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Court of Appeals of Maryland Applies Common Law “Non-Delegation Doctrine” in Real Estate Action for Indemnification and Damages for Breach of Contract

Pines Plaza Limited Partnership v. Berkley Trace, LLC, et al.
Court of Appeals of Maryland, No. 30, September Term 2012 (Md. May 21, 2013)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Pines Plaza Limited Partnership v. Berkley Trace, LLC, et al., the Court of Appeals of Maryland was asked to determine the interpretation of a contract for the sale of real property, which involved the actions of an unavailable party and uncertainty as to the significance of language in the contract and related documents. Writing for the appellate court, Judge Robert N. McDonald affirmed in part and reversed in part the judgment of the Court of Special Appeals of Maryland, with directions to remand to the Circuit Court of Worcester County for further proceedings.

The controversy arose out of a contract to sell a shopping center – a contract that was amended on several occasions. Beginning in January 1998, Pines Plaza Limited Partnership (“Pines Plaza”), sought to sell a shopping center it owned (“the property”) in the Ocean Pines community of Worcester County. Toward that end, Pines Plaza entered into an exclusive listing agreement with Crimmins Associates Real Estate (“Crimmins Associates”), a real estate brokerage firm. The listing agreement remained in effect for the next four (4) years, but the property was not sold. In June 2002, Crimmins Associates informed Pines Plaza that it had found a potential buyer: James Quillen and Eric Chadwick proposed to purchase the property through a new venture, Q-C Pines Plaza, LLC (“Q-C”).

Among other things, Q-C agreed to indemnify Pines Plaza for a real estate commission, which they both disclaimed in the contract itself, and which might have ultimately been owed to Crimmins Associates. Another provision in the contract provided for forfeiture of Q-C’s $200,000 deposit if the transaction did not close on the timetable in the contract. In order to raise funds for the purchase, Q-C recruited three (3) additional investors — Berkley Trace, LLC, The Hampton Company, Inc., and James P. Joyce (collectively, the “Berkley Investors”) — to fund the deposit and most of the purchase price, Q-C and assigned them interests in the contract.

Due to several complications, the transaction ultimately closed after the appointed date. In 2005, the principals of Crimmins Associates filed a lawsuit in the Circuit Court for Worcester County against Pines Plaza, alleging damages from Pines Plaza for failure to pay a commission on the sale of the property. Pines Plaza filed a third-party claim, seeking indemnification from Q-C and the Berkley Investors. In February 2008, the circuit court entered judgment against Pines Plaza in the amount of $200,000, an amount later reduced by agreement to $196,666.66. Pines Plaza’s third-party claim was dismissed without prejudice, and Pines Plaza satisfied the judgment in late July 2008.

In September 2008, Pines Plaza filed suit against Q-C and the Berkley Investors, renewing its claim for payment under the indemnification provision of the contract with respect to the judgment in favor of Crimmins Associates. Q-C did not offer a defense, and a default judgment was ultimately awarded against it in the amount of $196,666.66. The Berkley Investors filed a counterclaim against Pines Plaza seeking recovery of the $200,000 deposit, which had not been credited against the purchase price. A bench trial was held on March 29, 2010, and the circuit court ruled in favor of the Berkley Investors on both the claim and the counterclaim. It concluded that, while Q-C had agreed in the contract to indemnify Pines Plaza for any real estate commission owed to Crimmins Associates, the Berkley Investors had not assumed that obligation when Q-C assigned them interests in the contract. The circuit court also concluded that, in proceeding to settlement in March 2004 instead of terminating the contract, Pines Plaza had opted to disregard the failure to complete the closing by the January deadline. Accordingly, Pines Plaza was not entitled to forfeiture of the Berkley Investors’ $200,000 deposit as “liquidated damages” under the Second Amendment of the contract, and forfeiture of that sum was not binding on the Berkley Investors, as they were not privy to that agreement between Pines Plaza and Q-C. The circuit court, therefore, granted judgment in favor of the Berkley Investors in the amount of $200,000.00. Pines Plaza appealed to the Court of Special Appeals of Maryland, which affirmed the judgment of the circuit court. The Court of Appeals of Maryland granted Pines Plaza’s petition for a writ of certiorari.

Relying upon East Vedado Corp. v. E. S. Adkins & Co., 157 Md. 416, 146 A. 385 (1929), the appellate court stated that Maryland observes a “non-delegation presumption”—that is, assignment of a real estate contract is presumed not to include an assumption or delegation of the assignor’s obligations under the contract. See also MD. CODE, REAL PROPERTY ART. §1-103. According to the court, a different presumption—namely, that an assignment of a contract ordinarily includes an assumption of the assignor’s duties (referred to as a “delegation presumption”)—prevails in certain other areas of Maryland contract law that do not involve real estate transactions. Although Pines Plaza sought to have the appellate court adopt a delegation presumption in place of the non-delegation presumption previously applied by Maryland courts to assignments of real estate contracts, the court of appeals stated that “there appear[ed] to be no consensus among courts in other jurisdictions that might influence [the Maryland appellate court] to abandon the rule consistently applied in earlier Maryland cases.”

Additionally, even if the original contract between Pines Plaza and Q-C required Q-C to include a delegation of its obligations in any assignment of its rights under the contract, its failure to comply with such a provision was, according to the appellate court, solely a breach of its contract between Pines Plaza and Q-C, which was a quite separate issue from whether Q-C’s assignments themselves obligated the Berkley Investors to indemnify Pines Plaza. Therefore, the court of appeals concluded that the assignments, which were themselves silent on delegation of Q-C’s contract obligations, did not implicitly delegate to the Berkley Investors the obligation to indemnify Pines Plaza for payment of a real estate commission to Crimmins Associates.

Finally, with respect to the $200,000 forfeiture, the appellate court opined that the contract provided Pines Plaza with the option, in the event of a default by the purchaser of the property, to (1) disregard the default and proceed with the transaction, or (2) terminate the transaction and forfeit the deposit. Because there was no “no evidence” at trial that Pines Plaza declared a default (and even if there was a default by Q-C or the Berkley Investors), the appellate court determined that Pines Plaza’s decision to proceed with settlement effectively was an election under the contract to disregard that default. Accordingly, the appellate court agreed with the Circuit Court and the Court of Special Appeals that the $200,000 deposit was not forfeited by the Berkley Investors. The court concluded, however, that Pines Plaza would be entitled to offset any liability to Q-C for the uncredited deposit with Q-C’s liability to it for indemnification of the broker’s commission as a matter of recoupment, even though Pines Plaza could not affirmatively seek to collect its indemnification judgment against Q-C from the Berkley Investors.

For these reasons, the Court of Appeals of Maryland affirmed in part and reversed in part the judgment of the Court of Special Appeals of Maryland, with directions to remand to the Circuit Court of Worcester County for further proceedings.