Gordon v. Lewis

215 Md.App. 298

81 A.3d 491

Kathy J. GORDON

v.Tammie L. LEWIS, et al.

No. 1505, Sept. Term, 2011.

Court of Special Appeals of Maryland.

Dec. 18, 2013.

Thomas J. Schetelich (Ferguson, Schetelich & Ballew, PA, on the brief), Baltimore, MD, for Appellant.

Catherine M. Manofsky & Kevin F. Arthur (Kramon & Graham, PA, on the brief), Baltimore, MD, for Appellee.

Panel: ZARNOCH, MATRICCIANI, J. FREDERICK SHARER (Retired, Specially Assigned).

SHARER, J.

In this appeal from a judgment of the Circuit Court for Worcester County we are asked to review the propriety of an arbitration award of punitive damages.

Seeking review of the circuit court's affirmance of the arbitration award, including punitive damages, appellant, Kathy J. Gordon, poses a single question, which, as slightly rephrased, asks:

Did the circuit court properly confirm an arbitration award of punitive damages that included an express finding of willful and wanton conduct?

We shall affirm.

FACTUAL and PROCEDURAL BACKGROUND

Because this appeal implicates only a question of law, we need not provide a detailed explication of the dealings between the parties that gave rise to this litigation. Washington v. State, 190 Md.App. 168, 988 A.2d 61 (2010). Nonetheless, we shall provide an overview of those facts.

Gordon, one of several defendants below,¹ began doing business with appellees, Tammie L. Lewis and William E. Lewis, Jr., in 1990, initially as a tax preparer. Later, in 2004, she became their financial and investment advisor. Tammie Lewis is a stay-at-home mother with a high school education; William Lewis works as a construction foreman. It is not disputed that the Lewises were unsophisticated investors.

During a prior employment, Tammie Lewis was exposed to asbestos. She developed mesothelioma, for which she received a settlement of $1,467,000. For the benefit of the Lewis children, Gordon established the Tammie L. Lewis Revocable Trust (“the Trust”), funded in large part by the proceeds of the asbestos settlement. Tammie Lewis and William E. Lewis, Jr. served as trustees of the Trust, as did Gordon until her removal in 2006.

On September 26, 2008, the Lewises, individually and as Trustees, filed a complaint in the Circuit Court for Worcester County against Gordon and the other defendants. The complaint alleged that as a result of defendants' fraud and misrepresentations, appellees invested several hundred thousand dollars in an unsecured, high-risk business venture owned and operated by Gordon's son. The investment consisted of high risk notes in Pomfret Plantation, LLC, a development property that was then in poor financial condition. Pomfret subsequently filed for bankruptcy, causing appellees to lose their entire investment.

The complaint alleged that at all relevant times, Gordon was employed by the other defendants and acted as an agent, employee, and representative of each of those entities. The claims asserted by the Lewis parties were: fraudulent misrepresentation, constructive fraud, concealment or non-disclosure,² negligent misrepresentation, and negligence. The complaint sought both compensatory and punitive damages.

Appellees alleged specifically that, relying on the advice of Gordon, they purchased two $100,000 notes investing in Pomfret Plantation, which falsely stated that they were secured by 520 acres of land in Somerset County. Further, Tammie Lewis made a loan to Pomfret Plantation of $50,000, which Gordon personally guaranteed. On November 21, 2005, Tammie Lewis received a $100,000 promissory note from Pomfret Plantation, assuring payment by June 30, 2006. Appellees never received payment on the Pomfret notes, although Gordon made repeated promises that high interest was being earned on investments in Pomfret Plantation. After June 30, 2006, Gordon's promises of payment continued, but payment was not forthcoming.

What appellees were never told by Gordon, and did not know, was that on May 22, 2006, Pomfret had filed a Chapter 11 bankruptcy petition. Appellees filed timely claims in the bankruptcy case but, because their notes were unsecured, they were treated as unsecured creditors. After foreclosure on the Pomfret assets, there were no excess funds to satisfy appellees' claims.

In response to appellees' suit in the Circuit Court for Worcester County, Gordon and the other defendants with whom Gordon had a mutuality of interest, moved to dismiss and filed petitions to compel arbitration before the Financial Industry Regulatory Authority (“FINRA”).³ Appelleesopposed the petition to compel arbitration. Ultimately, on August 21, 2009, the circuit court granted the petition to compel arbitration and referred all claims to FINRA for arbitration. Proceedings pending in the circuit court were stayed, pending the completion of arbitration.

