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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND BALTIMORE SCRAP CORP. : : v. : : THE DAVID J. JOSEPH CO., et al. :

CIVIL NO. L-96-827

MEMORANDUM This is an antitrust suit. Before this Court are the Because the parties

defendants' motions for summary judgment.

have extensively briefed the issues, the Court will dispense with a hearing. See Local Rule 105.6 (D. Md. 1999). For the

reasons stated herein, the Court will, by separate Order, grant the defendants' motions and close the case. I. Introduction Because of the complexity of the facts, a brief introduction may be useful. In 1991, the plaintiff, the

Baltimore Scrap Company, ("Baltimore Scrap" or "BSC"),1 proposed installing a new scrap metal shredder in the Fairfield section of Baltimore City. approval from the City. The proposal required zoning

A coalition of citizens groups openly

During the events giving rise to this lawsuit BSC was known as Brooklyn Salvage Corporation. For the sake of clarity, the parties have used "Baltimore Scrap" to refer to both the present corporation and its predecessor, a practice the Court will adopt.

1

opposed the shredder on environmental grounds.

The

defendants,2 who owned an existing shredder and did not welcome the competition, secretly set about to thwart BSC's zoning application. After initially rejecting it, the Board of Municipal Zoning Appeals (BMZA) approved Baltimore Scrap's application on August 6, 1992. The defendants had standing to appeal the The

BMZA's decision to the Circuit Court for Baltimore City.

defendants were concerned, however, that an appeal in their name, a competitor with a spotty environmental track record, would lack credibility.3 The defendants decided that

bankrolling an appeal by a citizens group, while masking their own involvement, presented a better strategy. To carry out their plans, the defendants contacted an attorney and offered to pay him if he were, in turn, approached by the citizens groups. An employee of one of the defendants'

subsidiaries (Marlen Trading Company), posing as a "concerned local business," approached the citizens groups, offering that if the citizens wished to pursue an appeal of the BMZA decision, Marlen would pay their legal costs, including

There are two sets of defendants in this case, all of whom are past or present owners of the existing shredder. The relationship among the various defendants and their involvement with this case are explained later in this Memorandum. The defendants anticipated that part of the appeal would raise environmental issues. 2
3

2

attorneys' fees.

The employee also steered the citizens to the The

attorney whom the defendants had already contacted. citizens groups accepted the offer.

Neither Marlen nor the

attorney told the citizens that the defendants, rather than an environmentally concerned local business, were behind the appeal. Over the next seven months, the defendants were actively, albeit clandestinely, involved in the citizens' appeal. defendants paid the bills, reviewed the pleadings, and suggested strategies. Eventually, however, the defendants' The

involvement in the zoning litigation came to light through what the parties refer to as the "errant fax." Ultimately, Baltimore Scrap's application was successful and its shredder was built. BSC argues, however, that the

appeal delayed the installation of the shredder by approximately eighteen months. Claiming fraud and violation of

the antitrust laws, the plaintiff filed the instant suit. The Court finds the defendants' actions deceitful and underhanded. This is a conclusion reached not only by this

Court, but also by the defendants' own antitrust attorney. Concerned that their secret role in the zoning appeal might expose them to antitrust liability, the defendants consulted Richard Wertheimer, a partner at the Washington, DC law firm of Arnold & Porter. Wertheimer advised the defendants that their

3

actions, while probably not illegal, were unworthy of a respectable business. Although morally wrong, the defendants' disguised role in the zoning appeal was not illegal. Under the Noerr-Pennington

doctrine, a company may, even secretly and for anticompetitive purposes, sponsor a lawsuit against a competitor, so long as the lawsuit is neither a sham, meaning that it is not objectively baseless, nor fraudulent. The appeal was not sham litigation. Although ultimately

unsuccessful, the citizens' appeal raised bona fide legal issues, including (i) whether the citizens had standing to appeal, and (ii) whether the BMZA had used the appropriate legal standard in authorizing a zoning permit for the new shredder. Nor do the defendants' actions add up to fraud. errant fax unmasked the defendants' involvement in the litigation before the Circuit Court for Baltimore City had issued its final decision. Baltimore Scrap has not shown that The

the litigation would have been shorter had the courts known from the outset that the defendants were clandestinely financing and advising the appeal. Nor is there evidence that

any judicial rulings were predicated upon the misassumption that the citizens, and the citizens alone, were pressing the appeal.

