Opinion ID: 2551501
Heading Depth: 2
Heading Rank: 3

Heading: The Propriety of the Trial Court's Treatment of the County Board's Recoupment Claim

Text: At trial, the County Board sought to reduce the amount of money damages awarded to BEKA by asserting its entitlement to credits, backcharges, and/or set-offs totaling $531,079.52 arising from PCOs (proposed change orders) numbering 1, 2, 3, 4, 14, 15, 17, 18, 19, 40. [19] The County Board alleged in pleadings, discussed infra, that BEKA refused or failed to perform certain work in accordance with the [Contract], and [the County Board] had to have that work performed by other contractors[,] and that BEKA had certain work removed from its scope of work by the construction manager in accordance with the Contract. The County Board's claim is a recoupment claim because it seeks to adjust the amount awarded to BEKA in light of its own losses arising out of the same transaction from which BEKA seeks a legal remedy. BEKA, 190 Md.App. at 727, 989 A.2d at 1215-16 (citing Imbesi v. Carpenter Realty, 357 Md. 375, 380, 744 A.2d 549, 552 (2000) (where recoupment was described as a diminution or a complete counterbalancing of the adversary's claim based upon circumstances arising out of the same transaction on which the adversary's claim is based)); see The Impervious Products Co. v. Gray, 127 Md. 64, 68, 96 A. 1, 2 (1915) (In recoupment a defendant may show damages equal to some part of the whole of the plaintiff's claim and have it deducted from that claim, but can recover no affirmative judgment.). The Court of Special Appeals highlighted the equitable nature of a recoupment claim stating, [r]ecoupment exists in equity as well as at common law, and has been said to be equitable in nature. It reduces the claim affirmatively urged so far as in reason and conscience it ought. BEKA, 190 Md. App. at 727, 989 A.2d at 1216 (quoting Smith v. Smith, 79 Md.App. 650, 662, 558 A.2d 798, 804 (1989) (quoting 20 Am.Jr.2d Counterclaim, Recoupment and Setoff § 6 (1965))). On appeal before this Court, BEKA poses three questions relating to the treatment of the County Board's recoupment claim at trial and before the Court of Special Appeals. Because the questions are factually and procedurally intertwined, we address them together. BEKA first contends that the intermediate appellate court erred by not affirming the portion of the trial court's ruling on BEKA's Motion for Partial Summary Judgment, by which the trial court barred the County Board from raising the issue. Secondly, BEKA contends that the County Board's use of the defense of recoupment is barred as a matter of law. Finally, BEKA asserts that the intermediate appellate court applied incorrectly the abuse of discretion standard of review to ultimately reverse the trial court's grant of BEKA's Motion in Limine to Exclude Evidence of Backcharges. BEKA's three questions arise in response to the intermediate appellate court's consideration of a single question posed to it by the County Board, which asked [d]id the trial court err in prohibiting the County Board from submitting evidence regarding its [$531,079.52] recoupment claim[.] In finding that the trial judge abused his discretion, the Court of Special Appeals analyzed this question wholly in the context of the trial judge's ruling on BEKA's Motion in Limine concluding that it was unable to determine the basis for the court's ruling excluding the Board's evidence of recoupment[,] and that [t]he inherent contradictions in the trial court's statements indicate that there was not a sound exercise of discretion in excluding this evidence. BEKA, 190 Md. App. at 729, 989 A.2d at 1216. The Court of Special Appeals held that in its view of the record the trial court's ruling may have been based on a finding that the recoupment issue was not timely asserted and, to that extent, the decision was erroneous because the Board's initial answer preserved the defense. BEKA, 190 Md. App. at 729-30, 989 A.2d at 1216-17. We shall affirm the Court of Special Appeals's resolution of the issues regarding the trial court's treatment of the County Board's recoupment claim issue because the Board should have been permitted to present evidence of the claim at trial.
