Conditional Cross-Appeals After Korotki

By Barnett Harris (Twitter: @BarnettHarris_)
Guest Contributor[*]

A new decision from the Court of Appeals says that even when you think you’ve won you must file a conditional cross appeal or risk losing the whole thing. The Court of Appeals recently ruled that an individual who failed to file a conditional cross appeal could not revisit that determination on remanded because that determination is considered a “final judgment” under Maryland law—which resulted in a million-dollar judgment going to zero. The decision will likely have broad implications for the Maryland bar.

The case, MAS Assocs., LLC v. Korotki, centered on a dispute over a business arrangement. Harry Korotki invested both his time and $275,000 in the business. When the business broke up, Korotki filed suit. Korotki’s principal claim was that he was a partner in the business: that the money he invested was the purchase of a share, the work he performed was as a partner, and that on termination, he was he entitled to the value a share of the business. Korotki argued in the alternative that he was an employee of the business and the $275,000 he gave was a loan to the business. As a result, Korotki’s alternative argument was that he was owed repayment of the loan and wages.

Trial Court – Korotki I

The Circuit Court for Baltimore County ruled in favor of Korotki. The trial court found that a partnership existed between the parties. The court determined that the conduct by Korotki and the business involved “exhibited what a partnership is,” including when they made management decisions together as well as contributed money equally. As a result of this finding, the trial court awarded Harry $1,097,866 on his partnership claims. The trial court dismissed Korotki’s alternative claims—expressly because finding that he was a partner meant that Korotki was not an employee. Only the defendants appealed—and only on the determination that Korotki was their partner.

Court of Appeals – Korotki I

The Court of Appeals reversed the decision of the trial court. The Court of Appeals held that the record lacked “the necessary competent material evidence to conclude that the parties intended to form a partnership.” The Court concluded that the funds Korotki contributed to MAS Associates were loans, not capital contributions (as what would be the case if they were partners)—and the payments he received were wages, not partnership distributions. The Court specifically held that Korotki was an employee not a partner. The court remanded the case back for “further proceedings.” MAS Associates filed a motion for reconsideration that asked the Court to change the mandate to a simple reversal and to direct the Circuit Court to dismiss all claims against it. The Court of Appeals unanimously rejected that motion.

Trial Court – Korotki II

On remand, the trial court attempted to make sense of the “further proceedings” mandate issued by the Court of Appeals in Korotki I—which concluded that Harry Korotki was an employee/creditor and not a partner. On November 6, 2020, the trial court issued an opinion that held that the earlier rulings in favor of the defendants on the unjust enrichment and wage claims were “no longer consistent with the law of this case.” The Circuit Court entered judgment in favor of Korotki against MAS Associates on the unjust enrichment claim “in the principal amount of $275,000.00, plus prejudgment interest in the amount of $159,304.20 through November 5, 2020, plus $45.21 per day until judgment is entered.” The trial court entered judgment in favor of Korotki against MAS Associates on the wage payment claim “in the amount of $90,292.62, plus prejudgment interest in the amount of $48,169.63 through November 5, 2020, plus $14.84 per day until judgment is entered.” In total, the trial court entered judgment in favor of Korotki in the amount of $572,766.83.

Court of Appeals – Korotki II

By a unanimous vote, however, the Court of Appeals said not so fast and reversed, concluding that because Korotki lost on the unjust enrichment and wage payment claims at the first trial and did not appeal the trial court’s determinations when that case was appealed the first time, there was nothing left to litigate on remand. In other words, because Korotki failed to file a conditional cross appeal—an appeal for the prevailing party that seeks to challenge the trial court’s rulings against them on any claims only if the Court of Special Appeals or Court of Appeals reverses or modifies the judgment in their favor—he was out of luck. Judge Shirley Watts wrote for the court.