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This Opinion is not meant to condone the defendants' tactics. The Court agrees with Attorney Wertheimer that the At

defendants' actions were unworthy of a legitimate business. the same time, however, the Court finds that the defendants' actions fell short of violating the antitrust laws.

II. Factual Background A. Litigation Timeline The following summarizes the major events in the history of the zoning litigation: July 1991: Baltimore Scrap Company leased Carbon Avenue junk yard site. November 25, 1991: BMZA rejected BSC's application for a construction permit. Vote was 3-1 in favor

of issuing the permit, but four votes were required for approval. August 6, 1992: BMZA approved BSC's second application for a construction permit. The Board found the

second application substantially different from the first. The language of the

Board's decision appeared to classify the proposed shredder as a material recovery facility (MIRF). Such a classification

would be incorrect, because a MIRF: (i) is

5

not authorized to accept certain types of metal which the shredder was to process, and (ii) must be contained in an enclosed facility. August 27, 1992: Citizens groups, represented by David Irwin, filed an appeal of the BMZA's decision in the Circuit Court for Baltimore City. October 13, 1992: Gloria Sipes moved to intervene as a plaintiff in the zoning appeal. Shortly

thereafter, BSC moved to dismiss the zoning appeal, arguing the citizens groups lacked standing and Sipes's Motion to Intervene was time-barred. December 7, 1992: Hearing on procedural motions held before Judge Thomas Ward. Judge Ward granted Ms.

Sipes's Motion to Intervene and denied BSC's Motion to Dismiss. January 7, 1993: Hearing on the merits of the zoning appeal held before Chief Judge Robert I.H. Hammerman. Chief Judge Hammerman approved He

of Judge Ward's procedural rulings.

further ruled that substantial evidence supported the Board's conclusion that the

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1992 application was substantially different from the first. He remanded the

case to the BMZA, however, so that the Board could explain why it had classified the shredder as a MIRF. February 25, 1993: Hearing before Chief Judge Hammerman on Baltimore Scrap's motion to alter or amend judgment. affidavit. BSC produced the Gadhia The affidavit stated that: (i)

the Board's reference to the MIRF provisions was unintentional; and (ii) the BMZA made a clerical error in classifying the proposed shredder as a MIRF. According

to Gadhia, the shredder should have been considered a structural alteration to a junk yard conditional use. With this

correction, the BMZA's decision was now internally consistent and correct, Gadhia explained. March 1, 1993: Chief Judge Hammerman accepted the Gadhia affidavit even though it was not part of the administrative record, and was written after the record had been transmitted to the Circuit Court for Baltimore City.

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Chief Judge Hammerman decided that the Gadhia affidavit cured the inconsistencies in the BMZA decision. granted Accordingly, he

BSC's motion to alter or amend

judgment by (i) not remanding the case to the BMZA, and (ii) affirming the BMZA's decision. March 24, 1993: The involvement of the defendants was first exposed with the transmission of the errant fax. March 25, 1993: The citizens groups moved to stay enforcement of Chief Judge Hammerman's ruling pending appeal to Court of Special Appeals. April 3, 1993: Irwin met with leaders of the citizens groups and revealed the identity of their benefactors. After discussion, the

citizens groups decided to continue with the appeal. April 23, 1993: Chief Judge Hammerman denied the citizens groups' Motion to Stay Enforcement, and stated he perceived the hand of United Holdings in the appeal. January 7, 1994: Court of Special Appeals remanded the case

8

with instructions to dismiss the appeal, holding the citizens groups lacked standing and Sipes's intervention was time-barred.

B.

