Opinion ID: 2362129
Heading Depth: 1
Heading Rank: 5

Heading: Duty To Invest/Pre-Judgment Interest

Text: The principal issue raised in the cross-petitions is whether (1) the amount added to the $83,916 constituted permissible damages arising from an independent duty on Antoinette's part to prudently invest the rentals she should have received from the property, or was the amount in the nature of pre-judgment interest, and (2) if the latter, whether pre-judgment interest is allowable in this circumstance. Those are two different issues, but they may be considered together. The Court of Special Appeals treated the difference between the estimated rental loss of $83,916 and the judgment for $312,170 as pre-judgment interest and held that, at best, such interest was limited to 6%. Robert complains that the appellate court misunderstood the basis of the increasethat it was not pre-judgment interest but rather constituted an additional loss to him arising from Antoinette's failure to prudently invest the amounts she should have received in rent. Relying largely on Maryland Nat'l Bank v. Cummins, supra, 322 Md. 570, 588 A.2d 1205, he urges that, as a fiduciary, Antoinette had a legal duty to invest the funds prudently, that the Circuit Court properly accepted Dr. Borzilleri's opinion that a 40/60% investment in stocks and bonds was a prudent investment, and that Robert is entitled to the additional income that such an investment would have produced. In holding otherwise, he avers, the Court of Special Appeals misread and effectively ignored our holding in Cummins. Antoinette defends the appellate court's conclusion that she had no duty to invest those rentals, especially as she never received them, in stocks and bonds. Robert is right on one point, but wrong on another. The amounts calculated by Dr. Borzilleri and added by the Circuit Court were not in the nature of pre-judgment interest. Pre-judgment interest, we held in I.W. Berman Prop. v. Porter Bros., 276 Md. 1, 24, 344 A.2d 65, 79 (1975), is to compensate the aggrieved party for the loss of the use of the principal liquidated sum found due it and the loss of income from such funds. It compensates the judgment creditor for his or her inability to use the funds that should have been in his or her hands at some earlier time and usually does not depend on what the debtor might have done with the money. The amounts added pursuant to Dr. Borzilleri's calculations, however, were not of that nature but proceeded from an assumed independent obligation on the part of Antoinette to invest Robert's funds. Those amounts were not added to compensate Robert for his inability to use the rent that should have been collectedthat would have been limited to a 6% rate without regard to whether Robert would, or would not, have invested those fundsbut were based on what Antoinette should have done with the rents. That is clear from Cummins. Cummins involved a class action by income beneficiaries of express trusts who were entitled to monthly or quarterly distributions of income earned from the trusts. The beneficiaries challenged the practice by the corporate trustee of leaving amounts of income less than $1,000, received as interest or dividends from investments, in a non-interest bearing account until the next periodic distribution. The Circuit Court found that it was feasible for the bank to have invested those funds rather than allow them to remain unproductive and, as damages for the breach of its duty to secure a reasonable return on the trust property, surcharged the trustee an amount that reasonably could have been earned had the idle funds been so invested, plus pre-judgment interest on that amount. We affirmed the surcharge for lost investment income but modified the allowance of pre-judgment interest on that amount, holding that the plaintiffs were entitled to no more than simple interest at the rate of 6%. The linchpin of our holding regarding the lost investment income was the duty of a trustee to manifest the care, skill, prudence, and diligence of an ordinarily prudent [person] engaged in similar business affairs and with the objectives similar to those of the trust in question. Cummins, supra, 322 Md. at 580, 588 A.2d at 1209-10 (quoting from G. BOGERT, THE LAW OF TRUSTS AND TRUSTEES § 541 (2d ed.1960)). That duty, we confirmed, encompassed an obligation to secure a `just' or `reasonable' return while avoiding undue risk. Id. (quoting from Board of Trustees v. City of Baltimore, 317 Md. 72, 103, 562 A.2d 720, 735 (1989), cert. denied, 493 U.S. 1093, 110 S.Ct. 1167, 107 L.Ed.2d 1069 (1990)). The cases we cited for our holding on that point all involved fiduciaries such as trustees or personal representatives, who are authorized and have a legal duty to keep the estate funds profitably and prudently invested. [5] The problem with Robert's position is that it fails to distinguish between the duties and obligations of true fiduciaries and those arising solely from a confidential relationship that may exist between any two or more people. Professor Scott articulates the distinction quite well. A fiduciary relationship, he observes, such as between trustee and beneficiary, guardian and ward, agent and principal, attorney and client, partners in a partnership, corporate directors and their corporation, involves a duty on the part of the fiduciary to act for the benefit of the other party to the relation as to matters within the scope of the relation. 