Relating to Real Estate
Ground Leases in Maryland - the Saga Continues This Time without Attorneys’ Fees
In 2012 and 2014, we published articles on the judicial decisions that had profoundly affected the General Assembly’s 2007 heavy-handed attempt to redress the grievances it perceived regarding Maryland ground rents and their collection. (See Relating to Real Estate March 2012 and Relating to Real Estate May 2014.)
To briefly review, in response to reported abuses by certain holders of Maryland ground rents, in 2007, the General Assembly established a registration system with the Maryland State Department of Assessments and Taxation (“SDAT”), extinguished ground rents that were not registered by a deadline it set, and otherwise restricted the ability of ground rent owners to collect unpaid rents.
In October of 2011, the Maryland Court of Appeals ruled in Muskin, Trustee v. State Department of Assessments and Taxation, 422 Md. 544, 30 A.3d 962 (2011), that the part of the 2007 legislation that extinguished unregistered ground rents was unconstitutional as a violation of the Maryland Declaration of Rights and the Maryland Constitution.
In December of 2011, the Circuit Court for Anne Arundel County, in Braverman, et al. v. State of Maryland, 02-C-07-126810, invalidated another of the 2007 laws which sought to eliminate a ground lease holder’s right to re-enter the property and eject a delinquent residential ground lease tenant. The court held that, under the theory of ground leases, the lessor owns the reversionary interest and becomes entitled to possession of the property when the ground lease tenant defaults.
In the 2012 session, the General Assembly responded to these court decisions by enacting Senate Bill 135/House Bill 177 (Chapters 464 and 465). That law deleted the extinguishment provisions of the 2007 legislation, but it maintained the registration requirements for ground leases. It also prohibited holders of ground leases from collecting their ground rent payments, establishing a lien for delinquent payments or seeking a monetary judgment during the period that a ground lease is not registered. The ground rent holder must also send the ground lessee a bill at least 60 days before a payment is due, which must include a statutorily prescribed notice.
The SDAT was directed to, in effect, rescind any extinguishment certificates that it had filed against unregistered properties, as provided in the 2007 laws but invalidated in Muskin.
We predicted that given the language in Muskin, the provisions in the 2012 law that require registration before a ground rent holder may resort to the courts for enforcement or collection would be upheld if challenged. To our knowledge, no one has initiated litigation attacking those changes.
However, we also noted that unanswered questions from the 2007 legislative attack remained open, most importantly, the failure of the General Assembly to restore the right of ejectment for residential ground rents, the elimination of which in the 2007 legislation was declared unconstitutional in Braverman.
Our keen predictive acumen was vindicated on February 26, 2014 when the Court of Appeals decided the case of State of Maryland v. Stanley Goldberg, et al. (Goldberg is the same case as Braverman), 437 Md. 191, (2014). Judge Glenn Harrell, writing for a majority of a divided court, affirmed the decision of the Circuit Court for Anne Arundel County in Braverman, declaring the legislative elimination of the right of reentry and ejectment of the fee owner of the ground rent property to be an unconstitutional abrogation of vested property rights. Judge Harrell rejected the argument that these rights simply constituted remedies for breach of a ground lease that could be changed and even eliminated by legislation. He expressly found that the remedy of foreclosure in the 2007 law did not cure the constitutional infirmity. He wrote for the Court that foreclosure is a collection remedy, but the reversionary interest of the fee owner is “the essence of the ground lease system” which may not be eliminated by the General Assembly.
Judges Adkins and Watts filed separate dissents.
In our 2014 article, we noted that attempts to reform the system within the confines of Goldberg were introduced in the 2014 session of the General Assembly but they did not pass. However, in 2015 the General Assembly enacted House Bill 511 (Chapter 428), which, among other things, reinstated with modifications an action for possession as the remedy, similar to the law before 2007.
Moreover, we predicted that the court battle might still have legs, and that we would advise you of further developments.
What may well be the final chapter was the decision of the Maryland Court of Special Appeals in a reported case written by Judge Arthur, State of Maryland v. William Braverman, et al., 228 Md. App. 239, 137 A.3d 377 (2016). At the risk of jeopardizing our (modest) streak of predicting future events in this drama, we think we have a firm basis for this one.
In the latest iteration of Braverman a/k/a Goldberg, the court reversed a $5 million award of counsel fees by the Circuit Court for Anne Arundel County (Case No. 02-C-07-126810, May 11, 2015) to the attorneys who had represented the successful plaintiffs in the prior litigation.
The plaintiffs advanced four legal theories as to why the “American Rule,” which states that each party is responsible for its own legal fees regardless of the outcome, did not apply here. The Court of Special Appeals rejected all of these arguments.
The plaintiffs first argued that under 42 USC §1988(b) they were entitled to attorneys’ fees because this case involved the depravation of their rights, privileges, or immunities secured by the Constitution. The Court of Special Appeals noted that such claims are only applicable if the case is brought against persons acting under color of state law. Here, the State of Maryland itself was the only defendant. The result might have been different if the plaintiffs had sued the state officials who were responsible for enforcing the statute.
The plaintiffs also cited the Common Fund Doctrine which gives a court the power to award legal fees out of funds that have been created by the efforts of those counseled. The Court of Special Appeals found that since no damages had been awarded to the plaintiffs, no common fund had been created, and, therefore, this theory was inapplicable.
The Court of Special Appeals next rejected the argument that because this case was, in essence, a condemnation case, Section 12-106 of the Real Property Article of the Maryland Code applied. The court held however, that under the plain language of the statute, fees may only be awarded to a defendant in an eminent domain proceeding. Here the parties seeking the fee award were plaintiffs.
Finally, and perhaps most interesting, the Court of Special Appeals rejected the argument that the plaintiffs, under Rule 1-341(a) of the Maryland Rules of Procedure, were entitled to counsel fees because the State was defending this case in bad faith or without substantial justification. Judge Arthur, referring to the 2014 Goldberg decision cited above, found that “[w]hen two of the seven judges of the State’s highest court agree with a party’s position, it is, as a matter of law, erroneous to conclude that the party lacks substantial justification to advocate that position.”
The Court of Special Appeals also considered certain statements by several members of the General Assembly and other theories cited by the plaintiffs in an effort to demonstrate that the State had acted in bad faith in defending the constitutionality of the law. The court found no such bad faith and reversed the award of counsel fees.
Without a public source of funds to fuel further litigation attempts, and given the fact that things seem to be quiet on the legislative front, perhaps we have heard the last of these cases.
If not, we will report further.
For questions, please contact Searle Mitnick (410) 576-4107.