Ocean City, MD., Chamber of Commerce, Inc. v. Barufaldi

McDonald j. The vast majority of states, including Maryland, follow what is known as the “American Rule” on the allocation of the costs of litigation — that is, each party bears its own costs, including attorneys’ fees, regardless of the outcome. 1 This is in contrast to the practice in Great Britain — and most other legal systems in the Western world — which follows what is known as the “English Rule” under which the successful party in a law suit may recover the costs of litigation from the losing party. 2 The American Rule is subject to numerous exceptions, most notably when the Legislature has authorized the award of attorneys’ fees by statute. 3 Among the many Maryland statutes that allow for an award of attorneys’ fees is the Maryland Wage Payment and Collection Law, codified at Maryland Code, Labor & Employment Article (“LE”), § 3-501 et seq. That law establishes a private right of action for a worker to obtain compensation from an employer for unpaid wages. Under that law, a successful plaintiff may recover the cost of ³⁸⁵ legal representation from an employer who wrongfully withheld the plaintiffs pay.

This Court has previously stated that, in light of the purpose of the Wage Payment and Collection Law, a trial court “should exercise [its] 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 ease.” 4 This case concerns whether, in making that determination, a Maryland court should look to the standards that are applied by federal courts in deciding whether to award attorneys’ fees in actions brought under the federal Employee Retirement Income Security Act of 1974 (“ERISA”). The trial court in this case applied the ERISA standards in deciding not to make an award. We hold that the purposes and operation of the two statutory schemes, and their respective fee-shifting provisions, are sufficiently dissimilar that the analysis under ERISA should not be imported into the Wage Payment and Collection Law. Background Maryland Wage Payment and Collection Law The Wage Payment and Collection Law sets certain standards for the frequency and methods of compensation, permissible deductions from pay, and notification of employees about the details of pay and changes in the amount or method of payment.

LE § 3-502 through § 3-505. “Wage” is defined to include “all compensation that is due to an employee for employment,” including bonuses, commissions, overtime, fringe benefits, and other forms of compensation. LE § 3-501(c). The statute provides for enforcement by the State Commissioner of Labor and Industry 5 through administrative actions ³⁸⁶ and civil proceedings. LE §§ 3-507, 3-507.1.

It also establishes misdemeanor criminal offenses for willful violations of the statute and for knowingly false statements made to a governmental unit or official with respect to an investigation or proceeding under the statute. LE § 3-508. Pertinent to this case, the statute creates a private right of action for an employee to recover wages that have been wrongfully withheld. LE § 3-507.2.

Under that provision, an employee may bring an action to recover unpaid wages if the employer has failed to make payment in accordance with the statute and if two weeks have elapsed since the wages should have been paid. LE § 3-507.2(a). The statute also provides for a successful plaintiff to recover attorneys’ fees and costs in certain circumstances: (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. LE § 3-507.2(b).

The Chamber of Commerce Hires Mr. Barufaldi Petitioner Ocean City, Maryland Chamber of Commerce, Inc. (the “Chamber”), is a private, nonprofit organization that draws its members from various businesses and professional organizations. It was founded in 1953 to promote local tourism and commerce and derives its income from membership dues, donations, and advertising revenue generated by a subsidiary corporation, Ocean City Guide, Inc., through its publication “The Guide.” The Chamber states that it has not earned or reported a “net profit” in recent years. 6 ³⁸⁷ In the fall of 2005, the Chamber hired Respondent Daniel Barufaldi as its executive director. His compensation was outlined in a written, back-dated employment agreement executed two months after he had actually begun work. The agreement provided that, during the three-year term of the agreement, he was to receive an annual base salary of $52,000 supplemented by incentive compensation.

The incentive compensation was to be computed as a percentage of the Chamber’s net revenue — as calculated each quarter — above a baseline figure to be set by the parties within the two months after execution of the agreement. However, the parties did not agree to a baseline amount within that time period or after-wards. On October 31, 2006, the Chamber proposed to Mr. Barufaldi a new employment agreement that did not include incentive-based compensation and that provided that he could be fired without cause on 30 days notice. At the trial of this case, the Chamber asserted that Mr. Barufaldi asked for this contract and was agreeable to its terms.

