NAZARIAN, J.
"A bad beginning makes a bad ending,"
GAB tried again in the Circuit Court for Frederick County in a nine-count complaint (the "Circuit Court Proceeding") alleging that the CEO of Rocky Gorge, Christopher Dorment, fraudulently formed Waverley to eradicate GAB's interest in RGHGAB. The circuit court granted Rocky Gorge's Motion to Dismiss and for Summary Judgment on the ground that the previous findings of the Bankruptcy Court barred GAB's claims under the doctrine of collateral estoppel. We disagree that the Bankruptcy Court decision resolved the claims Rocky Gorge brings in this case, so we reverse the dismissal, as well as the circuit court's decision to grant summary judgment on other contested counts, and remand for further proceedings.
We start with the Note that set the process in motion, then watch the parties' business relationship unravel as the property's value plummeted, then chronicle the two phases of litigation that bring everyone before us.
Rocky Gorge, as an 80% member, and GAB, as a 20% member, formed RGHGAB as a Maryland limited liability company on November 10, 2003. The Chairman and CEO of Rocky Gorge at the time was (and by all indications still is) Christopher Dorment. His wife, Rosemary, plays a role later on, but was not a member of Rocky Gorge. GAB acted through its President, Gary Berman. RGHGAB was formed to purchase a promissory note on a loan secured by a 93-acre tract of land in Frederick (the "Property"), then foreclose. Under the RGHGAB Operating Agreement (the "Operating Agreement"), RGHGAB would develop the Property. The Operating Agreement tasked Rocky Gorge with obtaining financing and required all parties to "use good faith and best efforts in all dealings."
The parties secured the financing with a Promissory Note dated January 30, 2004 ("the Note"
In the meantime, the parties ran into trouble, not just because the property value fell as the amount due under the Note rose, but also because Mr. Dorment and Mr. Berman seem never to have agreed on the terms of the Operating Agreement. As early as 2005, GAB filed suit against Rocky Gorge, claiming that it violated the Operating Agreement by trying to sell some of the Property. The parties ultimately settled that dispute and executed a Second Amendment to the Operating Agreement, under which GAB obtained additional development rights. There was a second round of litigation in 2008 and 2009, after a dispute between the parties about a payment to RGHGAB on the Note from BB & T for nearly $150,000. According to the Complaint in this case, Rocky Gorge ultimately was ordered by an arbitrator to repay the funds to BB & T, but never did so. It is not clear from the record what, if any, action GAB undertook in response.
By late 2009, the Property's value had dropped far below the increasing amount due under the Note. Although the record does not contain specific evidence of why no development occurred throughout this time (we surmise that the parties were occupied watching the Property decline in value and feared throwing good money after bad), RGHGAB found itself with no funds and a need for further financing. Mr. Berman declined to make further contributions, although he suggested turning to his father, Malcolm Berman, for funding. It seems, though, that whatever conditions the senior Mr. Berman wished to impose, Mr. Dorment found them unfavorable and pursued further funds on his own.
We will discuss below, and in detail, the findings of the United States Bankruptcy Court for the District of Maryland (the "Bankruptcy Court") in the litigation that underlay the Circuit Court's dismissal of this case. The Bankruptcy Court's eventual decision provides, however, a succinct narrative of the next phase of the parties' relationship:
(Emphasis added.)
On February 3, 2010, Mr. Dorment proposed to Mr. Berman that they form a new
At this point, BB & T had extended the Note's maturity date of January 15, 2010. But when Mr. Dorment sought to enter a forbearance agreement with BB & T on March 30, 2010, Mr. Berman — "true to his uncooperative nature," as the Bankruptcy Court put it — "refused to sign the agreement." Mr. Dorment's continuing efforts to marshall support from Mr. Berman or his father were unavailing.
GAB resisted these efforts almost immediately. On October 28, 2010, it filed a Motion to Stay the Sale of Property and Dismiss Foreclosure Action in the Circuit Court for Frederick County (the "Motion to Stay"). Although we now know that the interests of the GAB and RGHGAB ended up adverse to one another, at the time GAB sought the stay derivatively on behalf of RGHGAB. The details don't matter here, but the short story is that after this Court denied RGHGAB's (i.e., GAB's) appeal of the Circuit Court's denial of the Motion to Stay, Waverley resumed its efforts to foreclose.