The Metal Shredding Industry Shredding companies buy scrap metal, shred the metal, and

sell the processed scrap to steel mills, foundries, and scrap metal brokers. and reprocessed. Eventually, the shredded scrap is melted down Shredders operate on a narrow profit margin,

representing the difference between the price they must pay for scrap (e.g. junked cars and dishwashers) and the price they receive from mills and brokers. Competition from another

shredder squeezes the profit margin by driving up the scrap metal price and driving down the price of processed scrap. Prior to the events giving rise to this lawsuit, the United Iron & Metal Company operated at 2545 Wilkens Avenue in southwest Baltimore the only shredder in the metropolitan area. Before 1990, the United shredder was owned by the defendants referred to during this litigation as the "Shapiro defendants."4

The Shapiro defendants are: I.D. Shapiro; James Shapiro; Charles Baum; United Holdings Co., Inc. (a successor to United Iron & Metal); United Operating Co., Inc.; and United Investment Enterprises Partnership. The plaintiff's complaint focuses on the actions on I.D. Shapiro. Based upon papers presented to the Court, James Shapiro and Charles Baum played minor roles in the events giving rise to this lawsuit. Because judgment is being 9

4

In September, 1990, the David J. Joseph Company ("DJJ") bought the United Iron & Metal shredder from the Shapiro defendants. DJJ, which is based in Cincinnati, Ohio, is the The deal was

largest metal recycler in the United States.5

structured so that the Shapiro defendants retained a financial interest in the Wilkens Avenue operation. Metal recycling and shredding can create significant environmental problems. Cars and refrigerators contain many Freon,

other materials besides valuable steel scrap.

upholstery, plastics, and a host of other "contaminants" must be removed either before or during shredding. In such a low

margin business, shredders have an economic disincentive to spend money controlling and containing the non-salable byproducts. Over the years, community and environmental groups

lodged repeated complaints about excessive noise and pollution coming from the United Iron & Steel's Wilkens Avenue plant. See, e.g., Plaintiff's Exh. 26. David Simon, the president of Baltimore Scrap, operated a recycling business in Pennsylvania. Seeking to expand, Simon In the face of

sought to open a shredder in New York State.

entered in favor of all the Shapiro defendants, the Court has not been called upon to determine whether James Shapiro and Charles Baum are more than nominal defendants. The amended complaint named as additional defendants the David J. Joseph Co. ("DJJ") and the manager of its Baltimore facility, David J. Workum, III. 10
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community opposition, however, his permit was denied. already purchased the shredding machine intended for installation in New York, Baltimore Scrap looked for an alternative location.

Having

In July 1991, Baltimore Scrap leased a junk yard located at 1600 Carbon Avenue in Baltimore. The owner, Mr. Frank

Gambel, had installed and operated two shearers, which were a more primitive type of metal recycling machinery. After

leasing 1600 Carbon Avenue, Baltimore Scrap closed down the shearers and began cleaning the lot in preparation for the new shredder. Prior to Baltimore Scrap's public announcement, DJJ received word of the new potential competitor. On July 18,

1991, DJJ's Baltimore manager, David Workum, sent a memo to DJJ executive James Breth. See Plaintiff's Exh. 12. Workum wrote

that he had heard "in the past three to six months" that BSC was planning to install a shredder. the scenes to block BSC: Through connections of I.D. Shapiro and Warren Rich, we are trying to block Brooklyn's move to install a shredder. . . . Warren Rich is attempting to find any EPA problems Simon may have had [elsewhere], again to discredit his permitting attempt. Warren is handling all this so as to keep DJJ and United's name out of the picture.6 Id. DJJ began working behind

Warren Rich was an attorney representing DJJ. At the time he was affiliated with the firm of Graham and James. 11

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Prior to any zoning application being filed, DJJ (i) knew Baltimore Scrap intended to become a competitor in the Baltimore scrap market, (ii) was seeking ways to prevent that from happening, and (iii) realized that it would be unwise for a shredder company with its own environmental problems publicly to oppose Baltimore Scrap's application.

C.