The County Board first pleaded its entitlement to recoup money owed to BEKA under the contract by way of a Counter-Complaint and Amended Answer filed July 14, 2008. The same entitlement claim was presented in four subsequent pleadings: (1) the Second Amended Answer filed July 18, 2008; (2) the response to BEKA's Motion in Limine to Exclude Evidence of Backcharges filed August 5, 2008; (3) the Third Amended Answer filed August 12, 2008; and (4) the Board's Response to BEKA's Motion for Partial Summary Judgment filed August 18, 2008, wherein the Board maintained that no judgment should be entered until the court received evidence concerning certain proposed amounts, credits, backcharges and setoffs totaling $531,080. At a motions hearing on September 18, 2008, less than a month before trial, the trial judge struck the County Board's Counter-Complaint and Amended Answer as untimely, stating: The fact that discovery closed just four days before the County Board's filing of its Countercomplaint unfairly prejudiced BEKA, and the County Board's Countercomplaint and Amended Answer are stricken. [20] Secondly, the trial judge barred the defense of recoupment by granting that portion of BEKA's Motion for Partial Summary Judgment, in which BEKA argued that the County Board did not comply with the contract provisions governing changes to BEKA's work under the contract. BEKA asserted that there was no dispute of material fact about the failure of the County Board's claim for back-charges, credits or setoffs because: (1) § 4.7.1 of the contract defined a claim, which BEKA argued clearly included the County Board's recoupment claim; (2) claims must be filed within 7 days and must be substantiated; and (3) claims must be submitted to the Architect for resolution. Therefore, BEKA contended, because the County Board did not submit its back-charges, credits or setoffs through this process, it waived its claim. The County Board asserted that there were genuine disputes of the facts related to its claims for recoupment and that the trial court should not enter a money judgment without receiving evidence on the recoupment amounts. The trial judge ruled in BEKA's favor, stating: As to Beka's Request for Summary Judgment on the issue of credits, back-charges and setoffs, the County Board failed to address Beka's argument that it did not adhere to the contract provisions for asserting a claim and the County Board should be precluded from raising the issue at this time. Prior to commencement of trial, on October 6, 2008, the trial judge struck the County Board's Second and Third Amended Answers, which each raised recoupment, and the court ruled explicitly on BEKA's Motion in Limine, stating that: I'm going to bar any evidence of recoupment as an affirmative answer.
BEKA asks us to determine whether it was error for the Court of Special Appeals to, in effect, reverse the trial court's grant of BEKA's Motion for Partial Summary Judgment. Because the Court of Special Appeals did not consider expressly the trial court's ruling on BEKA's Motion for Partial Summary Judgment, but rather limited its discussion of the County Board's recoupment claim to the context of the trial court's ruling on BEKA's Motion in Limine, BEKA, 190 Md.App. at 727, 989 A.2d at 1216, there is no analysis stated in the intermediate appellate court's opinion regarding the trial court's ruling on summary judgment for this Court to review. The intermediate appellate court did not engage in de novo review, which would have inquired into whether the trial judge's ruling pertaining to the recoupment claim was legally correct. See e.g., Dashiell v. Meeks, 396 Md. 149, 163, 913 A.2d 10, 18 (2006) (With respect to the trial court's grant of a motion for summary judgment, the standard of review is de novo.) (citing Rockwood Cas. Ins. Co. v. Uninsured Employers' Fund, 385 Md. 99, 106, 867 A.2d 1026, 1030 (2005)). Upon our review of the grant of the summary judgment motion, however, we conclude that the trial judge was legally incorrect to have granted BEKA's motion as to the County Board's recoupment claim. Prior to determining whether the trial court was legally correct, an appellate court must first determine whether there is any genuine dispute of material facts.... Any factual dispute is resolved in favor of the nonmoving party.... Only when there is an absence of a genuine dispute of material fact will the appellate court determine whether the trial court was correct as a matter of law. Dashiell, 396 Md. at 163, 913 A.2d at 18 (citations omitted). The facts relevant to the