Undaunted, GAB looked to another forum, and filed a Petition for Involuntary Bankruptcy (Chapter 7) in the Bankruptcy Court on January 11, 2011. The Petition was unusual: GAB listed no other petitioning creditors in the Petition and characterized its own claim as a loan in the amount of nearly $440,000. The filing brought the foreclosure proceeding to an abrupt halt because of the automatic stay that issued from the Bankruptcy Court, so Waverley sought relief from the stay on February 22, 2011, arguing (in the "Motion for Relief") that it should be permitted to foreclose on the Property as a secured creditor. GAB opposed the Motion for Relief, alleging that Mr. Dorment "secretly created Waverley for the purpose of improperly transferring [RGHGAB's] assets and other corporate opportunities to Waverley, and wiping out the interests in [RGHGAB's] property of not only GAB but also [of RGHGAB's] other creditors." As far as we can tell, the Motion for Relief was not addressed directly by the Bankruptcy Court.
The Bankruptcy Court held a trial that spanned three days in October and November 2011, and on April 24, 2012 issued a Memorandum of Decision (the "Memorandum") and entered Judgment for Waverley and Rocky Gorge dismissing the Bankruptcy Complaint. The Court found broadly that Mr. Dorment's decision to assign the Note to Waverley caused no harm to any of the creditors — GAB or any of the six creditors that lacked priority claims. It approached the question three different ways:
First, the Bankruptcy Court found at the outset "a total absence of harm by the actions complained of to the one creditor holding a secured claim [i.e., Waverley
Second, the court denied GAB's claim for equitable subordination. GAB had sought to subordinate Waverley's claim and transfer its lien to the Trustee; it also sought equitable subordination of Rocky Gorge's claim. Under 11 U.S.C.A. § 510 (2004), which codifies the doctrine, a court may "subordinate ... all or part of an allowed claim to all or part of another allowed claim." Id. § 510(c)(1). But again, equitable subordination requires a showing of injury to other creditors, and, again, the Bankruptcy Court found that "no harm was caused to the creditor body by [Mr.] Dorment forming a group to acquire the Note in and of itself." (Emphasis added.) The court cautioned once more that "there could well be a cause of action in what is essentially this two-party dispute between [Mr.] Berman and [Mr.] Dorment operating through their legal entities. But resolution of the potential dispute is for another day in another jurisdiction." (Emphasis added.)
Third, the Trustee sought not just to subordinate, but also to disallow Waverley's and Rocky Gorge's claims, which as the Bankruptcy Court noted is available "`only "in extreme instances — perhaps very rare — where it is necessary as a remedy.'" (quoting Adelphia Recovery Trust v. Bank of America, N.A., 390 B.R. 80, 99
GAB appealed the Bankruptcy Court's decision to the United States District Court for the District of Maryland, but dismissed the appeal pursuant to a stipulation by the parties on September 21, 2012.
On September 28, 2012, GAB filed the nine-count complaint that initiated this case (the "Complaint"). GAB named Rocky Gorge, Mr. Dorment, his wife Rosemary, and Waverley as defendants (collectively the "Defendants"), and alleged that Mr. Dorment "secretly created [Waverley] for the purpose of improperly transferring RGHGAB's assets to Waverley and thus wiping out GAB's interest in RGHGAB," and that all the Defendants, even Mrs. Dorment, were part of this "fraudulent scheme." The Complaint listed counts in intentional misrepresentation, constructive fraud, negligent misrepresentation, and breach of fiduciary duty against Rocky Gorge and Mr. Dorment (Counts I, II, III, and VIII respectively); fraudulent conveyance claims against Mr. and Mrs. Dorment (Counts IV and V); tortious interference and civil conspiracy claims against all Defendants (Counts VI and IX); and a breach of contract claim against Rocky Gorge (Count VII). GAB sought compensatory damages of $7.5 million and punitive damages of $5 million against each defendant and also asked the court to set aside GAB's guaranty on the Note and certain unidentified asset transfers between Mr. and Mrs. Dorment.
On November 5, 2012, the Defendants moved to dismiss and for summary judgment. They argued that GAB had had more than one opportunity to litigate the issues raised here before — not just in Bankruptcy Court, but in the 2005 and 2009 litigation — and that the issues and claims raised by GAB had already been decided. They also argued at length that GAB's claims were not its to bring derivatively, but belonged to RGHGAB under the Operating Agreement, and they attacked the underlying substance of the remaining counts.
