Miller & Smith v. Casey Pmn

Decision Date11 January 2010
Docket NumberNo. 29 September Term 2009.,29 September Term 2009.
Citation987 A.2d 1,412 Md. 230
PartiesMILLER AND SMITH AT QUERCUS, LLC, et al. v. CASEY PMN, LLC.
CourtCourt of Special Appeals of Maryland

Paul A. Kaplan (James W. Gladstone of Womble, Carlyle, Sandridge & Rice, PLLC of Washington, D.C.), on brief, for respondent.

Argued before Bell, C.J., HARRELL, BATTAGLIA, GREENE, MURPHY, ADKINS, and BARBERA, JJ.

BATTAGLIA, J.

In 1998, Miller and Smith, a Maryland limited liability company, executed a promissory note titled "Deferred Purchase Money Promissory Note II"1 in which it promised to pay $3,296,000, with interest, to Potomac Capital Investment Corporation, an affiliate of Potomac Electric Power Company (PEPCO), in order to purchase approximately 258 acres of land in Montgomery County. In addition to the repayment of principal and its attendant interest upon maturity or sale of all or any portion of the property, the promise to pay also included a provision for payment of "Additional Contingent Interest," "[i]n order to compensate the Holder for accepting an interest rate equal to the Libor Rate, and further to compensate the Holder for granting the Borrower the exculpation from liability provided in [the Note]." Additional Contingent Interest was defined as "35% of the difference between Gross Revenue and Approved Costs, calculated at a time or times specified in this Note," while Gross Revenue was defined as "the greater of the sales price or gross sales proceeds payable in connection with the sale of all or any portion of the Property securing this Note." A Deed of Trust and Security Agreement also were executed on the same day, as well as a Guaranty Agreement executed by Miller and Smith Holding, Inc., a Virginia corporation.2 In 2001, Potomac transferred its rights under the Note and the Guaranty to Casey PMN, LLC which then became the Holder under the Note and the Guaranty and the Beneficiary under the Deed of Trust.

In 2002, under threat of imminent condemnation of the property, Miller and Smith entered into an Agreement with Montgomery County for the sale of the property, for the purpose of open space conservation. Under the Agreement, the property was divided into six parcels, and the County was to make five cash payments between November 2002 and July 2006 totaling $9,025,500 to Miller and Smith upon the conveyance of the six separate parcels of land, as follows: Parcel 1 (85.79 acres) for $3,000,000 on November 15, 2002; Parcel 2 (63.52 acres) for $2,221,500 on July 1, 2003; Parcel 3 (50.16 acres) for $1,754,000 on July 1, 2004; Parcels 4A and 4B (27.91 and 16.41 acres, respectively) for $1,550,000 on July 1, 2005; and Parcel 5 (14.3 acres) for $500,000 on July 1, 2006. Montgomery County also agreed to provide a letter to the Internal Revenue Service "acknowledging that [Miller and Smith] was paid the above amounts for the Property and acknowledging that [Miller and Smith] claims that the fair market value of the Property is not less than $17,100,000." The County took no position on the actual fair market value of the property, but included $17,100,000 in the Agreement to enable Miller and Smith to attempt to take advantage of any possible tax benefits. According to the parties, the entire $9,025,500 has been paid to Miller and Smith and, in turn, Miller and Smith has transferred all parcels of the property to the County.

Miller and Smith paid Casey Additional Contingent Interest under the promissory note, based on the $9,025,500 paid by Montgomery County, but Casey did not agree with the computation and claimed that the calculation should have included not only the $9 million, but additional tax benefits.

Casey, thereafter, filed a four count complaint in the Circuit Court for Montgomery County against Miller and Smith and Miller and Smith Holding, Inc., alleging that Miller and Smith had "not properly calculated and paid Additional Contingent Interest to Casey based on the fair market value of the Property, as contemplated by the Note and Deed of Trust . . . .," prefacing the following four Counts with the factual recitations noted above:

COUNT I (BREACH OF NOTE AND DEED OF TRUST—DAMAGES)

18. Casey incorporates the preceding paragraphs of its Complaint by reference as if set forth herein.

19. Miller and Smith's failure to pay Casey the full amount of Additional Contingent Interest due under the Note, calculated as 35% of the fair market value of the Property, as contemplated by the terms of the Note, constitutes a breach of the Note and the Deed of Trust.

20. As a result of Miller and Smith's breach of the Note and the Deed of Trust, Casey has suffered substantial financial harm.

21. Under the terms of the Note, in addition to the Additional Contingent Interest due but unpaid, Miller and Smith is liable to Casey for all reasonable costs of collection of amounts due under the Note, including reasonable attorneys' fees.

