Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Group Ltd. Partnership

Raker, J. This dispute concerns the award of attorney’s fees in a construction contract dispute. At the heart of this appeal is whether White Flint Express Realty Group Limited Partnership, LLLP (“White Flint”), respondent, was entitled to recover attorney’s fees expended in connection with an action to enforce the contract between White Flint and Bainbridge St. Elmo Bethesda Apartments, LLC (“Bainbridge”), petitioner. The Court of Special Appeals held that the contract provided expressly for attorney’s fees to be recovered in a first-party ⁴⁷⁸ indemnification action. Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Grp.

Ltd. P’ship, LLLP, No. 0376 SEPT. TERM 2014, 2016 WL 1321205 , at ⁶ (Md. Ct. Spec. App. Apr. 5, 2016), cert. granted sub nom. Bainbridge St. Elmo Bethesda v. White Flint Express Realty Grp.

Ltd. P’ship, LLLP, 449 Md. 408 , 144 A.3d 704 (2016). We granted Bainbridge’s petition for writ of certiorari to address the following question: “Did the CSA undermine the clarity provided by this Court in Nova Researchl] [Inc.] v. Penske Truck Leasing Co., 405 Md. 435 [ 952 A.2d 275 ] (2008), concerning the limited circumstances under which a contractual indemnity provision can be read as a first-party fee shifting provision overriding the American Rule that each party bears its own attorneys’ fees?” Petition for Writ of Cert., Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Grp. Ltd. P’ship, LLLP, No. 162. We shall affirm the judgment of the Court of Special Appeals, and hold that the contract contains express provisions authorizing first-party fee shifting, entitling White Flint to attorney’s fees. i—i Bainbridge, an entity formed by the Bainbridge Companies to manage the construction and operation of a new 17-story high rise apartment building in Bethesda, owns the property immediately adjacent to 4905 and 4909 Fairmont Avenue (“the Fairmont Properties”).

Located on the Fairmont Properties were two one-story concrete buildings owned by White Flint that were leased to a restaurant and a children’s dance studio. Bainbridge engaged sub-contractor Turner to build the 17-story apartment building on its property for an estimated cost of $45,000,000. The construction project required excavation of a 50-foot-deep hole on the property, to be held open by steel cables protruding under and onto White Flint’s property 1 to ⁴⁷⁹ prevent soil and sub-surface structures from moving toward or into the excavation area. Bainbridge sought an easement from White Flint for access to the space “under, over, across and on the Fairmont Properties.” Bainbridge also wanted additional easements to swing a crane and extend scaffolding above the Fairmont properties.

On September 7, 2011, after several months of negotiation, and before construction began, Bainbridge and White Flint entered into a “Crane Swing, Tie Back and Swing Scaffold Easement Agreement” (“the Agreement”). Bainbridge agreed to pay White Flint $425,000 as consideration for the Agreement and the requested easements. The Agreement recognized Bainbridge’s right to access the air space above and the ground below White Flint’s Property, and it provided White Flint a means to seek redress for any potential damage from the construction. Under Article 3, Bainbridge promised that it would not use a “pile-drive” system to secure the hole, and would follow the appended plan’s use of tie-backs and bracket piles placed into pre-drilled holes.

Article 7 provided that Bainbridge would ensure that all excavation and foundation work conformed to applicable professional standards of care while minimizing the inconvenience to White Flint, would protect all individuals in and around the properties, and would not undermine the improvements on the Fairmont Properties. In Article 9 of the Agreement, Bain-bridge agreed to permit White Flint to engage, at Bain-bridge’s expense, consultants: “[T]o monitor performance of the work by Bainbridge, and identify any perceived deficiencies that could result in injury to people occupying or visiting any part of the White Flint Property, or in damage to the White Flint Property.” If White Flint’s consultants identified a Major Deficiency (over $25,000), Bainbridge had the right to have its own ⁴⁸⁰ consultant “review and assess the perceived Major Deficiency.” Article 9 provided that if Bainbridge’s consultants did not agree with White Flint’s consultants as to a perceived Major Deficiency, the parties were obligated to “work together in good faith to find a mutually acceptable resolution.” And then if a resolution could not be reached within 60 days, the dispute would be submitted to binding arbitration. Finally, Article 9 included a fee-shifting agreement specifying that: “The prevailing party in any arbitration shall be awarded reasonable counsel fees, expert and non-expert witness costs and expenses and all other costs and costs and expenses reasonably incurred, directly or indirectly, in connection with said arbitration, and all costs and fees of such arbitration shall be borne exclusively by the non-prevailing party.” Article 16 established Bainbridge’s responsibility to either repair and restore White Flint’s property to its original condition or reimburse White Flint for doing so. Article 17(a)-(b) provided that Bainbridge would pay White Flint $425,000 upon entering into the Agreement, and established an escrow account to reimburse White Flint for costs associated with negotiating and monitoring Bainbridge’s compliance with the Agreement.