The trial court held a hearing on February 12, 2013 that centered primarily on the collateral estoppel effect of the Bankruptcy Court's decision. As counsel for Rocky Gorge put it, the "overarching theme in the Bankruptcy Court was ... that somehow Waverley had obtained [the Note] through inequitable [conduct]" and that RGHGAB should have allowed GAB the opportunity to purchase the Note instead. Specifically, Rocky Gorge argued that the Bankruptcy Court "specifically decided" (1) that there was an absence of harm to RGHGAB and its creditors (GAB included); and (2) that there was no inequitable conduct on Mr. Dorment's part, which Rocky Gorge claimed should preclude GAB from proceeding against the Defendants
Counsel for GAB countered that the Bankruptcy Judge had made clear that he was deciding the Bankruptcy Proceeding only and expressly anticipated that "the circuit court" would resolve the parties' differences anew. Moreover, as GAB saw it, the Bankruptcy Court had focused on the factual issues about Mr. Dorment, not as they related to GAB but as they related to the creditors overall, because the Bankruptcy Judge was tasked with determining the specific question of whether the claims of other creditors (i.e., Waverley) could be equitably subordinated to GAB's claim. GAB highlighted one portion of the Bankruptcy Court's October 22, 2012, Order approving the sale of the Property that expressly left GAB's claims against its partners unresolved:
At the February 12 hearing, GAB's counsel cited another statement from the Bankruptcy Judge that ostensibly narrowed the effect of his holding, which led the circuit court judge to ask the following question about the scope of the order:
(Emphasis added.) The trial court continued to press GAB's counsel about the findings of fact that the Bankruptcy Court did make, appearing especially concerned with that court's finding that there was "no inequitable conduct or unfairness" on Mr. Dorment's part. As the trial judge asked counsel for GAB, "if you make the finding of fact for a certain purpose, isn't that still a finding of fact binding on the parties?"
The trial court's inclinations at the hearing were borne out in the Order it ultimately issued on February 21, 2013, in which it accepted Rocky Gorge's collateral estoppel argument:
GAB had agreed to dismissal of Count VIII, and the trial court granted summary judgment as to the conspiracy claim in Count IX because it could not survive without a finding of liability on at least one of the underlying counts. The court also dismissed Counts IV and V of the Complaint (based on Rocky Gorge's having filed a motion to dismiss in connection with those counts, and not a summary judgment motion).
GAB filed a timely Notice of Appeal on February 26, 2013.
Much as they have outside the courtrooms, the parties clash on virtually every judicial decision relating to this property. As the Bankruptcy Court put it, "[t]hroughout [the] life of the agreement, the relationship between [Mr.] Berman and [Mr.] Dorment was acrimonious and marked by ongoing disputes almost from the start." And admittedly, GAB has taken every opportunity, in more than one forum, to litigate the terms of the Operating Agreement and many other elements of this series of relationships.
We hold that the facial similarity of interests or issues in the two cases cannot overcome the core substantive differences, and we reverse the trial court's grant of summary judgment to Rocky Gorge. In concluding that collateral estoppel does not apply, we express no views on the merits of GAB's claims (on which the trial judge, too, declined to opine) beyond allowing the case to proceed past the dismissal. We also reverse the trial court's dismissal of the two counts against Mr. and Mrs. Dorment, because the allegations in the Complaint sufficiently alleged the elements of a fraudulent conveyance (Counts IV and V) that the court should not have granted Rocky Gorge's Motion to Dismiss, and we remand the entire case for further proceedings.
We review the grant of a motion to dismiss by the circuit court for legal correctness, and "[t]he grant of a motion to dismiss is proper if the complaint does not disclose, on its face, a legally sufficient cause of action." Hrehorovich v. Harbor Hosp. Ctr., Inc., 93 Md.App. 772, 785, 614 A.2d 1021
We review de novo the portions of the trial court's decision granting summary judgment. Wooldridge v. Price, 184 Md.App. 451, 457, 966 A.2d 955 (2009). "The question of whether the trial court properly granted summary judgment is a question of law and is subject to de novo review on appeal. If no material facts are in dispute, we must determine whether summary judgment was correctly entered as a matter of law." Springer v. Erie Ins. Exch., 439 Md. 142, 156, 94 A.3d 75 (2014) (quoting River Walk Apartments, LLC v. Twigg, 396 Md. 527, 541-42, 914 A.2d 770 (2007)).
Collateral estoppel has often been described as a doctrine absorbed within res judicata; the doctrines seem to be distinguished almost as often as they are confused.
