O'Brien & Gere Engineers, Inc. v. City of Salisbury

ADKINS, J. The litigation privilege immunizes a party for statements made in a judicial proceeding and is fundamental to the courts’ truth-finding mission. We have previously analyzed this privilege only in the defamation context. Today we address two distinct questions that arise out of a dispute between a city and a design engineer’s settlement agreement to, among other things, not disparage one another. Can the litigation privilege immunize a party from a claim for breach of a non-disparagement clause?

If so, can a party waive that privilege? We examine these questions to determine whether a trial court correctly granted a motion to dismiss a complaint for failure to state a claim for breach of contract. ³⁹⁹ FACTS AND LEGAL PROCEEDINGS The Maryland Department of the Environment required the City of Salisbury (“the City”) to upgrade its wastewater sewage treatment plant (“WWTP”). The City then embarked on an $80 million large public works project by hiring O’Brien & Gere Engineers, Inc. (“OBG”) as its design engineer and Construction Dynamics Group (“CDG”) as its construction manager. The project failed because the WWTP did not work as expected and required.

Believing it did not get what it bargained for, the City sued OBG and CDG, among others, for various torts and breach of contract (“the WWTP Litigation”). With the advice of their respective attorneys, the City and OBG settled their dispute pursuant to an agreement (“the Settlement Agreement”) in June 2012. In pertinent part, OBG agreed to pay the City $10 million in exchange for the City’s promise to release OBG from all claims relating to the WWTP. The City also made promises to OBG in the Settlement Agreement so that “OBG [would] not hav[e] to expend any further monies in connection with” the WWTP Litigation and would be protected “from any liability and expense associated with any [of the City’s] claims” relating to the WWTP.

First, the City agreed to defend, indemnify, and hold OBG harmless if any party (whether in the WWTP Litigation or in any future claim the City might bring) were to sue OBG “relating to the design or construction of or equipment supplied for [the WWTP].” Second, the City agreed to indemnify and hold OBG harmless if any such party obtained a judgment against OBG. Third, the City agreed that it would reduce any damages it recovered if OBG was “determined to be a joint tortfeasor” because of any final judgment. In exchange for these promises, OBG agreed to release the City from all of its WWTP claims. OBG and the City also agreed not to disparage one another about the WWTP upgrade.

The non-disparagement clause states: ⁴⁰⁰ The City and OBG mutually agree that they will not make, or cause or encourage other persons or entities to make, any disparaging remarks or comments about each other relating to any matter having occurred prior to the effective date of this Settlement Agreement or in the future relating directly or indirectly to the Salisbury wastewater treatment plant through any means, including without limitation, oral, written or electronic communications, or induce or encourage others to publicly disparage the other settling party. For purposes of this paragraph, the term “disparaging” means any statement made or issued to the media, or other entities or persons that adversely reflects on the other settling party’s personal or professional reputation and/or business interests and/or that portrays the other settling party in a negative light. The parties agreed that, in the event of a breach of this provision, the non-breaching party “shall be” entitled to injunctive relief and reasonable attorney’s fees. OBG believes that the City committed such a breach.

After the City released OBG from all claims relating to the WWTP Litigation, the City pursued a claim for breach of contract against CDG (“the CDG Lawsuit”). 1 On November 1, 2012, in his opening remarks to the jury, the City’s trial counsel, Howard Goldberg, explained that “[the City] hired [CDG], and over the next three and a half years paid them $2,786,462.43. And the City just simply didn’t get what they paid for.” As to CDG’s obligations to the City, Goldberg stated: “[CDG was] to advise [the City] of deficiencies which are discovered or suspected by the construction manager [CDG] which involve the design of the project.” As to the deficiencies, Goldberg said: “[M]ost of the problems ⁴⁰¹ were design problems created by the design engineer, [OBG]. And they [CDG] should have been advising the City of those problems.” 2 CDG used its opening statements to establish that it was not responsible under its contract to the City for any of the design issues at the WWTP. 3 CDG averred that it caused no harm to the City “because the project was built on time, on budget, and there were no construction deficiencies.” Also on the first day of trial, the City used its first witness, Dr. Enos Stover (“Dr. Stover”), to explain to the jury the design problems that plagued the WWTP. On the second day of trial, the City used its second witness, John Jacobs (“Jacobs”), to establish CDG’s obligations to the City, specifically, to report issues relating to OBG’s design work.

