Zachair, Ltd. v. Driggs

• Decision Date: 03 June 1997
• Docket Number: Civil No. AMD 96-2364.
• Parties: ZACHAIR, LTD., Plaintiff, v. John A. DRIGGS, The Driggs Corporation, Southern Maryland Sand and Gravel Corporation, Washington Executive Airpark Limited Partnership, Washington Executive Airpark, Inc., Cecil Sand & Gravel, Inc., Jeffrey M. Frost, Charles Shapiro and Bruce Jaffe, Defendants.
• Court: U.S. District Court — District of Maryland

965 F.Supp. 741

ZACHAIR, LTD., Plaintiff, v. John A. DRIGGS, The Driggs Corporation, Southern Maryland Sand and Gravel Corporation, Washington Executive Airpark Limited Partnership, Washington Executive Airpark, Inc., Cecil Sand & Gravel, Inc., Jeffrey M. Frost, Charles Shapiro and Bruce Jaffe, Defendants.

Civil No. AMD 96-2364.

United States District Court, D. Maryland.

June 3, 1997.

COPYRIGHT MATERIAL OMITTED

Roger C. Simmons, Gordon & Simmons, Frederick, MD, for plaintiff.

Leonard C. Greenebaum, Shelby F. Mitchell, Lee H. Simowitz, Baker & Hostetler, Washington, DC, College Park, MD, Irwin H. Liptz, Harlan L. Weiss, Kivitz & Liptz, LLC, Chevy Chase, MD, for defendants.

DAVIS, District Judge.

Plaintiff Zachair, Ltd. ("Zachair") filed a multi-count complaint against John A. Driggs, The Driggs Corporation, Southern Maryland Sand and Gravel Corporation ("SMS & G"), Washington Executive Airpark Limited Partnership ("WEALP"), Washington Executive Airpark, Inc., ("Airpark"), and Cecil Sand & Gravel ("CS & G"), collectively termed "the Driggs defendants"; and Charles Shapiro and Bruce Jaffe, together termed the "additional bid-rigging defendants." Zachair alleges that the defendants violated § 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to prevent Zachair from operating a sand and gravel business on property that defendant WEALP previously owned and John A. Driggs controlled. Plaintiff also alleges myriad state law claims. Pending before the Court are motions under Fed.R.Civ.P. 12(b)(6) to dismiss for failure to state a claim upon which relief may be granted filed by the Driggs defendants, defendant Shapiro, and defendant Jaffe, and a motion by the Driggs defendants to disqualify Zachair's counsel and suppress wrongfully obtained material, which is based on allegations that plaintiff's attorney violated ethical proscriptions when he arranged to have ex parte contact with those defendants' former general counsel. For the reasons discussed below, I shall dismiss with prejudice the federal antitrust claims, and as a consequence, Zachair's pendent state law claims shall be dismissed without prejudice. Moreover, to facilitate complete appellate review should plaintiff note an appeal from my Order, I shall grant the Driggs defendants' motion to disqualify Zachair's counsel and suppress wrongfully obtained material.

I

In 1988, WEALP purchased a tract of real property located in Prince George's County, Maryland ("the property"), and began to operate a surface sand and gravel mining facility. Compl. ¶ 16. Airpark, WEALP's general partner, operated an airport on a portion of the property.¹ Id. ¶¶ 16-17. John A. Driggs controls the business affairs of all the Driggs defendants. Id. ¶ 2. Indeed, the Driggs defendants all share the same principal place of business in Capitol Heights, Maryland, and are represented by the same counsel in this case. Id. ¶¶ 2-8. Effectively, John A. Driggs operated the entire sand and gravel mining enterprise and the airport through the exercise of control over his numerous affiliates.

In time, WEALP defaulted on both its real estate tax and loan payments, including a NationsBank loan secured by deeds of trust and a purchase money loan from the seller, W.A. Albright Investments, Inc. ("Albright"), which was also secured by a deed of trust. Id. ¶¶ 21-22. On October 1, 1992, Nations-Bank obtained a judgment against WEALP. Id. In April 1993, an involuntary bankruptcy petition was filed against WEALP, and WEALP subsequently converted the case into a voluntary Chapter 11 filing. Id. ¶ 25.

WEALP remained in default on its loan obligations, and NationsBank and Albright eventually petitioned the bankruptcy court to lift the automatic stay so that the creditors could foreclose on the property. Id. ¶ 26(a). On July 27, 1994, the court lifted the stay, permitting foreclosure proceedings to commence. Id. In September 1994, Zachair purchased the NationsBank and Albright notes. Id. 26(b). Thereafter, WEALP filed several "objectively baseless" motions, and an appeal, to protect its possession of the property, including: (1) a motion to stay the Lift Stay Order; (2) an appeal of the bankruptcy court's denial of the motion to stay; (3) a motion to stay pending appeal; and (4) a motion for approval of a supersedeas bond. All of Zachair's motions were unavailing. Id. ¶¶ 26(c)-(g).

