Tuesday, January 30, 2007

Stratakos v. Parcells (Ct. of Special Appeals)

Filed January 30, 2007. Opinion By Judge Mary Ellen Barbera.

In this case, the Court affirmed the decision below in an appeal from an award of attorney's fees to the prevailing party in a real estate contract dispute, where the contract in question provided for the award of such attorney fees in a dispute "arising out of" the contract.

The appellants ("Stratakos") purchased improved real property in Montgomery County from the appellees ("Parcell ") in December 2000. pursuant to a written contract of sale. In connection with the contract, Parcells provided the mandated Maryland Residential Property Disclosure Statement (the "disclosure statement") to Stratakos; an addendum to the contract referred to the disclosure statement. Among other disclosures, Parcells stated that they were not aware of any defects in the structure of the property, nor of and previous wood-destroying insect infestations of or repairs to the property.

While doing renovations in August 2003, Stratakos discovered extensive damage in a covered crawl space,which they claimed was caused by wood-destroying insects, and in December, 2004 filed a complaint against Parcells, alleging fraudulent and negligent misrepresentations and breach of warranty, in that the statements in the disclosure statement were false. In addition to compensatory and punitive damages, Stratakos asked for attorney's fees pursuant to a provision in the real estate contract.

In late 2005 and early 2006, Parcells filed motions for summary judgment, denying the allegations, and the court granted the motions, upon finding that Stratakos had failed to show that they had incurred actual injury from the alleged misrepresentations, such as increased renovation costs. Subsequently, Parcells filed for costs and attorney's fees based on the same provision in the contract, and Stratakos filed a motion for reconsideration. The court granted costs and attorney's fees to Parcells, and denied the motion to reconsider, whereupon Stratakos appealed.

Stratakos claimed the provision allowing award of attorney's fees to the prevailing party did not apply to misrepresentations made in the disclosure statement, since such misrepresentations did not arise out of the contract. Parcells argued that Stratakos could only bring suit because the parties had entered into the contract, and that the disclosures are inexorably intertwined with the contract, and further that Stratakos had specifically referred to and relied upon the contract provision in requesting attorney's fees in the suit.

The Court began by noting the background law in Maryland that ordinarily a prevailing party may not recover attorney's fees, but noted that the parties did not dispute that, if applicable, the contract provision would be enforceable, rather instead disputing how the contract provision should be read. The Court further noted that Maryland adheres to the objective theory of contract interpretation, and that no Maryland case had directly addressed what is meant in a contract provision for attorney's fees by "a dispute . . . arising out of" the contract.

For guidance, the Court turned to Maryland and other cases interpreting "arising out of" language, such as CSX v. MTA (later affirmed in MTA v. CSX). After considering all of the relevant cases, the Court was persuaded that the dispute between the parties, even though focussed only on alleged misrepresentations in the disclosure statement, "flowed from" or "grew out of" the contract, and that the provisions of RP Art. Sec. 10-702, which mandate the disclosure statement, reflected the extent to which the disclosure statement is intertwined with the real estate contract itself.

This opinion is available in PDF format.

1 comment:

Steven G. Tyler said...

Having reviewed this case, I was left wondering what happened to the doctrine of merger? Ordinarily, unless the contract provisions specifically are noted to survive, *all* contract provisions are merged into the deed, and do not survive settlement and are no longer enforceable.

Here, neither the court nor (apparently) the parties even mentioned or explained why there is at this point even any contract provisions remaining to argue over!

In any event, this case is surely a cautionary tale about filing suit when you don't have a case. The plaintiffs got whacked with more than $30K of the defendants' attorneys' fees, not to mention costs and their *own* attorney's fees, all because they failed even to properly state their claims (and all this because of a little termite damage in an inaccessible area!). Of course, I could envision multiple levels of defense against their claims even if they *had* been properly stated . . . but that's a tale that will never need to be told! ;-)