Mr. Barufaldi contended that the Chamber had no intention of paying him the incentive-based compensation contained in the original agreement and attempted to force him to accept the new contract without that element of compensation. In any event, it is undisputed that Mr. Barufaldi never executed the second contract. Resignation, Lawsuit, and Trial On January 23, 2007, Mr. Barufaldi resigned as executive director of the Chamber and took a position with another chamber of commerce in Charles County. On April 3, 2008, he filed a lawsuit in the Circuit Court for Worcester County against the Chamber and six former members of the Chamber’s board of directors, alleging breach of contract, negligent misrepresentation, and violation of the Wage Payment and Collection Law.

The Chamber filed a counterclaim alleging that Mr. Barufaldi himself had breached the contract by failing to perform his duties, by actively seeking employment ³⁸⁸ elsewhere during the contract period, and by resigning prior to the end of his employment term. A jury trial was held on April 15 to 17, 2009. At the outset, Mr. Barufaldi voluntarily dismissed his negligent misrepresentation claim and his claims against four of the individual board members; at the close of his case, the court dismissed his claims against the two remaining board members. At the close of the entire case, the Chamber’s counterclaim was also dismissed by the court.

The jury returned a verdict in Mr. Barufaldi’s favor on both his breach of contract claim and claim under the Wage Payment and Collection Law. It found that the Chamber owed him $60,000 in damages, but declined to award treble damages. The jury also found that there was no “bona fide dispute” regarding the unpaid compensation. The trial court entered a judgment for $60,000 against the Chamber on April 20, 2009.

Motion for an Award of Attorneys’ Fees under the Statute Mr. Barufaldi then filed a motion for an award of attorneys’ fees and costs under the Wage Payment and Collection Law. He sought $141,523.50 in attorneys’ fees and $18,752.47 in costs. The Chamber opposed the request, arguing that the jury’s finding of “no bona fide dispute” was erroneous and that the court was not bound by it in determining whether to award attorneys’ fees and costs. The Circuit Court denied Mr. Barufaldi’s motion without elaborating on the basis for its decision.

Both parties noted an appeal. In order to stay the enforcement of the judgment pending the appeal, the Chamber borrowed $60,000 from a financial institution and paid it into the court registry. First Appeal The Court of Special Appeals affirmed the judgment, but vacated the denial of the motion for attorneys’ fees and costs. 196 Md.App. 1 , 7 A.3d 643 (2010). The intermediate appellate court held that a trial court must articulate the particular circumstances that justify denying such a motion when a jury makes the predicate finding of willfulness (ie., no bona fide ³⁸⁹ dispute) and remanded the case to the Circuit Court for further proceedings.

Decision on Remand Mr. Barufaldi then filed in the Circuit Court a supplemental motion for fees and costs, seeking an additional $41,770.50 in fees and $11,125.86 in costs incurred in litigating the appeal and preparing the new motion. As part of its opposition, the Chamber urged the court to adopt the analysis applied by federal courts in deciding whether to award attorneys’ fees in actions under ERISA. As outlined by the federal courts, those factors are: (1) the degree of the parties’ culpability or bad faith; (2) the ability of the parties to satisfy a fee award; (3) whether an award of attorneys’ fees would deter other persons acting under similar circumstances; (4) whether the party requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions. Quesinberry v. Life Ins.

Co. Of N.Am. 987 F.2d 1017 , 1029 (4th Cir.1993). The Chamber argued that consideration of these factors weighed against an award in this case; it also filed an affidavit by its executive director stating that an award of attorneys’ fees would bankrupt the organization. On March 25, 2011, the trial court denied, for the second time, Mr. Barufaldi’s request for fees. In explaining its decision, the Circuit Court applied the fee-shifting analysis from ERISA cases.

The Circuit Court ruled that a fee award was inappropriate because the Chamber had not acted in bad faith; the Chamber would be rendered insolvent by paying the fees; an award would not have any appreciable deterrent effect and might jeopardize the existence of the Chamber; the lawsuit was not of general applicability to other employees but dealt only with Mr. Barufaldi; and the dispute was, on the merits, a “close case.” ³⁹⁰ Second Appeal Mr. Barufaldi appealed the second denial of his motion for a fee award and, in another reported opinion on the subject, the Court of Special Appeals once more reversed the denial of his motion. 206 Md.App. 282 , 47 A.3d 1097 (2012). The intermediate appellate court held that the Circuit Court’s use of the ERISA factors was erroneous. First, it noted that, under the Wage Payment and Collection Law, two of the factors— whether the employer had acted in bad faith and the relative merits of the parties’ positions — were questions resolved by the jury. In addition, the court held that consideration of a defendant’s ability to pay the fee award is incompatible with the remedial purpose of the statute.

