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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1048 September Term, 2005

MINH-VU HOANG v. HEWITT AVENUE ASSOCIATES, LLC

Murp hy, C.J., Eyler, De borah S ., Rodo wsky, L awren ce F., (Ret'd, Spec ially Assigned), JJ.

Opinion by Eyler, Deborah S., J.

Filed: December 7, 2007

The genesis of this appeal is a failed real estate transaction in the Silver Spring area of Montg omery Cou nty. Hewitt A venue A ssociates, LL C ("HA A"), the appellee, entered into a contract to purchase two contiguous parcels of raw land from Minh-Vu Hoang, the appellant, and others. The m ultiple listing for the property advertised it as suitable for building 15 town houses. HAA purchased the property to develop into a town house com mun ity. When Hoang and the other sellers failed to close on the sale, HAA sued them, in the Circuit Court for Montgomery County, for specific performance and breach of contract. In the ad damnum clause of its breach of contract count HAA sought da mages "in excess of $100,000." Orders of default were entered against the served d efendan ts when th ey did not file timely answers or respons ive pleadin gs. The ap pellant mo ved, unsu ccessfully, to vacate the default order against her. The co urt then held an evidentiary hearing on relief. The appellant attended, with coun sel. (The oth er defend ants did not appea r.) At the hearing, HAA elected to pursue damage s instead of specific pe rforman ce. It proceed ed to present evidence of the profits it would have realized from developing the town house community, but for the defendants' breach . The co urt ruled in HA A's fa vor and award ed it $1,8 89,755 .98 in dama ges. From the judgment entered against her in that amount, the appellant n oted this appeal, presenting the following questions, which we have reordered and restated: I. II. Did the trial court err in awarding damages in excess of $100,000? Did the trial court err in awarding damages for collateral lost profits?

III.

Did the trial court err in entering mon etary judgme nts individu ally against the partners in a partnership of which the appellant is a member? Did the trial court err by not reducing the judgment to present value? Did the trial court err by entering judgment against the appellant for attorney's fees and expert witness fees when she did not sign the contract of sale?

IV. V.

For the following reasons, we answer "Yes" to Question I and "N o" to Questions II and III. On that basis, we shall modify the amount of the judgment against the appellant to conform to the sum stated in the ad damnum clause of HAA's complaint, which, for the reasons we shall ex plain, is $100,000, and shall vacate the judgmen t awarding damage s in excess of that sum. Given our d isposition of Question I, it is not necessa ry to address Question IV. Finally, Question V is not preserved for review. FACTS AND PROCEEDINGS On May 7, 2004, "Thinh Q. Vu et al" and Fred A. Ezra entered into a "Regional Sales Contract" ("Sales Contract") by which Ezra or his assigns agreed to purchase two contiguous parcels of raw land fo r $760,00 0: 3401 H ewitt Ave nue ("Pa rcel One" ) and 340 5 Hew itt Avenue ("Parcel Two"). Settlement was to take place in 60 days, on July 6, 2004. Ezra later formed HAA and assigned his rights under the Sales Co ntract to it. (In this opinio n, we sha ll refer to HAA , Ezra, a nd his b usiness , The E zra Co mpan y, intercha ngeab ly.)

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The parcels were listed for sale by defendant Th anh Hoang , the appellant's husband, who is a real estate agent. As noted ab ove, the multiple list offer stated that the land was suitable for bu ilding 1 5 town house s. Ezra is the Chairman and CEO of The Ezra Co mpany, a real e state construction and development busine ss. After the Sales Contract was signed, Ezra obtained a title search that revealed that Parcel One is owned by Thinh Q. Vu, the appellant's brother, and Hong Ngoc Nguyen, Thinh Q . Vu's w ife, as tenants by the entireties, and Parcel Two is owned by Alta Vista General Partnership ("AVGP"). The general partners in AVGP are the appellant, Thanh Hoang, Hao V u, Van Vu, and Ruby J. Jacobs. On June 28, 2004, E zra's lawyer wrote to Craig P arker, counsel for the sellers, attaching a copy of the title commitment Ezra had received and advising of the results of the title search: As you can see, all of the titled owners h ave not ex ecuted the s ales contrac t. Also you will note from this title report, we must have a copy of the partnership papers for [A VGP]. I have prepared a Ratification of Regional Sales Contract to address the above and request that your clients promptly execute and return the document to me with the requisite e xhibit. The title commitment also reports that the unpaid taxes for [Parcel Two] has resulted in a tax sale and the subsequent filing of a Foreclosure of the Rights of Re demp tion wh ich mu st be dism issed in o rder to c onvey title . The title issues were not resolved before the July 6 settlement date. Tha t day, Ezra's lawyer informed Parker, in writing, that HAA had tendered to a title company the funds necessary for settleme nt and was prepared to go forward with closing. The letter warned,