Most relevant to the present appeal is Article 19, the indemnification clause of the contract, which provided as follows: “Indemnity. Bainbridge hereby indemnifies, and agrees to defend and hold harmless White Flint ... from any and all claims, demands, debts, actions, causes of action, suits, obligations, losses, costs, expenses, fees, and liabilities (including reasonable attorney’s fees, disbursements, and litigation costs) arising from or in connection with Bainbridge’s breach of any terms of this Agreement or injuries to persons or property resulting from the Work, or the activities of Bainbridge or its employees, agents, contractors, or affiliates conducted on or about the White Flint Property, including without limitation, for any rent loss directly attributable to any damage to the White Flint Property caused by ⁴⁸¹ the construction of the Project, however Bainbridge shall not be liable for matters resulting from the negligence or intentional misconduct of White Flint, its agents, employees, or contractors. The indemnification obligations set forth herein shall survive the termination of this Agreement indefinitely.” During the Project’s excavation stage, White Flint’s experts detected damage to White Flint’s Property, alerted Bain-bridge to the damage, and asked for assurances that the damage would be remedied. White Flint claimed that Bain-bridge and its contractors did not drill the holes properly for the steel beams, resulting in soil loss beneath the Fairmont Properties, and that pile-drivers were used instead of drills to install the steel beams, in contravention of the express language of the Agreement.

White Flint complained that the use of the pile-driver caused the buildings to shake, causing additional damage and soil movement underneath the buildings. By February 2012, the owner of the children’s dance studio on White Flint’s property reported seeing numerous cracks in the walls, that she feared a roof collapse on her students, and that many parents would not bring their children to class until she received assurances by Montgomery County that the building was safe. Turner, Bainbridge’s general contractor for the Project, stopped the excavation and braced White Flint’s buildings to prevent further damage. Bainbridge hired a structural engineer, Allyn Kilsheimer, who on February 27, 2012, advised that Turner should “[plerform no additional construction work within 20 horizontal feet” of the White Flint Property, other than work necessary to stabilize the site.

He recommended evacuation of the White Flint building and that it remain unoccupied for precautionary purposes until the completion of the investigation. Because of building movement and damage, on March 7, 2012, Montgomery County stopped all but safety work on the project. In response to Mr. Kilsheimer’s recommendation, White Flint determined that Bainbridge was in breach of Article 7 of ⁴⁸² the Agreement, terminating the Agreement for material breach. White Flint alleged that Bainbridge had known beforehand that White Flint should expect damages to its property because the sheeting and shoring system was designed to move.

Further, White Flint alleged that Bainbridge’s work did not conform to the plans and specifications because it used pile drivers instead of drills to install the steel beams. Bainbridge, in a letter to White Flint, represented that it had “observed and honored each of its obligations” and that White Flint’s termination of the contract was itself a material breach. Bainbridge invited White Flint to engage in a confidential settlement discussion on repairing the properties and making White Flint whole. White Flint declined to participate, and in response, Bainbridge disclaimed any further ongoing contractual duties to White Flint, including its duties to repair the property and indemnify White Flint under Article 19.

