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FITZGERALD v. SHANNON & LUCHS CO.

December 19, 1984

MARGARET M. FITZGERALD, Plaintiff,
v.
SHANNON & LUCHS CO., et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 Plaintiff is a real estate agent who was a party to an "Independent Contractor Agreement" with the defendant, Shannon & Luchs Company, a real estate brokerage firm. Plaintiff found a buyer for a house whose owner had offered a $5,000 "bonus" to any "selling agent" who successfully negotiated a sale of the house. Shannon & Luchs collected the $5,000 bonus promised by the seller. Treating the bonus as a standard commission fee, Shannon & Luchs retained a substantial portion of the $5,000 and gave the plaintiff her usual percentage. Plaintiff, however, claims that she is entitled to the full $5,000, and has brought this suit in an effort to enforce her claim. Jurisdiction is assertedly by diversity. However, the plaintiff meets the jurisdictional amount for diversity, if at all, only because she has asserted a claim for punitive damages of $75,000.

 I.

 At the pleadings stage, defendant moved to dismiss for lack of diversity jurisdiction on the ground that, as a matter of law, the plaintiff was not entitled to recover the punitive damages that she had claimed. In support of this motion, defendant cited Kahal v. J.W. Wilson & Associates, Inc., 218 U.S. App. D.C. 156, 673 F.2d 547 (D.C. Cir. 1982), where the Court of Appeals of this Circuit affirmed the dismissal of a case on similar grounds. In Kahal, the plaintiff had had an opportunity to respond to the defendant's interrogatories pertinent to the defendant's contention that the plaintiff was using a punitive damages claim to "shoehorn essentially local actions into federal court through extravagant or invalid punitive damage claims." Id. at 549. Here, by contrast, when defendant's original motion to dismiss was at issue, there had been no discovery or other factual development of the complaint's punitive damages allegations. Liberal pleading rules, accordingly, required denial of defendant's motion to dismiss at that juncture.

 Since the earlier ruling on the Motion to Dismiss, however, the issues and facts have been further developed in several pleadings -- defendant's Motion for Partial Summary Judgment or, in the Alternative, Judgment on the Pleadings and the accompanying Memorandum of Points and Authorities, plaintiff's response thereto, pretrial briefs filed by both parties, and plaintiff's Memorandum of Points and Authorities on Punitive Damage Claims -- as well as in an extensive oral argument at which counsel for both parties argued the law and made significant factual representations and admissions. These developments now make possible the close scrutiny that Kahal indicates to be appropriate where, as here, "the availability of punitive damages is the sine qua non of federal jurisdiction," id. See Bewley v. Sims, 438 F. Supp. 708, 709 (D. Md. 1977). As explained in Part III of this Memorandum, that scrutiny establishes that the punitive damage claim here, like the parallel claim in Kahal, does not have the requisite "colorable basis in law and fact," and that the complaint must be dismissed for want of jurisdiction. Kahal, supra at 549.

 II.

 The threshold choice of law question has been resolved at oral argument by the parties' concession that all of the relevant contacts except defendant's place of incorporation (Delaware) and main office (District of Columbia) are in Maryland. Accordingly, Maryland law applies.

 Next, the memoranda on defendant's summary judgment motion -- which challenges Counts II and III of the complaint -- raise several issues worth nothing collaterally. Possibly to create an environment hospitable to the effort to assert a right to punitive damages, plaintiff claims in Count II of the complaint that the defendant broker had a fiduciary responsibility to plaintiff, a selling agent, with respect to the bonus. Plaintiff relies for this proposition upon Maryland Ann. Code Art. 56 § 224(f) which precludes an individual selling agent from

 
accepting a commission or valuable consideration as a real estate salesman for the performance of any of the acts specified in this subtitle from any person except the real estate broker named in his license.

 Unaided by authority, plaintiff construes the statutory language -- which requires that such payments be routed from sellers to agents through brokers -- to create in brokers a fiduciary duty to hold the payments in trust and turn them over to the trust beneficiary, i.e., the agent, plaintiff here.

 Plaintiff's contention is without merit. The underlying Independent Contractor Agreement between the broker and the selling agent has none of the characteristics of a trust instrument. The agreement creates an arms-length relationship between the licensed broker as a principal and the selling agent as an independent contractor. Obviously, in light of the terms of the Independent Contractor Agreement and in the absence of Maryland authority, this Federal Court sitting in the District of Columbia could neither hold nor permit a jury to find that there was such a trust or fiduciary relationship.

 Defendant's motion for partial summary judgment also challenges plaintiff's theory in Count III that defendant tortiously interfered with her bonus contract with the seller. Responding to that challenge, plaintiff has shifted ground, abandoning the contract interference claim in favor of a "conversion" claim. Treating the complaint as appropriately amended, the conversion claim is equally vulnerable. The very statute relied on by plaintiff for her trust theory makes it clear that an independent agent has no legal or possessory right to any bonus; the seller must pay it to the broker. Yet, a legal right to immediate possession of claimed property is a predicate to a suit for conversion. See McClung-Logan Equipment Company v. Thomas, 226 Md. 136, 172 A.2d 494, 498-99 (1961).

 If subject matter jurisdiction over this action were present, therefore, the Court would dismiss Counts II and III of the complaint, leaving only Count I, which claims breach of contract, and Count IV, which claims fraudulent inducement (failure to tell plaintiff that she would not receive the full bonus). However, under Rule 12(h)(3) of the Federal Rules of Civil Procedure, a court may dismiss a matter for want of subject matter jurisdiction whenever that defect becomes apparent. The fuller factual exposition that has arisen as the case has developed now affords an adequate record for a ruling on the punitive damage claim, ...


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