Opinion ID: 2282476
Heading Depth: 1
Heading Rank: 2

Heading: assessment of counsel fees

Text: Maryland Rule 1-341 provides that: In any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification the court may require the offending party or the attorney advising the conduct or both of them to pay to the adverse party the costs of the proceeding and the reasonable expenses, including reasonable attorney's fees, incurred by the adverse party in opposing it. Rule 1-341 can be an effective tool for the deterrence of unnecessary or abusive litigation. Unfortunately, like many tools, if improperly used or if abused, it is capable of inflicting excessive or unwarranted injury. The assessments of attorneys' fees against Zdravkovich in both the district and circuit courts can only be described as unwarranted. The District Court failed to afford Zdravkovich the procedural safeguards to which an attorney or litigant is entitled before imposing sanctions in the form of attorneys' fees. The district and circuit judges both apparently applied the wrong standard, or no standard at all, in determining whether attorneys' fees should be assessed. The constitutional guarantee of due process is applicable to an assessment of attorney's fees pursuant to Rule 1-341. Talley v. Talley, 317 Md. 428, 434-35, 564 A.2d 777, 780-81 (1989). Due process requires, at a minimum, that before sanctions are imposed pursuant to Rule 1-341, there must be notice and an opportunity to respond. Id.; Blanton v. Equitable Bank Nat'l Ass'n, 61 Md. App. 158, 166, 485 A.2d 694, 698-99 (1985); see also Miranda v. Southern Pacific Transp. Co., 710 F.2d 516, 522-23 (1983). Although we need not decide in the instant case, a hearing may also be required if properly requested. See Talley, 317 Md. at 435, 564 A.2d at 780-81. In the District Court, Zdravkovich had no notice that attorney's fees would be assessed pursuant to Rule 1-341. He was on notice that attorney's fees were being sought under the agreement, but the agreement called for reasonable collection expenses and attorney's fees of 20% of the total unpaid rental for the balance of the term of the lease. In its complaint, Tricon sought 20% attorney's fees which it computed to be $705.86. The attorney's fees awarded, in the amount of $2,000.00, were over 66% of the judgment and were assessed, not because of any contractual obligation, but because Zdravkovich has not shown good faith. The lack of notice and opportunity to respond requires that the District Court's award of attorney's fees be vacated. The imposition of sanctions pursuant to Rule 1-341 requires an explicit finding that a claim or defense was in bad faith or without substantial justification. The record must reflect that the trial judge made the requisite findings, as well as the basis for those findings. In Talley, Judge McAuliffe, writing for the Court, stated: The justification for this requirement [of an evidentiary finding of bad faith or lack of substantial justification] lies not only in the clear language of the rule, but also in the logic that before such an extraordinary sanction is imposed there should be evidence that there has been a clear focus upon the criteria justifying it and a specific finding that these criteria have been met. Moreover, some brief exposition of the facts upon which the finding is based and an articulation of the particular finding involved are necessary for subsequent review. 317 Md. at 436, 564 A.2d at 781. The District Court's finding that Zdravkovich has not shown good faith is not the equivalent of a finding of bad faith and cannot be the basis for the imposition of sanctions. In addition, based on our review of the record, there is insufficient evidence to justify a finding that Zdravkovich's conduct in defending the Tricon case was in bad faith. Apparently, the primary basis for the trial judge's assessment of attorney's fees was that Zdravkovich was not present when the case was called. This fact alone does not justify a finding of bad faith. The circuit court judge, when assessing attorneys' fees against Zdravkovich pursuant to Rule 1-341, also failed to make the requisite factual findings and to set forth the basis for the imposition of sanctions. In the Tricon case, the court's order simply recites that it is based on the judge [h]aving reviewed the pleadings of counsel thereon, and any opposition thereto, and being otherwise fully advised in this matter.... The order makes no findings of bad faith or that the appeal was taken without substantial justification, and the record clearly would not support such findings. Zdravkovich's contention that the district court judge committed error was well founded and persuasive. There was more than substantial justification for the Tricon case appeal. There was neither an allegation, nor any basis for a finding, that Zdravkovich's appeal was pursued in bad faith. In the O'Connor case appeal, the order assessing attorney's fees merely recites [u]pon consideration of the Motion for Order for Attorneys Fees filed herein ... and for the reasons stated therein.... The judge made no express finding that the appeal was taken in bad faith or without substantial justification. In their motion for attorney's fees, O'Connor and Terminals never specifically allege that Zdravkovich's appeal was taken in bad faith or without substantial justification. The closest they come to such an allegation is in paragraph 7 of their motion where they state: 7. As a result of the frivolous appeal pursued by the Plaintiff/Appellant herein, the Defendants/Appellees have been caused to incur One Thousand and Fifty Dollars ($1,050.00) in attorneys fees as set forth in the Affidavit attached as Exhibit B. Since there was no basis in the record supporting the Plaintiff/Appellant's appeal as to [Terminals] and [O'Connor], these Defendants/Appellees respectfully submit that sanctions should be imposed against the Plaintiff and his co-counsel for pursuing a frivolous appeal. The order signed by the circuit court judge does not establish that the judge expressly found bad faith or that the appeal was without substantial justification. Even if the judge had made such a finding, it could not be supported by the record. The imposition of sanctions is to deter litigation that clearly lacks merit, but not to stifle the enthusiasm or chill the creativity that is the very lifeblood of the law. Eastway Const. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir.1985), cert. denied, 484 U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987). In his appellate brief, Zdravkovich indicates that one of the bases for appeal was the propriety of granting a judgment when it is known that [a litigant's] absence is caused by his appearance in another court. This issue, in its factual context, does not lack substantial justification, and there is no allegation or basis for a finding that Zdravkovich pursued his appeal in bad faith. Rule 1-341 is not intended to simply shift litigation expenses based on relative fault. Its purpose is to deter unnecessary and abusive litigation. The imposition of sanctions requires explicit factual findings supported by the record, as well as the careful exercise of judicial discretion. The deterrent purpose of Rule 1-341 should be reemphasized because, in too many cases, the pleadings that evidence the most bad faith and the least justification are motions requesting costs and attorney's fees. JUDGMENT OF THE CIRCUIT COURT FOR PRINCE GEORGE'S COUNTY AFFIRMED IN PART AND REVERSED IN PART. ORDERS AWARDING ATTORNEYS' FEES IN THE CIRCUIT COURT VACATED. CASE REMANDED TO THE CIRCUIT COURT WITH INSTRUCTIONS TO VACATE THE JUDGMENT OF THE DISTRICT COURT IN CASE NO. 050-21228-88 AND REMAND TO THE DISTRICT COURT OF MARYLAND FOR A NEW TRIAL. COSTS TO BE PAID BY THE RESPONDENTS.