Fairfax Sav., F.S.B. v. Weinberg and Green

• Decision Date: 01 September 1995
• Docket Number: No. 1707,1707
• Parties: FAIRFAX SAVINGS, F.S.B. v. WEINBERG AND GREEN. ,
• Court: Court of Special Appeals of Maryland

Page 587

112 Md.App. 587

685 A.2d 1189

FAIRFAX SAVINGS, F.S.B. v. WEINBERG AND GREEN.

No. 1707, Sept. Term, 1995.

Court of Special Appeals of Maryland.

Dec. 6, 1996.

Benjamin Rosenberg (Douglas J. Furlong, Brenda J. Wilson and Rosenberg Proutt Funk & Greenberg, L.L.P., on the brief), Baltimore, for appellant.

Michael S. Sundermeyer (Brendan V. Sullivan, Jr., Nancy F. Lesser, Lynda Schuler and Robert M. Cary, on the brief), Washington, DC, for appellee.

Argued before WENNER, FISCHER and SALMON, JJ.

SALMON, Judge.

On October 20, 1992, appellant Fairfax Savings, F.S.B. ("Fairfax"), filed a complaint against appellee Weinberg and Green ("the firm") in the Circuit Court for Montgomery County, alleging legal malpractice in the firm's drafting of loan documents and breach of fiduciary duty in the firm's representation of Fairfax during litigation resulting from a default on the loan. Fairfax filed a second amended complaint on June 20, 1994, adding claims arising out of the firm's fraudulent overbilling of Fairfax.

The case was tried before Judge Ann S. Harrington beginning April 10, 1995. At the close of Fairfax's case, Judge Harrington granted the firm's motion for judgment on several counts, including indemnification and malpractice based on violation of the advocate /witness rule. ¹ In this appeal, Fairfax does not take issue with the court's partial grant of the firm's motion for judgment. After Weinberg and Green presented its case, Judge Harrington held the case sub curia and, on August 30, 1995, filed a well-reasoned seventy-four page opinion in which she found that the firm had breached the applicable standard of care in its representation of Fairfax in the loan transaction and had engaged in systematic overbilling of Fairfax. Despite these findings, however, Judge Harrington entered final judgment in favor of Weinberg and Green on all remaining counts. She determined that the breach of the applicable standard of care did not proximately cause Fairfax injury and, in any event, all claims were barred either by the statute of limitations or by Fairfax's unclean hands, or had been released or waived by Fairfax.

Fairfax noted this timely appeal in which it raises ten issues, which, in large measure, can be answered by responding to five questions:

1. Did the trial court err in finding that Fairfax's claim for transactional malpractice was barred by the three-year statute of limitations?

2. Did the trial court err in holding that Fairfax's claim for fraud or constructive fraud growing out of the firm's overbilling was barred by the statute of limitations?

3. Did the trial judge err in finding that the firm had made full disclosure of the billing fraud?

4. Did the trial judge commit reversible error by requiring that Fairfax prove the inadequacies of the firm's disclosure of its billing fraud?

5. Was the trial judge correct in ruling that the conflict created by Weinberg and Green's continued representation of Fairfax in light of the overbilling was waivable and that it had been waived by Fairfax?

I. STANDARD OF REVIEW

When an action has been tried without a jury, this Court will not set aside the trial court's judgment "on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses." Md. Rule 8-131(c). A finding of a trial court is not clearly erroneous if there is competent, material evidence in the record to support the court's conclusion. Maxima Corp. v. Cystic Fibrosis Found., 81 Md.App. 602, 610, 568 A.2d 1170, cert. denied sub nom., 6933 Arlington Dev. v. Maxima Corp., 319 Md. 582, 573 A.2d 1337 (1990). In reviewing the record, we consider all evidence produced at trial in the light most favorable to the party prevailing below. Maryland Metals, Inc. v. Metzner, 282 Md. 31, 41, 382 A.2d 564 (1978); L & P Converters, Inc. v. Alling & Cory Co., 100 Md.App. 563 569, 642 A.2d 264 (1994). A trial judge's decision "founded upon sound legal principles and based upon factual findings that are not clearly erroneous will not be disturbed in the absence of a showing of a clear abuse of discretion." Domingues v. Johnson, 323 Md. 486, 492 n. 2, 593 A.2d 1133 (1991).

