Klupt v. Krongard, 405

• Court: Court of Special Appeals of Maryland
• Citation: 126 Md. App. 179,728 A.2d 727
• Docket Number: No. 405,405
• Parties: Carle D. KLUPT, et al. v. Alvin B. KRONGARD, et al.
• Decision Date: 28 April 1999

728 A.2d 727
126 Md. App. 179

Carle D. KLUPT, et al.
v.
Alvin B. KRONGARD, et al

No. 405, Sept. Term, 1998.

Court of Special Appeals of Maryland.

April 28, 1999.

728 A.2d 728

Barton J. Sidle, Towson, (Gerson B. Mehlman and Mehlman & Greenblatt, LLC, Baltimore, on the brief), for appellants

Arnold M. Weiner (Snyder, Weiner, Weltchek, Vogelstein & Brown, Nancy Palmer, Robert Price, BT Alex Brown, Inc., Baltimore, Thomas Zagami and Hodes, Ulman, Pessin & Katz, P.A., Towson, on brief for appellees, Krongard, etc.); Richard S. Hoffman (Dennis Black and Williams & Connolly

728 A.2d 729

on the brief for appellees, G&R Video, Inc. and Greenebaum), Washington, DC, for appellees

Argued before MURPHY, C.J., and THIEME and JAMES S. GETTY, (Ret'd, Specially Assigned), JJ.

THIEME, Judge.

On November 18, 1997, the Circuit Court for Baltimore County (Turnbull, J.) entered a final judgment dismissing the seven-count counterclaim of Carle Klupt and his company, Sharbar, Inc. (The appellants), against a group of named counter-defendants (the appellees), for breach of contract, fraud, negligent misrepresentations, breach of fiduciary duty, and legal malpractice, in association with the licensing and production of the appellants' invention of a disposable videocassette. The court acted after finding that Klupt had willfully and contumaciously acted with the specific intent to avert discovery and thwart justice by the destruction of discoverable evidence.

We affirm that judgment, as well as the court's disqualification of one of the appellants' substitute counsel.

Questions Presented

The appellants appeal from that Order and present the following questions, which we have reformulated:

1. Did the trial court err in dismissing the appellants' claims for alleged spoliation of evidence?

2. Was dismissal of the appellants' claims for discovery abuse an inappropriate sanction outside the discretion of the court?

3. Did the court err in disqualifying an attorney who, prior to accepting employment, had been informed that he would be required to be a witness against his prospective client?

To all of these questions, we answer no.

Facts and Statement of the Case

This case arises from the ill-fated attempts to license and produce a disposable cardboard videocassette designed by Carle Klupt. Klupt assigned the rights to his invention to his corporation, Sharbar, Inc. (Sharbar), in October 1989. That same month Sharbar licensed to Philmax, Inc. (Philmax), the exclusive rights to produce the invention. Klupt eventually became convinced that Philmax had breached its licensing agreement with Sharbar, and began to seek other potential licensees. On July 24, 1990, Klupt signed a Memorandum of Understanding with Stewart Greenebaum, president of G & R Video, Inc. (G & R), spelling out a new licensing agreement contingent upon an opinion from G & R's counsel from the law firm of Williams & Connolly concerning Sharbar's rights to license the invention.

On July 18, 1990, counsel for Philmax, Gerson Mehlman, sent a letter to Klupt and Saul Leitner, Klupt's patent attorney, denying any breach of the licensing agreement and affirming Philmax's intention to enforce the agreement. Based in part on this letter, counsel for G & R gave a negative opinion with regard to Sharbar's liberty to enter into an agreement with G & R. On August 15, 1990, Philmax sued Klupt and Sharbar for a declaratory judgment concerning its rights as Sharbar's exclusive licensee. Philmax's counsel in this suit was Mehlman's law firm.

On April 26, 1991, Klupt and Sharbar signed another licensing agreement, this time with Alvin B. Krongard, acting as agent for an entity to be formed. This licensing agreement was also a contingent one, dependent on the successful resolution of the Philmax litigation. A waivable deadline for settling the litigation was set at June 30, 1991. Some payments, totaling $115,000, were made to Klupt and Sharbar, and negotiations to realize the deal continued into 1992.