John Crane, Inc. v. Puller, 169 Md.App. 1, 23, 899 A.2d 879 (2006) (quoting LeBrun v. Marcey, 199 Md. 223, 226-28, 86 A.2d 512 (1952)). Collateral estoppel, on the other hand, operates collaterally to preclude relitigation of issues that the same parties already had litigated:
Id. at 24, 899 A.2d 879 (quoting LeBrun, 199 Md. at 227, 86 A.2d 512 (emphasis omitted)). To determine whether GAB is collaterally estopped from bringing the claims it raises in this case, we view the current action against the backdrop of the prior one by asking four questions:
The penultimate inquiry in the test articulated in Brown & Sturm, whether the issue in the Bankruptcy Proceeding was identical to the one here, seems simple enough. But the answer depends on how broadly we define the scope of the prior court's inquiry. The way Rocky Gorge sees it, the "issues" here are identical because the conduct that the Bankruptcy Judge "found caused no harm to GAB" is the "same conduct that GAB now claims harmed it." Moreover, according to Rocky Gorge, the Bankruptcy Complaint contains the "exact same allegations" in both cases, and the Bankruptcy Judge decided them already.
At a closer look, though, we can see readily that the issues decided in the Bankruptcy Proceeding are not like
Second, the Bankruptcy Court demonstrated, both by citing to the purposes of subordination and disallowance actions and by declining to delve into the relationship between GAB and Rocky Gorge, that it was not determining any potential liability between those two parties. As the court stressed in its opinion, the creditors' "`welfare is the primary focus of equitable subordination law'" (quoting Adelphia Recovery Trust, 390 B.R. at 99), and the goal of allowing equitable subordination is "`to remedy some inequity or unfairness perpetrated against the bankrupt entity's other creditors or investors by postponing the subordinated creation's right to repayment until others' claims have been satisfied.'" (quoting In re Official Committee of Unsecured Creditors for Dornier Aviation (North America) Inc., 453 F.3d 225, 232 (4th Cir.2006)). By its own reckoning, the Bankruptcy Court determined the rights of creditors vis-à-vis each other and RGHGAB, rather than unpacking the rights of these parties vis-à-vis each other.
GAB was competing (theoretically, at least) with other creditors either to move to the front of the line (by equitably subordinating the claims of the remaining creditors, most notably Waverley), or having the court disallow Waverley's claim altogether. The Court declined to permit equitable disallowance of Waverley's claim:
(Emphasis added.) The standard used by the Bankruptcy Court in denying equitable relief under bankruptcy law bore no resemblance to the legal standards that might apply in resolving the parties' rights and obligations to each other under Maryland corporate law and their operating documents. Put another way, the legal contours of their relationship were "not like" the issues decided in the Bankruptcy Proceeding, so the decision there has no collateral estoppel effect on the issues GAB raised in its circuit court complaint.
We explained in Puller the purpose of the last prong of the collateral estoppel
169 Md.App. at 26, 899 A.2d 879 (quoting Ashe, 397 U.S. at 443, 90 S.Ct. 1189).
There is some divergence among the cases analyzing the exact phrasing of this last question. The Court in Brown & Sturm looked back to an opinion of this Court, Deitz v. Palaigos, 120 Md.App. 380, 383, 707 A.2d 427 (1998), that in turn relied on a Court of Appeals opinion, Murray Int'l Freight Corp. v. Graham, 315 Md. 543, 547, 555 A.2d 502 (1989). But more recently, the Court of Appeals in Buruss v. Board of Cnty. Comm'rs of Frederick Cnty., 427 Md. 231, 46 A.3d 1182 (2012), reordered the points to ask, as compared with the fourth inquiry that we quote above, whether "`the party against whom the plea is asserted [was] given a fair opportunity to be heard on the issue?'" Id. at 250, 46 A.3d 1182 (quoting Wash. Suburban Sanitary Comm'n v. TKU Assocs., 281 Md. 1, 18-19, 376 A.2d 505 (1977)). The logic of the rule is the same whichever standard we use, and is driven as much by common sense as anything else —
Here, the Bankruptcy Judge stressed that his role was not to sort out the rights and duties as between Rocky Gorge/Mr. Dorment and GAB/Mr. Berman,
Again, the Bankruptcy Court pointed out that "Rocky Gorge might have a fiduciary relationship to GAB, but that is not what this adversary proceeding concerns." The Bankruptcy Court also made plain that it did not approach the case from the perspective of litigation in a civil court — it acknowledged that "[t]here could well be a cause of action in what is essentially this two-party dispute between [Mr.] Berman and [Mr.] Dorment operating through their legal entities. But resolution of the potential dispute is for another day in another
A later hearing in the Bankruptcy Court serves as the final nail in the collateral estoppel coffin. When a draft proposed Order (we don't have the benefit of the "before" version here) came before the Bankruptcy Judge, he disavowed language that, in his view, would have had the improper effect of "putting to rest" any actions between Mr. Berman and Rocky Gorge:
As he elaborated, those claims "would have to be pursued in a court of competent jurisdiction." The judge also quipped about one attorney's returning to state court, where he was "more comfortable," for further litigation.