II. THE RECORD EXTRACT

The facts relevant to this case are complicated and were developed in a trial that lasted thirty days. The record is voluminous, yet the joint record extract prepared by the parties is relatively sparse. Primarily, both parties present the facts of the case by quoting or paraphrasing the trial court's opinion rather than by making reference to documents or testimony presented to the trial court. We view this as an implicit concession by the parties that as to many of the factual issues in the case the trial judge was justified in her factual conclusions. Therefore, in this opinion we have assumed that the trial judge's factual findings were justified, unless the appellant 1) challenged a factual finding of the trial judge and 2) supported the challenge by a reference to evidence set forth in either the record or the record extract. ²

III. BACKGROUND FACTS

The genesis of this appeal came well before Fairfax filed suit against Weinberg and Green in 1992. It began with a loan guarantied by Charles Ellerin, among others, negotiated by the firm for Fairfax in 1982 (hereinafter referred to as either "the Ellerin loan" or "the Ellerin transaction"). Fairfax alleges the firm committed malpractice in preparing the loan documents for the Ellerin transaction. Further, Fairfax alleges, and Weinberg and Green admits, that the firm fraudulently overbilled Fairfax from 1983 to 1987. Finally, Fairfax contends that an unwaivable conflict of interest existed as a result of Weinberg and Green's representation of it during the Ellerin litigation in light of the overbilling, and as a consequence, the firm must disgorge all fees it earned in that litigation and reimburse Fairfax for all losses incurred as a result of an adverse Ellerin verdict.

A. The Ellerin Loan and the Resulting Ellerin Litigation

In 1982, Charles Ellerin and Louis Seidel, the General Partners of Sherwood Square Associates ("Sherwood"), sought financing for a real estate development project in Westminster, Maryland. Fairfax agreed to lend Sherwood a total of $5,700,000, divided into three separate loans. One was a conventional loan of $850,000, which was paid back prior to the onset of any litigation. The other two loans were evidenced by Industrial Revenue Bonds ("IRB's"), acquired through the City of Westminster, in amounts of $3,050,000 and $1,800,000. Weinberg and Green represented Fairfax in the loan transactions and prepared all documents relating to the loans. A senior partner in the firm's real estate department supervised the preparation of documents with the assistance of David M. Blum and various other Weinberg and Green attorneys.

Fairfax insisted on personal guaranties from the investors in order to protect its investment because the buildings were little more than empty shells when the loans were made. Fairfax, of course, took back a mortgage on the property but also insisted on a guaranty from Ellerin and Seidel ("the General Partners"). Moreover, it required that completion guaranties be signed. These completion guaranties imposed personal liability on Charles Ellerin and his wife, Naoma, on Louis Seidel and his wife, Gloria, and on the Tri-Ess Corporation (hereinafter, "the guarantors"). The General Partners and the guarantors were represented in all phases of the loan transaction by R. Bruce Alderman, a Maryland attorney.

The obligations of the guarantors under the completion guaranties (as originally drafted by Weinberg and Green) were to complete the building according to the specifications and to secure additional financing to finish the project if necessary. The liability of the General Partners was set out in two loan agreements, one for each IRB. Fairfax submitted drafts of the loan documents to Alderman on December 22. As originally drafted, neither the General Partners nor the guarantors had any liability after the buildings were completed. Both the Completion Guaranty and the loan agreement were changed by Weinberg and Green prior to their execution. How, why, and under what circumstances these documents were changed was the subject of the litigation that ensued when Sherwood defaulted on the loan. That litigation will be hereafter referred to as the "Ellerin litigation" or the "Ellerin case." ³

The documents prepared by Weinberg and Green and executed at the settlement on December 29 and 30, 1982, provided that neither Sherwood nor the General Partners would be liable for the loans if default occurred "at any time after the termination of the Completion Guaranty (pursuant to Section 8.1 thereof)." Section 8.1 of the new completion guaranties provided that the guarantors' obligations "shall cease and be extinguished ... when the acquisition of the Facility has been completed and when [Sherwood] has fully complied with and satisfied the Rent Roll Requirement." The Rent Roll Requirement, a new addition to the completion guaranties, was defined as the leasing of seventy percent of the finished buildings. ⁴

Section 3.1 of the completion guaranties imposed post-completion liability on the guarantors in the event that Sherwood "has not fully complied with and satisfied the Rent Roll Requirement," to an aggregate liability of $1,150,000 on each IRB (a total of $2,300,000). In short, under the terms of the new loan documents, the guarantors continued to have possible personal liability as guarantors (up to a maximum of 2.3 million dollars) beyond the date the project was physically completed until such time as the property was seventy percent leased. The General Partners, under the revised loan documents had potential post-completion liability up to the full amount of the loans.

Blum, who in 1982 was a partner at Weinberg and Green, testified at the...