Admiral Mortgage, Inc. v. Cooper

WILNER, Judge. Respondent, Calvin Cooper, filed suit in the Circuit Court for Baltimore County to recover unpaid commissions from his erstwhile employer, Admiral Mortgage, Inc. The action was brought pursuant to Maryland Code, §§ 3-505 and 3-507.1 of the Labor and Employment Article (LE), and, in accordance with the latter section, Cooper sought not only the unpaid commissions but also treble damages, attorneys’ fees, and costs. Admiral filed a counterclaim to recover, on an unjust enrichment theory, what it characterized as a gratuitous payment to Cooper of $460.93. The court entered judgment in favor of Cooper on Admiral’s counterclaim.

Cooper’s complaint was submitted to a jury, which (1) determined that Admiral owed Cooper $9,666.07 in unpaid commissions, (2) found that payment of the commissions was not withheld because of a bona fide dispute, and (3) awarded damages of $28,000 plus $12,709 in attorneys’ fees. It is evident that, in finding unpaid commissions in the amount of $9,666.07, the jury credited Admiral with the $460.93 it had paid to Cooper, for the amount found was exactly $460.93 less than the $10,127 in commissions that Cooper’s evidence, and Admiral’s contingent admission, showed he was owed. The $28,000 amounted to $998 less than the treble damages permissible under the statute. In an unreported opinion, the Court of Special Appeals affirmed the judgment, and we granted certiorari to consider, principally, whether the trial court erred in allowing the jury to determine the issue of treble damages, attorneys’ fees, and costs.

Admiral complains that those issues should have been resolved by the judge. 1 Other issues raised in the petition are ⁵³⁷ whether (1) the court erred in allowing Cooper’s attorney to testify with respect to the attorneys’ fees, (2) there was sufficient evidence of a lack of bona fide dispute to submit the issue of treble damages and attorneys’ fees to the jury, and (3) the court erred in vacating a default judgment that Admiral had briefly obtained on its counterclaim. We shall hold that the court erred in submitting the issue of attorneys’ fees to the jury, but that none of Admiral’s other complaints have merit. We shall therefore direct a remand for the judge to consider and determine the issue of attorneys’ fees but otherwise affirm the judgment of the Court of Special Appeals. BACKGROUND Cooper worked for Admiral as a “mortgage originator” or “loan officer” from January to August, 1995.

His job was to generate and pursue leads on potential mortgage loans. According to Admiral’s president, Floyd Rothstein, a loan officer was to obtain a completed application and other necessary documents and then turn the file over to another employee for further processing and closing. If Admiral initially generated a lead that Cooper developed, Cooper was to receive a commission equal to 20% of the fee received by Admiral when the loan was closed. If Cooper generated the lead, his commission was to be 40%.

When Cooper quit his employment in August, 1995, there were pending eleven outstanding loan applications that he had developed but which had not yet closed. Cooper said that he offered to continue to assist Admiral in processing those applications but that Admiral declined his offer. Within a few months after he left, five of the loan applications were approved, including a large loan that closed in September, and Cooper made demand for payment of commissions on those loans. Admiral declined, taking the position that no commissions were due on any loan that had not closed by the time Cooper left. 2 Admiral eventually conceded that, if Cooper was ⁵³⁸ entitled to commissions at the 20% and 40% rates, he would be entitled to $10,127 on the five loans.

At some point, notwithstanding its position that no commissions were due on the five loans, Admiral direct-deposited into Cooper’s bank account $460.93, which it claims was a gift — a gratuitous 10% commission on two of the smaller loans that closed after Cooper departed. 3 The $460.93 represented gross commissions of $516 on the two loans, less taxes and employee contributions for social security and medicare that Admiral deducted. In its counterclaim, Admiral sought to recover the entire $516 on the ground that Cooper’s retention of that amount was inequitable. 4 The issues before us arose in slightly different ways during the litigation and are best dealt with discretely. THE COUNTERCLAIM Cooper filed his lawsuit in April, 1996. Admiral’s counterclaim, seeking recovery of $516, was filed in December, along with an answer to Cooper’s complaint. 5 Cooper initially ⁵³⁹ moved to strike the counterclaim on the ground that it was untimely but later withdrew that motion.