(“The construction manager is to overview any design issues, they’re not to solve the design issue, but at least raise the issue to the City so that we can resolve it.”). When OBG caught wind of the City’s statements in the CDG Lawsuit through a newspaper article, OBG sent a “cease and desist” letter to the City, but it was not assured, in its view, that the City would comply with the non-disparagement clause. OBG then filed a complaint against the City for injunctive and monetary relief. The City filed a motion to dismiss for failure to state a claim.

The Circuit Court for Wicomico County denied OBG injunctive relief without issuing a ruling on the City’s motion to dismiss. The City later filed ⁴⁰² an amended motion to dismiss (“the Amended Motion to Dismiss”), which the Circuit Court granted. Following OBG’s timely notice of appeal, 4 the Court of Special Appeals affirmed. O’Brien & Gere Eng’rs, Inc. v. City of Salisbury, 222 Md.App. 492, 580 , 113 A.3d 1129 (2015).

The intermediate appellate court reasoned that the proper inquiry was “whether immunity from liability is consistent with and will serve the public policy objectives of the [litigation] privilege.” Id. at 522 , 113 A.3d 1129 . Analyzing the facts in light of the public policy objectives, the intermediate appellate court concluded that “[t]he administration of justice would be served (and was served) by applying the absolute litigation privilege to immunize the City from liability for breaching the non-disparagement agreement by introducing evidence and making arguments to the trier of fact that included negative information about OBG’s design of the plant upgrade.” Id. at 526 , 113 A.3d 1129 . In pertinent part, the court determined that “[e]vidence about flaws in OBG’s design for the plant upgrade and any cause and effect between flaws in the design and the plant upgrade failure was indispensable to an informed factual resolution of the City’s contract claim against CDG.” Id. at 524-25 , 113 A.3d 1129 . Judge Nazarian dissented.

Following OBG’s appeal, we granted its Petition for Writ of Certiorari to address the following questions: 1. Whether the Court of Special Appeals erred in expanding the scope of the “litigation privilege” and finding that, as an absolute matter of law and without regard to the parties’ intentions, no claim can stand for a deliberate and voluntary breach of a binding non-disparagement agreement when the disparaging statements are made in legal proceedings (even when the agreement contains no exception for statements made in legal proceedings, and the breaching party is not compelled ⁴⁰³ by subpoena or other compulsory process or circumstance to make the disparaging statements). 2. Whether the Court of Special Appeals erred in deciding the case on a preliminary Motion to Dismiss, without resolving or allowing any exploration and litigation of important factual questions (related to the parties’ expectations and intentions) bearing on the scope and effect of the non-disparagement clause, including whether it waived the litigation privilege. We think both questions presented are so intertwined as to warrant a unified discussion, and we conclude, as to the second question, that the Court of Special Appeals correctly affirmed the judgment of the Circuit Court.

We explain, however, that whether the litigation privilege applies to a breach of contract claim turns in a particular case on whether applying the litigation privilege advances the policies favoring the privilege. STANDARD OF REVIEW In reviewing a motion to dismiss a complaint for failure to state a claim, we “must determine whether the trial court was legally correct, examining solely the sufficiency of the pleading.” Ricketts v. Ricketts, 393 Md. 479, 492 , 903 A.2d 857 (2006). 5 Our review of the pleading may extend to “its incorporated supporting exhibits, if any.” Id. at 491 , 903 A.2d 857 (citations and internal quotation marks omitted). As we stated in Allied Investment Corp. v. Jasen, when a trial or appellate court reviews a motion to dismiss for failure to state a claim, it is necessary to “assume the truth of all well-pleaded, relevant, and material facts in the complaint and any reasonable inferences that can be drawn therefrom. ‘Dismissal is proper only if the alleged facts and permissible inferences, so viewed, would, if proven, nonetheless fail to afford ⁴⁰⁴ relief to the plaintiff.’ ” 354 Md. 547, 555 , 731 A.2d 957 (1999) (citations omitted). DISCUSSION OBG and the City dispute whether the City violated the non-disparagement clause in the Settlement Agreement because of the City’s statements during the CDG Lawsuit.

