Barufaldi v. Ocean City

GRAEFF, J. This is the second appeal arising from an employment contract dispute between the Ocean City Chamber of Commerce (the “Chamber”), appellee, and Daniel Barufaldi, appellant, the Chamber’s former executive director. In April 2008, after a dispute arose regarding the Chamber’s payment of his bonus compensation, Mr. Barufaldi filed suit against the ²⁸⁷ Chamber in the Circuit Court for Worcester County. He alleged, among other claims, violations of the Maryland Wage Payment and Collection Law (“WPCL”), Md.Code (2008 Repl. Vol., 2011 Supp.) §§ 3-501 et seq. of the Labor and Employment Article (“L.E.”). 1 The jury rendered a verdict in favor of Mr. Barufaldi, finding that the Chamber violated the WPCL.

Mr. Barufaldi then filed a motion for attorneys’ fees pursuant to the WPCL’s fee-shifting provision. The circuit court denied the motion, and Mr. Barufaldi appealed. In the first appeal, this Court affirmed the jury’s verdict on all counts, but we vacated the circuit court’s order denying the motion for attorneys’ fees and remanded for further proceedings. Barufaldi v. Ocean City Chamber of Commerce, Inc., 196 Md.App. 1, 6-7, 36-37 , 7 A.3d 643 (2010) (“Barufaldi I ”).

On remand, the circuit court again denied Mr. Barufaldi’s request for attorneys’ fees. In this second appeal, Mr. Barufaldi presents three questions for our review, 2 3which we have rephrased and consolidated as follows: Did the circuit court err when it denied Mr. Barufaldi’s request for an award of attorneys’ fees and costs? For the reasons set forth below, we shall reverse the judgment of the circuit court. ²⁸⁸ FACTUAL AND PROCEDURAL BACKGROUND We presented a detailed factual background of this case in Barufaldi I, 196 Md.App. at 8-13 , 7 A.3d 643 . Accordingly, in this case, we provide only a brief discussion of the facts leading up to the prior appeal, for context, and then we will discuss the circumstances leading to this appeal.

The Chamber, an association of businesses designed “to increase tourism and business opportunities” in Ocean City, hired Mr. Barufaldi in 2005 to be its executive director. Id. at 8 , 7 A.3d 643 . Mr. Barufaldi’s employment contract provided that he would receive a base salary of $52,000 per year and incentive-based compensation that would be calculated, within 60 days, according to a “base line net revenue figure, based upon historical financial documentation, for each quarter.” Id. at 9 , 7 A.3d 643 . Mr. Barufaldi asserted that the Chamber refused to determine the base line net revenue figure, preventing him from calculating and obtaining his incentive-based compensation.

Id. at 10 , 7 A.3d 643 . After negotiations failed, Mr. Barufaldi eventually tendered his letter of resignation. Id. at 11 , 7 A.3d 643 . On April 3, 2008, Mr. Barufaldi filed suit against, among others, the Chamber, alleging breach of contract and violations of the WPCL.

Id. at 11-12 , 7 A.3d 643 . He asserted that the Chamber “wrongfully ... withheld incentive-based compensation due and owing under” his employment contract, and he sought treble damages, costs, and attorneys’ fees pursuant to the WPCL. Id. at 12 , 7 A.3d 643 . After a three-day jury trial, the jury found in favor of Mr. Barufaldi, finding that: (1) the Chamber breached its employment contract with Mr. Barufaldi; (2) Mr. Barufaldi was damaged as a result of the contract breach in the amount of $60,000; (3) the Chamber violated the WPCL; (4) the Chamber’s failure to pay wages to Mr. Barufaldi was not the result of a bona fide dispute; and (5) Mr. Barufaldi was not entitled to damages under the WPCL above the $60,000 in contract damages awarded.

Id. at 28 , 7 A.3d 643 . Mr. Barufaldi then filed a motion, pursuant to the WPCL, requesting $160,275.97 in attorneys’ fees and ²⁸⁹ costs. Id. at 34 , 7 A.3d 643 . The circuit court denied the motion.

Id. First Appeal Both parties appealed to this Court. Id. at 7 , 7 A.3d 643 . In Barufaldi I , as indicated, this Court affirmed the circuit court’s judgment in favor of Mr. Barufaldi, but we vacated the order denying Mr. Barufaldi’s request for attorneys’ fees.

