Frederick Road Ltd. Partnership v. Brown & Sturm

• Decision Date: 01 September 1997
• Docket Number: No. 297,297
• Parties: FREDERICK ROAD LIMITED PARTNERSHIP et al. v. BROWN & STURM et al. ,
• Court: Court of Special Appeals of Maryland

Page 384

121 Md.App. 384

710 A.2d 298

FREDERICK ROAD LIMITED PARTNERSHIP et al. v. BROWN & STURM et al.

No. 297, Sept. Term, 1997.

Court of Special Appeals of Maryland.

Jan. 8, 1998.

Reconsideration Denied June 24, 1998.

121 Md.App. 384

710 A.2d 298

FREDERICK ROAD LIMITED PARTNERSHIP et al.

v.

BROWN & STURM et al.

No. 297, Sept. Term, 1997.

Court of Special Appeals of Maryland.

Jan. 8, 1998.

Reconsideration Denied June 24, 1998.

Albert D. Brault, Rockville (Joesph P. Morra and Brault, Graham, Scott & Brault, Rockville, H. Thomas Howell, William F. Gately, Timothy M. Gunning and Howell, Gately, Whitney & Carter, L.L.P., Towson, on the brief), for Appellants.

Charles E. Iliff, Jr., Baltimore (Stephan Y. Brennan and Iliff & Meredith, P.C., Baltimore, Philip J. McNutt, Rockville, on the brief), for Appellees.

Argued before DAVIS, HOLLANDER and KENNEY, JJ.

HOLLANDER, Judge.

This case concerns the timeliness of a suit instituted by Frederick Road Limited Partnership and Fannie Lois Aschenbach, appellants, in the Circuit Court for Montgomery County. On May 25, 1995, some seven years after reaching a final settlement with the Internal Revenue Service ("IRS") concerning tax deficiencies, appellants sued Brown & Sturm, R. Edwin Brown, P.A., The Peach Tree Road Investment Co., ¹ R. Edwin Brown, Esquire, Rex L. Sturm, P.A., and Rex L. Sturm, Esquire, appellees, for legal malpractice, fraud, civil conspiracy, breach of fiduciary duty, and aiding and abetting. ² Appellants also brought an equitable claim seeking rescission of the parties' retainer agreement and an addendum thereto. Based on the statute of limitations and laches, the trial court granted appellees' motion for summary judgment.

Appellants timely noted their appeal and present the following questions for our review, which we have combined, reordered, and rephrased.

I. Were there genuine disputes of material fact regarding when appellants knew or should have known of the alleged attorney malpractice?

II. Were there genuine disputes of material fact regarding whether a diligent investigation would have led to appellants' discovery of the alleged malpractice?

III. Does counsel's "continuous representation" of appellants toll the limitations period?

IV. Did the court err in granting summary judgment on the rescission count based on laches?

For the reasons discussed below, we conclude that the court properly granted summary judgment. Therefore, we shall affirm.

Factual Background

This case centers on the disposition of 437 valuable acres of land (the "King Farm") located in Montgomery County. We shall set forth the facts essentially as alleged by appellants.

In 1981, W. Lawson King ("King") and his wife, Cordelia E. King ("Mrs. King") (collectively "the Kings"), the owners of the King Farm, decided to convey their property to their three children ("the King children"), one of whom is appellant Fannie Lois Aschenbach. ³ To minimize the tax consequences of the conveyance, the Kings initially engaged the services of R. Edwin Brown, Esquire, and August C. Bonsall, Mr. King's accountant, rather than their long-time friend and attorney, G Van Velsor Wolf ("Wolf"), who was then a partner at the law firm of Piper & Marbury ("Piper").

Bonsall believed the fair market value of the King Farm, at its highest and best use, was between $20 million and $100 million. Nevertheless, Brown procured three appraisals of the King Farm, each of which valued the property for agricultural use. These agricultural use appraisals valued the King Farm at between $515,000.00 and $720,000.00. Brown also recommended that, in order to justify the sales price, the Kings should place a three-year agricultural easement on the property.

In September 1981, Bonsall spoke to Stanard T. Klinefelter, Esquire, then an associate at Piper, and explained the proposed sale of the King Farm based on a "farm use only" appraisal. Klinefelter told Bonsall that the three-year agricultural easement would not justify the "farm use only" valuation, the sale would incur federal gift taxes, and the plan was "badly flawed in terms of estate planning." Klinefelter also spoke to Wolf and other attorneys at Piper, who researched different options for the King Farm transfer.