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"Please be advised that if your clients fail to settle toda y pursuant to the contrac t, they shall be in default o f the agreem ent and we shall pu rsue all re medie s availab le to us." Nevertheless, settlement did not happen on July 6. Between July 6 and July 15, HAA's law yer wrote several letters to Parker, including one demanding that settlement go forward at 1:00 p.m. on July 16. When the sellers did not appea r for settl emen t that day, H AA f iled suit. The complaint named eight defendants: the appellant, Thanh Hoang, Thinh Q. Vu, Hong Ngoc Nguyen, AVGP, Hao Vu, Van Vu, and Ruby J. Jacobs. The appellant was sued individually and as a partner in AVGP. Hong Ngoc Nguyen, who lives in China, was not served. Affidav its of service w ere filed for the other seven defendants, including the appella nt. As explained, orders of default were entered against the seven served defendants, and the appellant moved to vacate the order against her. She argued that she had not been served; that "the Defendants" "acknowledged that they agreed to sell [Parcel One and Parcel Two]"; that she had re ceived a $ 10,000 d eposit from Ez ra; that the def endants were ready to convey the parcels to H AA; tha t the defen dants had never been asked to attend a settlement; and that she h ad delive red a deed to HAA that s ame day. 1

The appellant filed the motion to vacate pro se. Although she purported to speak for all of the defendants, only she signed the motion. 4

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HAA opposed the motion to vacate, asserting that the appellant properly had been served and knew about the lawsuit; that she had not explained her failure to plead; and that the deeds she had delivered with her motion to vacate were defective and could not effect conveyances of the parcels. In a supplemental opp osition, HAA re counted the appe llant's exte nsiv e history as a civil lit igan t in re al property cas es in Mo ntgo mery Cou nty. 2 The court held a hearing on the appellant's motion to v acate and d enied it. On e month later, the court he ld an eviden tiary hearing on relief. The a ppellant ap peared w ith Parker as her counsel. During the hearing, HAA's lawyer informed the court that his client had elected not to pursue specific performance, and instead to pursue damages. It is undisputed that the election first was made and communicated to the appellant at that time. HAA called three witnesses: Mark Ezra, a managing member of HAA and senior vice president of The Ezra Companies (and Fred A. Ezra's son); Paul Goodsite, an expert in the residential building business; and James Donnelly, an expert appraiser in the residential development and construction field. The appellant did not call any witnesses but testified on her own behalf. Mark Ezra explained that The Ezra Company, which is located in Bethesda, is "a 50person Maryland based real estate company that does de velopme nt, construction, and sales of real esta te." The company has been in operation for about 25 years; for 15 years, he has

HAA listed 123 circuit court cases in wh ich the appellant and/or her h usband were parties, from 1997 to 2004. 5

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been its senior vice p resident. Th e compa ny decided to buy the parce ls in question because they were listed as being suitable for building a town house development. It was the company's typical practice to form a separate legal entity for each construction project; hence the formation of H AA. Than h Hoang, the realtor, knew that Ezra/HAA was purchasing the parcels in order to build town houses, just as the parcels had been marketed for sale. HAA had drawn up plans to construct 14 town houses on the parcels. (The zoning for the land allowe d town house s to be b uilt.) The town house project the company had in mind was a "very straightforward project for [them]." In the five years p receding th e Sales Contract, the company had developed about 4 million square feet of real estate. Its planned project for the two parcels was to be about 30,000 square feet. The company had adequate resources to develop the property, build the town houses, and resell them. It had wo rked with experts to calculate the income the project would generate and the cost of the project. The project was slated to commence in July or August of 2004, and to take three years to complete. The 14 town houses would be expected to sell for $440,000 each, which is a conservative number in Montgomery County. Given the projected revenue from sales of the town houses and the projected expenses f or building the town h ouse comm unity, Mark Ezra anticipated that t he project would generate a pro fit of "just und er $1 .9 mi llion ," by a conservative estimate . He acknowledged that he decided to seek money damages in this case instead of spe cific pe rforma nce be cause th ere we re "issue s" with the title to the parc els.

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Mark Ezra also te stified that H AA ha d incurred $ 16,760.98 in legal fees in this case and $2,000 apiece for expert witness fees for the two experts. Paul Goodsite works with Chase Home s, Inc., in residen tial real estate developm ent. He testified as an expert in that field. HAA had furnished him with the projected revenues and expenses for the town house project: $6,160,000 in revenues and $4,291,000 in expenses, which would p roduce a p rofit of slightly over $1,868,000. Goodsite opined that the revenue and expense figures w ere reasonab le, if not cons ervative, and likely to be achieved; and that the pro jected p rofit w as "ver y reasona ble" an d also " likely to be achiev ed." James Donne lly is a real estate appraiser for residential properties and projects such as the town house development HAA planned to unde rtake in t his case . He too opined that the projected revenue and expense figures for the project we re reasona ble and "lik ely to be achieved." In his view, the projected profit for the project was conservative. He prepared an appraisal report, which was admitted into evidence, that disclosed that the fair market value o f like-k ind tow n hous es in the same a rea rang ed from $417,0 00 to $4 56,000 . The appellant testif ied that Parcel One is owned by her brother and sister-in-law (Thinh Q. Vu and Hong Ngoc Nguyen), who live in China. She and her husband once owned Parcel Two, bu t it was sold at foreclosure to AVGP. The appellant represented that she was "prepared to sell the property" and that she had obtained the necessary documents for settlement "on the property." As she put it, she had "prepare[d] the deed and deliver the original to the Cou rt to be held in escrow by the Court, so it, I deliver the de ed to the C ourt,