Judge Watts reasoned that the trial court erred for two separate reasons. First, she concluded, pursuant to Maryland Rule 8-201(a), except as provided in Maryland Rule 8-204 (concerning applications for leave to appeal to the Court of Special Appeals), “the only method of securing review by the Court of Special Appeals is by the filing of a notice of appeal within the time prescribed in [Maryland] Rule 8-202.” To my knowledge, this appears to be the first time that the Court of Appeals has held that an argument that is completely inimical to your principal argument needs to be cross appealed (e.g., I think I was a partner, but if I wasn’t a partner, then I was an employee).

To bolster this rationale, she pointed toward several prior cases coming to a similar conclusion. In one case highlighted—Taylor v. Wahby, 271 Md. 101 (1974)—an individual failed to cross-appeal a trial court’s awards of damages in the amount of $1.00 in his favor. The Court of Appeals then remanded the case with instructions to vacate the judgments and enter new judgments with a higher damage award. On remand, however, the individual who failed to file the cross-appeals was unable to receive the benefit of that portion of the opinion indicating that the amount of the damage awards should be higher because he failed to file the cross-appeal in the first instance. In another case—Kunda v. Morse, 229 Md. App. 295 (2016)—an individual failed to timely file a cross-appeal and was thus unable to secure review of the trial court’s judgments on those counts. Thus, under this approach, Watts reasoned, anyone who seeks to “attack, modify, reverse, or amend a judgment” is required to timely cross appeal from that judgment.

Secondly, Judge Watts concluded that because the two counts had been conclusively decided against Korotki at trial and were not at issue on appeal in the Court of Special Appeals or on review before the Court of Appeals in Korotki I, the trial court’s judgments with respect to the unjust enrichment and wage claims were final. Looking at prior cases, Judge Watts explained that a judgment is final if it is being intended as an unqualified, final disposition of the matter in controversy, settles the rights of the parties, and concluding the cause of action. Under this approach, because Korotki never sought appellate review of the unjust enrichment and wage payment claims ruled against him, by any appellate body, at any time—judgments which were intended to be an unqualified final disposition of the matter by the trial court—the unjust enrichment and wage payment claims were final and could not be reopened by the trial court on remand.

Practical Effects

What could be lost amid the outcome of the dispute was the decision’s practical effects—navigating appeals is a complex endeavor with very significant consequences if not approached carefully. Harry Korotki was granted a judgment of over one million dollars. It is not readily apparent that the first thing—or a thought at all—that would cross his or his trial counsel’s mind would be the importance of filing a conditional cross-appeal. Especially since doing so comes with its own drawbacks. Will the conditional cross-appeal call the appellate court’s attention to complexities that the prevailing individual would prefer not to raise? Does the conditional cross-appeal put the prevailing party in what may be an awkward position of defending the trial court on some elements while attacking it on others? Does the conditional cross-appeal make the prevailing party look greedy? Does the conditional cross appeal complicate the issues being briefed and thereby distract the appellate court from more central and stronger arguments? These are all considerations, among many others, that are navigated at the appellate stage.

Furthermore, filing a conditional cross appeal may very well impose upon the Court of Special Appeals as well as the Court of Appeals a burden of additional appeals from favorable decisions. Doing so may also place upon litigants an additional expense of hiring counsel to write conditional cross appeal briefs on issues that may or may not be very relevant or addressed simply for the sake of preservation. Yet, doing so will protect litigants attempting to insulate their judgments from adverse outcomes like the one in Korotki I. If Korotki would have filed a conditional cross appeal, he would have had a million-dollar judgment. However, he did not, and he is now left with nothing. Filing a conditional cross appeal eliminates any possible arguments that challenges to prior rulings have been waived. And that will be how you snatch victory from the jaws of defeat.

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[*] Editor’s note: Barnett Harris is a J.D. candidate at Georgetown University Law Center, where he serves as President of the Georgetown Law Mental Health Alliance. During the last academic year, he participated in The Appellate Project’s Mentorship Program, with Judge Dan Friedman serving as his mentor. The Appellate Project’s mission is to empower law students of color to thrive in the appellate field. For more information, please click on the links in this footnote.