Gindes v. Khan

• Decision Date: 01 September 1996
• Docket Number: No. 85,85
• Parties: Samuel T. GINDES v. W. Wajeed KHAN et ux. ,
• Court: Maryland Court of Appeals

Page 143

346 Md. 143

695 A.2d 163

Samuel T. GINDES v. W. Wajeed KHAN et ux.

No. 85, Sept. Term, 1996.

Court of Appeals of Maryland.

June 18, 1997.

Bruce L. Marcus (M. Celeste Bruce, Marcus & Bonsib, on brief), Greenbelt, for appellant.

M. Evelyn Spurgin (Michael P. Darrow, Hillman, Brown & Darrow, P.A., on brief), Annapolis, for appellees.

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

RODOWSKY, Judge.

Based upon the appellant's brief to the Court of Special Appeals in this case, we issued a "bypass" writ of certiorari on our own motion to determine whether the trial court had erroneously implied a civil cause of action into the criminal penalties provided by Maryland Code (1974, 1988 Repl.Vol.), § 10-305 of the Real Property Article (RP), dealing with required escrows for purchasers' deposits in certain real estate transactions. After full briefing and argument, it is now clear that:

1. There is no final judgment;

2. The statutory construction issue on which we granted certiorari is not presented by the record (and if presented would have no prospective public importance); and

3. The appellant has not preserved for appellate review the error of law on which the judgment is based.

We begin by presenting the statutes involved in the problem. The escrow requirements involved here are now found in Md.Code (1974, 1996 Repl.Vol.), RP § 10-301(a) and (b). In relevant part they provide:

"(a) When required.--If, in connection with the sale and purchase of a new single-family residential unit which is not completed at the time of contracting the sale, the vendor or builder obligates the purchaser to pay and the vendor or builder receives any sum of money before completion of the unit and grant of the realty to the purchaser, the builder or vendor shall:

"(1) Deposit or hold the sum in an escrow account segregated from all other funds of the vendor or builder to assure the return of the sum to the purchaser in the event the purchaser becomes entitled to a return of the sum;

.... "(b) Maintenance until certain events.--The vendor or builder shall maintain the escrow account ... until the happening of the earlier of:

"(1) The granting of a deed to the property on which the residential unit is located to the purchaser;

"(2) The return of the sum of money to the purchaser; or

"(3) The forfeiture of the sum by the purchaser, under the terms of the contract of sale relating to the purchase of the residential unit."

Section 10-301 is part of Subtitle 3, entitled, "Deposits on New Homes," of Title 10 of the Real Property Article. Prior to October 1, 1995, the effective date of Chapter 569 of the Acts of 1995, RP § 10-305, part of that same subtitle, read, in relevant part, as follows:

"If a person fails to ... hold sums of money in an escrow account as required under this subtitle, he is guilty of a misdemeanor, and, on conviction, is subject to a fine not exceeding $500, or imprisonment not exceeding six months, or both. Any officer, director, or employee of a corporation, who knowingly participates in any act or omission which is part of the violation, is subject to the penalties of this subsection."

We shall refer to the above-quoted statute as former § 10-305.

The 1995 legislation substantially amended former § 10-305. Md.Code (1974, 1996 Repl.Vol.), RP § 10-305 now reads:

"(a) Penalties.--If a person willfully and knowingly fails to ... hold sums of money in an escrow account as required under this subtitle, the person is guilty of a felony and, on conviction, shall make restitution to the purchaser as determined by the court, and be subject to a fine not exceeding $10,000 or imprisonment not exceeding 15 years or both.

"(b) Unfair or deceptive trade practices.--In addition to any other penalty or relief afforded by law or equity, any conduct that fails to comply with this subtitle is an unfair or deceptive trade practice within the meaning of Title 13 of the Commercial Law Article and is subject to all of the provisions of that title [with one exception not relevant here].

"(c) Liability of corporate officers, directors, or employees.--Any officer, director, or employee of a corporation, who knowingly participates in any act or omission which is part of the violation, is subject to the penalties of this subsection."

We shall refer to the above-quoted statute as current § 10-305.

The 1996 Replacement Volume for the Real Property Article of the Maryland Code was published in January 1996. Its revisions encompassed enactments of the 1995 session of the General Assembly, including current § 10-305. The publisher parenthetically set forth after the statutory text the code and session law citations to the prior versions of current § 10-305. The publisher also stated in a note following current § 10-305 that Chapter 569 of the Acts of 1995 "rewrote the section."