Conceding that the litigation privilege is absolute with respect to “defamation and other torts arising from statements made in legal proceedings,” OBG argues that we should adopt a different approach with respect to its breach of contract claim. Because of the public policy favoring settlements, OBG contends, parties can waive the litigation privilege by contract. OBG views the proper question, then, as whether “the intentions and expectations of the parties or the particular factual context of the case” reveal a waiver of the litigation privilege. Remand is necessary, in OBG’s view, because the Circuit Court granted the City’s Amended Motion to Dismiss without a sufficient record to answer this question.

The City contends that OBG’s focus is off because the nature of the claim — tort or contract — does not matter. In reading our defamation case law, the City deduces that “Maryland has always ‘struck heavily in favor of the free disclosure of information during a judicial proceeding’ ” because of strong public policy reasons, which are just as relevant to OBG’s breach of contract claim. (Quoting Imperial v. Drapeau 351 Md. 38, 45 , 716 A.2d 244 (1998)). Moreover, the City argues that the Circuit Court committed no error because the available facts supported the court’s grant of the Amended Motion to Dismiss: (1) all allegedly disparaging statements were made in a courtroom and (2) the Settlement Agreement did not forbid the City from discussing OBG’s design of the WWTP in the CDG Lawsuit.

MOOTNESS Before we address these substantive arguments, we first consider the City’s position that this case is moot. “This ⁴⁰⁵ Court does not give advisory opinions; thus, we generally dismiss moot actions without a decision on the merits.” Dep’t of Human Res., Child Care Admin. v. Roth, 398 Md. 137, 143 , 919 A.2d 1217 (2007) (citation omitted). “‘A case is moot when there is no longer an existing controversy between the parties at the time it is before the court so that the court cannot provide an effective remedy.’ ” Clark v. O’Malley, 434 Md. 171 , 192 n. 11, 73 A.3d 1086 (2013) (citations omitted). The Settlement Agreement states that, in the event of a breach of the non-disparagement clause, “the non-breaching party shall be entitled to equitable relief.” The City argues that, even if it breached the non-disparagement clause, we cannot grant OBG the injunctive relief it sought because “the acts sought to be enjoined have ceased.” (Quoting State v. Ficker, 266 Md. 500, 507 , 295 A.2d 231 (1972)). Without a doubt, injunctive relief is unavailable. OBG sought injunctive relief to prevent the City from making negative statements about OBG during the CDG Lawsuit.

That lawsuit is over, with a verdict favorable to the City. As the City is no longer making negative statements about OBG that we could enjoin, injunctive relief is off the table. Yet, as OBG contends, “any mootness in regard to the claim for injunctive relief (arising from the termination of the WWTP Litigation) has no bearing” on OBG’s claims for money damages and attorney’s fees. Not so fast, the City responds.

In its view the Settlement Agreement precludes OBG from pursuing money damages. In pertinent part the Settlement Agreement states: The parties agree that, in the event of any breach of this non-disparagement provision, damages!actual losses will be difficult or impossible to prove with requisite precision, and that an adequate remedy at law will not exist. Accordingly, in the event of a breach of this provision, the non-breaching party shall be entitled to equitable relief.... Further, the non-breaching party shall be entitled to an award of reasonable attorney’s fees and other litigation ⁴⁰⁶ costs and expenses associated with enforcement of this provision against the breaching party.