On November 3, 1994, a foreclosure sale was held on the property. Id. ¶ 28. John A. Driggs instructed Jeffrey M. Frost, Esq., to attend the foreclosure. Id. Among other positions, Frost served as general counsel and vice-president to the Driggs Corporation and to some of the various entities controlled by or affiliated with John A. Driggs and the Driggs Corporation. Id. ¶ 8. John A. Driggs also instructed Bruce Jaffe and Charles Shapiro, the "bid-rigging defendants" whose significance to this case remains something of a mystery,² to attend the foreclosure auction. Id. ¶ 28. Frost and Jaffe presented $75,000 in certified funds in order to qualify for bidding. Id. Frost's certified check was drawn from a Driggs Corporation bank account. Id. ¶ 29. However, "neither Jaffe, Shapiro nor Frost ever intended to bid on the [p]roperty, but merely pretended to [intend to] bid in order to provide Driggs with an excuse to challenge the foreclosure sale.... Each had been contacted directly or indirectly by Driggs who asked them to attend the sale and pretend to be bidders." Id. ¶ 30. In fact, none of the defendants bid on the property, and Zachair successfully bid on the property.

After the foreclosure sale, the trustees under the Albright deed of trust requested that the defendants remit revenues to the trustees while the sale's ratification was pending, but the defendants failed to remit those payments and, according to Zachair, still have neglected to remit the payments which accrued over a five month period before Zachair finally obtained possession of the property from the Driggs defendants. Id. ¶ 33(a). On November 15, 1994, Frost entered his appearance in the foreclosure action "both as an agent for an undisclosed principal (an unsuccessful bidder) and also as counsel for Driggs Corp." Id. ¶ 33(b). On November 18, 1994, counsel for WEALP entered his appearance in the foreclosure action. Id. On December 6, 1994, the day before the deadline to protest ratification of the foreclosure, WEALP filed "objectively baseless" exceptions to the foreclosure sale. Id. ¶ 33(c). Driggs Corporation also attempted to file exceptions, but because they were untimely, the court dismissed them at a hearing held on January 30, 1995. Id. The court issued an order on February 3, 1995, ratifying the foreclosure sale and awarding possession of the property to Zachair. Id. Despite the ratification, Driggs Corporation, WEALP and Airpark refused to vacate the property and continued to conduct mining and airport operations. Id. ¶ 33(d).

Without filing a supersedeas bond, Driggs Corporation, WEALP, and Frost appealed the ratification of the foreclosure sale. Id. ¶ 33(e). The Albright trustees and Zachair thereafter requested an injunction to prevent the defendants from depleting the mineral resources on the property. Id. ¶ 33(f). On March 1, 1995, the court granted an ex parte injunction, subject to a March 7 hearing on interlocutory relief. Id. At the March 7 hearing, the court denied Zachair's request for an interlocutory injunction in light of Driggs Corporation's offer to pay royalties to the trustees. Id.

As the defendants still had not vacated the property, the trustees requested a writ of possession, which the court issued on March 13, 1995. Id. ¶ 33(g). On March 17, 1995, the date scheduled for the eviction, Driggs Corporation filed an emergency motion to stay the eviction and the court granted Driggs Corporation seven days in which to post a supersedeas bond. Id. ¶ 33(h). Driggs Corporation also filed a motion to stay the execution of the writ of possession and to reduce the amount of the supersedeas bond. Id. ¶ 33(i). The court granted Driggs Corporation's motion on March 23, 1995, but on March 28, 1995, the court set aside the March 23 Order. Id. The defendants were evicted on March 29, 1995. Id. ¶ 33(j).

Immediately following the eviction, Frost, then "wearing the hat" of general partner of WEALP, attempted to withdraw WEALP's previously submitted special exception application, which was pending before Prince George's County officials and which, if approved, would have allowed the property to be used for mining operations beyond July 1997. Id. ¶ 34(a). While the rights under the special exception application belonged to Zachair as the property owner, Frost based his protest on the "objectively baseless" theory that WEALP remained the "record owner" of the property. Id. Local citizens, encouraged by the defendants, opposed Zachair's efforts to obtain a new special exception. Id. However, WEALP's request to withdraw its application was denied on September 19, 1995, because WEALP lacked an ownership interest in the property. Id. ¶ 34(b).

Meanwhile, SMS & G would not agree to transfer its surface mining permit, which SMS & G obtained from the Maryland Department of Natural Resources in 1991, to Silver Hill, Zachair's lessee. Id. ¶ 34(c). As a consequence, Silver Hill's application for a transfer of the SMS & G surface mining permit was denied on October 2, 1995. Id. Zachair requested a hearing on the denial of the surface mining permit, and the request was denied. Id. ¶ 34(d). Zachair thereafter filed a suit for a declaratory judgment, seeking to reverse the denial. Id. Ultimately, Zachair obtained the right to use SMS & G's surface mining permit.

In April 1996, shortly after the defendants were evicted from the property, John A. Driggs terminated Frost as general counsel. Def. Motion to Disqual. p. 2. Frost had served in various official capacities to John A. Driggs and his affiliates for more than nine years. Perhaps not surprisingly,...