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and then I send a copy to the settlement attorney, a bout th ree, fou r, month s ago, I th ink." Tha t was the sum and subs tanc e of h er tes timo ny. In closing argument, counsel for HAA asked for an award of more than $1.8 million dollars for the lost profits the town house project would have generated, but for the defendants' breach. The appellant's lawyer argued that the court should orde r specific performance and that, in any event, the lost profits sought were not recoverable because they were speculative and not reasonably certain. He further argued that lost profits of the sort sought by HAA are not the proper measure of damages for breach of an executory contract to sell land. Rather, the proper measure of damages was the fair market value of the land at the time of the breach less the unpaid sales price (minus any deposit) under the Sales Contract. HAA had not introduc ed any evide nce of the value of th e parcels on July 6, 2004, however. Ruling from the bench, the trial judge explained that a contract purchaser under an executory contract to convey land can recover lost profits upon proving: 1) that the defendant/seller breached the contract; 2) that, when the contract was entered into, the defendant/seller reasonab ly could have foreseen th at a loss of p rofits wou ld be a prob able result of the brea ch; and 3) that the amo unt of lost p rofits claimed was prov en with reasonable c ertai nty. The trial judge then evaluated the proof against that standard. He found that the default orders estab lished liability for breach of contract. He further found that because the

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appellant "has extensive experience in the real estate market," the parcels were marketed for purposes of development into 15 town houses, and the contract purchaser was a developer, "it was clear to all parties at the tim e the contra ct was en tered into that th e force driv ing this agreement between them wa s anticipated p rofits by the purcha ser in purch asing the pr operty offered by the seller, so clearly a loss of profits was foreseen, if in fact there w as a bre ach." The trial judge went on to find that HAA's projected revenue and expense figures for the town house project were straightforward and, as the two expert witnesses had testified, the figures were reasonable and indeed conservative. The court factored in that the real estate market was "well-established" and that the evidence presented by HAA assumed a flat market, not one that would increase. The court found that the real estate market "will almost certainly continu e to app reciate a t some r ate." It noted, in addition, that town houses, being on the lower end of the housing market, enjoy greater protection from downward fluctuations in the real estate market than do other, more expensive, houses. The court placed weight on the evidence that The Ezra Co mpany is an e stablished rea l estate development firm that has been doing business for many years. The trial judge ob served that " courts and juries" mak e projection s of future losses over relatively short periods of time, here 3 years, "day in and day out": There's no question that a party is entitled to recover, for instance, in a negligence case, the cost of future surgeries if the doctors opine that such surgeries may be necessary. In determining the costs of those surgeries, the doctors try and figure in, and the experts figure in, what is the projected cost of the surgery to be at that future point in time. Bus iness, bank s, everybody in this day and age, has to make assumptions upon which billions of dollars are 9

loaned, as to what is the r eal estate ma rket likely to do a year from now, two years from now , even further out. So certainly it appears to the Court that beyond any question, w e are at a po int in time, if we weren't previously, where reasonab le assumptions can be made as to whether or not and to the amount of profits that m ight be lost fro m a deve loper's inab ility to sell its product, that is, completed homes, certainly two years down the road. On that basis, and because HAA had presented conservative figures, the court found that "the amou nt of pr ofits in th is case c an be d etermin ed with reason able ce rtainty." Finally, the court reje cted the app ellant's argum ent that it shou ld order spe cific performance, ruling that it was HAA's choice as to which remedy to pursue. The court found that the amount of attorneys' fees and expert witness fees incurred by HAA was fair and reasonable, and entered judgme
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nt against all of the defaulting defendants for the lost profits, attorneys' fees, and

expert expenses: $1,889,755.98.3

More than 10 days but less than 30 days after entry of the judgment, four of the defendants, not including the appellan t, moved to vacate the default judgments against them. Those four are Thinh Q. Vu, Hao Vu, Van Vu, and Ruby J. Jacobs. The latter three, like the appellant and Thanh Hoang, her husband, had been sued indiv idually and as p artners in AVGP. During the pendency of the appeal, the circuit court granted the four defendants' motions to vacate. Thereafter, HAA voluntarily dismissed its claims against those defendants, with prejud ice. Judgm ents remain ed in place against Thanh Hoang and AVGP, neither o f whic h noted an app eal. On May 10, 2 005, thirt een d ays after entry of the judgment against her, the appellant filed a voluntary Chapter 11 bankruptcy petition in the Bankruptcy Court for the District of Maryland. Subsequently, on June 24, 2005, she filed a "Suggestion of Bank ruptcy" in this case noting that, pursuant to 11 U.S.C.

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