A. The Present Case

On April 19, 1994, however, suit was filed in the Circuit Court for Baltimore County by Krongard, along with Herbert D. Fried and Hanan Y. Sibel, two of Krongard's partners in this venture, against Klupt, Sharbar, and Leitner.¹ The plaintiffs alleged that they were defrauded into making investments in a venture for the manufacture and distribution

728 A.2d 730

of Klupt's disposable videocassette invention. On April 20, 1994, the day after they were served with the Baltimore County complaint, Klupt and Sharbar filed an action in the Circuit Court for Baltimore City alleging that, from 1990 to 1992, Krongard, Fried, and Sibel, the plaintiffs in the Baltimore County suit, along with other named defendants,² had conspired to deprive Klupt and Sharbar of the value of Klupt's disposable videocassette invention. That action was subsequently transferred to Baltimore County where it was consolidated with the previous action and designated a counterclaim. (The original plaintiffs/counter-defendants will hereafter be referred to as the appellees, and the original defendants/counter-plaintiffs will be referred to as the appellants.)

B. Discovery

On April 21, 1994, the day after they filed suit in Baltimore City, the appellees served Charles Piven, who was then representing Klupt and Sharbar in the counterclaim, with Document Requests addressed separately to Klupt and Sharbar. The Requests called upon Klupt and Sharbar to produce "all documents relating to all oral and written communications" between Klupt, on the one hand, and any of the appellees or their lawyers, on the other. These Requests defined "documents" as including "all writings of any kind," including "all drafts, alterations [and] modifications" thereto, and all "aural records... of any kind, including ... electronic ... records or representation of any kind, including but not limited to tapes, cassettes, discs and records."

Unbeknownst to anyone else at that time, Klupt apparently had a longstanding habit of tape-recording his telephone conversations. Between 1990 and 1992, Klupt tape-recorded telephone conversations with counter-defendants Krongard and Janet and with their business lawyers, John Woloszyn and Ned Himmelrich. These conversations related to Klupt's videocassette invention. In his November 23, 1997, affidavit Klupt stated he was under the mistaken belief that so long as one of the two parties to the conversation consented to the taping it was legal to do so without the other party's consent; he stated that this was not done to gather evidence for a lawsuit. Some time in 1991, Klupt began to prepare a set of typewritten memoranda from these surreptitiously recorded conversations. Each memorandum was signed and dated, and each carried the heading "Memorandum in the Course of Business." Although some of Klupt's memoranda were not made up until months after the conversations, he dated the memoranda to make them appear to have been prepared more or less contemporaneously with the conversations to which they related.

In October 1991, Klupt hired George Liebmann to represent him and Sharbar in connection with claims arising from the videocassette invention. Klupt gave Liebmann copies of some of his memoranda. In January 1992, Klupt discharged Liebmann and replaced him with Stuart Rombro. Rombro was in turn replaced by Piven in late 1993. While Klupt informed his lawyers about his conversations with the appellees, he did not disclose to his lawyers his taping practices or the existence of the tapes. For example, when questioned in his deposition about Piven's inquiry to him concerning his methods in gathering the information in these memoranda, Klupt replied only that he got "off the phone and type[d] it, scribble[d] it down, dictate[d] it into a recorder or electronic, I believe I said ma[d]e electronic memorandums."

After the appellees experienced scheduling difficulties with the deposition of Klupt, the court, upon motion by the appellees, on November 10, 1994, ordered Klupt to appear for his scheduled deposition. Klupt promptly filed a Motion for Reconsideration, wherein counsel for Klupt stated that he had a previously scheduled deposition in another case. This led to the filing by the appellees of Applications for Orders to Show Cause for Contempt, wherein it was alleged that no such prior deposition was scheduled as alleged in Klupt's Motion for Reconsideration.

728 A.2d 731

On November 23, 1994, the court denied Klupt's Motion for Reconsideration, and ordered counsel for Klupt to show why counsel should not be held in contempt for falsely claiming to the court that he was unavailable for the scheduled deposition

When the deposition finally began on November 29, 1994, Piven, counsel for Klupt, produced a "Privilege Log." No mention of Klupt's memoranda was made. When questioned about the request for production of documents, Klupt acknowledged that he had received a copy of the request shortly after it was served. He testified that he had endeavored to produce all documents. When questioned about the existence of documents relating to his conversations with the appellees, Klupt revealed that he had made typewritten memoranda of those conversations. No reference was made to his taping. Klupt stated that he prepared about twenty such memoranda from both memory and handwritten notes. He claimed to have thrown away the notes. When questioned about his failure to produce these memoranda, Klupt testified that he had given the memoranda for the first time to his counsel the day before the deposition began. Klupt's counsel interjected that he had "not had a chance to go through everything that was given to me yesterday," and that, as a result, he had removed the memoranda from the group of papers that he had produced at the start of the day's deposition. At the conclusion of the first day, counsel for the appellees called upon Klupt to produce the typed memoranda. Klupt's counsel...