On November 11, 1981, Wolf, who had by then retired from Piper, and Klinefelter traveled to King's office in Gaithersburg, where Wolf met with King and Bonsall to discuss Piper's recommendations for transfer options. Klinefelter did not participate in the actual meeting. Wolf recommended a charitable lead trust to King as the most advantageous estate-planning vehicle and, initially, King authorized Piper to prepare such a trust for his consideration. On January 4, 1982, Wolf, Bonsall, Klinefelter, and other attorneys from Piper met in Baltimore to discuss the charitable lead trust plan.

Ultimately, the Kings decided to proceed with Brown's proposal, after it was revised to include a five-year agricultural easement on the property. On February 5, 1982, the Kings and the King children executed the sales contract, which provided that the sale price would be the average of the three independent appraisals. Prior to and after execution of the contract, Bonsall sent letters to King and the King children discussing potential federal tax consequences of the sale. Although these letters sparked concerns among the King children, Brown assured the King children that the transaction would not result in any adverse tax consequences. At the closing on March 3, 1982, the Kings executed a deed, transferring approximately 417 acres of the King Farm to two limited partnerships created by the King children: (1) Frederick Road Limited Partnership, for which appellant Aschenbach served as general partner, and (2) Field Farms Limited Partnership, for which the Kings' other two children served as general partners. The King children created the limited partnerships with the assistance of independent legal counsel. The total sale price was $596,542.95, representing the average of the three appraisals.

The Piper attorneys were surprised to learn of the sale, prompting a letter from Klinefelter to Bonsall shortly after the deed was executed. In the letter, Klinefelter renewed his concerns about the tax consequences of the transaction. Bonsall never responded.

In May 1982, Wolf met with King and King's son, William, and again expressed his concern about the tax consequences of the conveyance. Later, during a meeting between Wolf and Brown, King contacted Brown and told him to cancel the sale. Wolf then met with the King children and explained his concerns about the tax consequences, stating that the sale "will never fly" with the IRS. Nevertheless, Brown continued to assure the King family that "the transaction was legitimate, would not result in any adverse tax consequences to the family, and could be defended before the IRS."

In June 1982, King discharged Wolf and Piper as his attorneys. In reply, on June 30, 1982, Wolf wrote a lengthy letter to King, with a copy to Brown, expressing concern about the potential adverse tax consequences of the transaction. Wolf also said that, as he had retired from the practice of law, his work for King had been performed "entirely out of friendship and ... long held affection for [King]." Further, Wolf stated, in part:

[A]s of the present moment I either know or have every reason to believe that the property you recently transferred to your children for $566,434.13 did not have a "fair market value"--which is the test under all three of the federal tax laws, to wit, income, gift and estate--of that amount or anywhere near it. On the contrary, ... the true value of that land for federal estate tax purposes is far, far in excess of $1,500 an acre.

I have been advised by a very knowledgeable, experienced and responsible person who is wholly familiar with the property ... that at the very least the "home farm" as transferred to the children is worth $1.50 a square foot or $65,340 an acre. That is, for 418 acres the minimum federal income tax valuation might well be in the neighborhood of $27,312,000.

* * * *

According to our figures if the Internal Revenue Service should use what I was advised to be a "realistic" value of the property per acre, that is $3.00 per square foot, or a total of $54,624,240, the federal gift tax which you and Mrs. King would have to come up with would be approximately $33,943,000 in cash....

* * * *

The trouble here is that according to my records there is presently no way in which you and Mrs. King could produce that kind of tax money (not counting the possible penalties and interest ... that could be added on to the tax if there were a late payment), since your principal asset, the "home farm," has as of the moment been transferred presumably irrevocably to the children.

After they became aware of Wolf's letter, the King children again met with Brown to discuss Wolf's concerns. Brown unequivocally assured the King children that the transaction was legitimate. Consequently, in December 1982, the Kings conveyed the remaining 20-acre homestead to their children for a stated consideration of $248,100, again based on an agricultural appraisal.

Mrs. King died in 1983 and Mr. King died in 1985. Shortly thereafter, the IRS began to investigate the transfer of the King Farm. Ultimately, on August 28, 1987, the IRS issued deficiency assessments against the estates of the Kings, as well as to the King children, totaling more than $68 million in taxes and penalties. Brown again advised the King children that the transaction was legitimate and that the IRS controversy could be resolved without the payment of additional taxes. Brown & Sturm continued their representation of the King children in federal tax court, based on a reverse contingency fee arrangement. ⁴

In December 1988, two weeks before the scheduled trial in tax court, Brown advised the King children that they should settle the...