The last of these comments was obviously meant light-heartedly, but we see in the overall tenor of the Bankruptcy Judge's comments a careful effort to confine his holding to the narrow bankruptcy issues before him. He did so through written opinions, oral discussions, and most importantly, by tailoring his findings. And the Bankruptcy Judge's "carve-out" statements, although not binding on us, reveal the court's careful assessment of whether an adjudication of this relationship mattered to (was essential to) him in the course of his decision-making. See Restatement (Second) of Judgments § 27 (1982) (noting that a revised comment in the Restatement departs from "emphasizing the distinction between ultimate facts on the one hand and evidentiary facts or mediate data on the other," and instead "states that the question should be whether the issue was actually recognized by the parties as important and by the adjudicator as necessary to the first judgment").
Richman, 122 Md.App. 110, 712 A.2d 41, is a useful decision in a different but related context. We held there that orders in a borrower's bankruptcy case did not preclude state law fraud claims under the doctrine of res judicata. In effect, Richman held that where, on more than one occasion, federal judges had stated their expectation that fraud claims would be litigated in state court, the state court action would not be barred as res judicata: "[The Bankruptcy Judge's] orders ... indisputably fostered appellants' belief that the bankruptcy court would not entertain appellants' State fraud counts.... At the very least, in considering whether, `with propriety,' appellants were able to litigate their State claims in federal court, it was certainly reasonable for appellants to believe that they were required by [the Bankruptcy Judge] to pursue their fraud
GAB argues that Counts IV and V, in which it alleged that Mr. Dorment fraudulently transferred assets to his wife in an effort to protect those assets from GAB, sufficiently alleged that fraud and that the circuit court erred in dismissing them. Rocky Gorge does not address this point of appeal in its brief.
The Maryland Uniform Fraudulent Conveyances Act provides that "[e]very conveyance made and every obligation incurred without fair consideration when the person who makes the conveyance or who enters into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." Md.Code (1975, 2013 Repl. Vol), § 15-206 of the Commercial Law Article. "Cases interpreting the statute have expanded the realm of available remedies to include suits for money judgments against the transferee where he or she `allows or causes the property to depreciate in value or parts with the property without sufficient consideration or puts it beyond the reach of the court.'" In re Rood, 482 B.R. 132, 143 (D.Md.2012) (quoting Damazo v. Wahby, 269 Md. 252, 257, 305 A.2d 138 (Md.1973)), aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Rood, 532 Fed.Appx. 370 (4th Cir.2013), and aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Jewell, 533 Fed.Appx. 228 (4th Cir.2013).
We agree with GAB that its allegations of a fraudulent conveyance sufficed to withstand a motion to dismiss. (We do not, by doing so, mean to suggest that the claim necessarily survives a summary judgment motion, which seems more in the nature of what Rocky Gorge argued to the trial court.) In the Complaint, GAB alleged that in early 2010, Mr. Dorment transferred certain assets to his wife, "thereby rendering himself insolvent as he was unable to satisfy his obligations under his personal guaranty securing the note." GAB claims that "without the benefit of discovery," it cannot know the precise assets transferred.
We assume the truth of the allegations in the Complaint for purposes of reviewing a motion to dismiss. Higginbotham, 171 Md.App. at 264, 909 A.2d 1087. Although we recognize that discovery did take place in the Bankruptcy Proceeding, our holding that that litigation does not bar this litigation entitles GAB to move forward with these claims in this very different forum. Rocky Gorge's failure to address the point on appeal leaves that position unchallenged, so we reverse the circuit court's decision to dismiss on this claim as well. And because our decision reaches all counts (other than Count VIII, which GAB voluntarily dismissed at the hearing), it follows that the circuit court's dismissal of the conspiracy claims in Count IX warrants reversal as well.
See Sesame Street: Episode 1 (Children's Television Workshop Nov. 10, 1969), music by Joe Raposo, lyrics by Jon Stone.