The 1991 Zoning Hearing In September 1991, Baltimore Scrap filed an application

with the Baltimore zoning administrator for a permit to install the new shredder at the Carbon Avenue site. Defendants' [hereinafter "DJJ"] Exh. A1. See DJJ

Because BSC's

application called for structural alterations to a conditional use, the application, under Baltimore zoning regulations, was automatically appealed to the Baltimore Board of Municipal and Zoning Appeals ("BMZA"). The appeal was apparently de novo,

meaning that the BMZA could consider testimony and decide issues of fact. DJJ continued to investigate ways to prevent Baltimore Scrap's entry into the scrap metal market. Two attorneys

working for DJJ, Warren Rich and Timothy Henderson, contacted the Maryland Department of the Environment to determine if BSC had ever been the subject of any environmental investigations. See Plaintiff's Exh. 24. As early as July 1991, I.D. Shapiro

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and his attorney, Isaac Neuberger,7 contacted several city officials and political figures to voice their objections to Baltimore Scrap's application. See Plaintiff's Exh. 1 at 38-

41; Second Dep. of I.D. Shapiro at 570-72, 580-82.8 Concerned about the antitrust implications of these activities, DJJ, on November 6, 1991, consulted Richard J. Wertheimer of Arnold & Porter. Wertheimer advised DJJ Vice

President Stephen Wulff that legitimate petitioning of the government was protected by the Noerr-Pennington doctrine, but lying or deceit was not. Dep. of Stephen Wulff at 90-94.

Through Attorney Timothy Henderson, DJJ, on November 19, 1991, submitted to the Baltimore Department of Planning and Zoning a study of the Baltimore scrap market. The report,

prepared by DJJ, inferred that the new shredder was not needed because the shredding capacity of the Baltimore market exceeded the demand.9
7

See DJJ's Exh. D12.

Neuberger's law firm, Neuberger, Quinn, Gielen, Rubin & Gibber, P.A., is called "The Neuberger Firm" by parties, and will be so called by the Court. DJJ officials were aware of Shapiro's efforts. Plaintiff's Exh. 21.
9 8

See

BSC contends the conclusions reached in the Henderson report are false. BSC claims the defendants underestimated the amount of scrap available in the Baltimore area by assuming that No. 2 steel, including white goods, automobile bumpers, and portions of automobile fenders, cannot be shredded. See Aff. of David M. Simon, Plaintiff's Exh. 3. The defendants, on the other hand, assert they used standard industry assumptions in making their estimates. This dispute is not material, because there is no evidence that the zoning authorities gave any consideration to 13

On the same day, the BMZA held its hearing on Baltimore Scrap's application. A number of individual citizens and

citizens groups appeared to testify against the application. Many of the witnesses cited environmental objections. Plaintiff's Exh. 4. See

On November 25, 1991, the BMZA voted 3-1 Because four votes were The

in favor of the zoning variance.

required for approval, the application was denied.10 member casting the opposing vote cited environmental reservations. See BMZA Resolution, DJJ Exh. A5.

D.

The 1992 Zoning Hearing and Initial Appeal In the summer of 1992, Baltimore Scrap again sought

approval from the zoning board for a construction permit.11 Under Baltimore City zoning law, a zoning application disapproved by the BMZA cannot be considered again by the Board for one year. The one-year waiting period does not apply if

the application is "substantially" different from the one previously rejected. In this case, BSC argued that the 1992

application was substantially different because it proposed to

the Henderson report.
10

See Part III.B.3.c, infra.

One of the five BMZA members was absent, meaning that a unanimous vote in favor of Baltimore Scrap would have been required. As in 1991, the decision of the zoning administrator was automatically transmitted to the BMZA for review. 14
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protect groundwater by paving the site with concrete and installing an oil/water separator. The BMZA accepted BSC's

argument and considered the second application before the oneyear waiting period had expired. See DJJ Exh. B6.

Many of the same citizens groups that had opposed the 1991 application again appeared before the Board. This time,

however, the BMZA was apparently convinced that the proposal had sufficient environmental safeguards. Baltimore Scrap prevailed: On August 6, 1992,

the BMZA issued a written decision See DJJ Exh. B8. In the

granting the construction permit.

text of its decision, however, the BMZA erroneously referred to the shredder as a material recovery facility ("MIRF"). As will

be seen, this clerical error was to cause problems for the BMZA and Baltimore Scrap, because a MIRF is not authorized to accept certain varieties of ferrous metals which the shredder was intended to process. In addition, a MIRF must be contained in

an enclosed facility, which the proposed shredder was not.12 I.D. Shapiro discussed with his Attorneys, Rich and Neuberger, the option of filing an appeal in United Holdings's name. See Plaintiff's Exh. 1 at 16. As a taxpayer, United

