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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 0052 September Term, 2000

HARRY L. LEAVY v. AMERICAN FEDERAL SAVINGS BANK

Hollander, Thieme,* Adkins, JJ.

Opinion by Adkins, J.

*Thieme, J., participated in the hearing and conference of this case while an active member of this Court; he participated in the adoption of this opinion as a retired, specially assigned member of this Court.

Filed: December 29, 2000

Harry L. Leavy ("Leavy"), appellant, appeals from the trial court's judgment that he breached his fiduciary duties to

American Federal Savings Bank (the "Bank"), appellee.

While

Leavy was the president and chairman of the Bank's board of directors, he recruited some of the Bank's board members and others to make a $6.5 million loan to a troubled borrower of the Bank, and secretly took a $650,000 loan brokerage fee for doing so. Later, Leavy fraudulently conveyed $450,000 to his son,

Christopher Leavy ("Christopher"), placing those funds out of the Bank's reach. After a four day bench trial and post-

trial briefing, the trial court issued a written memorandum and opinion $650,000, Christopher interest. entering plus in judgment prejudgment the amount against Leavy and in the amount of

interest, of

judgment plus

against

$450,000,

prejudgment

After receiving some payments from Christopher, the This appeal is solely

Bank released its judgment against him. on behalf of Leavy. have rephrased: I.

Leavy raises the following issues, which we

Whether there was substantial evidence to support the trial court's finding that Leavy breached his fiduciary duties to the Bank. Whether the trial court properly entered separate restitutionary judgments against both Leavy and

II.

Christopher. Finding no error and ample evidence that Leavy breached his

fiduciary duties to the Bank, we affirm the judgment against him.

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FACTS AND LEGAL PROCEEDINGS Since 1983, when he founded the Bank's predecessor-in-

interest, Leavy served as the Bank's president and chairman of its board of directors. By 1989, the Bank had made 10 separate

loans totaling $6.6 million to its largest borrower, Eugene N. Hooper. Bank Federal regulators conducting an examination of the criticized the large concentration of troubled

harshly

credit in a single borrower. In response, Leavy negotiated with Hooper to restructure the debt. By the end of February 1989, Hooper had agreed to a

refinancing plan that required him to reduce the debt by $1.1 million immediately, and by an additional $4 million within one year. The deal included additional security. Hooper agreed to

give the Bank a first deed of trust on Hooper's property known as the Cedar Crest Country Club, and a second deed of trust on a shopping center owned by Hooper. The plan also required real

estate taxes and insurance on the collateral properties to be escrowed. We shall refer to the debt restructuring and

refinancing plan as the "Cedar Crest Loan." While he was negotiating with the Bank through Leavy, Hooper also was seeking additional credit. By March 1989, Hooper had There was

a $3.3 million loan commitment from another lender. a 10% fee for that loan.

But Hooper was not satisfied with the

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amount of that loan, and continued to look for other financing sources. In pursuit of additional capital, Hooper approached Leavy about brokering a loan that would stand behind the Bank's loan. At the same time he was negotiating with Leavy about

restructuring and reducing the Bank's loans, Hooper solicited Leavy to help him obtain other financing. He told Leavy that he

would pay a 10% brokering fee for the loan, to be secured by a second deed of trust on the Cedar Crest Country Club property, behind the Bank's first trust. Although he had never before brokered a loan and was still working on behalf of the Bank to lessen its exposure on the Hooper loans, Leavy agreed. He recruited 20 private lenders to

loan Hooper $6.5 million, secured by a second deed of trust on the Cedar Crest property. "Second Trust Loan." Bank's board as of We shall refer to this loan as the

Ultimately, Leavy and four members of the participated lending in their for individual the Second

directors of the

capacities Trust Loan.

part

consortium

Leavy did not disclose that he would earn a 10% brokerage fee to either the participating directors or to anyone else at the Bank. During the time Leavy was simultaneously negotiating

the Cedar Crest Loan on behalf of the Bank and the Second Trust

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Loan

on behalf of himself and Hooper, the terms of the Cedar By June, the

Crest Loan changed, upon Leavy's recommendations.

immediate $1.1 million pay down, the $4 million pay down after one year, and the escrow account, all of which Hooper had agreed to in February, were no longer part of the deal. total amount of the loan decreasing to $5.5 Instead of the million (with

another $4 million pay down in one year), the loan actually increased to $7.1 million (with no specific pay down

provisions). In addition, Leavy successfully recommended that the Bank release its security interest in a particular piece of Florida property that had served as collateral for one of the Bank loans that was being restructured as part of the Cedar Crest Loan (the "Jupiter Road Property"). On Leavy's recommendation, made

during the time he was simultaneously working on the Cedar Crest Loan and the Second Trust Loan, the Jupiter Road Property was not included in the collateral for the Cedar Crest Loan. then used the Jupiter Road Property to secure Leavy