COUNT II (ALTERNATIVE: BREACH OF NOTE AND DEED OF TRUST—DAMAGES)

22. Casey incorporates the preceding paragraphs of its Complaint by reference as if set forth herein.

23. Miller and Smith's failure to pay Casey the full amount of Additional Contingent Interest due under the Note, calculated as 35% of all compensation received by its members, including by their use of the charitable deductions derived from the sale of the Property to the County at below fair market value, constitutes a breach of the Note and the Deed of Trust.

COUNT III (BREACH OF THE NOTE AND DEED OF TRUST SPECIFIC PERFORMANCE—INJUNCTIVE RELIEF)

24. Casey incorporates the preceding paragraphs of its Complaint by reference as if set forth herein.

25. Miller and Smith's refusal to permit Casey to inspect its books and records for the purpose of, inter alia, assessing whether Miller and Smith has accurately calculated the Approved Costs that it is permitted to deduct from "Gross Revenue" in determining the amount of Additional Contingent Interest due under the Note constitutes a breach of the terms of the Note and the Deed of Trust.

26. Without inspecting and examining the books and records maintained by Miller & Smith, Casey has not been able to determine whether Miller and Smith has deducted more as "Approved Costs" from "Gross Revenue" in making payments of Additional Contingent Interest to Casey under the Note than is proper.

COUNT IV (BREACH OF THE GUARANTY)

27. Casey incorporates the preceding paragraphs of its Complaint by reference as if set forth herein.

28. Under the Guaranty, M & S Holding is jointly and severally liable with Miller & Smith to Casey for injury it suffers as a result of Miller and Smith's failure to make proper payment of Additional Contingent Interest and Miller and Smith's failure to meet other obligations under the terms of the Note and the Deed of Trust.

29. As a result of Miller and Smith's breach of the Note and the Deed of Trust, Casey has suffered substantial injury for which M & S is liable to Casey.

WHEREFORE, Plaintiff, Casey PMN, LLC, respectfully demands that the Court enter judgment in its favor against Defendants Miller and Smith at Quercus, LLC and M & S Holding, Inc., jointly and severally, (a) awarding Casey PMN, LLC, compensatory damages in an amount to be proven at trial for unpaid Additional Contingent Interest, together with court costs and pre-and post-judgment interest, and costs of collection, including reasonable attorneys' fees, costs and expenses; (b) ordering Defendant Miller and Smith at Quercus to permit Casey PMN, LLC to inspect, examine and copy its books and records; and (c) granting such other and further relief as the Court deems just and proper.

Miller and Smith filed a Motion to Dismiss Count II, as well as an Answer to the remaining three counts of the Complaint, generally denying liability pursuant to Rule 2-323(d),3 after which Casey filed an Opposition to the Motion to Dismiss. Miller and Smith filed a Counterclaim for Declaratory Judgment alleging entitlement to damages based on Casey's wrongful claim that Miller and Smith and its holding company were obligated to pay Additional Contingent Interest based on $17,100,000 rather than the purchase price of $9,025,500; Casey filed an Answer to the Counterclaim generally denying liability.

The Circuit Court thereupon held a hearing on the Motion to Dismiss and in a written "Opinion and Order," found that the terms of the contract were "clear and unambiguous," and charitable tax deductions from the sale of land did not constitute "Additional Contingent Interest," thereby granting Miller and Smith's Motion to Dismiss Count II of the Complaint, and the docket entry reflected the fact that the case was not closed based on the partial judgment.4 The parties, on August 22, 2007, then filed a joint "Stipulation of Dismissal" pursuant to Rule 2-506,5 dismissing "with prejudice" Counts I and III of the Complaint and also purportedly dismissing Count IV and the Counterclaim "with prejudice," but with an important caveat:

(a) Plaintiff is hereby dismissing Counts I and III of its Complaint with prejudice (Count II having previously been dismissed by interlocutory Opinion and Order granting Defendants' Motion to Dismiss Count II);

(b) Plaintiff is hereby dismissing Count IV of its Complaint, with prejudice, except that, since Count IV includes a claim that Defendant Miller & Smith Holding, Inc., is a guarantor with respect to the liability of Defendant Miller & Smith at Quercus, LLC, as alleged in Count II, such dismissal shall be without prejudice to the extent that the Court's earlier interlocutory Opinion and Order dismissing Count II, is vacated or reversed on appeal and remanded to this Court; and

(c) Defendant is hereby dismissing its Counterclaim with prejudice, except that such dismissal shall be without prejudice to the extent that the Court's earlier, interlocutory Opinion and Order dismissing Count II, is...

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