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American Bank Holdings, Inc. v. Kavanagh

Court of Appeals of Maryland, Baltimore

December 30, 2013

AMERICAN BANK HOLDINGS, INC.
v.
BRIAN KAVANAGH and JEFFREY WEBER

Argued 10/8/13

Circuit Court for Baltimore County Case No. 03-C-11-000593

BARBERA, C.J. Harrell Battaglia Greene Adkins McDonald Watts JJ.

OPINION

BATTAGLIA, J.

American Bank Holdings, Inc., Petitioner, is engaged in the business of originating, making, and selling residential mortgage loans. Brian Kavanagh and Jeffrey Weber (collectively "Respondents") were employed by American as co-branch managers operating an office located at 9500 Harford Road, Baltimore, as well as originating residential mortgage loans. Respondents executed similar "Co-Branch Manager Employment Agreement[s]" with American, which, in relevant part, provided that American was to establish a "loss reserve"[1] account "funded with funds earned by the Employee." The amount to be deposited into this account was one-tenth of one percent "on all loan transactions"[2], and would "be used by [American] to pay any losses incurred by [American] with respect to the Branch Office" managed by Respondents. The agreements further provided that six months after termination of the agreements, Respondents were to be paid, "as a bonus, " twenty-five percent of what remained in the loss reserve and on the one-year anniversary of the termination, fifty-percent of what remained.

Respondents' employment agreements each contained an arbitration clause, which, in relevant part, provided: "Any controversy or claim, other than petitions for equitable relief, arising out of or relating to this Agreement, or breach hereof (including arbitrability of any controversy or claim), shall be settled by arbitration, in Bethesda, Maryland and in accordance with the laws of the State of Maryland . . . ."

Respondents terminated their employment agreements with American, but American allegedly failed to pay Respondents the funds due them from the loss reserve in accordance with the terms of their employment agreements. Respondents filed a "Complaint for Accounting"[3] in the Circuit Court for Baltimore County against American, after allegedly having "made numerous proper requests for statements and supporting documentation for the expenses, losses and/or any other monetary transaction that has contributed to the Loss Reserve Account for the period of [Respondents'] employment", believing that the amount due them was approximately $250, 000. Respondents, accordingly, demanded that "American be ordered by a decree of this Court to fully and completely account for all sums due [Respondents] in accordance with each [Respondent's] Co-Branch Manager Agreement, specifically the Loss Reserve Account" and requested such "further relief as this Court finds just and equitable."

American filed an Answer to Respondents' Complaint, generally denying many of Respondents' averments, specifically denying others, and asserting the affirmative defenses of accord and satisfaction and payment, as well as the "Preliminary Defense" that "this Court lacks jurisdiction to hear the case because [Respondents'] claims are subject to mandatory arbitration agreements set forth in the . . . Employment Agreements." The circuit court set deadlines that included one in which to file motions to dismiss within two weeks; it was within that deadline that American filed a "Petition to Compel Arbitration and Stay All Proceedings and Request for Hearing, " asserting that, because Respondents' claims arose out of their employment agreements, the court was required to compel arbitration.[4] Respondents, in response, filed an Answer to American's "Petition to Compel Arbitration and Stay All Proceedings and Request for Hearing, " arguing that their request for accounting was "a matter reserved for equity jurisdiction" and, therefore, their claim was not subject to arbitration under the terms of the arbitration clause.

Judge John Turnbull, II denied American's "Petition to Compel Arbitration and Stay All Proceedings and Request for Hearing, " without a hearing, by Order that, in its entirety, provided:

Upon consideration of Plaintiff's Answer to Defendant's Petition to Compel Arbitration and Stay All Proceedings and Request for Hearing in the above referenced matter, it is on this 27th day of May, 2011, hereby:
ORDERED that Defendant's Petition to Compel Arbitration and Stay All Proceedings and Request for Hearing is hereby DENIED.

