Opinion ID: 2175682
Heading Depth: 1
Heading Rank: 6

Heading: colorable claims

Text: The majority opinion focuses most heavily on the bad faith prong of the rule. Implicit in the majority's position is that use of the word, or, permits that prong to stand on its own. From this premise, it follows that, even if one finding, in this case, the substantial justification prong, is deficient, affirmance is nevertheless justified by the other, i.e., the bad faith prong. I am not convinced. Maryland cases that have addressed Rule 1-341, and its purpose, make clear that the rule is not intended to chill the exercise of rights by one with a colorable claim. See Newman v. Reilly , 314 Md. at 380, 550 A.2d at 957 (Rule 1-341 is not intended to penalize a party and/or counsel for asserting a colorable claim or defense.); Zdravkovich, 323 Md. at 212, 592 A.2d at 504 (Rule 1-341 is not intended to stifle enthusiasm or chill the creativity that is the very lifeblood of the law.); Needle v. White, 81 Md. App. at 470, 568 A.2d at 860; Bishop's Garth, 75 Md. App. at 224, 540 A.2d at 1180. The cases do recognize that the rule's use of the word or indicates that its prongs are independent. Thus, in Newman v. Reilly , 314 Md. at 380, 550 A.2d at 967, we said: In order to impose sanctions [Rule 1-341] requires the trial judge to find one or both of two predicates: bad faith or lack of substantial justification. See also Zdravkovich, 323 Md. at 210, 592 A.2d at 503; Bishop's Garth, 75 Md. App. at 220, 540 A.2d at 1178. This does not mean, however, that a litigant with a colorable claim and an improper motive will, or should, be subject to Rule 1-341 sanctions. That issue was not presented and, therefore, not ruled upon. It was addressed in Needle and Bishop's Garth. In Needle, the issue was whether the plaintiff's action for malicious prosecution and intentional infliction of emotional distress against her former employer was filed in bad faith and/or without substantial justification. The plaintiff had previously been acquitted of embezzlement and her civil complaint had survived motions for summary judgment and for judgment. Following a jury verdict in favor of the former employer, the trial court assessed sanctions, pursuant to Rule 1-341, against the plaintiff and her counsel. The Court of Special Appeals reversed, noting the rule's purpose to eliminate the initiation or continuance of litigation that is clearly without merit. Id., 81 Md. App. at 470, 568 A.2d at 860. It concluded that before sanctions may be imposed, there must be clear evidence that the action is entirely without color and taken for other improper purposes amounting to bad faith.  (Emphasis added) Id., 81 Md. App. at 474, 568 A.2d at 861. A similar sentiment was expressed in Bishop's Garth. There, Bishop's Garth sued clients of the Legal Aid Bureau in the District Court, alleging breach of their lease. On advice of counsel, the defendants prayed a jury trial, thereby removing the case to the circuit court. Following a two day jury trial, only 63 minutes of which involved the presentation of the defense, the jury, returned a verdict in favor of Bishop's Garth after only 27 minutes of deliberation. The defendants appeal was dismissed for failure timely to order the trial transcript. Bishop's Garth's Rule 1-341 motion was granted by the trial court, which found as a fact both that the jury trial and the subsequent ill-fated appeal were taken for purposes of delay, in bad faith, and without substantial justification [and] that although a jury trial was requested for the purpose of obtaining `additional discovery,' as well as to decide the factual issues, the request was made in order to delay the trial and to intimidate Bishop's Garth into dismissing its suit against [the defendants]. 75 Md. App. at 221, 540 A.2d at 1178. [5] The Court of Special Appeals reversed. Relying on the Comment to Rule 3.1 of the Maryland Lawyers' Rules of Professional Conduct, [6] it rejected the argument that the purpose of the jury trial prayer was to delay the trial. Id., 540 A.2d at 1199; See also Miller v. Miller, 70 Md. App. 1, 12, 519 A.2d 1298, 1303 (1987) (Where dilatory conduct based on justifiable grounds, Rule 1-341 does not apply.). The court then cautioned against using hindsight, stressing that it is the point of initiation, not the result, that is important. 