Holdings would have enjoyed standing to appeal the BMZA's decision to the Circuit Court for Baltimore City.
12

The group

As stated in Part II.E infra, the Board did not intend to classify the shredder as a MIRF. As explained in the Gadhia affidavit, the Board's decision mistakenly quoted provisions of the zoning code relating to a MIRF. 15

was concerned, however, that an appeal by a competitor, especially one with a spotty environmental track record, would lack credibility. Instead, the group struck upon the idea of funding an appeal by the citizens. At the defendants' behest, an official

of the Marlen Trading Company13 approached Gloria Sipes, the president of the Community of Curtis Bay Association ("CCBA"). The defendants chose Ms. Sipes because she had spoken in opposition to Baltimore Scrap's application. The Marlen

official told Sipes that "local businesses" wanted to fund an appeal, and that if interested she should contact attorney David Irwin. On August 24, 1992, Ms. Sipes called Irwin. See

Dep. of David Irwin at 25.

Isaac Neuberger had already spoken

with Irwin, promising that he would be compensated if he represented the citizens groups. See id. at 27-28.

The defendants devised a roundabout scheme to handle payments to Irwin. Irwin submitted bills to CCBA. See, e.g.,

Plaintiff's Exh. 14.

Sipes transmitted the bills to Marlen Sipes, in turn, endorsed

Trading, which wrote checks to CCBA. the checks to Irwin's firm. Trading for its outlays.

DJJ later reimbursed Marlen

See Plaintiff's Exhs. 15 & 16.

On August 27, 1992, Irwin filed an appeal on behalf of the citizens groups in the Circuit Court for Baltimore City.
13

The

I.D. Shapiro owned a "substantial interest" in Marlen Trading. See DJJ Mem. Supp. Summ. J. at 18. 16

named appellants were three citizens groups: Community of Curtis Bay Association Inc., Concerned Citizens for a Better Brooklyn, Inc., and Maryland Waste Coalition. The names of

Shapiro, DJJ, and United Iron & Metal did not appear on the court papers. See DJJ Exh. C1.

The appeal asserted three grounds for reconsideration of the zoning board's decision: (i) that Baltimore Scrap's second application was not substantially different from its first application; (ii) that the zoning board had improperly classified Baltimore Scrap's facility as a "MIRF" (material recovery facility), whereas in fact a MIRF is not authorized to accept certain ferrous metals the shredder would be processing; and (iii) if the facility were properly classified as a MIRF, then the Board's decision was also erroneous because it misquoted and misconstrued provisions of the zoning code pertaining to enclosure requirements of a MIRF. On October 13,

1992, Irwin moved to add Gloria Sipes as a plaintiff. Baltimore Scrap filed two procedural objections to the appeal. It opposed Ms. Sipes's Motion to Intervene as time-

barred, and it moved to dismiss the appeal on the grounds that the citizens groups lacked standing because they were neither taxpayers nor "aggrieved persons". See BSC Motion to Dismiss The

or In the Alternative, for Summary Judgment, DJJ Exh. C10. procedural motions were assigned to Judge Thomas Ward, an

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Associate Judge of the Circuit Court for Baltimore City, who held a hearing on December 7, 1992.14 Judge Ward granted the

Motion to Intervene (adding Gloria Sipes as a plaintiff), and denied Baltimore Scrap's Motion to Dismiss. See DJJ Exh. C16.

The zoning case on its merits was assigned to Chief Judge Robert I.H. Hammerman of the Circuit Court for Baltimore City. During a hearing on January 7, 1993, Chief Judge Hammerman commented upon and approved Judge Ward's earlier procedural ruling. He stated: "[W]ithout having heard oral argument, if

I were to have made the decision last night after all my research on this and reading the authorities, I would have decided the same way." 5. During the hearing, Chief Judge Hammerman also ruled that substantial evidence supported the BMZA's determination that the second application was substantially different from the first. At the same time, however, he observed that he might Transcript of Hearing, DJJ Exh. C19 at

have ruled differently had the standard of review offered him more latitude: "I'm not saying that if I were to decide it

totally unencumbered, so to speak, that I would find the same way as the Board."15
14

Id. at 27.