He neglected, however, to answer the counterclaim. On April, 1997 — four days before trial — Admiral presented to a judge and had signed an order entering a default judgment for $516, based on the lack of an answer. The certificate of service on the motion shows that the motion and proposed order were hand-delivered to counsel for Cooper the same day they were presented to and signed by the judge. The entry of such a judgment was clear error.

Under Maryland Rule 2-613, the required procedure would have been for Admiral to seek and obtain an order of default, followed by notice to Cooper and the right of Cooper, within 30 days, to move to vacate the order. A judgment of default is permitted only if such a motion to vacate is not filed or, if filed, is denied. Cooper immediately moved to strike the default judgment, noting that it was entered without prior notice to Cooper and that trial was already scheduled. Upon consideration of the motion, the court recognized its error and struck the judgment.

At the conclusion of trial, Cooper moved for judgment on the counterclaim, which the court granted. The court noted that there were two reasons posited as to why Admiral paid the $460.93 — one, offered by Admiral, was that the payment was a gift, given out of goodness because Cooper was then unemployed and needed the money, and the other, urged by Cooper, was that it constituted part of the commissions owed on two of the loans that closed after Cooper left. The court concluded that, if the money was paid as a gift, as urged by Admiral, Admiral had no right to recover it; it is not inequitable, and therefore not an unjust enrichment, for a donee to retain a gift freely given. If the jury were to conclude, on the other hand, that the money was paid as part of the commission due by Admiral, the jury could deduct it from the balance of the commissions it found due.

The court offered to instruct the jury to that effect, but it does not appear that such an ⁵⁴⁰ instruction was requested, and no objection was lodged to the court’s ultimate omission to give it. Admiral complains about both the striking of the default judgment in its favor and the ultimate entry of judgment against it on the counterclaim. Neither complaint has the slightest merit. The default judgment was properly stricken because it was improperly entered; it would have been error for the court not to have vacated that judgment.

For the reasons given by the court, the ultimate judgment entered against Admiral on the counterclaim also was proper. Apart from the fact that Admiral is wrong on the merits of its complaints, the fact is that Admiral has suffered absolutely no harm from the court’s actions. As noted, the jury gave full credit to Admiral for whatever it might have been entitled to under the counterclaim. The whole issue is a self-created tempest in a teapot.

BONA FIDE DISPUTE The statutes on which Cooper sued are part of Maryland’s Wage Payment and Collection Law, codified as LE §§ 8-501 through 3-509. Under that law, the term “wage” includes a commission. § 3 — 501(c)(2). Section 3-505, dealing with the payment of wages on termination of employment, requires an employer to pay all wages due for work that the employee performed before the termination of employment, on or before the day on which the employee would have been paid the wages if the employment had not been terminated. Under that statute, if Cooper was due a commission on the closing of a loan generated or developed by him, the commission should have been paid, at the latest, when the loan was closed. 6 ⁵⁴¹ Section 3-507.1 gives an employee a civil cause of action to recover wages withheld in violation of § 3-505.

It provides, in relevant part: “(a) ... [I]f an employer fails to pay an employee in accordance with ... § 3-505 of this subtitle, after 2 weeks have elapsed from the date on which the employer is required to have paid the wages, the employee may bring an action against the employer to recover the unpaid wages, (b) If, in an action under subsection (a) of this section, a court finds that an employer withheld the wage of an employee in violation of this subtitle and not as a result of a bona fide dispute, the court may award the employee an amount not exceeding 3 times the wage, and reasonable counsel fees and other costs.” The question of whether Admiral’s withholding of the commissions was the result of a bona fide dispute has relevance only as to Cooper’s entitlement, under § 3 — 507.1(b), to additional (up to treble) damages, attorneys’ fees, and costs. The right to recover the commissions themselves, provided for in § 3-507.1(a), does not depend on whether they were withheld as the result of a bona fide dispute. What constitutes a “bona fide dispute,” of course, depends on the circumstances. The term itself has been defined in a number of ways.