75 Md. App. at 222, 540 A.2d at 1179. Moreover, stating that Rule 1-341 represents a limited exception to the general rule that attorney's fees are not recoverable by one party from an opposing party [or counsel], 75 Md. App. at 223, 540 A.2d at 1179, quoting Legal Aid Bureau, Inc. v. Farmer, 74 Md. App. 707, 722, 539 A.2d 1173, 1180 (1988) (Emphasis in original), it urged judicious use of the rule. Id., 540 A.2d at 1180. Finally, the court asserted: Maryland Rule 1-341 is not, and never was intended, to be used as a weapon to force persons who have a questionable or innovative cause to abandon it because of a fear of the imposition of sanctions. Rule 1-341 sanctions are judicially guided missiles pointed at those who proceed in the courts without any colorable right to do so. See, e.g., Blanton v. Equitable Bank, National Association, [61 Md. App. 158, 485 A.2d 694]. No one who avails himself or herself of the right to seek redress in a Maryland court of law should be punished merely for exercising that right. 75 Md. App. at 224, 540 A.2d at 1180. That the party sued ultimately prevails in litigation seldom, if ever, justifies imposing sanctions against the party who initiated it. See Needle v. White, 81 Md. App. at 478-79, 568 A.2d at 864. [7] Bishop's Garth, 75 Md. App. at 222, 540 A.2d at 1179. To avoid imposition of sanctions pursuant to Maryland Rule 1-341, a party need only initiate or maintain the action with a reasonable basis for believing that [that] case will generate a factual issue for the trier of fact at trial. Needle, 81 Md. App. at 476, 568 A.2d at 863. See also Kelley v. Dowell, 81 Md. App. 338, 341, 567 A.2d 521, 522, cert. denied, 319 Md. 303, 572 A.2d 182 (1990). Stated differently, a claim has substantial justification if it is fairly debatable or within the realm of `legitimate advocacy', Newman v. Reilly, 314 Md. 364, 381, 550 A.2d 959, 967-68, quoting Legal Aid Bureau, Inc. v. Farmer, 74 Md. App. 707, 722, 539 A.2d 1173, 1180 (1988), or is colorable. Bishop's Garth, 75 Md. App. at 221-22, 540 A.2d at 1179. Thus, whether a claim lacks substantial justification involves the assessment of the reasonableness of the legal position asserted. If it is colorable, within the realm of reasonable advocacy, fairly debatable, or a good faith argument, either on the merits or in support of an extension, modification, or reversal of existing law, see Dent v. Simmons, 61 Md. App. 122, 127, 485 A.2d 270, 272 (1985), then sanctions are inappropriate. Thus, sanctions are inappropriate even where a party has misconceived the legal basis for the claim he or she makes. Century I Condo v. Plaza Condo Joint Ven., 64 Md. App. 107, 119, 494 A.2d 713, 719 (1985). The reasonableness of the legal position must be assessed at the point when the complaint is filed, not from the vantage point of hindsight. See Bishop's Garth, 75 Md. App. at 222, 540 A.2d at 1179; Needle, 81 Md. App. at 476, 568 A.2d at 802. Moreover, pursuit of Rule 1-341 sanctions differs from maintaining the underlying action in that the former is a collateral matter. Farmer, 74 Md. App. at 713, 539 A.2d at 1175. Consequently, the fact that a court rejects the proposition advanced by counsel and finds it to be without merit does not mean the proposition was advanced without substantial justification or in bad faith. There would be no inconsistency whatever in an appellate court affirming the judgment in the underlying action and reversing a Rule 1-341 judgment as an abuse of discretion. Id. Whether viewed from the perspective of existing law or an attempt to explore, expand or modify existing law, a claim lacks substantial justification when there is no basis in law and/or in fact to support [the] claim, Johnson v. Baker, 84 Md. App. 521, 529, 581 A.2d 48, 52 (1990), cert. denied, 322 Md. 131, 586 A.2d 13 (1991), or when it is frivolous. It is frivolous when its proponent cannot make either a good faith argument on the merits or in support of extending, modifying, or reversing existing law. Id., at 529-30, 581 A.2d at 52, quoting Bishop's Garth, 75 Md. App. at 221-22, 540 A.2d at 1179 (quoting Comment, Maryland Lawyers' Rules of Professional Conduct Rule 3.1). See also Black's Law Dictionary 5th Ed. 601 (1979), which defines a frivolous pleading as one that is clearly insufficient on its face and does not controvert the material points of the apposite pleading, and is presumably interposed for mere purposes of delay or to embarrass the opponent. Conversely, a colorable claim does not lack substantial justification. A claim is colorable which is apparently valid, but, which is in reality legally insufficient. Black's Law Dictionary at 248 (defining color). Where, then, consideration of the allegations underlying the claim and the arguments advanced in support of it reveals an apparent, or prima facie, cause of action, the claim withstands scrutiny under the substantial justification prong of Rule 1-341. The test of substantial justification cannot have a high threshold. Indeed, reference to the definition of lack of substantial justification makes clear that all that is required is some basis in law and/or fact. See Johnson v. Baker, 84 Md. App. at 529, 581 A.2d at 52. The question is how much is some? This can only be