Myers v. Aragona

• Decision Date: 19 April 1974
• Docket Number: No. 630,630
• Parties: Mitchell MYERS v. Xavier ARAGONA et al.
• Court: Court of Special Appeals of Maryland

Page 45

21 Md.App. 45

318 A.2d 263

Mitchell MYERS v. Xavier ARAGONA et al.

No. 630.

Court of Special Appeals of Maryland.

April 19, 1974.

Certiorari Denied July 25, 1974.

Hugh E. Donovan, Rockville, with whom were Edward C. Donahue, Donahue & Ehrmantraut, Rockville, on the brief, for appellant.

Maji P. Maloof, Upper Marlboro, for appellees.

Argued before ORTH, C. J., and GILBERT and LOWE, JJ.

GILBERT, Judge.

Mitchell L. Myers, appellant, a member of the Maryland Bar, in all probability takes sharp issue with Frederick Lawrence Knowles (1869-1905) who penned in Grief and Joy that, 'Joy is a partnership.' Myers's partnership with Milton Gordon ¹ led to a judgment entered by Judge Perry G. Bowen, Jr. on a jury verdict in the Circuit Court for Calvert County ² against Myers and in favor of Xavier Aragona, Marie Aragona and Martin Aragona, appellees, in the amount of $310,000. The judgment is predicated upon an amended declaration charging that Milton Gordon, a law partner of Myers's, had 'within the scope of the partnership and within the scope of the agency of the said partnership, maliciously, deliberately, wantonly, and in violation of (his) fiduciary duty, misapplied (and) misappropriated' funds belonging to the appellees which had been entrusted to the law firm of Gordon and Myers. The judgment was further founded on a second count charging negligence on the part of Myers in failing to discover that 'his law partner, Milton Gordon had misapplied, misappropriated, breached his fiduciary duty, and stolen the aforesaid sums which had been received by the partnership ³. . . .'

On appeal to this Court Myers contends that:

(1) the trial judge erred in allowing an amendment to the original declaration because the amendment set forth a cause of action that was barred by the statute of limitations.

(2) the evidence failed to show that the appellant's partner, Milton Gordon, took the appellees' money.

(3) the appellants failed to establish a case of legal malpractice because they did not show the elements of the action through expert testimony.

(4) the proof did not demonstrate that Myers's negligence was the proximate cause of the appellees' loss.

The record discloses that the appellees, in 1963, retained the law firm of Gordon and Myers to perform services for the appellees in respect to real property matters. The appellees were engaged in the construction and development of real estate subdivisions. Gordon and Myers were to handle property settlements on behalf of two corporations that were owned equally by Xavier Aragona and his brother, Martin Aragona. During the period 1963 to August 1966 vast sums of money passed through the escrow account of Gordon and Myers. The sums originated from transactions involving Metropolitan Federal Savings and Loan Association, Metropolitan Financial Corporation and the appellees. Metropolitan Federal turned over to Gordon and Myers monies which were to be applied for the use of the appellees. Specifically, the monies were for the purpose of purchasing and releasing certain promissory notes made by appellees to Metropolitan Financial Corporation and which were secured by construction loans on certain real estate. As a result of the misappropriation of the funds the construction loans were not paid. Lawyers Title Insurance Corporation, which had insured the titles passed by Gordon, paid off the loans and was assigned the notes. The appellees were compelled to enter into an agreement whereby the title to the appellees' land was conveyed to Lawyers Title with an option to the appellees to repurchase under certain highly restrictive conditions. Subsequently, Lawyers Title Insurance Corporation foreclosed and the appellees lost not only the monies, but also the land.

Gordon and another lawyer, working directly under Gordon's supervision, handled the overwhelming majority of the settlements. Myers did, however, handle a few of them. The Gordon and Myers escrow account, into which the proceeds of the property settlements were deposited was subject to an order of withdrawal signed by Gordon or Myers or either or two associates. The law firm used a 'Settlement Statement', which statement bore the legend 'Gordon & Myers, Attorneys at Law'.

In February of 1966 Myers became aware of the fact that Gordon's involvement with the Five Point National Bank of Miami, Florida, was subject to investigation by the United States District Attorney in Miami. According to Myers, Gordon was subsequently indicted in Florida for a violation of the Federal banking laws. One day in August, 1966, Myers observed a great deal of activity in the firm's office, and Gordon told him, 'We have trouble.' Shortly thereafter Myers learned that there was a deficiency in the escrow account.