Unfortunately, there is no transcript of the December 7 hearing because of a mechanical problem with the court reporter's recorder. On appeal to the Circuit Court, a zoning board's decision must be upheld if supported by substantial evidence. See, e.g., 18
15

Chief Judge Hammerman nevertheless remanded the case to the BMZA for reconsideration of the plaintiffs' second and third arguments: to wit, that the Board had misclassified the

application as a MIRF, and that the proposed facility would not meet the requirements of a MIRF. Addressing Baltimore Scrap's

arguments that the classification was simply a clerical error, Chief Judge Hammerman stated: I am not prepared to say this was a slip of the pen, a slip of the tongue.... There are several places on page two, and even on page three, which would clearly indicate that the Board is looking upon this as a materials recovery facility.... So I just cannot share the argument or the characterization by the Appellees that this means nothing, this language, [is] simply to be totally ignored. Id. at 28. Both the DJJ and Shapiro defendants were closely involved with the citizens' appeal. I.D. Shapiro paid Irwin's legal Isaac Neuberger and I.D.

fees via Marlen Trading Company.

Shapiro communicated with Irwin concerning strategies for the case. See Plaintiff's Exhs. 13 & 47. Thomas "Sam" Wood, a

member of the Neuberger firm, forwarded copies of the pleadings to I.D. Shapiro, noting that Irwin "is representing our interest." Plaintiff's Exh. 30. Irwin admits he sent "most,

if not all" of his pleading drafts to Wood, and that the Neuberger firm was a "resource in this case." Irwin at 35. Dep. of David

In contrast, Mr. Irwin did not submit these

Aaron v. City of Baltimore, 207 Md. 401, 406, 114 A.2d 639 (1955). 19

drafts to Ms. Sipes or the citizens groups for prior approval. See id. At the same time, both the DJJ and Shapiro defendants continued to mask their involvement.16 appeared on the papers. Their names never

The citizens groups were not told who

(beyond Marlen Trading Company) was funding their appeal.17 See, e.g., Deps. of Gloria Sipes at 213, Doris McGuigan at 25, Delores Barnes at 43. Neither Gloria Sipes nor the citizens

groups were told that I.D. Shapiro and his personal attorneys were vetting the pleadings and suggesting strategies. The plaintiffs did, however, have hints that the defendants were involved in the zoning appeal. On August 25,

1992, Colleen Darden, a BSC employee, received a call from a

The plaintiff argues that the defendants concealed their identity, in part, because had the citizens groups known a competing shredder company, with environmental problems of its own, was funding the appeal they would not have accepted the assistance. See, e.g., Dep. of Gloria Sipes at 142, 213. During discovery in the instant case, Ms. Sipes and others were questioned as to what their reaction would have been had they known of the Shapiro defendants' role. The citizens' reactions were mixed. All said they would have been upset. Some testified that they would probably have accepted the money. Others testified that in retrospect they would have rejected the funding, even though without Marlen's financial support, the appeal would not have been possible. See infra Part III.B.3.a. Defendants point out that I.D. Shapiro's interest in Marlen Trading is on file with the Maryland Department of Assessments and Taxation and is therefore a matter of public record. While Defendants are correct, a technical corporate filing hardly amounts to disclosure to a citizen group. 20
17

16

person identifying himself as William Thomas.18

Thomas said

that "United Iron & Metal gave the people who were fighting us a very large sum of money...." the message to David Simon. David Simon at 426. DJJ Exh. D37. Darden forwarded

See February 18, 1998 Dep. of

E.