answered in relation to the purpose of Rule 1-341. The more an unsuccessful litigant is required to show to justify filing or maintaining his or her claim, the greater the chilling effect and the more reluctant that litigant will be to file any but the clearest actions. Similarly, the easier it is to assess the losing party with attorneys' fees, the more the usual rule  that each party pays his or own counsel fees  is undermined. Moreover, whether a claim has a basis in law and/or in fact is an issue separate and apart from the question whether the complaint in which it is pled can survive motions to dismiss or for summary judgment. A claim dismissed for failure to state a claim is not automatically a basis for Rule 1-341 sanctions. That a party inartfully pleads a cause of action or the judge is not inclined to stray from existing law does not mean that the claim has no basis in law or fact, for purposes of rule 1-341 sanctions. Similarly, a claim is not ipso facto without basis in law or fact because it did not survive a motion for summary judgment; complaints alleging even the most well established torts, for want of sufficient factual allegations, often do not generate a factual dispute. I conclude that it is more than the bare complaint or answer, or its disposition that must be considered when Rule 1-341 sanctions are sought. More critical than what motivated the party is what the party knew or should have known concerning the viability of the claim or defense. In rendering its decision, the trial court paid little or no attention either to the allegations of the complaint or Nilson's testimony concerning why he filed it. Indeed, as I have pointed out, it is unclear on what the court focused. All we really know is that the court concluded that the complaint was filed both in bad faith and without substantial justification. Although as a backdrop for the instant litigation, the majority opinion contains some of the facts and the circumstances surrounding the initiation of the Inlet/Holt's Landing Project, the Nilson complaint alleges them in greater detail. The complaint alleged that the Harrisons and Inlet contemplated jointly developing and constructing a marina in front of their adjoining properties. That joint venture never came to fruition because the Harrisons lost litigation contesting a height variance necessary to the construction of a high rise project they contemplated. The Harrisons asked their architect, D'Aleo, who was also a principal in Inlet, to forego some of his fees, threatening that the joint venture would continue only if this were done. When D'Aleo refused and subsequently sued the Harrisons, recovering the fees, the Harrisons mounted an assault on Inlet's project, which culminated in the filing of multiple actions before the Board of Zoning Appeals (BZA) of Ocean City and in the Circuit Court for Worcester County. Among the actions taken by the Harrisons, according to the complaint, was to petition the City Council to revoke the City's consent to transfer certain property to Inlet necessary for completion of its project as it was then planned. Ultimately, they filed suit in the Circuit Court for Worcester County and obtained an injunction enjoining the transfer. That judgment was affirmed on appeal. Inlet Associates v. Assateague House, 313 Md. 413, 545 A.2d 1296 (1988). During the trial of Assateague House, with Burnett as counsel, the Harrisons argued that, for Inlet to downscale its project and proceed without the disputed city property, would require only a minor change to Inlet's plans, which had already been approved. [8] This position was taken to rebut testimony by Inlet that it would not downscale the project for fear that such a change in the plans would be deemed major. Were that the case, Inlet maintained, it would have had to start the process all over again, this time in the face of new, and unfavorable, laws, which would make the project economically unfeasible. While the Assateague House case was pending on appeal, Inlet revised its plans, downscaling the project as suggested. Although the Zoning Administrator, characterizing the change as a minor one, recommended approval of the downscaled project, according to the complaint: The Harrisons, almost immediately, launched a formal objection to approval of the revised plan, now calling it a major change, and insisting that Inlet should be forced to proceed under the new, less favorable, height and density laws. Harrison Inn Inlet, Inc. and Harrison Inn Sixty-six, Inc., at the direction of the Harrisons and with the advice, counsel and encouragement of defendant Burnett, filed two separate actions before the BZA ... attacking the approval of the revised plans. In the process, the Harrisons and their counsel took a position wholly inconsistent with