Id. at 36-37 , 7 A.3d 643 . With respect to the request for attorneys’ fees, Judge Deborah Eyler, writing for this Court, stated that “[t]he WPCL is a fee-shifting statute,” which provides that, if an employer withholds wages not as a result of a bona fide dispute, a court may award reasonable attorneys’ fees, noting that “courts should exercise their discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that case.” Id. at 35 , 7 A.3d 643 (quoting Friolo v. Frankel, 373 Md. 501, 518 , 819 A.2d 354 (2003) (“Friolo I”)) (emphasis omitted). We noted that the circuit court gave no explanation regarding its reason for denying the motion for attorneys’ fees, and thus, we could not “tell whether the court exercised discretion in making its ruling or, if it did, how it did.” Id. at 36, 7 A.3d 643 . We stated: “Given that the jury made the predicate finding of willfulness on the part of the Chamber, and given the remedial purposes of the WPCL, it was incumbent upon the trial court to set forth particular circumstances militating against any award of fees in this case.” Id.

We remanded for further proceedings, noting that where a jury finds no bona fide dispute, the “court may choose not to award fees for many reasons, but not on the basis that the wages in fact were withheld as a result of a bona fide dispute.” Id. at 36 , 7 A.3d 643 . Proceedings on Remand On November 10, 2010, Mr. Barufaldi filed a supplemental motion for an award of attorneys’ fees and costs, requesting additional attorneys’ fees in the amount of $41,770.50 and costs ²⁹⁰ in the amount of $11,125.86. The supplemental fees and costs were for legal services Mr. Barufaldi’s counsel rendered in connection with the successful appeal. In its written response, the Chamber argued that the circuit court should deny any request for fees or costs.

It asserted that, in deciding whether to award fees, the court should adopt the factors, discussed infra, that federal courts use in determining whether to apply the fee-shifting provision of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (“ERISA”). The Chamber asserted that application of the ERISA factors weighed against an award of fees. With respect to one of the ERISA factors, the ability to pay, the Chamber attached the affidavit of Melanie Pursel, its Executive Director.

In the affidavit, Ms. Pursel stated that “[a]ny meaningful award of fees and costs in this case would jeopardize in a very real sense the existence and continuing financial viability of the Chamber, which has existed as an important promoter of the business community for over fifty years.” She stated that the Chamber, a private, non-profit entity organized to promote tourism and commerce in Ocean City, had not earned any net profit for over a decade, and that, to secure a stay of enforcement of the money judgment, the Chamber had to borrow $60,000 from a financial institution. On December 20, 2010, Mr. Barufaldi filed a reply in support of his motion for attorneys’ fees objecting to the Chamber’s proposed application of the ERISA factors. He argued that the Court of Appeals had never adopted this test, and that the proposed five-factor test ran afoul of the existing case law on the WPCL’s fee-shifting provision. With respect to the affidavit submitted by the Executive Director of the Chamber, relating to the inability to pay, Mr. Barufaldi stated that this assertion was “factually questionable,” arguing that the Chamber is a membership organization that received dues from its members, and it could assess the members for other obligations.

In any event, Mr. Barufaldi argued, the financial ²⁹¹ condition of the Chamber was irrelevant as a factor in considering an award of attorneys’ fees. On March 25, 2011, the circuit court denied the motion. In its written opinion, the court noted that “Maryland [c]ourts have not set forth factors to be considered in making the determination of whether or not to impose attorneys’ fees.” The court, therefore, looked to factors considered by federal courts in awarding fees pursuant to ERISA’s fee-shifting provision. These factors, as set forth by the circuit court, are as follows: “(1) the degree of opposing parties’ culpability or bad faith; (2) the ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itselff;] and (5) the relative merits of the parties’ positions.” (Quoting Quesinberry v. Life Ins.

Co., 987 F.2d 1017 , 1029 (4th Cir.1993)). In applying these factors, the circuit court made the following findings, before concluding that the circumstances weighed against awarding attorneys’ fees: [T]he Court finds that there is an absence of bad faith on behalf of the defendants. The inartful language of the contract caused the meaning of “net revenue” to be sufficiently ambiguous that even the testimony of the experts differed as to the actual meaning and effect of that language as included in the contract. Concerning factor number two the ability to pay, the affidavit of Melanie Pursel is uncontradicted.[ 3 ] Melanie Pursel, as executive director of the Ocean City Chamber of ²⁹² Commerce, is in charge of its financial affairs.

