Hearn v. Hearn
2007 Md. App. LEXIS 151, 936 A.2d 400, 177 Md. App. 525 (2007)
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Rule of Law:
A written agreement, including a consent order, may be reformed by a court of equity due to a mutual mistake regarding its legal effect, even if the language of the agreement is unambiguous on its face when read in conjunction with applicable law, provided there is clear, strong, and convincing evidence of such mutual mistake.
Facts:
- Peter C. Hearn and Pamela Hearn were divorced in 1999.
- Their September 15, 1999 separation agreement, incorporated into the divorce judgment, detailed a pro rata formula for dividing Mr. Hearn’s federal pension benefits, designating Mrs. Hearn as an Alternate Payee.
- To formalize this division, the parties negotiated and jointly proposed a Civil Service Retirement and Survivor Annuity Benefits Order (CSRS order) to the court, intending it to implement their separation agreement.
- The CSRS order, entered on February 10, 2001, used the agreed pro rata formula but did not explicitly specify whether the calculation for Mrs. Hearn's share should apply to Mr. Hearn's "gross" (total) or "net" (after deductions) federal annuity payments.
- After receiving the CSRS order, the Office of Personnel Management (OPM) informed Mr. Hearn's counsel (around May 3, 2001) that it would apply the pro rata formula to Mr. Hearn's gross pension benefits by default.
- Mr. Hearn contended that he and Mrs. Hearn had mutually intended the formula for division to apply to his net annuity payment, asserting this belief in his motion and affidavit to the court.
- Mrs. Hearn disputed Mr. Hearn's claim of mutual intent, stating in her affidavit that she had no recollection of "net" benefits being discussed and always expected her share to come from the gross pension.
- Pre-order letters between counsel, later proffered by Mr. Hearn, showed that the term "gross" had been specifically eliminated from an earlier draft of the CSRS order.
Procedural Posture:
- Peter C. Hearn and Pamela Hearn were divorced in 1999 by the Circuit Court for Frederick County, which incorporated their separation agreement into the final divorce judgment.
- On February 10, 2001, the Circuit Court for Frederick County entered a jointly requested Civil Service Retirement and Survivor Annuity Benefits Order (CSRS order) to divide Mr. Hearn's federal pension benefits.
- On August 22, 2006, Mr. Hearn filed a motion in the Circuit Court for Frederick County, requesting the court to instruct the Office of Personnel Management (OPM) to apply the pro rata formula in the CSRS order to his net annuity, asserting that the original order was based on a mutual mistake of the parties.
- Mrs. Hearn opposed Mr. Hearn's motion, denying any mutual mistake and arguing that his claim was barred by laches.
- On November 28, 2006, the Circuit Court held a hearing on Mr. Hearn's motion and denied it without taking any evidence or testimony regarding the alleged mutual mistake, ruling that the CSRS order was unambiguous when read with federal regulations.
- On November 29, 2006, Mr. Hearn filed a "proffer in support of his motion," which included pre-CSRS order letters between counsel, and Mrs. Hearn subsequently moved to strike this proffer.
- On January 11, 2007, the Circuit Court entered a written order denying Mr. Hearn’s motion, and on February 16, 2007, it entered an order granting Mrs. Hearn’s motion to strike Mr. Hearn’s proffer.
- Mr. Hearn filed a timely appeal to the Court of Special Appeals of Maryland.
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Issue:
Did the circuit court err by denying a motion to reform a consent order, based on an alleged mutual mistake regarding its legal effect on the division of federal pension benefits, without allowing the movant to present evidence in support of the claim?
Opinions:
Majority - Meredith, J.
Yes, the circuit court erred in denying Mr. Hearn's request to reform the CSRS order based on an alleged mutual mistake without allowing him to present evidence. The court first determined that the CSRS order, when interpreted in conjunction with applicable federal regulations (5 C.F.R. §§ 838.306(b) and 838.625(c)), unambiguously dictates that if an order does not specify "net annuity" or "self-only annuity," OPM will apply the formula to the gross annuity. Parties are presumed to contract with knowledge of existing law. Therefore, the circuit court was correct in concluding that the order, as written, applied to gross benefits. However, the court then clarified that even an unambiguous contract can be reformed by a court of equity if it is the product of a mutual mistake. While the parol evidence rule generally precludes extrinsic evidence to vary a written contract, an exception exists for claims of fraud, accident, or mutual mistake. The court explicitly rejected the argument that a mutual mistake of law cannot be a basis for reformation, affirming that if parties are mistaken as to the legal effect of the words they used in an agreement, equity can reform the instrument to reflect their true, mutual intention, citing `Godwin v. Conturbia` and the Restatement (Second) of Contracts § 155. Since Mr. Hearn alleged that both parties intended the formula to apply to his net annuity and were mutually mistaken as to the legal effect of the CSRS order, the circuit court erred by failing to address this contention and by denying his motion without making any factual findings or permitting him to present evidence on this issue. Although Mr. Hearn's burden of proof for reformation is high (clear, strong, and convincing evidence), he must be given the opportunity to meet it. The case was remanded for further proceedings.
Analysis:
This case significantly clarifies the interplay between contract interpretation and equitable remedies like reformation in Maryland, particularly when federal regulations impact the "plain meaning" of an agreement. It reinforces that while courts presume parties know the law and will interpret contracts based on applicable statutes and regulations, the parol evidence rule does not bar evidence of mutual mistake, even if that mistake concerns the legal effect of the contract's language. This ruling ensures that parties can seek to rectify agreements that fail to reflect their true mutual intent due to a misunderstanding of legal consequences, thereby promoting fairness and preventing one party from unfairly benefiting from a shared error. It sets a precedent that trial courts must conduct evidentiary hearings when a party alleges mutual mistake of law to reform a consent order.
