Walker v. Haywood

• Decision Date: 01 September 1984
• Docket Number: No. 1481,1481
• Citation: 498 A.2d 1198,65 Md.App. 1
• Parties: John C. WALKER, III and John W. Gill, Jr., Substitute Trustees v. Henry HAYWOOD, et ux. ,
• Court: Court of Special Appeals of Maryland

Page 1

65 Md.App. 1

498 A.2d 1198

John C. WALKER, III and John W. Gill, Jr., Substitute Trustees v. Henry HAYWOOD, et ux.

No. 1481, Sept. Term, 1984.

Court of Special Appeals of Maryland.

Oct. 18, 1985.

Samuel S.D. Marsh, Bethesda (F. Robert Troll, Jr. and Ross, Marsh & Foster, Bethesda, on brief), for appellants.

No brief or appearance for appellees.

Argued before BISHOP, ADKINS and KARWACKI, JJ.

ADKINS, Judge.

This is an appeal from the ratification of an auditor's report disallowing in part attorney's fees and certain other expenses incurred in connection with the foreclosure of a deed of trust and related bankruptcy proceedings. Appellants charge that the disallowance, or most of it, was the consequence of two court policies that were in fact unauthorized rules of court improperly applied. While we agree that the trial judge misapplied the policies and reverse, we disagree with appellants on the rule of court question.

I. Background

Appellants John C. Walker, III, and John W. Gill, Jr., are substitute trustees under a deed of trust executed by appellees Henry and Georgia M. Haywood. The noteholder is appellant National Permanent Bank, F.S.B. In 1983 the Haywoods defaulted under the note secured by the deed of trust and promptly filed a Chapter 13 bankruptcy proceeding in the United States Bankruptcy Court for the District of Maryland. National Permanent engaged counsel to protect its interest in the bankruptcy and to obtain relief from the automatic stay against lien enforcement imposed by 11 U.S.C. § 362(a). The latter objective was achieved on March 14, 1984, when the bankruptcy court lifted the automatic stay and authorized National Permanent to institute foreclosure proceedings.

Foreclosure was forthwith sought in the Circuit Court for Prince George's County and the property subject to the deed of trust was sold in due course. The sale was ratified on June 21, 1984, and the case referred to the auditor. Appellants submitted to the auditor a proposed account that requested, among other items, allowance for the following:

1. Attorney's fees for services rendered

in the foreclosure proceeding $ 900.00

2. Advances paid by Permanent in connection

with the bankruptcy proceeding

attorney's fees $1,225.00

title search 125.00

appraisal fee 150.00

telephone and postage 20.00

1,520.00

3. Interest on advance 53.79

---------

$2,473.79 The auditor allowed only $750 for item 1--the attorney's fees in the foreclosure. This action was pursuant to a policy we shall shortly discuss. Pursuant to another policy, he allowed only $500 of the $1,225 attorney's fees claimed in item 2--advances in connection with the bankruptcy case. In item 2 he also disallowed the $125 title search fee and the $20 telephone and postage expense. And he rejected all of item 3 for reasons not disclosed in the record. Thus, appellants ended up with $1,073.79 less than they had claimed. The amended audit showed a surplus of $27,589.37 after deduction of all claims allowed.

Appellant excepted. Md.Rule 2-543(f). A hearing was had pursuant to Rule 2-543(g). In addition to producing evidence about the policies that had guided the auditor, appellants introduced extensive testimony as to the reasonableness and propriety of the fees and other sums disallowed. They also requested allowance of fees and expenses incurred in connection with the exceptions. Appellee Henry Haywood was at the hearing but in no way attempted to contradict the evidence or to oppose appellants' contentions. On October 18, 1984, the court overruled the exceptions and ratified and confirmed the audit because it was "of the opinion and persuasion that the amended [audit] conforms in all respects to the established, current policies of this Court...."

II. Appellants' Contentions

Appellants advance a number of reasons to support their assertion that the trial court erred. These may be summarized as follows:

1. Neither a judicial circuit nor a circuit court has authority to adopt a policy that is in effect a court rule and that limits attorney's fees to a fixed hourly rate in all foreclosure proceedings.

2. When a deed of trust provides that all foreclosure expenses, including attorney's fees are secured by the lien thereof, the circuit court may neither

a. enforce a policy prescribing a predetermined hourly rate for attorney's fees that is less than the prevailing community rate, nor

b. disallow all such expenses incurred by the noteholder subsequent to the filing of the auditor's amended report.