According to her affidavit!,] the Chamber is a private, non-profit membership organization, and its limited income is derived from membership dues, donations and advertising revenue. The Affidavit states that the Chamber of Commerce has not earned or reported any net profit, nor has its advertising company generated any net taxable income, for well over a decade. Any net revenue the Chamber of Commerce receives subsidizes its operating losses. Having borrowed $60,000.00 to pay into the court registry in order to stay enforcement of the judgment, the affidavit goes on to assert that an award of attorneys’ fees would likely render the Chamber insolvent.

In consideration of factor number three, the deterrent effect of a fee award, the court finds that such an award would not create any appreciable deterrent effect, and consistent with Melanie Purcel’s affidavit, such an award could actually jeopardize the actual existence of the Chamber! ], rather than having the desired deterrent effect. Fourthly, any applicability of the lawsuit beyond the facts of this case is negligible. The facts that give rise to this case are made unique as a result of the contract of employment, which was somewhat ambiguous due to the lack of clarity of terms. The fifth and last factor to be considered ... is the relative merits of the parties’ positions.

Simply said, the court determined this to be a close case. The opinion stated that, for the above reasons, the motion for attorneys’ fees was denied. Mr. Barufaldi filed a timely notice of appeal. DISCUSSION The WPCL places a duty on employers to “pay whatever wages are due on a regular basis and to pay all that is due following termination of the employment.” Friolo I, 373 Md. at 513 , 819 A.2d 354 .

L.E. § 3-507.2(a) authorizes employees to bring lawsuits against their employers if the em ²⁹³ ployer fails to pay wages due within two weeks of the scheduled payment date. Section 3-507.2(b) authorizes courts to award attorneys’ fees and treble damages to employees who successfully pursue legal action to recover unpaid wages: (b) Award and costs.—If, in an action [to recover unpaid wages], 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 purpose of these provisions is “to provide a vehicle for employees to collect, and an incentive for employers to pay, back wages.” Battaglia v. Clinical Perfusionists, Inc., 338 Md. 352, 364 , 658 A.2d 680 (1995). “Critical to the achievement of this goal is providing a mechanism, here, the fee shifting statute, and an incentive, based on a realistic expectation of reasonable compensation, for attorneys to agree to take on wage dispute cases, even where the dollar amount of the potential recovery may be relatively small.” Friolo v. Frankel, 403 Md. 443, 457-58 , 942 A.2d 1242 (2008) (“Friolo III ”). An award of attorneys’ fees to a prevailing employee under the WPCL involves a three step process.

First, there must be a determination whether the withholding of the wages was “not as a result of a bona fide dispute.” L.E. § 3-507.2(b). A bona fide dispute is one in which the employer resisting the employee’s claim for unpaid wages “has a good faith basis for doing so,” when there is “a legitimate dispute over the validity of the claim or the amount that is owing.” Admiral Mortg., Inc., v. Cooper, 357 Md. 533, 543 , 745 A.2d 1026 (2000). This inquiry is concerned with the employer’s “actual, subjective belief that the party’s position is objectively and reasonably justified.” Friolo v. Frankel, 201 Md.App. 79 , 130 n. 42, 28 A.3d 752 (2011) (“Friolo TV”), cert. granted, 424 Md. 54 , 33 A.3d 981 (2011). This issue is a jury question, which “may not be second guessed by the court in determining the entitlement to fees.” Barufaldi I, 196 Md.App. at 35-36 , 7 ²⁹⁴ A.3d 643 .

Accord Programmers’ Consortium, Inc., v. Clark, 409 Md. 548, 549-50 , 976 A.2d 290 (2009). Here, the jury found that the Chamber’s failure to pay wages was not a result of a bona fide dispute. The second step, after a finding that there was “no bona fide ” dispute, requires the court to decide whether to award a fee. In making this determination, the Court of Appeals has stated that, given the remedial purpose of the statute, “courts should exercise their discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that case.” Friolo I, 373 Md. at 518 , 819 A.2d 354 .