Reconsideration of Chief Judge Hammerman's Ruling and

Court of Special Appeals Decision Baltimore Scrap requested Chief Judge Hammerman to reconsider his decision to remand the case to the BMZA.19 support of its motions, BSC submitted an affidavit it had obtained from BMZA chairman Lalit Gadhia ("the Gadhia affidavit"). DJJ Exh. C26. Gadhia stated that the Board's In

August 6, 1992 decision had mistakenly cited provisions of the zoning code relating to a material recovery facility (MIRF). The decision should have instead referred to a structural alteration to a junk yard conditional use.20

The true identity or affiliation of "William Thomas" remains unknown. On or about January 18, 1993, Baltimore Scrap filed Motions for a New Trial, to Alter or Amend Judgment, and to Revise Judgment. See DJJ Exh. C20. A material recovery facility (MIRF) is not authorized to accept certain varieties of ferrous metals which BSC was to process. It must also be completely enclosed. The citizens groups argued that by approving the BSC shredder as a MIRF, the Board had applied an incorrect statutory standard. By explaining the references to a MIRF as a mistake, the Gadhia affidavit made 21
20 19

18

On February 25, 1993, Chief Judge Hammerman held a hearing on Baltimore Scrap's motions. Benjamin Rosenberg, counsel for

Baltimore Scrap, conceded that the BMZA's decision was confusing, but stated that the confusion was cleared up by the Gadhia affidavit. Rosenberg argued: "The Court's confusion

and our confusion was perfectly understandable in light of the way this decision was written. We now know unmistakably and Transcript of hearing,

indisputably that that was a mistake." DJJ Exh. C27 at 23.

Over Irwin's objections, Chief Judge Hammerman accepted Gadhia's affidavit and found it persuasive proof that the Board did not intend to classify BSC's shredder as a MIRF. the MIRF classification was a clerical error. Rather,

The BMZA

intended instead to approve the application as a structural alteration to a junk yard conditional use, which was authorized under Baltimore zoning code to accept a full range of ferrous metals.21 Chief Judge Hammerman granted BSC's Motion and This meant BSC's

affirmed the BMZA decision of August 6, 1992. permit would issue.

The defendants' covert involvement during the appeal

the Board's decision internally consistent. Although the parties disagreed over the meaning of the term "structural alteration to a junk yard conditional use," Chief Judge Hammerman stated that the affidavit proved the "Board was approving the application for the uses requested." DJJ Exh. C27 at 27. 22
21

continued.

I.D. Shapiro met with DJJ President Louis Terhar on

February 23, 1993 and asked Terhar to reimburse him for the legal expenses he had incurred in fighting BSC's zoning application. Shapiro boasted he had "saved him [Terhar] so far Dep. of I.D. Shapiro at

by full-time maneuvering two years." 515-16.

On March 1, Terhar agreed to fund further appeals.

Dep. of Louis Terhar at 6-11. The defendants' cloak of secrecy began to unravel on March 24, 1993. David Workum intended to fax to Attorney Warren Rich

a copy of a draft motion to stay Chief Judge Hammerman's ruling. Instead, the fax was mistakenly sent to a third party, Workum had obtained

Harry Lenick, a Pittsburgh scrap dealer.22

the draft from the Neuberger Firm, which had in turn received it from Irwin. Upon receiving the "errant fax," Lenick

forwarded it to Baltimore Scrap's President David Simon. The following day, March 25, Irwin, on behalf of the citizens groups, moved to stay enforcement of Chief Judge Hammerman's judgment pending appeal to the Maryland Court of Special Appeals. See DJJ Exh. 29. In its opposition

memorandum, Baltimore Scrap drew the Court's attention to the errant fax, arguing that the citizens groups were only acting as "surrogates" for the real parties in interest, United Holdings and persons associated with United.
22

Baltimore Scrap

This transaction has come to be known in the litigation as the "errant fax." 23

also demanded the citizens groups post a supersedeas bond pending the appeal. In a reply brief filed April 16, 1993, Irwin, arguing for the citizens groups, stated, "United is not, openly or `under the table,' the real party in interest in this case, and has in no way `enlisted Appellants to serve as United's stalking horse to prosecute the appeal' of the Board's decision." C37 (quoting BSC opp. mem.). DJJ Exh.

Irwin further argued that a bond

was inappropriate, in part because the citizens groups and Ms. Sipes lacked sufficient funds to obtain one. Id.

