Credible Behavioral Health v. Johnson

Credible Behavioral Health, Inc. v. Emmanuel Johnson, No. 19, September Term 2019. Opinion by Greene, J. APPEAL AND ERROR—JUDGE AS FACTFINDER BELOW Under Maryland Rule 7–131(f), the circuit court, when hearing an appeal on the record from the district court, reviews the district court’s factual determinations for clear error and its legal conclusions de novo. CONTRACTS—CONSTRUCTION AND OPERATION—GENERAL RULES OF CONSTRUCTION Under the promissory note at issue, employees are required to repay the loan in accordance with the repayment schedule in Paragraph 1(a) in both situations where an employee is fired or quits. Circuit Court for Montgomery County Case No. 9858D Argued: October 8, 2019 IN THE COURT OF APPEALS OF MARYLAND No. 19 September Term, 2019 ______________________________________ CREDIBLE BEHAVIORAL HEALTH, INC. v. EMMANUEL JOHNSON Barbera, C.J. McDonald Watts Hotten Getty Booth Greene, Clayton, Jr. (Senior Judge, Specially Assigned) JJ. ______________________________________ Opinion by Greene, J. ______________________________________ Filed: November 20, 2019 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2019-11-20 15:09-05:00 Suzanne C. Johnson, Clerk Petitioner, Credible Behavioral Health, Inc. (“Credible”) offers a tuition loan program to its employees aimed at incubating and furthering their professional development.

Respondent, Emmanuel Johnson, a former employee of Credible, participated in this program from August 10, 2016 until he was fired several months later. Under a promissory note outlining the agreement, the amount of the loan that must be repaid is dependent upon the length of time an employee works for Credible after completing his or her education. This case presents two issues for our consideration: (i) the appropriate standard of review in an appeal on the record from the district court to the circuit court; and (ii) the interpretation of a promissory note. As to the second issue, Mr. Johnson contends that the agreement contemplates repayment only if an employee quits within a relevant time period; whereas, Credible argues that repayment is required upon the conclusion of employment within that time period, regardless of whether an employee is fired or quits.

We shall hold that: (i) a circuit court, in hearing an appeal on the record from the district court, reviews the district court’s factual determinations for clear error and its legal conclusions de novo; and (ii) the promissory note, when read as a whole and viewed in the appropriate context, requires repayment of the principal balance in both situations where an employee quits and where Credible fires an employee.1 1 We note that the requirement to repay the principal balance is conditioned upon the occurrence and non-occurrence of several events. This will be explained in greater detail in the following section. FACTUAL AND PROCEDURAL BACKGROUND Credible is a Delaware corporation that provides software solutions to behavioral health and human service providers. To cultivate its employees’ professional development, Credible offers a tuition loan program to them.

Under the program, Credible agrees to loan funds to employees who wish to obtain additional education—be it undergraduate, graduate, or post-graduate certificate programs. The percentage of the loan that an employee must repay is dependent upon the length of time he or she works for Credible subsequent to completing his or her studies. Mr. Johnson was an employee of Credible in 2016. On August 10, 2016, Mr. Johnson entered into Credible’s tuition loan program, and the parties memorialized their agreement under the terms of an unsecured promissory note.

Paragraph 1(a) of the promissory note contains a schedule which sets forth the conditions of tuition repayment under the program: FOR VALUE RECEIVED, Emmanuel Johnson (“Borrower”), an individual and an employee of CREDIBLE BEHAVIORAL HEALTH, INC., a Delaware corporation (“Company”), hereby unconditionally promises to pay to the order of Company in lawful money of the United States of America and in immediately available funds the aggregate principal amount set forth on Schedule A together with all accrued and unpaid interest thereon, if any (the “Loan”). It is the intent of Borrower and Company that the purpose of this Promissory Note (the “Note”) is to pay tuition expenses for undergraduate, graduate or post-graduate certificate programs in connection with the Company’s Tuition Loan program. 1. Principal Repayment (a) The principal balance of the Loan plus all accrued interest thereon shall be due and payable in accordance with the following schedule: -2- (i) If you terminate employment with the Company within 12 months following achievement of the degree, 100% of the Loan; (ii) If you terminate employment with the Company after the 12 month anniversary but on or before the 24 month anniversary following achievement of the degree, 75% of the Loan; (iii) If you terminate employment with the Company after the 24 month anniversary but on or before the 36 month anniversary following achievement of the degree, 50% of the Loan; or (iv) If you terminate employment with the Company after the 36 month anniversary following achievement of the degree, 0% of the Loan. (Emphasis in original).