(Emphasis added.) The City avers that “money damages may not be awarded” because the Settlement Agreement states that “an adequate remedy at law will not exist.” OBG disagrees, construing the same language as “a necessary predicate to obtaining injunctive relief.” The Supreme Court of the United States “has repeatedly held that the basis for injunctive relief in the federal courts has always been irreparable injury and the inadequacy of legal remedies.” Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 , 102 S.Ct. 1798 , 72 L.Ed.2d 91 (1982). Although such a basis is not now required in our state courts, it once was. Compare Maryland Rule 15-502(c) (“The court may not deny an injunction solely because the party seeking it has an adequate remedy in damages____”), and Seci, Inc. v. Chafitz, Inc., 63 Md.App. 719, 725 , 493 A.2d 1100 (1985) (“[Although the law was once to the contrary, it is clear now that an injunction need not be denied merely because the party seeking it has an adequate remedy at law.”), with Musch v. Underwood, 179 Md. 455, 459 , 19 A.2d 699 (1941) (“The doctrine is well settled in this state that where a party has a certain, complete and adequate remedy at law, he cannot sue in equity.”), and Anne Arundel Cnty. v. Whitehall Venture, 39 Md.App. 197 , 200 n. 2, 384 A.2d 780 (1978) (“Traditionally, the non-existence of an adequate remedy at law was a prerequisite to injunctive relief.”). 6 ⁴⁰⁷ In reviewing the above provision in the Settlement Agreement, we note that the language focuses precisely on the adequacy of a legal remedy, not on its availability. By no means does the Settlement Agreement state, as the City contends, that money damages shall not be awarded, or, shall not be available as a legal remedy. 7 See Lasco Enters., Inc. v. Kohlbrand, 819 So.2d 821, 825 (Fla.Dist.Ct.App.2002) (rejecting argument that money damages were unavailable because the contract language “did not place a limitation upon their available remedies, but instead, simply provided that the Kohlbrands ‘may* proceed in equity to enforce its rights or ‘may’ elect to receive the return of earnest money deposit.

The provision does not state that the Kohlbrands ‘shall’ limit themselves to such remedies.”). 8 Reviewing our case law, we discern that the parties must at least use clear language to show their agreement to limit available remedies. See Mass. Indem. & Life Ins. Co., 269 Md. 364, 369-70 , 306 A.2d 213 (1973) (rejecting the argument that the contract prohibited ⁴⁰⁸ injunctive relief and explaining that “ ‘[a] contract will not be construed as taking away a common-law remedy unless that result is imperatively required’ ”) (citation omitted).

We cannot agree with the City that this contract language shows the parties’ intention to limit available relief. Rather, our research and the relevant language indicate an attempt by the parties merely to ensure the availability of injunctive relief. We conclude that the dispute over the meaning of the non-disparagement clause is not moot. NON-DISPARAGEMENT CLAUSE AS WAIVER OF LITIGATION PRIVILEGE Preservation of OBG’s Argument The City contends that OBG never argued to the Circuit Court its primary argument here — “that the City waived its right to rely on the absolute litigation privilege because it agreed to the non[-]disparagement provision contained in the Settlement Agreement.” In the City’s view, OBG’s argument to the Circuit Court was “that the public policy favoring enforcement of settlement agreements should prevail over the public policy underlying the absolute litigation privilege.” The City’s non-preservation argument belies its own presentation of the issue to the Circuit Court at the hearing on the Amended Motion to Dismiss, in which it stated: “effectively the issue today is whether or to what extent or what effect the non-disparagement contract between the City of Salisbury and O’Brien & Gere has in relation to the absolute privilege in judicial proceedings that Maryland recognizes.” (Emphasis added).

When OBG argues in this appeal that the non-disparagement clause constitutes a waiver of the litigation privilege it raises the same issue — whether the City gave up its litigation privilege by signing the non-disparagement clause. Moreover, at the same hearing, and in its Opposition to the Amended Motion to Dismiss, OBG relied on Wentland v. ⁴⁰⁹ Wass, 126 Cal.App.4th 1484 , 25 Cal.Rptr.3d 109 (2005). In Wentland , the California intermediate appellate court concluded, in part, that the litigation privilege “should not apply in this breach of contract case” because “one who validly contracts not to speak ... has [ ] waived the protection of the litigation privilege.” Id. at 116. Although OBG did not quote this exact language from Wentland before the Circuit Court, it made a similar point when it stated that the non-disparagement clause represented the City’s “clear, unqualified, and unlimited” promise not to portray OBG in a negative light.

The issue of whether the City waived its right to rely on the litigation privilege when it entered into the Settlement Agreement was argued in the Circuit Court, and is therefore preserved for our review. See Maryland Rule 8-131(a) (“Ordinarily, the appellate court will not decide any other issue unless it plainly appears by the record to have been raised in or decided by the trial court____”). Nature and History of Litigation Privilege We begin by examining the established contours of the litigation privilege, which accords the putative tortfeasor absolute immunity from civil liability. The litigation privilege dates back 500 years to the English Court of Queen’s Bench.