recoupment claim were disputed and therefore the issue should not have been resolved by summary judgment. The County Board claimed it was owed back-charges for ten proposed change orders (PCOs), presented to the trial court as Exhibit 2 in BEKA's Motion for Partial Summary Judgment, restated in the County Board's Response to Motion for Partial Summary Judgment, and in its Supplement to Defendant's Response to Motion for Partial Summary Judgment. BEKA asserted that the contract required certain claims procedures, namely provisions 4.7.1, 4.7.2 and 4.7.3, to be followed to pursue such credits, but that the County Board did not follow those procedures. The County Board claimed that it was not required to submit the credits through the claims procedure in the contract. Moreover, it argued that the two contract provisions, 4.7.4 and 5.7.1. permitted the withholding of payment on uncontested amounts until all unsettled claims were determined. The trial judge ruled that because the Board failed to address Beka's argument that it did not adhere to the contract provisions for asserting a claim ... the Board should be precluded from raising the issue at this time. In our view, the trial court erred in arriving at this legal conclusion despite several disputed, material facts concerning legal requirements of the contract; the impact of contract modifications made by the parties; the timeliness of submissions of claims to the architect prior to litigation; and the precise monetary amounts owed to BEKA because of changes to its scope of work or credits for nonperformance owed to the County Board. Even if there were no disputed material facts the trial judge's conclusion that the County Board failed to address Beka's argument that it did not adhere to the contract provisions for asserting a claim, is not supported by the record. [21] The record indicates that the County Board did in fact address the issue of compliance with the contract procedures in at least two pleadings, the Response to Motion for Partial Summary Judgment and the Supplement to Defendant's Response to Motion for Partial Summary Judgment.
The Court of Special Appeals suggested that on remand the [trial] court can address the contention that the Board is not entitled to present its recoupment defense because it failed to follow the procedures set forth in the contract for asserting a claim. Neither party addressed whether a defense of recoupment, as opposed to an affirmative complaint, would be subject to the claims procedure set forth in the contract. BEKA, 190 Md.App. at 730, 989 A.2d at 1217, fn. 37. In our view, this statement likely prompted BEKA's second argument that, in effect, the distinction described by the intermediate appellate court is irrelevant and would not need to be addressed on remand. BEKA asserts that because the trial judge struck the County Board's Counter-Complaint, which included its recoupment claim as a cause of action against BEKA, the County Board had no legally, subsisting affirmative claim for recoupment and therefore the defense of recoupment was barred as a matter of law. BEKA argues, [i]n other words, if the defendant has no legally subsisting cause of action, the defendant should not be able to counterbalance or diminish the plaintiff's claim through the defense of recoupment. [22] As BEKA notes, the intermediate appellate court did not address this issue directly because it only considered the propriety of the trial judge's ruling on BEKA's motion in limine. The Court of Special Appeals indirectly indicated, however, that the trial judge's ruling to strike the Counter-Complaint (and the later exclusion by granting BEKA's Motion in Limine ) had no impact on the recoupment claim because it was implied and preserved by the County Board's initial answer. BEKA, 190 Md.App. at 729-30, 989 A.2d at 1217 (holding that recoupment need not be specifically pled under Md. Rule 2-323(d) and therefore it was timely raised and preserved for appellate review by the County Board's initial answer). BEKA relies on Imbesi to support this assertion; however, that case did not address recoupment, but rather a set-off claim [23] in an unrelated transaction that was statutorily barred by a provision of the Estates and Trusts Article of the Maryland Code. Imbesi, 357 Md. at 392, 744 A.2d. at 558 (Whether the result is the same if the estate's debtor raises recoupment is an issue that need not presently be decided.). Thus, Imbesi does not assist with the resolution of the treatment of the County Board's recoupment claim in the instant case. BEKA also calls