In determining whether there is a “bona fide dispute” regarding a claim sufficient to preclude a creditor from filing or joining in a petition for involuntary bankruptcy, some Federal courts have looked to whether “there is an objective basis for either a factual or a legal dispute as to the validity of the debt.” See In Re Rimell, 946 F.2d 1363 , 1365 (8th Cir.1991), cert. denied, Rimell v. Mark Twain Bank, ⁵⁴² 504 U.S. 941 , 112 S.Ct. 2275 , 119 L.Ed.2d 202 (1992), citing other cases. In determining whether a claim, compromised in an accord and satisfaction, results from a “bona fide dispute,” the Washington courts have required that the claimant “have a bona fide belief in the validity of his or her position with respect to the claim.” Ward v. Richards & Rossano, Inc., P.S., 51 Wash.App. 423 , 754 P.2d 120, 125 (1988), citing Harding v. Will, 81 Wash.2d 132 , 500 P.2d 91 (1972). See also Estate Landscape v. Mountain States, 844 P.2d 322, 326 (Utah 1992) and S & G Inc. v. Intermountain Power Agency, 913 P.2d 735, 739 (Utah 1996) (defining the term, for accord and satisfaction purposes, as a “good-faith disagreement over the amount due under the contract”). Implying a good faith requirement in the Arizona wage payment statute, an Arizona appellate court concluded that the treble damage penalty should not be invoked “when there is a reasonable good faith wage dispute between the employer and the employee.” Apache East, Inc. v. Wiegand, 119 Ariz. 308 , 580 P.2d 769, 773 (Ariz.App.1978).

In this case, the circuit court used part of the definition of “bona fide” given in Black’s Law Dictionary and instructed the jury that a party has a bona fide dispute if that party acts in good faith and without deceit or fraud in pursuing that dispute. Admiral generally accepts that conception of the term but focuses on the element of the absence of fraud, contending that there was no evidence of fraud on its part. Mischaracterizing some of the evidence, it urges that Cooper left “with the understanding that he was not entitled to any commissions” and that Admiral made “no assurances that Cooper would receive any commissions if any of the five loans eventually closed.” That is not what Cooper said. He made clear that he fully expected to be paid when the loans closed. 7 ⁵⁴³ All of the definitions articulated by the courts focus really on whether the party making or resisting the claim has a good faith basis for doing so, whether there is a legitimate dispute over the validity of the claim or the amount that is owing.

The issue is not whether a party acted fraudulently; fraud is certainly inconsistent with the notion of “bona fide” or “good faith,” but it is not required to establish an absence of good faith. The question, simply, is whether there was sufficient evidence adduced to permit a trier of fact to determine that Admiral did not act in good faith when it refused to pay commissions to Cooper on the five loans that closed after he terminated his employment. Clearly, there was such evidence. Admiral’s position throughout was that no commissions were due on loans that close after a loan officer leaves.

That was the sole asserted basis on which Admiral claimed that nothing was due to Cooper on the five loans. Evidence was presented, however, that Admiral paid commissions to another loan officer, who left Admiral’s employ after Cooper, on loans that closed after that employee left. Admiral offered an explanation for why commissions were paid to that employee but not to Cooper, but the jury was not required to accept that explanation. Nor was the jury required to believe that the $460.93 voluntarily paid to Cooper was a gift; it could, and apparently did, believe that that payment represented part of a commission, which would be inconsistent with Admiral’s position that no commissions were due but corroborative of Cooper’s testimony that Rothstein had offered to pay the commissions at the reduced rate of 10%.

Indeed, the fact that Admiral deducted taxes and social security and medicare contributions belies the assertion that the money was a gift. There were a number of other inconsistencies as well in Admiral’s position. Mr. Rothstein said that, when a loan ⁵⁴⁴ officer left, any of his or her pending applications would be worked on by someone else, and that person would be paid the commission when the loan closed. Yet he admitted that, although one or more other employees worked on Cooper’s pending applications, no commissions were paid to anyone when those loans closed.

Notwithstanding that Cooper, on several occasions, asked for documentation regarding the five loans that closed and the six loans that Admiral claimed did not, no records were ever produced regarding the six loans and only settlement sheets were produced concerning the five. Admiral claimed that the other records were destroyed or could not be found. There was, in other words, a significant credibility issue that permeated Admiral’s entire case. On this evidence, it cannot be said, as a matter of law, that the commissions were withheld as the result of a bona fide dispute.

The issue was properly reserved for resolution by the jury. EVIDENCE OF ATTORNEYS’ FEES During discovery, Admiral asked Cooper to disclose the names of any expert witnesses he intended to call, the substance of their opinions, and any reports they had rendered. It also asked for a listing of each item of damage claimed by Cooper, the method by which it was calculated, and any supporting documentation. No experts were disclosed in response to those requests, nor was any amount of attorneys’ fee disclosed as an item of damages.