The final part of Paragraph 1(a) sets forth the relevant scope of the agreement: The appropriate percentage of the Loan set forth above, plus all accrued interest thereon shall be due and payable (i) ninety (90) calendar days after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever, or (ii) immediately or at the option of Company, as set forth in Section 4(b) below, upon the occurrence of any Event of Default (as defined by in Section 4 below). Borrower understands that taxes will be deducted from these paychecks based upon the amount that would have been paid Borrower had payments for principal and/or interest not been deducted. Pursuant to the agreement, Credible loaned Mr. Johnson $12,529 to assist him in paying his tuition. In December of 2017, Credible fired Mr. Johnson.

At the time of his termination, Mr. Johnson had not yet obtained a degree. Subsequently, Credible and Johnson entered into a payment plan under which Mr. Johnson made one payment in the amount of $325 on February 28, 2018 and made no further payments. As a result, the balance due on the promissory note was reduced to $12,204. -3- On April 25, 2018, attorneys for Credible sent a demand letter to Mr. Johnson, which indicated that the principal balance of the loan was due on March 13, 2018 and requested Mr. Johnson make payment by May 25, 2018. As a result of Mr. Johnson’s failure to make any additional payments due under the promissory note, on June 8, 2018, Credible brought an action against Mr. Johnson in the District Court of Maryland sitting in Montgomery County seeking repayment of the debt.

The district court held a trial in the matter on September 12, 2018. That same day, the district court entered a judgment in Mr. Johnson’s favor. The district court judge reasoned that, under the language of Paragraph 1(a), the amounts set forth only became due if Mr. Johnson quit from his employment with Credible. In its analysis, the district court concluded that Paragraph 1(a) and the provision that follows it were inconsistent.

Particularly, the court determined that the provision following Paragraph 1(a) referenced back to Paragraph 1(a) for the amount that would be due if an employee was terminated. In its view, however, the schedule set forth in Paragraph 1(a) only applied in situations where employees quit and therefore there was no basis to determine the amount Mr. Johnson owed by reference to Paragraph 1(a), because he was fired. The trial judge ultimately determined that “[a]t best I’m interpreting it as it exactly is written. At worse it’s an inconsistency which goes against the person who drafted the contract.” The following day, September 13, 2018, Credible appealed the judgment of the district court to the Circuit Court for Montgomery County pursuant to Courts and Judicial Proceedings Article § 12–401(a).

The circuit court heard the appeal on the record under Maryland Rule 7–102(b) and held a hearing on February 15, 2019. Before that court, -4- Credible argued that Mr. Johnson was required to repay the loan regardless of whether he was fired or quit. In contrast, Mr. Johnson contended that the district court correctly interpreted the note, and he was only required to repay the loan if he quit. Ultimately, in a written opinion and order dated March 7, 2019, the circuit court found that the district court “was [not] clearly erroneous in its interpretation of the promissory note at issue in this case” and therefore affirmed its judgment.

Thereafter, Credible petitioned this Court for a writ of certiorari, which we granted on June 7, 2019. Credible Behavioral Health, Inc. v. Johnson, 464 Md. 7 , 210 A.3d 182 (2019). In its petition for a writ of certiorari, Credible presented three questions for this Court’s review: 1. Did the [c]ircuit [c]ourt erroneously apply Md. Rule 7–133(f) when it reviewed the [d]istrict [c]ourt’s construction of a contract’s terms for clear error rather than de novo? 2.

Did the plain terms of the parties’ promissory note (“Note”) entitle Credible to a judgment against the defendant below, respondent Emmanuel Johnson? 3. In interpreting the Note, did Maryland law require the [c]ircuit [c]ourt to choose [ ] one among two possible readings of the Note that was consistent with the parties’ intent? STANDARD OF REVIEW Under Maryland Rule 8–131(c), an appellate court reviews cases tried without a jury “on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8–131(c); Nesbit v. Gov’t Emps.

