review, which we have reordered, as follows:

1. Where a commercial landlord has a contractual lien on personalty, can it be liable for conversion of such personalty if the tenant produces no evidence showing that it made a demand for its return and that the landlord refused such demand?

2. When, in violation of Md. Rule 2-305, a plaintiff omits in its complaint the amount of alleged compensatory damages, and the defendant's trial strategy relies on that pleading, may that plaintiff retain excess damages awarded by waiting until the third day of a four-day trial to purport to amend its complaint, without leave of the court, to increase the amount of damages sought?

3. Did the circuit court err in awarding compensatory damages for loss of use on a conversion claim when (a) Christie-Scott designated three experts on damages, never proffered their testimony, and offered only incompetent and speculative law testimony; and (b) the court relied solely on an exhibit prepared by Christie-Scott in anticipation of litigation and without foundation, in violation of Md. Rule 5-803(b)(6) ?

4. Did the circuit court err in awarding punitive damages of $1,000,000 based on Donegal's exercise of the right to peaceable self-help in repossessing its premises, when (a) such a right was expressly available to Donegal, a commercial lessor, under the Lease and at common law; (b) Donegal effected repossession for business purposes and there was no actual malice; and (c) the court ignored state and federal constitutional limits on punitive damage awards?

For the reasons set forth below, we shall reverse the judgment of the circuit court and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In 2005, Christie Kaier and Scott Schmidt, through Christie-Scott, LLC, purchased Victoria & Albert Hair Studio in Columbia, Maryland from the previous owners and assumed the commercial lease with Donegal.¹ Christie-Scott continued to operate and grow the hair salon business for the next twelve years, during which time the parties had an amicable relationship and renewed the lease multiple times.

The parties’ commercial lease expired on October 31, 2016. Prior to that time, Christie-Scott began negotiating the terms of a new lease with Donegal through its property management company, identified as JLL. Christie-Scott had concerns regarding needed renovations and safety issues due to the declining character of the neighborhood, which had resulted in non-customers loitering, panhandling in the parking lot, and coming inside to use the bathrooms or the phone. The parties discussed potential renovations and efforts to eliminate uninvited pedestrian traffic, with Donegal bearing $50,000 of the cost and the balance to be covered by Christie-Scott and amortized in subsequent lease payments. Donegal began commissioning renovation plans at its own expense.

When the lease expired on October 31, 2016, Donegal permitted Christie-Scott to remain in the space on a month-to-month basis while the lease negotiations continued, but there was no oral or written agreement to this effect. The lease provided as follows:

5. TERM AND TERMINATION:

A. The Term shall begin on the Commencement Date and unless extended or renewed shall end without notice at midnight on the Termination Date. Tenant agrees to vacate the Premise at the end of the Term and that Landlord shall be entitled to the benefit of all summary proceedings to recover the possession of the Premise at the end of the Term as if statutory notice had been given.

* * *

C. If Tenant remains in possession of the Premises after the expiration of the Term, the Term shall not automatically renew by operation of law, and Landlord may consider Tenant as a Tenant-at-Will liable for the payment of Rent at the market rate as determined by Landlord or may consider Tenant as a "Tenant Holding Over" liable for double the market rate of Rent. In either event, all other covenants of his Lease shall remain in full force and effect.

Christie-Scott continued to pay the same amount of rent during this period, but it did not pay real estate taxes or Common Area Maintenance ("CAM") fees. Donegal did not communicate whether it considered Christie-Scott a holdover tenant or a tenant-at-will, but it billed Christie-Scott the same amount of rent, and it continued to deposit the rent payments.

On December 8, 2016, JLL's agent, Bill Hearn, sent an e-mail to Jim Greenfield and John Healy, the managing partners at Donegal, regarding discussions with Christie-Scott concerning the expiration of its lease and renewal. Mr. Hearn asked whether Donegal wanted JLL to begin charging the salon double "holdover rent" or "continue charging the most recent rent without increase." Mr. Healy and Mr. Greenfield both responded that they would like to "continue charging the normal monthly rent until further notice."²

While the lease negotiations were ongoing, Christie-Scott was privately contemplating moving the business due to the declining character of the neighborhood and the resulting safety issues. In February 2017, it began researching new locations. In March 2017, Ms. Kaier called a staff meeting to discuss whether to find a new location or move ahead with fixes to the current one, and the employees unanimously voted to move to a new location. Christie-Scott settled on a location in Clarksville, secured a bank loan, and in June 2017, it signed a lease for the new space. A few days after the company signed the lease, Ms. Kaier contacted Mr. Hearn and informed him that the salon was not going to stay at Donegal's property, and they would be moving by November 1, 2017.³

A few days later, on June 30, 2017, JLL sent a letter to Christie-Scott, stating that Donegal considered the salon to be a holdover tenant in accordance with Section 5C of the lease. It demanded immediate payment of double rent dating back to the expiration of the lease on October 31, 2016, a total of $75,939.76.⁴

After that letter, until October 2017, Christie-Scott remained in the space and continued to pay only the normal rent amount, which Donegal deposited. Christie-Scott made repeated requests for a face-to-face meeting with Donegal during this period, but no such meeting occurred.

During the summer of 2017, Mr. Healy was approached by Dwight Platt, another commercial real estate owner, who offered to purchase the building from Donegal. Mr. Platt told Mr. Healy that he recently had sold a building in Baltimore County and needed to "park" the profits in another real estate investment by December for tax purposes.⁵ Donegal agreed to sell, with the condition that they close by December.

On September 8, 2017, Donegal filed, in the District Court for Howard County, a complaint for repossession of rented property due to non-payment of rent by Christie-Scott. Trial was set for October 13, 2017, but it was postponed twice, once because of a scheduling conflict and a second time because the assigned judge recused herself due to a conflict of interest with Mr. Healy.

The trial was reset for November 9, 2017. Donegal, however, decided to pursue the nonjudicial remedy of self-help.

Section 24A of the parties’ commercial lease provided that, if Christie-Scott breached "the covenant to pay Rent by failing to pay rent or all other sums of money which may be considered Additional Rent when due," Donegal was permitted to take any of the following actions:

(a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord; but if Tenant shall fail to do so, Landlord may, without further notice and without prejudice to any other remedy Tenant may have for possession or arrearages in Rent, Additional Rent or damages for breach of contract, enter upon the Premises and remove Tenant and his effects by force if necessary, without being liable to prosecution for any claim of damages[.] ...

(b) Enter the Premises as the agent of Tenant, by force if necessary, without being liable to prosecution or any claim for damages and relet the Premises as the agent of the Tenant and receive the Rent therefor[.] ...

(c) Perfect and otherwise enforce a lien, which Tenant agrees that Landlord shall have, on all personal property, fixtures and trade fixtures of Tenant, presently existing or subsequently acquired, placed in the Premises by or for the benefit of the Tenant and may without notice and without liability to Tenant or other party be sold by Landlord at public or private sale with the proceeds being applied

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