Around the same time, in late March, Wulff again consulted with attorney Richard Wertheimer of Arnold & Porter. After

discussions with both Wulff and Wood, Wertheimer advised Wood that Irwin had an ethical obligation to disclose to Ms. Sipes and the citizens groups the source of the financial support for their appeal. On April 3, Irwin met with leaders of the citizens groups and revealed the involvement of United Holdings, I.D. Shapiro, and Marlen Trading in funding the appeal. At least some of the

groups' leaders were "upset" and "disappointed" about the identity of their benefactor, but, after a lengthy discussion, they decided to press on with their appeal. See Deps. of David

Irwin at 411-27, Gloria Sipes at 120-21, 248, Mary Rosso at 60. On April 23, 1993, Chief Judge Hammerman held a hearing on

24

the citizens groups' motion to stay enforcement.

Chief Judge

Hammerman questioned Irwin concerning the involvement of the defendants: CHIEF JUDGE HAMMERMAN: MR. IRWIN: CHIEF JUDGE HAMMERMAN: Mr. Irwin -Yes, sir. You state, with respect to the [s]talking horse matter, that the only people you represent are the good people sitting here who are neighbors and residents. That is absolutely correct. * * * How do you explain the affidavit [of Mr. Lenick] and how do you explain that Exhibit A [the errant fax]? I don't believe I have to explain it, Your Honor, in the sense that my law firm hasn't been sending anything -- I mean, there is nothing in this affidavit that says my law firm is involved with United in any --

MR. IRWIN: CHIEF JUDGE HAMMERMAN:

MR. IRWIN:

DJJ Exh. 38 at 28-29. Chief Judge Hammerman denied the motion to stay, stating that there was no likelihood the citizens would succeed on appeal. Chief Judge Hammerman also noted that, despite Irwin's

disclaimers, he perceived the "hand of United Holding Company" in the appeal: I am suggesting ... that it is clear to me that United has an interest in the outcome of this case and has carried that interest beyond simply standing on the sidelines as an interested observer but has participated in the legal effort to prevent Brooklyn Salvage from achieving their goal. I think they have gone from the role of an interested observer to the role of an active participant. DJJ Exh. C38 at 34.

25

Although their motion to stay had been denied, the citizens groups pressed on with their appeal to the Court of Special Appeals.23 The citizens groups urged the Court of

Special Appeals to reverse because the Circuit Court had committed the following errors: (i) considering Gadhia's

affidavit, which was not part of the agency record; (ii) giving weight to Gadhia's affidavit even though the affidavit contradicted a unanimous resolution of the BMZA; (iii) affirming the BMZA's decision even though the resolution cited inapplicable provisions of law; and (iv) determining that the BMZA's revised decision was supported by substantial evidence. See Sipes v. Board of Municipal and Zoning Appeals, 99 Md. App. 78, 81, 635 A.2d 86 (Md. Ct. Spec. App. 1994). On January 7, 1994, the Court of Special Appeals issued an opinion and order which remanded the case with instructions to dismiss the appeal. The Court held that the citizens groups

lacked standing because they were neither taxpayers nor "aggrieved" parties. Gloria Sipes as an individual and a

taxpayer did have standing, but her motion to intervene was time-barred. The Court of Special Appeals stated the case was Sipes, 99 Md. App.

thus, "dead on arrival in circuit court."

During the summer of 1993, Irwin and I.D. Shapiro communicated directly about Irwin's legal fees for the appeal. See Plaintiff's Exh. 31. It is unclear from the record whether the Marlen Trading reimbursement scheme continued during this period. 26

23

at 99.

The citizens groups did not petition for certiorari to Zoning in hand, Baltimore Scrap

the Maryland Court of Appeals. built the new shredder.

F.

Filing of the Lawsuit Baltimore Scrap filed the instant suit on March 19, 1996.

Discovery was complicated because so many lawyers and law firms were witnesses. With the approval of both sides, the Court

appointed a special discovery master, Rignal W. Baldwin, Jr. Mr. Baldwin functioned most effectively, attending depositions, reviewing documents, and resolving privilege questions as they arose. Without Mr. Baldwin's assistance, discovery would not

have proceeded as smoothly as it did. As amended, Baltimore Scrap's complaint advances seven counts as follows: (i) federal antitrust violations of the

Sherman Act, 15 U.S.C.

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Maryland Law