Ins. Co., 382 Md. 65, 72 , 854 A.2d 879, 883 (2004). Although the Rule does not explicitly state the standard of review applicable to a trial court’s determinations of legal -5- questions, this Court has indicated that the clear error standard does not apply to “determinations of legal questions or conclusions of law.” Tribbitt v. State, 403 Md. 638, 644 , 943 A.2d 1260, 1263 (2008). Instead, “[w]hen the trial court’s order ‘involves an interpretation and application of Maryland statutory [or] case law, [the appellate] [c]ourt must determine whether the lower court’s conclusions are legally correct under a de novo standard of review.’” Nesbit, 382 Md. at 72 , 854 A.2d at 883 (quoting Walter v. Gunter, 367 Md. 386, 392 , 788 A.2d 609, 612 (2002)).

DISCUSSION The Standard of Review under Maryland Rule 7–113(f) First, we must determine the applicable standard of review when a circuit court reviews a judgment of the district court under Maryland Rule 7–113(f). Ultimately, we reaffirm this Court’s earlier position that the circuit court reviews the district court’s factual determinations for clear error and its legal conclusions de novo. The dispute in this case arises from language utilized in the circuit court’s order and opinion concerning the relevant standard of review. Therein, the circuit court concluded, “[t]he standard of review in an Appeal heard on the Record is a clearly erroneous standard.

This [c]ourt does not find that the [d]istrict [c]ourt was clearly erroneous in its interpretation of the promissory note at issue in this case.” Credible argues that the circuit court erred by applying the clearly erroneous standard to the district court’s interpretation of the underlying promissory note. Credible contends that the district court’s interpretation or construction of a contract is a legal determination that ought to be reviewed by the circuit court de novo. Whereas, Mr. Johnson -6- argues that the district court’s ultimate conclusions stemmed from an application of its factual findings to the contractual language. Moreover, Mr. Johnson contends that, regardless of the applicable standard of review, he should prevail.

On its face, Rule 7–113(f) expressly contemplates only a clearly erroneous standard: (f) Scope of Review. The circuit court will review the case on both the law and the evidence. It will not set aside the judgment of the [d]istrict [c]ourt on the evidence unless clearly erroneous, and will give due regard to the opportunity of the [d]istrict [c]ourt to judge the credibility of the witnesses. Md. Rule 7–113(f).

Maryland Rule 1386 is the predecessor to Rule 7–113(f). Friendly Fin. Corp. v. Orbit Plymouth Chrysler Dodge Truck, 378 Md. 337 , 343 n.5, 835 A.2d 1197 , 1200 n.5 (2003). It contained the same relevant provisions as Rule 7–113(f) concerning the scope of review when a circuit court reviews decisions of the district court.2 Prior to the enactment of Rule 8–131(c), Rule 886 governed this Court’s review of actions tried without a jury and contained language nearly identical to that of Rule 1386.3 In Ryan v. Thurston, Chief Judge Murphy, writing for the Court of Appeals, analogized Rules 1386 and 886 to determine the appropriate standard of review when a circuit court hears an 2 Maryland Rule 1386 provided that the circuit court “will review the case upon both the law and the evidence, but the judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given to the opportunity of the lower court to judge the credibility of the witnesses.” Hous.

Opportunities Comm’n of Montgomery Cty. v. Lacey, 322 Md. 56, 59 , 585 A.2d 219, 221 (1991). 3 Maryland Rule 886 indicated that “[t]he Court of Appeals will not set aside the judgment of the lower court on the evidence unless clearly erroneous and due regard will be given to the opportunity of the lower court to judge the credibility of the witnesses.” -7- appeal from the district court. 276 Md. 390 , 391–92, 347 A.2d 834 , 835–36 (1975). He explained that, under the scheme set forth by Rule 1386, the clearly erroneous standard applies only to the district court’s factual determinations. Id. at 392 , 347 A.2d at 836 . Although the Ryan Court did not explicitly state that the circuit court reviews the district court’s legal conclusions de novo, this Court held that the applicable standard of review under Rule 1386 is the same as that governing the Court of Appeals’ review of actions tried without a jury under Rule 886 and “that the cases applying these rules are controlling authority governing the interpretation of the scope of appellate review[.]”4 Id.

