Annapolis (410) 266-0626
Toll Free (866) 590-8719
Serving Annapolis, Baltimore, Virginia, Washington, D.C. and Surrounding Areas

Court Grants Summary Judgment to Association That Did Not Sue Its Former Law Firm Pursuant to a Prior Settlement Agreement

In Hanrahan v. Wyndham Condominium Association, Inc., Case No. 13-C-16-109204, a case defended by Hyatt & Weber attorneys Stephen Stern and Amitis Darabnia, the Circuit Court of Maryland for Howard County granted summary judgment to Wyndham Condominium Association, Inc. (“Wyndham”), and dismissed an eight count complaint (that, as a practical matter, asserted ten different causes of action). This lawsuit was premised on multiple prior lawsuits between the parties (the Plaintiffs being Brian and Judith Hanrahan) dating back as much as ten years. The case involved claims for breach of contract, intentional misrepresentation, abuse of process, violations of the Maryland Consumer Debt Collection Act (“MCDCA”), and defamation.

The primary dispute between the parties involved a claim for breach of a settlement agreement, which raised a number of complicated issues involving contract interpretation, legal ethics/public policy, and the interpretation/enforceability of releases. The settlement agreement included a provision that stated Wyndham will “promptly . . . commence litigation against . . . [its] Prior Counsel [with] the goal of recovering legal fees paid by Wyndham to [P]rior [C]ounsel and to obtain any other relief that may be available against . . . Prior Counsel.” The settlement agreement also stated that Wyndham “will pursue the New Lawsuit to trial so long as it obtains legal representation . . . on a 100% contingency basis.” The settlement agreement further provided that Wyndham “will not voluntarily enter into any settlement . . . unless such settlement obtains a gross value of $800,000.” In the event that Wyndham breached the settlement provision, there was a liquidated damages provision that included a formula that would result in a payment to the Plaintiffs of approximately $207,000. The settlement agreement called for the attorney who represented the Plaintiffs in the settled lawsuit to become Wyndham’s counsel in the New Lawsuit against Wyndham’s prior counsel. The settlement agreement additionally provided that “in the event that [the attorney who will be representing Wyndham] is . . . not willing or able to proceed, Wyndham agrees to make diligent efforts to obtain other counsel to proceed.” The settlement agreement included mutual releases of “any liability . . . losses, damages or causes of action of whatsoever kind and nature.”

After nearly three years of Wyndham not filing a lawsuit against its former attorneys, the Plaintiffs filed the instant lawsuit against Wyndham, claiming breach of contract. The Plaintiffs further claimed that the alleged breach equitably tolled their release of claims and permitted them to file a number of other claims that were available to them at the time the settlement agreement was entered into – namely abuse of process and two MCDCA claims. The original complaint included three causes of action for defamation, but the court dismissed those claims in response to Wyndham’s motion to dismiss based on the applicable statute of limitations having expired. The Plaintiffs subsequently amended their complaint to add three (as a practical matter, five) new claims for defamation.

On the day that trial was to begin, the court held a hearing to address Wyndham’s motion for summary judgment, which sought dismissal of the entire case. In a lengthy oral opinion that was stated on the record after the court conducted a hearing for several hours, the court granted Wyndham’s motion for summary judgment in its entirety.

The court spent most of its time addressing the complex issues raised by the breach of contract claim. The court started its analysis by noting that there are essentially two arguments regarding the alleged breach: (1) that Wyndham did not file a lawsuit “promptly” and (2) that Wyndham did not exercise “diligent efforts” after its attorney withdrew as counsel. The court found that neither of those arguments had merit.

With respect to the “promptness” argument, the court noted that “prompt” could take on various meanings, but it must account for an attorney to exercise his/her duty of competence to investigate and evaluate a claim to avoid the filing of a frivolous lawsuit. In this case, the attorney who initially represented Wyndham represented Wyndham for nearly two years and, at the time he withdrew as counsel, he had determined that there was not enough of a basis upon which he could proceed. The court also noted that the statute of limitations should be accounted for when evaluating what is “prompt” and part of acting “promptly” in this case was out of Wyndham’s control in that the speed with which Wyndham would act, if at all, was largely in the attorney’s control.