3. Neither a judicial circuit nor a circuit court has authority to adopt a policy that is in effect a court rule and that limits attorney's fees in bankruptcy proceedings to a predetermined amount.

4. When a deed of trust provides that all litigation expenses, including attorney's fees, are secured by the lien thereof, the circuit court may neither

a. enforce a policy prescribing a $500 limit for attorney's fees incurred by the noteholder in a bankruptcy proceeding, nor

b. disallow other ordinary and necessary expenses incurred by the noteholder for the protection of its interests in the bankruptcy proceedings.

5. When a deed of trust provides for interest on an advance made by the noteholder pursuant to the terms thereof the court may not disallow interest claimed by the noteholder on the advance.

We shall address these contentions seriatim.

III. The Policy as to Attorneys' Fees in Foreclosure Proceedings

At the hearing on exceptions to the audit, court auditor John Middleton described the unwritten policy to which appellants object as

such that routine regular attorney's fees, without any specific court order, are limited to $750 for work done in this court ... in foreclosure.

According to Mr. Middleton, the policy

is based upon a judicial recognition that the average amount of work in a foreclosure case will not exceed ten hours, and the allowance for the work done is the rate of no more than $75 an hour. Ten times $75 is $750.

It is this policy that appellants claim is a rule of court and one that neither the Seventh Judicial Circuit nor the Circuit Court for Prince George's County had authority to adopt.

"The power of courts other than the Court of Appeals to make rules of practice and procedure, or administrative rules, shall be subject to the rules and regulations adopted by the Court of Appeals or otherwise by law." Md.Const., Art. IV, § 18(a). Moreover, "... courts [other than the District Court] may make ... rules of practice and procedure subject to and not inconsistent with any rule of the Court of Appeals" and such rules generally must "be adopted pursuant to the limitations and procedures prescribed by the Maryland Rules, unless authority to adopt rules is expressly granted by public general law." Courts and Judicial Proceedings Art., § 1-201(b). Since there is no public general law expressly granting rule-making power to the Seventh Judicial Circuit or to the Circuit Court for Prince George's County, we must look to the rules adopted by the Court of Appeals with respect to local rule-making.

For present purposes, our search need not encompass the entire history of this subject in Maryland. We place the topic in perspective by turning to former Md.Rule 1.f., adopted by Rules Order of July 18, 1956, effective January 1, 1957. That rule, supplanting earlier statutory and rule provisions, permitted the "judges of the several [circuit] courts and, in Baltimore City, the Supreme Bench of Baltimore City," to adopt rules of practice and procedure "not inconsistent with any general rules adopted by the Court of Appeals or with any statute then in force." Md.Code Ann. (1957 Cum.Supp.). Former Rule 1.f., it will be observed, did not limit the subject matter of local rules (except to the extent that they had to be rules of practice and procedure) nor did it prescribe any method by which local rules had to be adopted or published.

A significant change in these arrangements was produced by a Rules Order of February 10, 1969, effective April 1, 1969. By that order Rule 1.f. was amended to abolish local (county) rules, but to permit "circuit-wide rules" adopted "by action of a majority of the judges of the judicial circuit concerned." The circuit rules were to "have a numbering system and arrangement consistent with the system and arrangement of the Maryland Rules...." Upon adoption by a circuit, they were to "be forwarded to the Court of Appeals and to the Director of the Administrative Office of the Courts." The Court of Appeals had power "to modify or abrogate [any such] rule." The Director of the Administrative Office was required to publish them. A Rules Committee note indicates that these procedures were intended to reduce the "number of varying and sometimes confusing practices now existing in different jurisdictions" and to assure ready availability of circuit rules through the publication mechanism. Md.Code Ann.Vol. 9B (1971). This provision, like its predecessor, did not limit subject areas for circuit rules. It did eliminate local or county rules and require that any circuit rule be adopted by a majority of the judges of the circuit. Since the rules had to be forwarded to the Court of Appeals and to the Director of the Administrative Office, they had to be in writing. And their publication was required.

Matters continued under this dispensation until another major amendment of Rule 1.f. by Rules Orders of October 1, 1980, and December 24, 1980, both effective January 1, 1981. The new rule 1.f. rescinded all circuit and local rules in effect on December 31, 1980, except for those dealing with six enumerated subject areas. It once again permitted the adoption of local or county rules as well as circuit rules, but only in one or more of the designated areas. The former provisions as to method of adoption of rules, forwarding to the Court of Appeals, and publication of rules were dropped. Md.Code Ann., Maryland Rules (1983). The 1981...