our attention to Cohen v. Karp, 143 Md. 208, 122 A. 524 (1923), where this Court noted that a set-off to a judgment was a defense that could be raised if the defendant had a right to receive the amount due him from the plaintiff, [and] his claim ... [is] of such a nature that he can sue for and recover it in a court of law. Cohen, 143 Md. at 211, 122 A. at 525 (noting that [t]he defense of set-off, technically, means a cross-claim). Finally, BEKA relies upon Telmark, Inc. v. C & R Farms, Inc. et al., 115 A.D.2d 966, 966-67, 497 N.Y.S.2d 536 (1985) in which a New York intermediate appellate court held that because of the express terms of a lease agreement `under no circumstances' ... [could] the defendants have a cause of action against plaintiff for consequential damages, [therefore] they cannot assert such claim in recoupment. In Telmark, unlike the instant case, a lease agreement between the parties contractually precluded the defendants from suing the plaintiff for consequential damages and so recoupment could not be used as a back-door mechanism for raising the issue. Telmark, 115 A.D.2d at 966-67, 497 N.Y.S.2d 536. Similarly, in Imbesi the preclusive effect of a statutory bar to a set-off claim (not a recoupment claim) was dispositive. Imbesi, 357 Md. at 392, 744 A.2d at 558. In Cohen, again a case about set-offs and not recoupment, this Court held that the trial judge erred in not granting a motion to arrest a judgment because the plaintiff had been ordered erroneously to pay co-defendants the excess of their set-off claim against him. Cohen, 143 Md. at 212-13, 122 A. at 525. Cohen, therefore, does not apply here. Here, there was no factual conclusion on the record about whether the contract would apply to the County Board's recoupment defense for back-charges, credits and/or set-offs, as the Court of Special Appeals correctly pointed out. BEKA, 190 Md.App. at 729, 989 A.2d at 1217. Because we hold that the trial judge's rulings precluding the County Board from presenting its evidence on recoupment were in error, and the question of whether the contract precludes a claim by the County Board for back-charges, credits and/or set-offs remains unresolved, we hold that the recoupment issue, whether a defense or affirmative claim, is not barred and in fact must be addressed in a new trial.
To address BEKA's third argument, we consider whether the Court of Special Appeals erred by holding that the trial judge abused his discretion when he granted BEKA's Motion in Limine to Exclude Evidence of Defendant's Backcharges. As the Court of Special Appeals noted, we have said also that [j]udicial discretion is a composite of many things, among which are conclusions drawn from objective criteria; it means a sound judgment exercised with regard to what is right under the circumstances and without doing so arbitrarily or capriciously. State v. Wilkins, 393 Md. 269, 279, 900 A.2d 765, 771 (2006) (citing Gunning v. State, 347 Md. 332, 351, 701 A.2d 374, 383 (1997)). BEKA, 190 Md.App. at 727-28, 989 A.2d at 1216. BEKA asserts that there was no abuse of discretion because the trial judge had already barred the recoupment defense in his grant of its Motion for Partial Summary Judgment, the trial judge had granted all motions striking the County Board's amended pleadings that raised recoupment, the County Board had committed discovery violations warranting exclusion of the evidence, and even if BEKA had the recoupment information it did not know that the County Board was going to use the credits as an affirmative claim or affirmative defense. Conversely, the County Board asserts that the Court of Special Appeals was correct to find abuse of discretion because the trial judge excluded the evidence without commenting or engaging in any fact finding on the disagreement between opposing counsel on the allegation of discovery violations, the County Board's responses to BEKA's motion identified sources of information substantiating the recoupment claim dating back to February 2008 (well before the commencement of trial), and that the trial judge should have taken a more conservative approach in responding to the discovery dispute under Md. Rule 2-433 (Sanctions.). BEKA's motion in limine was based entirely on allegations that the County Board violated unspecified discovery rules. Recently, we have stated: The decision as to which remedy or sanction to impose [for a discovery violation] generally rests within the broad discretion of the trial court. See Thomas v. State, 397 Md. 557, 570, 919 A.2d 49, 57 (2007).... Ordinarily, a court will