that taken by them in the litigation pending in the Court of Appeals. Indeed, at the same time they were arguing to the BZA that Inlet's revised plan was a major change, they filed a brief with the Maryland Court of Appeals arguing, that, ... Inlet, grandfathered under the old density rules, could build the same project entirely on its own property ... and insisting that there would be no hardship on Inlet if it were required to do so. The Board of Zoning Appeals (BZA) ruled against the Harrisons, who, consequently, appealed to the circuit court. Still counseled by Burnett, the Harrisons filed additional, and separate, appeals of the oral and written opinion of BZA. [9] The complaint alleged that one of the appeals was taken for the wholly improper purpose of attempting to achieve a stay in the appeals pending before the circuit court, without posting a bond in those appeals. After filing the several administrative appeals, the Harrisons, through Burnett, filed yet another lawsuit against Inlet, this one seeking declaratory and injunctive relief based on the same facts underlying their five BZA appeals concurrently pending in the circuit court. Finally the complaint alleged that Burnett was an active impediment to resolution of the dispute between Inlet and the Harrisons. Specifically, it stated: When recently advised of the claims set forth herein, defendant Burnett wrote that I do not believe that I should represent my client in any settlement negotiations and, quoting a conflict of interest, that I cannot participate in any settlement negotiations or even advise my client as to whether there should or should not be any such negotiations.... In my view, it is significant that the Nilson complaint alleged the filing of multiple appeals, [10] based, essentially, on the same conduct and, certainly, with the same aim  avoiding the approval and completion of a project the Harrisons opposed. Thus, whether or not the complaint used the word malice, to describe Burnett's actions, as we have seen, Nilson alleged that the multiple appeals and the declaratory judgment action were initiated without right or justifiable cause. In any event, the totality of the circumstances alleged presented a reasonable basis for Nilson's belief that a claim for malicious interference with prospective business advantage and/or abuse or process claim lay against Burnett. [11] A permissible inference to be drawn from the filing of multiple appeals based on the same subject and acts is that they were filed for an improper purpose  inter alia, to harass, as alleged in paragraph 23 of the complaint, and to cloud Inlet's title, as alleged in paragraph 27. And, because counsel is not obliged to follow blindly the directions of his or her clients and file lawsuits, the only effect of which is to harass or otherwise injure the defendants, a point I presume the majority does not dispute, that inference applies no less to the lawyer than to the client. Indeed, because Rule 1-341 contemplates sanctioning lawyers who violate it, filing an action against a lawyer who files appeals or complaints to harass is consistent both with its letter and spirit. There is more in this case, however. In addition to the multiplicity of litigation, counsel made conflicting legal [12] arguments, at the same time, albeit before different tribunals. Those arguments are appropriately attributable to Burnett. This is an additional factual circumstance which permits malice to be inferred as to Burnett. Furthermore, the circuit court judge, before whom the various administrative appeals and the declaratory judgment action were consolidated, found merit in none of the actions. He had little difficulty framing and disposing of the issues presented. Significantly, he found that the downscaling of the Inlet project was, as Burnett originally argued and Inlet alleged, a minor modification to the project plans. This supports, albeit, indirectly, Inlet's argument that its claim against Burnett was colorable. The majority, the Harrisons, and Burnett remind us that the circuit court judgment was reversed by the Court of Special Appeals. It is relevant to note that that decision was based on the ground that a special height exception granted Inlet in 1985 to accommodate the project had lapsed, by operation of law, before Inlet obtained an extension. The issues at the heart of Inlet's abuse of process and malicious interference action were not reached. The trial court failed properly to focus on the issue presented in this case. It did not apply the appropriate test in determining whether Inlet had substantial justification for filing the complaint; the court never examined the real issue before it  whether, when filed, the claim was colorable, within the realm of legitimate advocacy. Had it done so, I believe it