Within the context of Rule 886, this Court has held that “it is equally obvious that the ‘clearly erroneous’ portion of Rule 886 does not apply to a trial court’s determinations of legal questions or conclusions of law based upon findings of fact.” Davis v. Davis, 280 Md. 119, 124 , 372 A.2d 231, 233 (1977) (quoting Clemson v. Butler Aviation, 266 Md. 666, 671 , 296 A.2d 419, 422 (1972)). Accordingly, under Rules 886 and 1386 a lower court’s legal conclusions have historically been reviewed for legal correctness. See Davis, 280 Md. at 124–26, 372 A.2d at 233–34. Subsequent to reorganization of the Maryland Rules, this Court affirmed the analogical approach advanced earlier in Ryan, by indicating that the clearly erroneous 4 The Court also drew a comparison between Rule 1386 and Rule 1086 which, at the time, governed the scope of appellate review in cases before the Court of Special Appeals.

Ryan, 276 Md. at 391 , 347 A.2d at 835 . Subsequently, the language of Rules 886 and 1086 was incorporated into that of Rule 8–131(c). See Md. Rule 8–131; State Sec. Check Cashing, Inc. v. Am. Gen.

Fin. Servs. (DE), 409 Md. 81 , 109–10, 972 A.2d 882, 899 (2009). -8- standard applies to the district court’s factual determinations and its legal conclusions are reviewed de novo: These are the same standards of review that [c]ircuit [c]ourts, following Maryland Rule 7–113(f) in cases such as the present one, should apply when they review [d]istrict [c]ourt judgments . . . . Maryland Rule 8–131(c) has nearly identical language to Rule 7–113(f) regarding the scope of appellate review, and cases interpreting Rule 8–131(c) are persuasive regarding Rule 7–113(f).

Under Rule 8–131(c), clear error is the proper standard for review of the evidence, but it is not the proper standard for questions of law, which are reviewed de novo. Friendly Fin. Corp., 378 Md. at 343 n.5, 835 A.2d at 1200 n.5 (emphasis added) (citations omitted).5 Further, this Court has consistently interpreted Rule 8–131(c) to require de novo review of a circuit court’s legal conclusions. Tribbit, 403 Md. at 644 , 943 A.2d at 1263 (2008); Goff v. State, 387 Md. 327 , 337–38, 875 A.2d 132, 138 (2005); Friendly Fin.

Corp., 378 Md. at 342–43, 835 A.2d at 1200 . Ultimately, our precedent on this issue and a comparison between Rule 7–113(f) with its appellate analog Rule 8–131(c) and their predecessors, make clear that the circuit 5 The facts of Friendly Fin. Corp., concerning the circuit court’s application of the clearly erroneous standard, are strikingly similar to those of the instant appeal. The Court commented, “[t]he [c]ircuit [c]ourt in this case, however, may have applied a ‘clearly erroneous’ standard to its review of the [d]istrict [c]ourt’s legal analysis.

We glean this from the fact that, in its written opinion, the [c]ircuit [c]ourt made reference only to the deferential clearly erroneous standard.” 378 Md. at 343 n.5, 835 A.2d at 1200 n.5. Similarly, the express language of the circuit court’s order in the instant appeal evinces a blanket application of the clearly erroneous standard to both the district court’s factual and legal conclusions. In Friendly Fin. Corp., however, the Court held that the circuit court’s erroneous application of Rule 7–113(f) was ultimately harmless.

Id. (“Because we agree that the [d]istrict [c]ourt’s legal analysis was correct, the [c]ircuit [c]ourt’s possible applications of the incorrect standard of review was harmless error if it was error at all.”) -9- court reviews the district court’s legal conclusions de novo. Our interpretation of Rule 7– 113(f) is entirely consistent with the uncontroverted proposition that, under Rule 8–131(c), this Court reviews a lower court’s factual determinations for clear error and its legal conclusions de novo. Accordingly, we hold that, in an appeal on the record under Rule 7– 113(f), the circuit court reviews the district court’s factual determinations for clear error and its legal conclusions de novo.

Next, we must determine whether the district court’s interpretation of