The instant matter involves a real estate contract initially entered into on April 16, 1993. Suit was filed by the purchaser in June 1994. At the non-jury trial of the case in January 1996 all concerned, i.e., counsel for both parties and the trial court, treated the claim on which judgment ultimately was entered against the appellant as governed by current § 10-305 when, in law, it was governed by former § 10-305.

This action was brought by the appellees, W. Wajeed Khan and B. Zorina Khan, husband and wife (the Khans). The Khans sued G.S.G. Development, Inc., a Maryland corporation (G.S.G.Inc.), and Samuel T. Gindes (Gindes), who is the appellant in this case. The trial court found that the Khans had entered into a contract with G.S.G. Inc. for the purchase of a lot with a new residence thereon that was to be constructed by G.S.G. Inc. A vice-president of G.S.G. Inc., Brian Gallagher, signed the original contract on behalf of G.S.G. Inc. in which the price was $785,000. The Khans made several payments totalling $120,000 to G.S.G. Inc. as a good faith deposit toward the contract price.

The trial court also found that Gindes is the sole stockholder, president, and chief operating officer of G.S.G. Inc. The monies paid by the Khans to G.S.G. Inc. were deposited into its general operating account on which Gindes was sole signatory. None of the monies were held in an escrow account, but were used in the course of the business of G.S.G. Inc. Those expenditures were directly or indirectly authorized by Gindes.

On May 3, 1995, G.S.G. Inc. filed a petition under Chapter 7 of the United States Bankruptcy Code. Counsel for G.S.G. Inc. filed a suggestion of that bankruptcy in the action now before us, thereby alerting all interested persons to the operation of the automatic stay of proceedings against G.S.G. Inc. effected under the Bankruptcy Code. The property that the Khans had contracted to purchase was sold at a foreclosure sale under the mortgage placed on the property by G.S.G. Inc. We are advised that the Khans were the purchasers at the foreclosure sale.

The subject action proceeded against Gindes on the claims alleged against him in Counts III through VIII of the eight-count complaint. Count III alleged a failure by Gindes to maintain the escrow required of the "vendor or builder" by RP §§ 10-301 and 10-305. The Khans alleged conversion by Gindes of the deposit in Count IV. Counts V and VI averred theft by misrepresentation and misappropriation of funds held in trust. Count VII sounded in negligent misrepresentation. Alleged violations of the Consumer Protection Act (CPA), Md.Code (1975, 1990 Repl.Vol.), §§ 13-101 et seq. of the Commercial Law Article (CL), formed the basis for Count VIII. The CPA authorizes a private action for damages which, if successful, may carry counsel fees as well. CL § 13-408(a) and (b).

At the conclusion of the Khans' case, Gindes moved for judgment and orally argued fully in support thereof. In that argument Gindes asked the court to consider Counts III and VIII together. Both the court and Gindes discussed the merits of the motion in reference to current § 10-305. During the Khans' argument, they agreed with the court that they would have to "pierce the corporate veil" in order to recover under RP § 10-301. When the Khans referred to definitions under the CPA in support of their recovery under Count VIII, the court observed that those definitions were not material because the relevant provisions of the Real Property Article made their violation a violation of the CPA.

The court granted the motion by Gindes for judgment on Counts V, VI, and VIII. In denying the motion as to Count III, the court observed that RP § 10-301 "[i]n essence ... converts the Real Property section into an unfair and deceptive trade practice to the extent there is a civil remedy." The court also found evidence sufficient to support the conversion and negligent misrepresentation claims, Counts IV and VII respectively. In ruling that Count VIII could not proceed, the court observed that it was "unclear ... whether or not Count [VIII] is a separate action from Count [III], from that which is brought under the Real Property Article," but the court concluded it was "not properly brought or not properly supportable by the evidence."

At the conclusion of all of the evidence, in lieu of oral argument, the court requested that briefs be filed simultaneously. The court advised counsel that "an essential point in this case" was the alleged liability of Gindes under RP § 10-305(c), referring to the provision as "a mandated obligation by the State" and observing that "intention or goodwill or knowledge has nothing to do with it."

The parties' post-trial briefs presented arguments on Count III in terms of current § 10-305.

In a written opinion the circuit court entered judgment in favor of the Khans against Gindes for $143,500, representing the unrefunded deposit of $120,000 plus counsel fees of $23,500, awarded under CL § 13-408(b). The judgment was predicated on current § 10-305. The court sai...