American, then, filed a Notice of Appeal, which stated that "American Bank Holdings, Inc. hereby notes an appeal . . . to the Court of Special Appeals including but not limited to an appeal of the Court's May 27, 2011 Order denying Defendant's Petition to Compel Arbitration and Stay All Proceedings . . . in the action."[5]

The intermediate appellate court dismissed American's appeal, in an unreported opinion, concluding, inter alia, "[t]he denial of appellant's motion to compel arbitration is not final for the purposes of § 12-301[6] [of the Courts and Judicial Proceedings Article, Maryland Code (1974, 2006 Repl. Vol.)]. . . . In fact, the order was meant to keep the parties in court, not put them out of court." (emphasis in original). We granted American's Petition for Certiorari, American Bank Holdings v. Kavanagh, 430 Md. 644, 62 A.3d 730 (2013), to consider whether, "the denial of a motion to compel arbitration constitutes a final judgment under § 12-301 if a substantively equivalent petition could have been filed as a separate and independent action under § 3-207[7] [of the Courts and Judicial Proceedings Article, Maryland Code (1974, 2006 Repl. Vol.)]?" To explore this question we turn to the principles of appellate jurisdiction.

Under Section 12-301 of the Courts and Judicial Proceedings Article, Maryland Code (1974, 2006 Repl. Vol.), [8] a party may appeal from a final judgment entered in a civil case by a circuit court:

Except as provided in § 12-302[9] of this subtitle, a party may appeal from a final judgment entered in a civil or criminal case by a circuit court. The right of appeal exists from a final judgment entered by a court in the exercise of original, special, limited, statutory jurisdiction, unless in a particular case the right of appeal is expressly denied by law. In a criminal case, the defendant may appeal even though imposition or execution of sentence has been suspended. In a civil case, a plaintiff who has accepted a remittitur may cross-appeal from the final judgment.

A "final judgment" is defined as "a judgment, decree, sentence, order, determination, decision, or other action by a court . . . from which an appeal, application for leave to appeal, or petition for certiorari may be taken." Section 12-101(f) of the Courts and Judicial Proceedings Article. We have taken on the task to further refine just what constitutes a "final judgment." See Brewster v. Woodhaven Bldg. & Dev., Inc., 360 Md. 602, 609-10 n.1, 759 A.2d 738, 742 n.1 (2000); Peat, Marwick, Mitchell & Co. v. Los Angeles Rams Football Co., 284 Md. 86, 91, 394 A.2d 801, 804 (1978). In so doing, we have determined that a ruling of the circuit court, to constitute a final judgment, must be an "unqualified, final disposition of the matter in controversy, " Gruber v. Gruber, 369 Md. 540, 546, 801 A.2d 1013, 1016 (2002) (quotation omitted), which decides and concludes the rights of the parties involved or denies a party the means of further prosecuting or defending rights and interests in the subject matter of the proceeding. Nnoli v. Nnoli, 389 Md. 315, 324, 884 A.2d 1215, 1219-20 (2005). An order that has the effect of putting a party out of court is a final judgment, while an order that does not prevent a party from further prosecuting or defending rights is not a final judgment. Brewster, 360 Md. at 611-13, 759 A.2d at 742-43; Town of Chesapeake Beach v. Pessoa Constr. Co., Inc., 330 Md. 744, 750-51, 625 A.2d 1014, 1017 (1993); Horsey v. Horsey, 329 Md. 392, 401-02, 620 A.2d 305, 310 (1993).

The requirement that an order, to be a final judgment, must put a party out of court or otherwise terminate the proceedings has deep historical roots in Maryland, as Judge Irma Raker explained in Brewster:

Our cases pertaining to this question show that an order is final if it terminates the litigation in a particular court. The cases stating the general rule that a judgment terminating litigation is a final judgment date from an early period. As early as 1835, we were already referring to the "well established rule" that
no appeal can be prosecuted in this Court, until a decision has been had in the Court below, which is so far final, as to settle, and conclude the rights of the party involved in the action, or denying to the party the means of further prosecuting or defending the suit.
Boteler & Belt v. State ex rel. Chew & Co., 7 G. & J. 109, 112-13 (Md.1835). Thus, it is well settled that an order denying a party the ability to pursue claims anywhere is an immediately appealable final order. We have often reiterated this point, applying it over an extraordinarily long historical period and an impressively wide range of subject matter. . . . Peat & Co. v. Los Angeles Rams, 284 Md. 86, 91, 394 A.2d 801, 804 (1978) (a trial court's order denying a party's motion to disqualify opposing counsel was not an immediately appealable final judgment because it did not "determine and conclude the rights involved" or "deny the appellant . . . means of further prosecuting or defending his rights in the subject matter of the proceeding"); McCormick v. St. Francis de Sales Church, 219 Md. 422, 426-27, 149 A.2d 768, 771 (1959) (a trial court's order granting defendant's motion to strike plaintiff's initial pleading is an immediately appealable final judgment because "[t]he effect of the court's ruling was to put the plaintiff out of court and deny her the means of further prosecuting her case against the moving parties"); Jeffers v. State, 203 Md. 227, 229, 100 A.2d 10, 11 (1953) (a trial court's order dismissing father's petition to dismiss mother's petition charging him with a child support obligation was not an immediately appealable final judgment, because "an order of the Circuit Court which does not settle and conclude the rights of the parties, and does not deny to the parties the means of further prosecuting or defending the action, is not a final judgment"); . . . Bragunier v. Penn, 79 Md. 244, 245-46, 29 A. 12, 12 (1894) (a trial court's order dismissing plaintiff's petition was an immediately appealable final judgment "inasmuch as it denied the petitioner the means of further prosecuting his suit"); Gittings v. State, 33 Md. 458, 461, 462-63 (1871) (a trial court's order to submit to the jury the question of a defendant's residence for purposes of determining whether the court had personal jurisdiction was not immediately appealable because it was not "so far final as to settle and conclude the rights of the party involved in the action, or to deny to him the means of further prosecuting or defending the suit") . . . .