At trial, the issue of attorneys’ fees first arose when Cooper was asked about his retaining of an attorney and an objection was lodged. His attorney had apparently prepared a summary statement that he intended to offer, to which Admiral objected, largely on the ground that the statement had not previously been disclosed. The court directed Cooper’s attorney to prepare a detailed bill and to deliver a copy of it to Admiral’s attorney, who would have the evening to examine it. The next morning, the attorney informed the court that he had prepared and sent a more detailed statement to Admiral’s ⁵⁴⁵ attorney and was prepared to testify as an expert as to the reasonableness of the bill.

Admiral objected both to the statement and to the attorney’s testifying as an expert, on the ground that he had not had an opportunity to prepare for that evidence. The court overruled the objection and, eventually, allowed the attorney to testify about the statement and that the fee, of $12,709, was reasonable. It was based on just over 83 hours of time, billed at $150 per hour, plus $310 in advanced costs. The statement was then admitted into evidence.

Admiral cites a number of cases in which this Court and the Court of Special Appeals have affirmed trial court decisions precluding the admission of evidence not disclosed in response to valid discovery requests. What it overlooks, however, is the governing principle that the appropriate sanction for a discovery or scheduling order violation is largely discretionary with the trial court, and that the more draconian sanctions, of dismissing a claim or precluding the evidence necessary to support a claim, are normally reserved for persistent and deliberate violations that actually cause some prejudice, either to a party or to the court. See Starfish Condo. v. Yorkridge Serv., 295 Md. 693 , 458 A.2d 805 (1983); Broadwater v. Arch, 267 Md. 329 , 297 A.2d 671 (1972); Evans v. Howard, 256 Md. 155 , 259 A.2d 528 (1969). We find no abuse of discretion in this case.

Admiral knew from the beginning that a claim for attorneys’ fees was being made and that the full amount of those fees could not be determined at least until trial was completed. Admiral had an opportunity, albeit a limited one, to examine the detailed statement produced by Cooper’s attorney and to challenge either its accuracy or reasonableness. In any event, as we are remanding for further consideration of the attorney’s fees, Admiral will have another opportunity to make such a challenge. JUDGE OR JURY?

As noted, the main issue we took the case to examine is whether the determination of additional statutory damages, ⁵⁴⁶ attorneys’ fees, and costs under § 3-507.1 is to be made by a judge or, when the plaintiff has sought a jury trial, by the jury. We noted the prospect of that issue in Battaglia v. Clinical Perfusionists, 338 Md. 352 , 358 n. 6, 658 A.2d 680 , 683 n. 6 (1995), but found it unnecessary to address in that case. 8 It is now clearly before us. Admiral views § 3-507.1(a) as establishing the private right of action by an employee to recover unpaid wages. It agrees that that action is triable before a.jury, if the action is filed in a circuit court.

Section 3-507.1(b), however, deals with penalties, not the basic right to recover the wages. It states that, in an action under sub-section (a), if “a court” finds that the ⁵⁴⁷ employer withheld the wages in violation of the subtitle and not as a result of a bona fide dispute, “the court” may award the additional damages, attorneys’ fees, and costs. Admiral construes the word “court” as meaning the judge, not the jury. Otherwise, it says, if “court” meant “jury,” there would be no distinction between a “court” trial and a “jury” trial.

It cites a number of cases, arising under statutes allowing a “court” to award multiplier damages or attorneys’ fees, in which a judge, rather than a jury, has made those awards. It notes, in particular, the greater expertise that a judge has in determining the reasonableness of attorneys’ fees. Cooper, on the other hand, views the word “court” in a more generic sense, as meaning the institution, which, depending on the case, may act through either a judge or a jury. The additional amounts allowed by § 3-507.1(b), he says, are part of his remedy, to be considered by whomever is the trier of fact in the case.

To hold otherwise, he warns, is to deprive him of his right to have a jury determine disputed facts and how much in damages to award. As we indicated earlier, we think there is a distinction to be drawn between the additional damages and an award of attorneys’ fees (and costs). That distinction rests on a number of considerations. With respect to the additional damages, unlike other statutes that require an automatic multiplier, which admit of no discretion, the additional damages allowed under § 3-507.1(b) is neither required to be awarded nor fixed in amount.

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