And finally, the third step, if the court decides to grant attorneys’ fees, is for the court to determine the amount of fees to award. In making this determination, the court must apply a “lodestar” analysis. Id. at 529 , 819 A.2d 354 . Accord Frankel v. Friolo, 170 Md.App. 441, 449 , 907 A.2d 363 (2006) (“Friolo II”), aff’d, 403 Md. 443 , 942 A.2d 1242 (2008); Friolo III, 403 Md. at 450 , 942 A.2d 1242 ; Friolo IV, 201 Md.App. at 105 , 28 A.3d 752 .

This case involves the second step, whether to award attorneys’ fees. The parties have differing views regarding whether the circuit court applied the proper standard in denying Mr. Barufaldi’s request for attorneys’ fees. Mr. Barufaldi contends that the circuit court erred in its analysis, asserting that the Court of Appeals, in Friolo I , established “a presumption that the plaintiff ‘should ordinarily recover attorneys’ fees unless special circumstances would render such an award unjust.’ ” He argues that the circuit court disregarded “the Friolo precedents, and instead adopted a novel legal test for denying attorneys’ fees” under the WPCL that is inconsistent with Maryland law. 4 ²⁹⁵ The Chamber contends that the circuit court did not abuse its broad discretion in denying Mr. Barufaldi’s claim for attorneys’ fees and costs, asserting that the court’s “decision to do so was amply supported and explained with reference to multiple valid reasons.” It asserts that Mr. Barufaldi, as well as the Amici, argue for an “absolute requirement that, in all wage payment cases where a plaintiff prevails and the jury finds no bona fide dispute, the trial court must award fees and costs.” This argument, the Chamber asserts, fails to acknowledge that the General Assembly and the Court of Appeals recognize that the decision whether to award fees is discretionary. The Chamber states that “Maryland appellate courts, thus far, have not specified factors to be considered by the trial court in exercising its discretion in [WPCL] cases[ ] as to whether to award fees.” It asserts that, in light of this absence of developed law, the court’s reliance on the statutory factors in analogous ERISA cases was proper because circuit courts have “broad discretion to consider a variety of factors in deciding whether to grant or deny the request for fees.” The first issue we must resolve is the proper standard of review to assess the circuit court’s decision not to award Mr. Barufaldi attorneys’ fees and costs.

Typically, we would review the circuit court’s decision regarding whether to award attorneys’ fees pursuant to the WPCL for an abuse of discretion. Friolo I, 373 Md. at 512 , 819 A.2d 354 ; Barufaldi ²⁹⁶ I, 196 Md.App. at 35-36 , 7 A.3d 643 . Here, however, the issue is whether the circuit court, in exercising its discretion, applied the proper standard when it declined to award fees. This is a question of law, which we review de novo.

Friolo I, 373 Md. at 512 , 819 A.2d 354 (stating that a circuit court’s application of incorrect law in exercising its discretion while awarding fees is a legal question, reviewed de novo). We next address whether, as argued by Mr. Barufaldi and the Amici, the WPCL establishes a presumption in favor of an award of attorney fees. Because the parties rely on Friolo I in making that assertion, we begin our analysis by looking at that case. In Friolo I , the Court of Appeals discussed the WPCL at length.

It noted that the language of the statute, that the court “may” award counsel fees, reflected that there was no statutory requirement that the court award fees, but rather, an award of fees was a discretionary decision. 373 Md. at 512, 514 , 819 A.2d 354 . After reviewing the legislative history of the WPCL, however, the Court stated that it was clear “that the Legislature intended that discretion to be exercised liberally in favor of awarding fees, at least in appropriate cases.” Id. at 515 , 819 A.2d 354 . The Court discussed the genesis of the WPCL as follows: The substantive provisions of the Payment Law were first enacted in 1966. 1966 Md. Laws, ch. 686. The law allowed the Commissioner of Labor and Industry to file suit on behalf of employees to collect wages that were unlawfully withheld and provided minor criminal penalties for violations, but it provided no statutory action for the individual employee.

The employee was presumably free to file a breach of contract action against the employer if the employee either was knowledgeable enough to do so on his or her own or could find a lawyer willing to take the case. Over the years, the law was amended, first to provide for civil penalties of up to 10%, later 20%, of the wages due, and, in 1983, to substitute for the civil penalties a provision that permitted a court, in an action by the Commissioner, to ²⁹⁷ award to the employee up to three times the amount of wage unlawfully withheld if the court found that the withholding was not a result of a bona fide dispute. The law said nothing about counsel fees. Id. at 515-16 , 819 A.2d 354 .