Brewster, 360 Md. at 611-12, 759 A.2d at 742-43 (alterations in original).

There are, however, interlocutory orders, [10] that do not fit within the traditional definition of a final judgment that have, by legislative fiat, under Section 12-303 of the Courts and Judicial Proceedings Article, [11] been deemed immediately appealable. See Nnoli, 389 Md. at 324, 884 A.2d at 1220. In addition, at common law, an order could be appealed as a collateral order under the "collateral order doctrine, " which permits immediate appeals from orders that: "conclusively determine the disputed question"; "resolve an important issue"; are "completely separate from the merits of the action"; and are "effectively unreviewable on appeal from a final judgment." Dawkins v. Balt. City Police Dep't, 376 Md. 53, 58, 827 A.2d 115, 118 (2003) (citations and quotations omitted); Town of Chesapeake Beach, 330 Md. at 755, 625 A.2d at 1019. An immediate appeal, under certain circumstances, also is permitted from an order certified by the trial court as final under Rule 2-602, [12] or a final judgment may be entered by an appellate court under Rule 8-602(e).[13] See Miller Metal Fabrication, Inc. v. Wall, 415 Md. 210, 221-22, 999 A.2d 1006, 1013-14 (2010); Silbersack v. ACandS, Inc., 402 Md. 673, 681, 938 A.2d 855, 859 (2008).

With respect to an order denying a petition to compel arbitration filed as an independent action, we have stated, in dicta, that such an order is appealable. Hartford Accident & Indem. Co. v. Scarlett Harbor Assocs. Ltd. P'shp, 346 Md. 122, 126 n.5, 695 A.2d 153, 155 n.5 (1997), citing Litton Bionetics, Inc. v. Glen Constr. Co., 292 Md. 34, 437 A.2d 208 (1981). In the present case, however, the appealability of an order denying a petition to compel arbitration filed in a case that is extant is at issue.

The denial of petitions to compel arbitration filed in existing actions has been the subject of two of our recent opinions, Addison v. Lochearn Nursing Home, LLC, 411 Md. 251, 983 A.2d 138 (2009) and Schuele v. Case Handyman & Remodeling Services, LLC, 412 Md. 555, 989 A.2d 210 (2010), which Respondents argue are dispositive of the instant action. We disagree.

In Addison, FutureCare-Lochearn, Inc., a nursing home, sued Beulah Addison for breach of contract, alleging that she was delinquent in paying for nursing home care and services. Ms. Addison counterclaimed, alleging she was unable to pay because a FutureCare employee embroiled her in a real estate scam, depriving her of equity in her former home and, thus, prevented her from paying the bill. FutureCare responded by filing an Answer generally denying liability, as well as a "Motion to Compel Arbitration of Counterclaims, Motion to Stay, and Request for Attorney's Fees, " asserting that Ms. Addison had signed a "Resident and Facility Arbitration Agreement, " requiring the submission of her counterclaims to arbitration. Addison, 411 Md. at 258, 983 A.2d at 142. FutureCare's motion was denied after a hearing and the circuit court refused to certify the order denying FutureCare's motion as final under Rule 2-602(b); FutureCare appealed, nevertheless.