On April 24, 2012, White Flint filed a complaint for declaratory relief claiming that Articles 16, 17, and 19 survived the contract’s termination and that Bainbridge was bound to comply with those obligations. The Project’s primary insurer, Liberty Mutual, made an interim payment of $191,005 to White Flint for the losses it had quantified to that date, including the lost rent projected through February 2013 ($149, 685), third-party legal fees ($23,008), and parking charges ($18,312). On September 18, 2012, Bainbridge submitted a settlement proposal to White Flint, which rejected the proposal, arguing that Bainbridge offered only a small cash sum and the prospect that Bainbridge’s insurer would address White Flint’s claim at an uncertain date in the future. Following its rejection of the settlement proposal, White Flint filed its first of six amended complaints 2 to add breach of contract and tort claims and added Turner and Schnabel Foundation Company ⁴⁸³ (“Schnabel”), Turner’s sheeting and shoring subcontractor, as defendants.

On November 25, 2013, the Circuit Court for Montgomery County granted White Flint partial summary judgment on most claims and entered a declaratory judgment finding: that Bainbridge’s obligations survived the termination, that Bain-bridge materially breached the agreement, and that Bain-bridge had continuing duties to White Flint. And, significantly, the circuit court found that under Article 19 of the Agreement, White Flint was entitled to attorney’s fees. Concerning the award of attorney’s fees, the circuit court reasoned that Nova Research, Inc. v. Penske Truck Leasing Co,, 405 Md. 435 , 952 A.2d 275 (2008), did not require an indemnity provision to “say enforce first party claims...” to authorize first-party fee shifting. The circuit court examined Article 19 and concluded that White Flint was entitled to recover attorney’s fees because the “language and structure” of Article 19 authorized first-party fee indemnity. 3 After the circuit court’s partial summary judgment order, four issues remained for trial: (1) negligent misrepresentation and fraud, (2) compensatory damages, (3) punitive damages, and (4) the amount of attorney’s fees and expenses.

The parties settled the issues of liability and damages, reserving the award of attorney’s fees and expenses. 4 The circuit court held a hearing on the fee petition, and on April 7, 2014, the court awarded White Flint $3,520,256.59 in attorney’s fees, and $411,391.88 in costs and expenses, for a total of $3,931,648.47. ⁴⁸⁴ Bainbridge appealed the fee award. The Court of Special Appeals, in an unreported opinion, affirmed. Bainbridge, 2016 WL 1321205 , at ⁶. The Court of Special Appeals concluded that Nova Research’s rejection of first-party fee shifting was not controlling, based on two primary grounds: (1) that “unlike Nova Research, the contract litigation in the present case was for enforcement of the agreement, not the determination of a right to indemnity,” and (2) that the inclusion of the words “attorney’s fees” in Article 19, together with a reference to damages “arising out of ... breach” constituted an express provision authorizing first-party fee shifting as required by Nova Research.

Id. at ⁶-7. We granted Bainbridge’s petition for writ of certiorari, appealing solely the issue of whether the Agreement entitled White Flint to recover first-party attorney’s fees. Bainbridge, 449 Md. at 408 , 144 A.3d at 704 .

II

Before this Court, Bainbridge argues that Article 19, the indemnity clause of the Agreement, does not authorize an award of attorney’s fees in first-party actions and supports an award of attorney’s fees only for third-party actions. Relying on Nova Research for the proposition that an indemnity provision such as Article 19 must unmistakably and specifically authorize a first-party attorney’s fee award in the context of the contract as a whole, Bainbridge maintains that the language of Article 19 addresses third-party claims against which Bainbridge is to “defend” and to “hold harmless,” negating any suggestion that Article 19 was intended to indemnify White Flint for fees in a first-party action for any breach of the Agreement. In support of this argument, Bainbridge looks to Article 9, in which the parties expressly and unmistakably agreed to resolve first-party disputes, and included a “prevailing party” fee-shifting clause. Concluding, Bainbridge states that Article 9’s express first-party fee-shifting provision is incompatible with the interpretation that Article 19 can be read to indemnify White Flint for first-party fees in litigation over construction-related damage. ⁴⁸⁵ White Fhnt, on the other hand, argues that Article 19’s clear language and structure, along with the business context in which the Agreement was reached, support the trial court and intermediate appellate court’s holdings that an award of attorney’s fees was proper under that clause.