1 SCOTT & FRATCHER, THE LAW OF TRUSTS, supra, § 2.5. That is not necessarily the case with respect to persons in a confidential relationship. Scott and Fratcher note: A fiduciary relation is to be distinguished from a merely confidential relation. A confidential relation exists between two persons when one has gained the confidence of the other and purports to act or advise with the other's interest in mind. A confidential relation may exist although there is no fiduciary relation; it is particularly likely to exist where there is a family relationship or such a relation of confidence as that which arises between physician and patient or priest and penitent.... A fiduciary relation involves certain consequences as to transactions between the parties that flow automatically as a matter of law from the relation.... On the other hand, where there is merely a confidential relation between the parties, such consequences do not automatically follow. Id. Although the Circuit Court at times used the terms confidential and fiduciary interchangeably, it seems clear, from both the evidence and the bulk of the court's findings, that the relationship in question was not a fiduciary one, but only a confidential one that arose from Robert's limitations, his dependence on Rex and Antoinette, and their position of dominance over him. There was no evidence of any express trust, nor was there a finding of a constructive or resulting trust. Antoinette was never appointed as Robert's guardian. There was no evidence that she was ever authorized by Robert, by a court, or by some valid instrument to invest Robert's funds in stocks and bonds. That task was, at one time, undertaken by Robert's parents, but, although Antoinette may have assisted Rex in taking charge of Robert's earnings, there is no indication that she ever assumed a duty to invest his funds as a trustee would do or that Robert expected her to invest his funds in stocks and bonds. There may well be situations in which the scope of a confidential relationship could include a duty to invest, if that is the basis, or part of the basis, of the relationship, but such a duty does not inhere in a confidential relationship, as it more likely would do in a fiduciary one. To impose such a duty, particularly in a family situation, which often involves elderly, infirm, or incompetent persons being cared for by family members or friends, would be to create an obligation beyond that anticipated by the caregiver and that, as a practical matter, cannot be properly fulfilled in many cases. If, as a result of the confidential relationship, the one in whom trust is reposed acts improperly, the transaction can be undone and the dominant person can be made to restore the property taken or make good the loss, but to superimpose on the duty to act in good faith a further, independent duty to prudently invest the reliant one's funds, as a matter of law, is unwarranted. For that reason, not because this was in the nature of pre-judgment interest, the Court of Special Appeals was correct in reversing that aspect of the judgment. We turn, finally, to the issue of pre-judgment interest, and it is here also that we part company with the Court of Special Appeals. There are three basic rules governing the allowance of pre-judgment interest. Pre-judgment interest is allowable as a matter of right when the obligation to pay and the amount due had become certain, definite, and liquidated by a specific date prior to judgment so that the effect of the debtor's withholding payment was to deprive the creditor of the use of a fixed amount as of a known date. First Virginia Bank v. Settles, 322 Md. 555, 564, 588 A.2d 803, 807 (1991); State Highway Admin. v. Kim, 353 Md. 313, 326, 726 A.2d 238, 245 (1999); United Cable v. Burch, 354 Md. 658, 668, 732 A.2d 887, 892 (1999). As we explained in I.W. Berman Prop. v. Porter Bros., supra, 276 Md. at 16-17, 344 A.2d at 75, the right to pre-judgment interest as of course arises under written contracts to pay money on a day certain, such as bills of exchange or promissory notes, in actions on bonds or under contracts providing for the payment of interest, in cases where the money claimed has actually been used by the other party, and in sums payable under leases as rent. Pre-judgment interest has been held a matter of right as well in conversion cases where the value of the chattel converted is readily ascertainable. See Robert C. Herd & Company v. Krawill Machinery Corp., 256 F.2d 946 (4th Cir. 1958), aff'd, 359 U.S. 297, 79 S.Ct. 766, 3 L.Ed.2d 820 (1959). On the other hand, in tort cases where the recovery is for bodily harm, emotional distress, or similar intangible elements of damage not easily susceptible of precise measurement, the award itself is presumed to be comprehensive, and prejudgment interest is not allowed. In Taylor v. Wahby, 271 Md. 101, 113, 314 A.2d 100, 106 (1974), we held that, in a tort action in which the claim is unliquidated and not reasonably ascertainable until the verdict, interest runs from the time of verdict. Between these poles of allowance as of right and absolute non-allowance is a broad category of contract cases in which the allowance of pre-judgment interest is within the discretion of the trier of fact. See Crystal v. West & Callahan, 328 Md. 318, 343, 614 A.2d 560, 573 (1992); I.W. Berman Prop. v. Porter Bros., supra, 276 Md. 1, 344 A.2d 65. In a footnote in its opinion, the Court of Special Appeals concluded that, in this case, an award of pre-judgment interest, at the rate of 6% per annum, was discretionary, thus allowing the Circuit Court, on remand, to make such an award if it chose to do so. We disagree. For one thing, this is not a breach of contract case. Robert sued for breach of fiduciary duty, an accounting, annulment of the 1991 deed making Antoinette a half owner of the Montauk Avenue property, declaratory judgment determining the validity of that deed, for a constructive trust and subsequently for conversion. The court annulled the deed, but granted all other relief under the claim for accounting. More important, the damages awarded for the loss of rent from the Montauk Avenue property were not only unliquidated but wholly incapable of reasonable ascertainment prior to verdict. The $83,916 was based entirely on statistical assumptions developed by expert witnesses employed for the purpose of the litigation, rather than on any hard evidence of actual rental value. This is not a case where rent was actually received but withheld or even where specific rent was due under a lease but not collected. The award took into account not only the 12 years when strangers were living in the property, one or more of whom made some improvements, but also the one or two years when no one was in the property because it was being substantially renovated and the six years that Robert, Rex, and Antoinette lived there together. The issue of substantive liability was determined, and will need to be redetermined, largely on the basis of credibility of the witnesses, rather than on the interpretation of any documents from which a predictable result could flow. In summary, the precise damages in this case were so unpredictable and incapable of estimation prior to verdict that it would, indeed, be an abuse of discretion to award any pre-judgment interest.