See Beauchamps v. Croft, 73 Eng. Rep. 639 (Q.B. 1497) (“[N]o punishment was ever appointed for a suit in law, however it be false and for vexation. And in the case above, it is indifferent to say that it is false or true[.]”). The privilege rests on the vital public policy of the “free and unfettered administration of justice.” Adams v. Peck, 288 Md. 1, 5 , 415 A.2d 292 (1980) (citation and internal quotation marks omitted).

Expounding on the importance of this policy, we said in Adams : The ultimate purpose of the judicial process is to determine the truth. The investigation, evaluation, presentation and determination of facts are inherent and essential parts of this process. If this process is to function effectively, those ⁴¹⁰ who participate must be able to do so without being hampered by the fear of private suits for defamation. Id. “For witnesses, parties, and judges, we employ the ‘English’ rule, which provides that the putative tortfeasor enjoys absolute immunity from civil liability, even if the statement is wholly unrelated to the underlying proceeding.” Norman v. Borison, 418 Md. 630, 650 , 17 A.3d 697 (2011).

Norman also instructs that “[f|or attorneys whose appearances are entered in a case, however, we follow the majority American rule and require that the defamatory statement have some rational relation to the matter at bar before unfurling the umbrella of absolute privilege.” Id. The litigation privilege has been described as “more of an immunity for litigators, by contrast to a qualified privilege.” Paul T. Hayden, Reconsidering the Litigator’s Absolute Privilege to Defame, 54 Ohio St. L.J. 985 , 992 (1993). 9 The litigation privilege is long-standing in Maryland, dating back to the 1880s. See Maulsby v. Reifsnider, 69 Md. 143 , 14 A. 505 (1888) (involving statements made by an attorney in the course of a judicial proceeding); Hunckel v. Voneiff, 69 Md. 179 , 17 A. 1056 (1888) (involving statements made by witnesses). Although the disputes in Maulsby and Hunckel involved libel and slander, we have since observed that “[p]rivilege is not confined in the law of torts to matters of defamation.” Walker v. D’Alesandro, 212 Md. 163, 169 , 129 A.2d 148 (1957); see Carr v. Watkins, 227 Md. 578, 583 , 177 A.2d 841 (1962) (“We find it clear that if there was immunity from liability for defamation, there was immunity from liability for the other alleged torts claimed by the declaration to have been committed.”); Fowler V. Harper et al., Harper, James and Gray on Torts § 6.3, at 342-43 (3d ed. 2006) (“Although such situations are rarely litigated, it seems clear that persons participating in judicial, legislative, or executive proceedings ⁴¹¹ enjoy the same privilege in disparagement cases as in defamation.”).

The Restatement of the Law of Torts explains: “The privilege stated in this Section is based upon a public policy of securing to attorneys as officers of the court the utmost freedom in their efforts to secure justice for their clients. Therefore the privilege is absolute.” Restatement (Second) of Torts § 586 cmt. a (1977). 10 The meaning of “absolute” in this context should not be amplified beyond its intended use. “Absolute” simply relates to the speaker’s motive. It does not mean that there are “no exceptions” to the privilege, as the City contends. Norman teaches that the absolute privilege is not available to attorneys for all statements they make in judicial proceedings.

Rather, the statements must “have some rational relation to the matter at bar.” Norman, 418 Md. at 650 , 17 A.3d 697 . When a privilege is absolute, “the court will not permit an inquiry into motive or purpose, since this could result in subjecting the honest person to harassing litigation and claims.” W. Page Keeton et al., Prosser and Keeton on Torts 4.16, at 109 (5th ed. 1984). By contrast, when a privilege is qualified, “the defendant is justified so long as he was acting in good faith.” Id.; see also Harper et al., James and Gray on Torts § 6.3, at 343 (“Because of the absolute — as distinguished from qualified — privilege, malice becomes irrelevant here.”). Application of Litigation Privilege in Breach of Contract Action We are tasked with resolving the question, novel to Maryland, of whether the City can raise the litigation privilege as a ⁴¹² defense to a claim not in tort, but for breach of contract.