Bainbridge breached the Agreement, severely damaging White Flint’s property, forcing White Flint to incur substantial attorney’s fees, disbursements and costs, and the need to file a claim for the breach of contract. White Flint maintains that “the express indemnity in Section 19 of the parties’ Crane Swing, Tie Back and Swing Scaffold Easement Agreement ... clearly and unambiguously requires Petitioner Bainbridge St. Elmo Bethesda Apartments, LLC ... to reimburse Respondent White Flint Express Realty Group Limited Partnership LLLP ... for the attorney’s fees [first-party claim] caused by Bainbridge’s breaches of contract.” Resp. Br. at 2. White Flint points to Article 19’s language that states explicitly that White Flint may recover “any and all ... losses, costs, expenses, fees, and liabilities (including attorney’s fees, disbursements, and litigation costs) arising from or in connection with Bain-bridge’s breach of any terms of this agreement.” Id.

In sum, White Flint maintains that the very purpose of the Agreement was to ensure that White Flint would be made whole if Bainbridge breached and injured White Flint, and that would include attorney’s fees (under the indemnity clause) incurred to enforce the contract. h—f (—Í The issue at the heart of this case is the interpretation of the contractual agreement between petitioner and respondent as to the entitlement of attorney’s fees in this action. The interpretation of a written contract is a question of law, which we review de novo. Atlantic Contracting & Material Co., Inc. v. Ulico Cas. Co., 380 Md. 285, 300-01 , 844 A.2d 460, 468-69 (2004).

We apply the objective interpretation of contracts. Id. at 301 , 844 A.2d at 469 . In interpreting the meaning of a contract, we consider “the customary, ordinary, and accepted meaning of the language used.” Id. (citation ⁴⁸⁶ omitted).

We interpret the language of the contract in context, looking at “the entire language of the agreement, not merely a portion thereof.” Jones v, Hubbard, 356 Md. 513, 534 , 740 A.2d 1004, 1016 (1999). Maryland follows the common law American Rule, which states that, generally, a prevailing party is not awarded attorney’s fees. Nova Research, 405 Md. at 445 , 952 A.2d at 281 . See also 11 Corbin, Contracts § 57.9 (2005) (stating that “[u]nder the prevailing American rule, legal fees in an action against the breaching party cannot be recovered.”).

Under the American Rule there is a fundamental distinction “between the recovery of attorney’s fees incurred in defending against [a] third-party claim and those expended in prosecuting a claim against the indemnitor,” Nova Research, 405 Md. at 453 , 952 A.2d at 283 (quoting Philip L, Bruner & Patrick J. O’Connor, Jr., 3 Construction Law § 10:51 (2007)). In Peter Fabrics, Inc. v. S.S. Hermes, 765 F.2d 306 (2d Cir. 1985), the United States Court of Appeals for the Second Circuit articulated clearly the reason for the distinction between attorney’s fees in third-party actions versus first-party actions, explaining as follows: “Indemnity obligations, whether imposed by contract or by law, require the indemnitor to hold the indemnitee harmless from costs in connection with a particular class of claims. Legal fees and expenses incurred in defending an indemnified claim are one such cost and thus fall squarely within the obligation to indemnify. Consequently, attorney’s fees incurred in defending against liability claims are included as part of an indemnity obligation implied by law, ... and reimbursement of such fees is presumed to have been the intent of the draftsman unless the agreement explicitly says otherwise ....

Such reasoning does not apply to fees and expenses incurred in establishing the existence of an obligation to indemnify, since such expenses are not by their nature a part of the claim indemnified against. Rather, they are costs incurred in suing for a breach of contract, to wit, the failure to indemnify. As such, fees and expenses incurred in establishing the indemnity obligation fall within ⁴⁸⁷ the ordinary rule requiring a party to bear his own expenses of litigation, see Berger, Court Awarded Attorneys’ Fees: What is "Reasonable”?, 126 U.Pa.L.Rev. 281, 281 (1977). Cf. 5 Corbin, Contracts § 1037 (1964) (attorneys’ fees and expenses may be recovered if they constitute damages from the breach of a contract but not if they are incurred in proving the breach).” Id. at 316 (some internal citations