The Court noted that the impetus, in 1993, for what is now § 3-507.2, was budgetary constraints that rendered the Division of Labor and Industry unable to enforce the WPCL. Id. at 516, 819 A.2d 354 . Accord Balt. Harbor Charters, Ltd. v. Ayd, 365 Md. 366, 382-83 , 780 A.2d 303 (2001) (discussing how budgetary constraints created a need for creation of the private cause of action and fee-shifting provisions). 5 In 1993, in response to the inability of the government to pursue unpaid wage claims, two bills were introduced in the General Assembly to amend the WPCL to permit employees to file their own lawsuits to recover unpaid wages.

Friolo I, 373 Md. at 516-17 , 819 A.2d 354 . The House Bill provided for automatic treble damages and attorneys’ fees if the employee prevailed, but the Senate Bill did not include such a provision. Id. at 517 , 819 A.2d 354 . During testimony on the House Bill, the Executive Director of the Maryland Volunteer Lawyers Service reported that most unpaid wage claims involved sums of $150 to $200, and the claimants were primarily low-income workers.

Id. at 517 , 819 A.2d 354 . “Concern was expressed by proponents of the bills that these employees often had no other resource available to assist them in pursuing their claims, and the proponents therefore supported both the treble damage and counsel fee provisions in the House Bill.” Id. Business groups, however, opposed the automatic provisions for attorneys’ fees and treble damages “merely in the event the court found the wage was due.” Id. The General Assembly, in response to these ²⁹⁸ concerns, “struck the balance of allowing a reasonable counsel fee” only when “the employer acted wilfully—in the absence of a bona fide dispute.” Id. In light of this history, the Court of Appeals construed the statute as “remedial in nature,” noting it “should therefore be given a liberal interpretation.” Id. at 517 , 819 A.2d 354 . 6 The Court stated that, once a finding is made that the employer acted in the absence of a bona fide dispute: [C]ourts should exercise their discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that case.

See Hensley v. Eckerhart, 461 U.S. 424, 429 [ 103 S.Ct. 1933 , 76 L.Ed.2d 40 ] (1983) (holding that, under 42 U.S.C. § 1988 , which allows the award of attorneys’ fees in a civil rights action under § 1983, “a prevailing plaintiff ‘should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust,’ ” quoting S.Rep. No. 94-1011, p. 4 (1976), 1976 U.S.C.C.A.N. 5908 5912). Id. at 518, 819 A.2d 354 . Mr. Barufaldi characterizes the above statement as showing that “the Court of Appeals adopted the so-called ‘Hensley presumption’ that successful civil rights plaintiffs should be awarded attorneys’ fees absent special circumstances.” The Chamber disputes the assertion that the Court, in Friolo I , established a legal “presumption” in favor of awarding fees to a WPCL claimant.

We agree with the Chamber on this point. A careful review of Friolo I shows that the Court of Appeals did not hold that the WPCL provided for a presumption in favor of attorneys’ fees. ²⁹⁹ The issue in Friolo did not involve the second step of the analysis, i.e., what a court must consider in determining whether to award a fee. In that case, the circuit court had awarded counsel fees, but Friolo was unhappy with the amount of the fee, arguing on appeal that, in conducting the third step, determining the amount of fees to award, the court failed to apply the lodestar approach. Id. at 510-11, 819 A.2d 354 .

The Court, after making clear that the issue of whether a fee was appropriate was not at issue, ultimately held that the lodestar approach ordinarily is the appropriate one to use in determining reasonable counsel fees. Id. at 504-05 , 819 A.2d 354 . 7 In light of the procedural posture of Friolo I , the Court’s statement regarding how the court should exercise its discretion in determining whether to award a fee was dicta. Accordingly, its reference to Hensley cannot be said to have been a holding adopting a presumption that attorneys’ fees should be awarded in a case involving the WPCL. The issue whether the WPCL contains a presumption in favor of attorneys’ fees is, however, directly raised in this case, for resolution by this Court.

Because Mr. Barufaldi’s contention that there is a presumption is based on language from Hensley , we start our analysis with a review of that case. In Hensley, 461 U.S. at 429 , 103 S.Ct. 1933 , the Supreme Court addressed a claim for attorneys’ fees pursuant to 42 U.S.C. § 1988 , which provides that,