impose the least severe sanction that is consistent with the purpose of the discovery rules. Thomas, 397 Md. at 571, 919 A.2d at 58. This Court has explained that in remedying a discovery violation, the court should weigh [](1) the reasons why the disclosure was not made; (2) the existence and amount of any prejudice to the opposing party; (3) the feasability of curing any prejudice...; and (4) any other relevant circumstances. [ Thomas ] at 570-71, 919 A.2d at 57-58; see also Taliaferro v. State, 295 Md. 376, 390-91, 456 A.2d 29, 37 (1983) (enumerating similar factors and stating that the factors do not lend themselves to a compartmental analysis). Williams v. State, 416 Md. 670, 698-99, 7 A.3d 1038, 1054 (2010). We have not required that statements addressing each of these factors be part of the record. The Court of Special Appeals held, in the present case, that the trial judge's ruling was an abuse of discretion because it concluded that the trial judge's statements leading up to the ruling contained inherent contradictions and that there was an erroneous basis for the ruling. BEKA, 190 Md. App. at 729, 989 A.2d at 1216. BEKA's motion alleged that the County Board had failed to produce information substantiating its recoupment claim totaling $531,079.52 and that it was severely prejudiced by this withholding because it could not prepare a defense without the ability to determine the reasonableness of the pricing of material and labor in the discrete claims. During argument on the motion, BEKA claimed that it wanted the trial judge to strike two particular pieces of evidence that it alleged were filed untimely by the County Board, namely the August 20, 2008 filing of a Supplement to Answers to Interrogatories and a Supplement to Document Production. BEKA claimed that the documents did not substantiate the claim for back-charges because the documents did not contain the specificity required by the claims procedure under the contract. The County Board alleged, however, that BEKA had been in possession of the same information since commencement of litigation in February 2008 and therefore there was no prejudice. The County Board also noted that BEKA had not made any formal allegations of violation of the discovery rules, therefore, pursuant to Food Lion v. McNeill, 393 Md. 715, 904 A.2d 464 (2006), it should not be granted the extreme relief of exclusion of the evidence. What is clear from the record is that the trial judge had issued three rulings to bar evidence of the County Board's recoupment claim prior to his ruling on the motion in limine and each time the ruling had favored BEKA. In granting BEKA's motion in limine to exclude the County Board's evidence of recoupment, the trial judge simply stated: Well, I'll enter my ruling ... I'm going to bar any evidence of recoupment as an affirmative answer. No other evidence or rationale exists in the record explaining or elaborating on the trial judge's determination of the validity of BEKA's allegations regarding the discovery violations, prejudice, or waiver because of violation of the contract terms. Based upon our review of the record, we conclude that there is scant commentary from the trial judge regarding his deliberation on BEKA's motion in limine, except to indicate his belief that he had already ruled on the substantive issue of presentation of the recoupment claim by striking the Counter-Complaint and Amended Answer and that the County Board's counsel apparently annoyed the court with its circular presentation of its recoupment claim. The particular phrasing of the ruling, barring evidence of recoupment as an affirmative answer, indicates that the trial judge may have been persuaded by BEKA's argument that it was prejudiced by failing to appreciate that information provided on backcharges, credits and/or set-offs at the beginning of litigation would be used as an affirmative answer or affirmative defense. Notwithstanding the alleged prejudice, there is no legal reasoning stated on the record supporting the trial judge's grant of this motion. The trial judge should have engaged in some factual and legal analysis regarding treatment of the recoupment claim pursuant to, or outside, of the contract. We agree with the Court of Special Appeals that, in spite of the trial judge's apparent fatigue with the issue, the Board should have been permitted to present evidence to support its recoupment claim because the record indicates that the Board put BEKA on notice of its claims during discovery. Moreover, BEKA never formally alleged that discovery was insufficient.