Appellees re-filed their statement of claim before FINRA, in which they asserted the same factual allegations as in the complaint previously filed: fraudulent misrepresentation, constructive fraud, concealment or non-disclosure, negligent misrepresentation, negligence and negligent supervision. ⁴ Both compensatory and punitive damages were sought.⁵

The essence of appellees' complaint before FINRA is found in Count III, concealment or non-disclosure:

77. As the claimants' financial advisors and investment advisors, the respondents had a duty to disclose material facts to the Lewises regarding their investments.

78. The respondents failed to disclose material facts regarding the level of risk associated with investing in Pomfret Plantation and Pomfret Plantation's poor financial condition. Specifically, the respondents failed to disclose that the investments were unsecured, that there was a high level of risk associated with the investments, that there was a possibility that the Bills and the Note would not be repaid, and that Pomfret Plantation was struggling financially at the time the investments were made.

79. The respondents failed to disclose these material facts with the intent to deceive the claimants.

80. In failing to disclose these material facts, the respondents acted with actual malice, evil motive, an intent to injure claimants, ill will, and an intent to deceive claimants.

81. The respondents knew or should have known that the claimants would not have invested in Pomfret Plantation if they had known of the existence of the undisclosed facts.

82. The claimants justifiably relied upon the respondents' misrepresentations because the respondents were their investment advisors and had established a relationship of trust and confidence with the claimants.

83. The claimants suffered economic and noneconomic damages as a direct result of respondents' fraudulent concealment of material facts. Under Maryland law, the claimants are entitled to recover noneconomic damages that result from the fraud. Hoffman v. Stamper, 385 Md. 1, 38 [867 A.2d 276] (2005).

FINRA conducted a dispute resolution arbitration hearing from August 2–5, 2010. On August 9, 2010, the FINRA arbitration panel issued its award, as follows:

AWARD

After considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination as follows:

Respondents Gordon, GFS, MISI, TMG and TMAS are found jointly and severally liable and shall pay to Claimants compensatory damages in the amount of $250,000.00, plus interest at the rate of 6% per annum from December 31, 2005 until the date of payment of the award.

Respondents Gordon, GFS, MISI, TMG and TMAS are found jointly and severally liable and shall pay to Claimants punitive damages in the amount of $25,000.00. The majority of the Panel found that Respondent Gordon's actions were willful and wanton as she withheld information she knew about the investment.

Respondents Gordon, GFS, MISI, TMG and TMAS are found jointly and severally liable and shall pay to Claimants the sum of $600.00 representing reimbursement of the non-refundable portion of the claim filing fee previously paid by Claimants to FINRA Dispute Resolution.

Any and all relief not specifically addressed herein, including Claimants' request for attorneys' fees, is denied.

(Emphasis added).

Neither Gordon nor the other responsible parties moved to modify or correct the arbitration award. However, on August 31, 2010, Gordon and Gordon Financial Services filed a petition to vacate the award in the Circuit Court for Wicomico County, which, as subsequently noted by the trial court,⁶ was not the proper venue. Gordon subsequently filed for bankruptcy, and on September 9, 2010, filed a suggestion of bankruptcy in the Circuit Court for Wicomico County, resulting in a stay of all proceedings, pursuant to Section 362 of the United States Bankruptcy Code. 11 U.S.C. § 362. On March 25, 2011, the United States Bankruptcy Court for the District of Maryland issued an order lifting the automatic stay solely to permit appellees to go forward with proceedings “to confirm the arbitration award in their favor” against Gordon, as well as any appeals therefrom.

Appellees filed a petition to confirm the arbitration award and enter judgment against Gordon on March 29, 2011, in the Circuit Court for Worcester County, the proper venue.⁷ Gordon timely responded by opposing confirmation of the award. They also moved to vacate the arbitration award. Appellees maintained that the arbitration award should be entered pursuant to Md.Code, Courts & Judicial Proceedings (“CJP”) § 3–227(b) (2006 Repl.Vol.) which provides: “The court shall confirm the award, unless the other party has filed an application to vacate, modify, or correct the award....”

The court conducted a dispositive hearing on the respective motions, the primary focus being Gordon's motion to vacate the punitive damages awarded by the FINRA arbitration panel. Gordon argued that the FINRA arbitration panel exceeded its authority in awarding punitive damages. Gordon contended before the circuit...