Hooper's

obligation to pay Leavy the $650,000 brokerage fee. Still unaware of Leavy's brokerage fee for the Second Trust Loan, the Bank's board approved the Cedar Crest Loan on June 21, 1989, upon Leavy's recommendation. At the Bank's meeting on

that loan, Leavy again did not disclose his fee arrangement for

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the Second Trust Loan, and did not obtain the Bank's permission to receive the fee for brokering the Second Trust Loan in his personal capacity rather than his corporate capacity. Settlement on both the Cedar Crest Loan and the Second Trust Loan occurred the next day, on June 22, 1989. Because the two

loans did not raise enough cash for Hooper to pay Leavy the $650,000 brokerage fee, Hooper executed a $750,000 promissory note to Leavy on the same day (the "Note"). The Note was due in

one year, and was secured by the Jupiter Road Property. Shortly after the Cedar Crest Loan closed, Hooper received more than $1 million as a distribution from his partnership Leavy knew

interest in a property known as "Stringfellow Road."

that the Bank had a security interest in the Stringfellow Road proceeds, because the property was collateral for the Cedar

Crest Loan. the funds.

Nevertheless, he allowed Hooper to keep $200,000 of Hooper gave $800,000 to Leavy, who put it into an

account at the Bank, over which he was the sole trustee. Leavy allowed some of the $800,000 proceeds to be used for purposes other than the payment of principal that Hooper owed to the Bank. He authorized and directed that some of the

Stringfellow Road proceeds be used to make Hooper's interest payments on the Cedar Crest Loan. In addition, he released On

$75,000 of the funds directly to Hooper on May 24, 1990.

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June 22, First

1990,

Leavy Savings

released and Loan

another of the

$75,000 Palm

to

Hooper

and

Federal

Beaches

("First Those

Federal").

First Federal then loaned Hooper $650,000.

funds were immediately used to pay Leavy his $650,000 brokerage fee. The $650,000 check from the title company that handled the

First Federal loan for Hooper was issued to Leavy on June 25, 1990, the next business day after Leavy released the $75,000 to First Federal. According to Leavy, he invested the $650,000 in

Hooper's Cedar Crest Country Club. Eventually Hooper defaulted on both the Cedar Crest Loan and the Second Trust Loan. Bank's first deed of Leavy did not pursue foreclosure of the trust on the Cedar Crest property.

Instead, he allowed the Second Trust Loan group to foreclose on the Cedar Crest Country Club Property. with the Bank. They eventually settled

Leavy lost all his investments in both the

Second Trust Loan and the Cedar Crest Country Club. On April 6, 1994, at an emergency meeting of the Bank's board of directors, Leavy's criminal defense lawyer disclosed that Leavy had received the $650,000 fee in connection with the Second Trust Loan. the Bank. After At the board's request, Leavy resigned from Leavy resigned, the Bank asserted a claim

against Leavy for the $650,000.

One of Leavy's assets that was

considered in discussions regarding that claim was an interest

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in a limited partnership that owned property on Reisterstown Road. sold. In early 1996, Leavy's interest in that property was On March 1, 1996, Leavy conveyed to his son Christopher

$450,000 of the proceeds from that sale. On April 3, 1997, the Bank filed suit against Harry Leavy and Christopher Leavy in Montgomery County Circuit Court.

Before trial, the Bank elected to proceed against Harry Leavy solely on its equitable claims. The Bank sought a judgment

establishing a constructive trust and/or ordering Leavy to pay restitution for the $650,000 brokerage fee, plus interest from June 25, 1990. In addition, claims the Bank proceeded on its a

fraudulent

conveyance

against

Christopher,

seeking

judgment in the amount of $450,000 plus prejudgment interest from March 1, 1996. After trial, the court issued a written memorandum opinion and order. The court found, inter alia, that Leavy had breached

his fiduciary duties to the Bank by obtaining the $650,000 fee for his personal benefit, that Leavy's transfer of the $450,000 to Christopher was a fraudulent conveyance, and that the Bank was entitled plus to judgment against in Leavy in the amount and of to

$650,000,

$373,856.85

prejudgment

interest,

judgment against Christopher in the amount of $450,000, plus $105,423.22 in prejudgment interest. 8 Leavy then filed this

appeal. DISCUSSION I. Motion To Dismiss Preliminarily, we address the Bank's two motions to dismiss this appeal. When Leavy sought extra time to file his brief in

this Court, the Bank opposed that motion and moved to dismiss the appeal.1 By order dated August 17, 2000, we allowed Leavy We also

extra time to file his brief -- until August 21, 2000.

denied the Bank's motion, but without prejudice to its right to seek that relief in its brief. Leavy filed his brief in this Court a week late, on August 28, 2000, without without requesting consulting further the extension of time, and

apparently

Bank's

counsel

regarding

either the late filing or the record extract.