As for the “diligent efforts” argument, the court noted that it could not find any standard under Maryland law that articulated what constituted “diligent efforts.” The court, however, located a journal article that compared “diligent efforts” to “best efforts” and the article contended that summary judgment should rarely be granted in “best efforts” cases, as what constituted “best efforts” typically is a fact issue for the jury. Despite the article’s position on summary judgment with respect to “best efforts” or “diligent efforts” cases, the court found that the standard requires good faith and diligence and those standards were satisfied in this case. The court specifically noted that Wyndham’s new outside General Counsel, Andrew Robinson, was tasked with finding a replacement for the attorney who withdrew from representation. Robinson contacted multiple attorneys in this endeavor and they all said they would not represent Wyndham in the lawsuit it was supposed to file against its former law firm. This alone was sufficient for the court to conclude that Wyndham engaged in “diligent efforts” to replace its counsel. The court, however, also noted that some of the contract’s unique provisions should be accounted for when determining what was “diligent” in this case. For example, although the court stated it would not rule on Wyndham’s public policy arguments regarding the enforcement of certain provisions of the settlement agreement, the court noted there were a number of provisions in the settlement agreement that raised “red flags” (i.e., ethical issues) for an attorney representing Wyndham in a lawsuit against its former law firm and it was understandable that Wyndham might have had difficulty finding another attorney to represent it in a lawsuit against its former law firm.

Even if the Plaintiffs could establish that Wyndham breached the settlement agreement, the court found that they could not establish damages. The claim for damages against Wyndham’s former law firm appeared to be premised on excessive attorneys’ fees allegedly being charged to Wyndham. To establish that Wyndham’s former law firm charged Wyndham excessive or unreasonable attorneys’ fees, the court concluded that the Plaintiffs would need an expert witness to testify what constitutes reasonable attorneys’ fees under the circumstances. The Plaintiffs’ designated expert, however, was not designated for that purpose. Thus, the Plaintiffs could not establish damages (or that Wyndham would have won the case against its former law firm) even if they were able to establish a breach. Thus, the court dismissed the breach of contract claim for this reason as well and, by dismissing the breach of contract claim, the court necessarily dismissed the intentional misrepresentation claim (which concerned the same contract).

As for the abuse of process and MCDCA claims, the court held that the statute of limitations and the release in the settlement agreement barred each of these claims, as the alleged facts underlying each of these claims occurred more than three years before the original complaint was filed and those claims were based on events that occurred before the settlement was entered into (on or about November 1, 2013). The court rejected the Plaintiffs’ equitable tolling argument, finding that equitable tolling would apply only if there is a breach of the settlement agreement. The court also noted that it could not find any case law where a release was tolled and, even if equitable tolling could apply to a release, there are public policy concerns for such an application that might incentivize frivolous lawsuits. The court further found that even if the release could be equitably tolled, there would be no equitable tolling in this case. In this regard, there was a severability provision in the settlement agreement and the court found that the liquidated damages clause in the litigation section of the settlement agreement was a standalone provision, meaning that the remedy in the event of a breach of the settlement agreement would not be to void the release, but that the Plaintiffs could sue to recover the amount of the liquidated damages provision. The court also found that the abuse of process claim and MCDCA claims failed for other reasons that are beyond the scope of this post.

Lastly, the court granted summary judgment to Wyndham with respect to all five allegedly defamatory statements. The court found that the statements were not defamatory in the context in which they were made and, even if they were, a qualified privilege applied to at least some of the statements. In addition, the court found that there was no evidence that four of the five alleged defamatory statements were made by anyone who was acting within their scope as a Wyndham Board member or at the direction of Wyndham’s Board.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

DISCLAIMER: This Blog/Website is for educational purposes and to provide readers with general information about developments in the law. This Blog/Website is not intended and should not be relied on for legal advice. This Blog/Website does not constitute an advertisement for legal services and it does not endorse, promote, or recommend the products, services, or websites of any third party. Reading, reviewing, or any other use of this Blog/Website does not create an attorney-client relationship between the reader and the firm or any attorney at the firm.

Comments

No Comments Posted

How May We Help You?

Email us today to talk to a member of our team.

Send My Info

Why Choose Hyatt & Weber?

  • Full-Service Law Firm
  • Over 35 Years of Experience
  • No Case is Too Small or Too Large
  • Experience in a Wide Variety of Practice Areas
  • Commitment to Work Closely with Every Client
  • We Deliver Sound Counsel & Creative Solutions