would have been compelled to conclude that a colorable claim was presented, and, therefore, imposition of sanctions impermissible. Our cases agree. In Newman v. Reilly , we reversed a judgment of the Court of Special Appeals which affirmed sanctions imposed against the plaintiff for filing an action to nullify a health claims arbitration award without substantial justification. There, the plaintiff brought an action against one of the physicians who certified the need for the plaintiff's involuntary commitment, alleging that physician's failure to follow the statutory procedure for involuntary commitment. Specifically he contended that, because the physician spoke to him only on the phone, he did not personally examine him as the statute required. Despite not having an expert to testify that failure personally to examine him was a violation of the applicable standard of care, the plaintiff, who lost in arbitration, continued to make that assertion in the circuit court. That court determined that the plaintiff's position was unsupported by any plausible legal argument. 314 Md. at 380, 550 A.2d at 967. Without deciding the meaning of the term personal examination, as used in the statute, we held that a theory which would require a doctor to examine a patient who is physically present is a legitimate one. Id., 314 Md. at 381, 550 A.2d at 968. The defendant's justification for filing a second motion for summary judgment, the court having denied the first one because there was a factual dispute, was at issue in Yamaner v. Orkin . The second motion did not clearly disclose how the grounds asserted differed from those asserted in the first. Upon being assessed counsel fees for filing the second summary judgment motion without substantial justification, the defendant filed a motion to reconsider the denial of the motion for summary judgment and the imposition of sanctions. In it, he averred that the second motion was based on additional factual material developed at the arbitration hearing, including testimony that the plaintiff's expert, having isolated the time of injury to a period when the plaintiff was not under the defendant's care, had changed his mind as to the cause of the plaintiff's injury. The motion also noted the expiration of the discovery deadline without the plaintiff naming any additional expert. We were of the opinion that Prior to Yamaner's motion for reconsideration of the sanction, the justification for Yamaner's September 1986 summary judgment motion might not have been made as clear to Judge McKenna as it could have been, but substantial justification was plainly spelled out in that reconsideration motion and its supporting exhibits. 313 Md. at 516, 545 A.2d at 1349. We explained (313 Md. at 516-17, 545 A.2d at 1349): Here Yamaner had two strings to his bow. His legal argument was that res ipsa loquitur does not apply in medical malpractice cases. That argument was reinforced by the discovery deadline which passed after Judge Latham's ruling. Arguably there was no opinion of Dr. Mayle implicating Yamaner and Orkin had not produced any other expert. From the standpoint of evidentiary material submitted in the record, the facts on the issue of when the injury occurred had also changed. The additional use of Dr. Mayle's arbitration hearing testimony arguably eliminated the generality in testimony relied upon by Judge Latham and isolated the time of injury to a period when Yamaner had no responsibility for the positioning of the patient. The cases decided by the Court of Special Appeals, in which the award of attorney's fees for bringing an action without substantial justification have been upheld are consistent. Also, they are instructive because, from them, we know the adjudicated parameters of that concept. In Allnut v. Comptroller, 77 Md. App. 424, 550 A.2d 728 (1988), for example, the issue was the validity of Maryland's personal income tax and, due to the dependency of the Maryland scheme on the federal income tax structure, necessarily, either the constitutionality of former § 205 of the revised statutes of the United States or the proper ratification of the 16th Amendment of the United States Constitution. Id., 77 Md. App. at 426, 550 A.2d at 728. Considering the plethora of recent federal cases, all rejecting the very argument which appellants have asserted and a number of Maryland cases ... explaining the sources of Maryland's taxing power, the court found that Allnut's appeal of the circuit court's dismissal of the action was taken without substantial justification Id., 73 Md. App. at 430, 550 A.2d at 731. Johnson v. Baker is another informative case. There, Johnson sued Baker for breach of contract and fraud. Baker moved to dismiss and Johnson countered by amending his complaint to render that motion moot. When Baker moved to dismiss the amended complaint, Johnson amended that complaint. This pattern continued through the third amended complaint; however, the court granted Baker's motion to dismiss the second amended complaint, awarding counsel fees to Baker's attorney and Johnson appealed. The Court of Special Appeals affirmed and this Court denied the requested writ of certiorari. Baker filed a motion seeking sanctions pursuant to Rule 1-341. Granting the motion, the hearing court concluded that Johnson ignored precedent and was unable to give Judge Heise any support for his [Johnson's] proposition. 