The Bank filed a

Leavy's brief was due on July 24, 2000. On that date, he filed a motion to extend the time to file his brief, citing "a number of errors in the preparation and printing of the Record Extract, for which [counsel] is partly to blame . . . ." Alleging professional commitments and absence from the office, he asked for an extension until August 21. The Bank opposed the motion, and sought dismissal of the appeal. It argued that there was no good cause shown for the extension, and alleged inter alia several violations of the appellate rules, including that appellant's counsel had failed to serve the notice of appeal, the information report, and a designation of the parts of the record that he intended to include in the record extract as required by Md. Rule 8-501. In response, appellant's counsel "conceded" that he did not comply with Rule 8-501, "but note[d] that it was merely an oversight." 9

1

second motion to dismiss the appeal, and renews both motions in its brief. In addition to the unauthorized late filing of the

brief, the Bank contends that Leavy "knowingly neglected to make any effort to comply with Rule 8-501(d) [requiring cooperation in the preparation of the record extracts], even after his prior failure to comply with that Rule had been brought to his

attention" in the Bank's first motion to dismiss.

The Bank also

complains that Leavy's record extract is materially incomplete, and necessitated the filing of an appendix to the Bank's brief. It also asserts that Leavy compounded his pattern of failing to serve the Bank with documents by failing to serve a copy of his opposition to the Bank's second motion to dismiss, despite the claim in the certificate of service that he mailed it on

September 13, 2000.

The Bank asks that this appeal be denied or

dismissed, or in the alternative, that appellant's counsel be ordered to pay the costs incurred by the Bank in printing an appendix to its brief and in filing the two motions to dismiss.

Leavy opposed the second motion to dismiss, arguing that he filed his brief by mail on August 25th because he did not receive the Court's order granting the extension until August 21, the date the brief and record extract were due under the extended deadline. Relying solely on "lack of prejudice" as a defense,

10

appellant's counsel offered no reason for failing to consult with the Bank's counsel regarding the late filing or the record extract. We agree with the Bank that these actions evidence a pattern of unacceptable disregard for the appellate rules of this Court. In particular, we find the late filing of appellant's brief and record extract, seven days after the extended deadline

established by special permission of this Court, inexcusable. This late filing clearly warrants dismissal of the appeal. Dismissal of an appeal, however, is a discretionary matter. See Md. Rule 8-502(d), 8-602. In light of our decision in this

case, and the evidence that these failures may have resulted from counsel's actions, we will not exercise that discretion against appellant. Given the avoidable expenses incurred by the

Bank as a result of the admitted failures of appellant's counsel to comply with the appellate rules, however, we will grant the Bank's request for costs. Counsel for appellant will reimburse

the Bank for the costs of preparing and printing the appendix to its brief, and for the costs of preparing the Bank's second motion to dismiss. The Bank should submit an appropriate order

for such costs, with affidavits and such other evidence as is necessary to establish the reasonableness of such expenses,

within 10 days after the filing of this opinion. 11

II. Merits Of The Appeal A. Standard Of Review In an action tried without a jury, we "will review the case on both the law and the evidence." Md. Rule 8-131(c). In doing

so, we "give due regard to the opportunity of the trial court to judge the credibility of the witnesses." Id. Our review is

limited to deciding whether there was sufficient evidence to support the trial court's conclusions. See Gwynn v. Oursler, "[T]he

122 Md. App. 493, 502, cert. denied, 351 Md. 662 (1998).

trial judge may believe or disbelieve, credit or disregard, any evidence introduced, and a reviewing court may not decide on appeal how much weight must be given as a minimum to each item of evidence." 289, 307 (1997). Loyola Federal Sav. Bank v. Hill, 114 Md. App.

B. Breach Of Fiduciary Duty Of Loyalty The trial court agreed with the Bank that Leavy had breached his fiduciary duty of loyalty in three respects: (1) using his

corporate office and the Bank's assets for his private gain, rather than in for the Bank's with best the 12 interest; Bank's (2) placing and his (3)

interests

conflict

interests;

usurping the Bank's corporate opportunity.

On appeal, Leavy As set to his

argues that the evidence did not support these findings. forth below, support the we find that there was substantial Leavy

evidence breached

trial

court's

finding

that

fiduciary duty of loyalty to the Bank by misusing his office and the Bank's property, and by failing to act in the Bank's best interests. Because that finding was sufficient by itself to

support the judgment against Leavy, we do not reach the issues raised by Leavy regarding the trial court's alternative grounds for the judgment. 1. Misuse Of Corporate Office And Corporate Assets Corporate officers and directors are fiduciaries who are under a duty to act for the benefit of the corporation. Restatement of the Law, Restitution,

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