Xavier and Martin Aragona testified that they were led to believe that the firm of Gordon and Myers was a partnership and that Gordon and Myers had both referred to each other as 'my partner'. Myers, on the other hand, says that although the letterhead stated 'Law Offices Gordon & Myers' and the 'Settlement Statement(s)' bear the legend 'Gordon & Myers, Attorneys At Law', there was no partnership, but a 'relationship'. ⁴ Myers informed the jury that the proceeds of the firm that were received from the general practice of law (i.e., the portion of the firm's business over which he exercised dominance) were divided on an equal basis between himself and Gordon. The earnings from the property settlement legal services, however, Myers said, were all retained by Gordon. Myers claims that no partnership existed and that the letterheads were printed in the manner stated in the interest of economy.

The original declaration averred in pertinent part:

'2. Lawyer's Title Insurance Corporation, . . . a Virginia Corporation, doing business in Maryland, directed the insured, Metropolitan Federal Savings & Loan Association, Bethesda, Maryland, to pay $268,559.84, . . . to the law firm of Gordon & Myers, settlement attorneys, to purchase said notes.

3. Milton Gordon, partner in the firm of Gordon & Myers, issued a title insurance policy to Metropolitan Federal Savings & Loan Association, by which policy, in the event of default, Metropolitan Federal Savings & Loan Association would be in the position of first party in a first deed.

4. Said Milton Gordon misappropriated the funds placed in trust with the firm of Gordon & Myers and his whereabouts are presently unknown.

7. That as a proximate result of the misappropriation of the funds entrusted to the firm of Gordon & Myers, plaintiffs were placed in a compromised financial position and have suffered great monetary and credit damages thereby.

8. Defendant Mitchell L. Myers, partner with Milton Gordon in the law firm of Gordon & Myers, was negligent in that he knew or should have known that which he could have discovered upon a diligent inquiry, that the firm, through Milton Gordon, was acting improperly. Defendant, occupying the trusted position of attorney, owed a duty to parties involved with matters handled by his office, to see that they were handled properly and competently. By reason of defendant's negligence, in violation of his fiduciary relationship, plaintiffs have suffered and incurred great financial losses and burdens and jeopardized their credit standing.'

The original declaration was filed on July 2, 1969, and thereafter some discovery proceedings were conducted. Present counsel for appellees entered his appearance on March 15, 1971, and the original counsel withdrew. On May 5, 1972 the appellees filed a motion for leave to amend to which Myers interposed his objection. A hearing was held before Judge Bowen on June 23, 1972, and the motion for leave to amend was granted.

The amended declaration set forth four counts. A directed verdict in favor of Myers on the third and fourth counts was entered by Judge Bowen at the conclusion of the plaintiffs' case, and the appellees concede the correctness of that ruling. Count I of the amended declaration averred a law partnership known as 'Gordon and Myers', that Gordon and Myers had been employed to provide professional services for the appellees, that monies were received by Gordon and Myers for the use of the appellees, that Gordon misappropriated the money, and 'because of the partnership . . . Mitchell L. Myers, is liable for the wrongful acts and breach of fiduciary duty perpetrated by his law partner and the resultant injury to the plaintiffs.' Count II, grounded in negligence, charged that Myers had 'failed to inspect books of account and other financial records of the partnership, and further that he failed to make inquiry as to the application of the . . . funds or to familiarize himself with the transactions carried on by his law partner' and that because of Myers's negligence he did not discover that Gordon had 'misappropriated' and 'stolen' the monies belonging to the plaintiffs-appellees.

The original suit was filed, as we have noted, on July 2, 1969, the cause of action having arisen when the malpractice was discovered, in late July or August of 1966, Mumford v. Staton, Whaley & Price, 254 Md. 697, 255 A.2d 359 (1969), ⁵ so that patently the suit was brought within the three year statutory period. Md.Ann.Code, art. 57, § 1. In the instant case the overriding issue is whether the amendment to the declaration stated a new cause of action vulnerable to appellant's plea of limitations. The rule is that if an amendment sets forth a new cause of action, then limitations is measured from the time of the accrual of the cause to the date the amended declaration is filed, but if the amendment does not state a new cause of action, then limitations is determined with reference to the date of the original filing. Doughty v. Prettyman, 219 Md. 83, 148 A.2d 438 (1959); Cline v. Fountain, etc., Company, 214 Md. 251, 134 A.2d 304 (1957).

The case now before us turns on whether Count I of the amended declaration, grounded upon...