84 Md. App. at 526, 581 A.2d at 51. In affirming, the Court of Special Appeals drew a distinction between the initiation of the litigation and the prosecution of the appeal, noting that, in that case, Johnson was sanctioned for pursuing the appeal when it had become patently apparent that he had no colorable claim. 84 Md. App. at 531, 581 A.2d at 51. As to the lack of substance, the court said: At the trial level, Johnson's theory of his case was that a third party may sue an attorney for advice which the attorney has given a client on a matter in which the attorney has no personal interest. When pressed by the judge, Johnson could offer no Maryland case law, nor case law from any other jurisdiction, to support that theory. The judge considered Johnson's proposition a fundamentally erratical change in the law which would radically change the nature of attorney-client relationships and create a litigation explosion. The judge concluded that Johnson's claim was frivolous ... [and without] any basis in law or in fact based on [Johnson's] allegations. Our prior opinion on this case was part of the record before the circuit court judge at the sanctions hearing. In it, we explained why Johnson had no cause of action and affirmed the circuit court's dismissal of Johnson's complaint and award of attorney's fees to Blumenthal. In this appeal, Johnson still has not provided us with a viable legal theory or precedent that would justify his pursuit of his prior appeal to us. He begins by claiming that he has a colorable claim, which clearly has no basis in fact or in law, and then contends that he was entitled to continue the action because he had one appeal as of right. He appears to assume  erroneously  that an appeal of right can legitimize and give substance to an action that is otherwise without merit. (Footnote omitted) 84 Md. App. at 530, 581 A.2d at 52-53. In Blanton v. Equitable Bank, Nat'l Ass'n, 61 Md. App. 158, 485 A.2d 694 (1985), the defendant appealed the denial of his motion for continuance. A motion to dismiss the appeal, and seeking counsel fees, having been filed by the plaintiff, the Court of Special Appeals focused on whether there was justification for the appeal and concluded that there was not. In reaching that conclusion, the court noted that appeal from a continuance is neither an enumerated exception to the final judgment rule, 61 Md. App. at 163, 485 A.2d at 697, citing Maryland Courts and Jud.Proc.Code Ann. § 12-303 and Smiley v. Atkinson, 12 Md. App. 543, 280 A.2d 277 (1971), aff'd, 265 Md. 129, 287 A.2d 770 (1972), nor appealable under the collateral order doctrine. 61 Md. App. at 163-165, 485 A.2d at 699-98. This determination was made as a matter of law. An argument that counsel fees cannot be awarded pursuant to Rule 1-341 to one who is not a member of the bar was considered specious in Kirsner v. Edelmann, 65 Md. App. 185, 197, 499 A.2d 1313, 1319 (1985). That court likewise rejected an argument that advice of counsel supplied substantial justification where it had been previously considered and rejected, albeit in dicta, on a prior appeal. Id., 499 A.2d at 1319. The Rule 1-341 issue in Century I Condo was multifaceted. As to the claim for fees incurred in the trial court, which the trial judge denied, the Court of Special Appeals refused to hold, as a matter of law, that the plaintiff's action was brought or maintained without substantial justification even though, in filing and maintaining it, the plaintiffs may have been skating on very thin ice. 64 Md. App. at 119, 494 A.2d at 719. It held otherwise as to part of the costs incurred on appeal  because the decision in a pending appeal decided before oral argument in that case, was res judicata as to that case. 64 Md. App. at 121, 494 A.2d at 720. What comes through loud and clear is that it is where the law is quite clear and the party initiating or maintaining the action is aware, or should be aware, of that fact that lack of substantial justification is found. To uphold a trial court's determination under any other circumstance is to place a significant damper on litigants and, hence, to retard the development of the law. That is not the purpose of Rule 1-341. I would reverse.