The City argues that “the doctrine of absolute privilege is not limited to defamation actions and should be equally applicable to a claim of breach of a non-disparagement clause in a contract.” 11 Many other jurisdictions have approved the use of the litigation privilege as a defense to claims sounding in breach of contract. See Kimmel & Silverman, P.C. v. Porro, 53 F.Supp.3d 325, 343-44 (D.Mass.2014) (applying Massachusetts law); Johnson v. Johnson & Bell, Ltd., 379 Ill.Dec. 626 , 7 N.E.3d 52 , 56 (Ill.App.Ct.2014); Vivian v. Labrucherie, 214 Cal.App.4th 267 , 153 Cal.Rptr.3d 707, 715 (2013); Rain v. Rolls-Royce Corp., 626 F.3d 372, 377-78 (7th Cir.2010) (applying Indiana law); Rickenbach v. Wells Fargo Bank, N.A., 635 F.Supp.2d 389, 401-02 (D.N.J.2009) (applying New Jersey law); Crockett & Myers, Ltd. v. Napier, Fitzgerald & Kirby, LLP, 440 F.Supp.2d 1184, 1195-97 (D.Nev.2006) (applying Nevada law); Arts4All, Ltd. v. Hancock, 5 A.D.3d 106 , 773 N.Y.S.2d 348, 351 (2004); Kelly v. Golden, 352 F.3d 344, 350 (8th Cir.2003) (applying Missouri law); 12 cf. Ellis v. Kaye-Kibbey, 581 F.Supp.2d 861, 879-81 (W.D.Mich.2008) (applying Michigan law); 13 but see Bardin v. Lockheed Aeronautical ⁴¹³ Sys. Co., 70 Cal.App.4th 494 , 82 Cal.Rptr.2d 726, 731 (1999). 14 These courts have explained that the privilege would be “valueless” or “meaningless” if the opposing party could bar application of the privilege just by drafting the claim with a non-tort label. Kimmel & Silverman, P.C., 53 F.Supp.3d at 343 ; Johnson, 7 N.E.3d at 56; see Rickenbach, 635 F.Supp.2d at 401 (“If the policy, which in defamation actions affords an absolute privilege or immunity to statements made in judicial and quasi-judicial proceedings, is really to mean anything then we must not permit its circumvention by affording an almost equally unrestricted action under a different label.”) (citations and internal quotation marks omitted).

Indeed, to refuse to consider applying the privilege when the claim is not labeled as a tort is to ignore the possibility that the alleged harm derives from tortious conduct. See Rain, 626 F.3d at 378 (“[Appellants’ breach of contract claim is largely indistinguishable from a tort claim alleging injury flowing from statements made in a judicial proceeding. While appellants technically seek liquidated damages under the settlement agreement, any damages they suffered were caused solely by the fact that the statements were (allegedly) tortious.”). ⁴¹⁴ We agree with the reasoning of these jurisdictions and conclude that the litigation privilege can apply as a defense to claims sounding in contract. Litigation Privilege Applied to These Facts We now examine whether the City may rely on the litigation privilege to defend itself against OBG’s claim of breach in this case.

We have found only a handful of cases involving non-disparagement clauses and the privilege. These cases have generally focused on whether the application of the privilege would further the privilege’s public policy reasons. See, e.g., Rain, 626 F.3d at 377 ; Wentland, 25 Cal.Rptr.3d at 114 . 15 Drawing from these courts, we now inquire “whether applying the litigation privilege in this case would promote the due administration of justice and free expression by participants in judicial proceedings.” Rain, 626 F.3d at 378 . Two cases with contrary outcomes are instructive as we undertake this step in our discussion.

Rain v. Rolls-Royce Corp. In Rain , the U.S. Court of Appeals for the Seventh Circuit held that the litigation privilege protected a manufacturer from its competitors’ claim for breach of a non-disparagement clause arising out of a settlement agreement. 626 F.3d at 375, 378 . 16 competitors averred that the manufacturer breach ⁴¹⁵ ed the non-disparagement clause by, among other things, “including certain allegations in [a] complaint” against third parties filed after the parties executed the settlement agreement. Id. at 376 . The complaint alleged that the competitors had conspired with others “to obtain and use [its] proprietary information.” Id. at 375 . The Seventh Circuit reasoned that the manufacturer could defend itself against the breach of contract claim because application of the privilege here allows [the manufacturer] to pursue its claims against third parties without fear of future legal liability arising out of its efforts to protect its intellectual property rights.

By contrast, the failure to apply the privilege would frustrate the underlying policy by discouraging [the manufacturer] from exercising its fundamental right to resort to the courts to protect its rights. Id. at 378 . Here, the City pursued its already pending claim of