Ms. Addison, in response, filed a "Motion to Dismiss the Interlocutory Appeal." Id. at 259, 983 A.2d at 143. The Chief Judge of the intermediate appellate court denied Ms. Addison's motion to dismiss and after oral argument a panel of the intermediate appellate court, upon FutureCare's request, certified the denial of the motion to compel arbitration as a final judgment under Rule 8-602(e) and reversed the decision of the circuit court denying that motion. Ms. Addison petitioned for certiorari and initially presented the question of whether the Court of Special Appeals erred in compelling arbitration of her counterclaims[14]; after oral argument, "we requested the parties to submit supplemental briefs and to argue an additional issue, " which was:

Assuming that the denial of the motion to compel arbitration and to stay the judicial proceedings in the present case is not appealable as a final judgment, does Section 12-303(3)(ix) of the Courts and Judicial Proceedings Article permit an appeal as an appealable interlocutory order?

Id. at 261, 983 A.2d at 144 (emphasis added).

We initially determined that the Court of Special Appeals erred in certifying the circuit court's decision as a final judgment under Rule 8-602, when the trial court was asked to certify that same order as final pursuant to Rule 2-602, but declined to do so. We turned, then, to whether the order denying FutureCare's motion to compel arbitration filed in an existing action was appealable under Section 12-303 of the Courts and Judicial Proceedings Article or under the collateral order doctrine, answering both questions in the negative. Addison, however, is not dispositive of the issue presented in the instant case because we operated under the assumption that the order denying FutureCare's motion to compel arbitration was not a final judgment under Section 12-301 of the Courts and Judicial Proceedings Article, which now is directly presented in the present case.

Shortly after deciding Addison, in Case Handyman, [15] we addressed the question of whether an appellate court could certify as a final judgment, pursuant to Rule 8-602, an order denying a motion to compel arbitration filed in an existing action when the trial court was not petitioned to certify that order as final under Rule 2-602. In the case, the Schueles entered into a home improvement contract with a franchisee of Case Handyman and, after months passed without work commencing, eventually filed a class action suit against Case Handyman alleging, inter alia, breach of contract and fraud. Case Handyman, in response, filed a "Motion to Dismiss, or in the Alternative, to Compel Arbitration and Stay Proceedings, " which was initially granted, but the order granting the motion was later stricken. Case Handyman, 412 Md. at 562, 989 A.2d at 214. Case Handyman noted an immediate appeal to the Court of Special Appeals, which reversed the circuit court's denial of Case Handyman's motion to compel arbitration. The Schueles petitioned for a writ of certiorari presenting three questions relating to the merits of the case, [16] but because we had issued our decision in Addison, after oral argument in the case, "[w]e requested the parties to submit supplemental briefs to the Court to address whether Addison was dispositive of the jurisdictional issue . . . ." Id. at 564 n.5, 989 A.2d at 215 n.5.

We concluded, after supplemental briefing, that although Case Handyman had not requested that the circuit court certify its order denying its motion to compel arbitration filed in an existing action as final under Rule 2-602, as had the moving party in Addison, we could not so certify that order as final, under Rule 8-602, because, in order to do so, the order must be "final in the traditional sense, " which we opined is not the case with an order denying a motion to compel arbitration filed in an existing action, because the case remained in court as a result. Id. at 570-72, 989 A.2d at 215-16. Although the Case Handyman analysis is suggestive of the result in the present case, it is not dispositive, because the certification issue was evocative of the holding.

In the present case we are squarely presented with whether a circuit court's denial of a motion or petition to compel arbitration filed in an existing action is a final judgment and, therefore, immediately appealable, without regard to certification by a trial or appellate court. American argues that an order denying its petition to compel arbitration is an appealable final judgment regardless of whether it was filed as an independent action or filed in an existing action.

In order to address this issue, we turn to the provisions of the Maryland Uniform Arbitration Act ("MUAA"), enacted in 1965. Enactment of MUAA was intended to eviscerate the "well-established" common law rule that "unless an agreement to arbitrate has been consummated by an award, it will not bar a suit at law or in equity with respect to the question agreed to be arbitrated." Tomlinson v. Dille, 147 Md. 161, 167, 127 A. 746, 748(1925) (citation omitted). MUAA's purpose was "to provide for enforcement of written agreements to submit existing and future controversies to arbitration, to provide for court proceedings to compel or stay arbitration pursuant to written agreements, " and "to provide procedures by which arbitration may be had" in Maryland. 1965 Maryland Laws, Chapter 231. MUAA was codified as Sections 1 through 23 of Article 7, Maryland Code (1957, 1968 Repl. Vol.). The only provisions with which we are concerned ...


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