In its opinion, the Court of Special Appeals did not attempt to identify all of the factors that a trial court might consider in deciding whether to make a fee award under the statute. In a footnote, it suggested that potentially appropriate reasons to deny a fee award would be a “claimant’s misconduct” or a claimant’s rejection of a settlement offer more favorable than the judgment ultimately obtained. 206 Md.App. at 308 n. 13, 47 A.3d 1097 . The Chamber filed a petition for writ of certiorari, which we granted to decide whether the ERISA fee-shifting factors may be employed to evaluate a plaintiffs request for attorneys’ fees and costs under the Wage Payment and Collection Law. Discussion Standard of Review Under the Wage Payment and Collection Law, if the employer is found to have withheld wages in the absence of a bona fide dispute, a trial court “may award the employee ... reasonable counsel fees and other costs.” LE § 3-507.2 (emphasis added).

Therefore, “the decision whether to allow any fee is discretionary.” Friolo v. Frankel, 373 Md. 501, 512 , 819 A.2d 354 (2003) (“Friolo I”). ³⁹¹ There is a difference, however, between how a trial court makes its decision and what decision it makes. The standard that a trial court applies in evaluating whether to award attorneys’ fees and costs is a legal decision; the conclusion that the court arrives at after applying that standard to the facts of the particular case is an exercise of discretion. Wilson-X v. Dep’t of Human Res., 403 Md. 667, 675 , 944 A.2d 509 (2008) (“[T]rial judges do not have discretion to apply inappropriate legal standards, even when making decisions that are regarded as discretionary in nature”). Whether the Circuit Court properly employed the ERISA fee-shifting factors to decide whether to award attorneys’ fees and costs under the Wage Payment and Collection Law in this case is a question of law.

We review it without deference to the trial court. A Comparison of ERISA and the Wage Payment and Collection Law Both the Wage Payment and Collection Law and ERISA are related to employment, are designed to protect the interests of employees, and contain fee-shifting provisions. Despite these similarities, the two statutes have distinct purposes and histories and their fee-shifting provisions operate somewhat differently. Legislative History and Purpose -Wage Payment and Collection Law This Court has previously examined in detail the development of the Wage Payment and Collection Law and its fee-shifting provision.

Friolo I, 373 Md. at 515-18 , 819 A.2d 354 . We only briefly recount that history here. When it was originally enacted in 1966, the statute provided for civil enforcement by the Commissioner of Labor and Industry, but did not include a private right of action for workers themselves. Chapter 686, Laws of Maryland 1966.

A later amendment of the law encouraged compliance by allowing a court in such an action to award up to three times the unpaid wages if the court found that the withholding was not the result of a ³⁹² “bona fide dispute” — a provision that now appears in LE § 3-507(b). Chapter 553, Laws of Maryland 1983. 7 In 1991, budget cuts resulted in the elimination of the unit of the Division of Labor and Industry that enforced the statute. 8 In response, bills were introduced in the General Assembly to create a private right of action under the statute. The two bills — House Bill 1006 (1993) and Senate Bill 274 (1993) — represented different approaches. Senate Bill 274, as originally proposed, would have provided a private right of action to recover unpaid wages, but without any provision for recovering attorneys’ fees and costs.

Proponents of a private right of action urged the addition of a fee-shifting provision to establish a stronger deterrent for employers to comply with the law and — given the relatively small amounts typically at issue — a stronger incentive for private attorneys to undertake representation in wage cases. See Letter from Constance Belfiore, Executive Director, The Law Foundation of Prince George’s County, Inc., to Senator Thomas P. O’Reilly, Chairman, Senate Finance Committee (February 12, 1993); Letter from Winifred C. Borden, Executive Director, Maryland Volunteer Lawyers Service, to Senator Thomas P. O’Reilly (February 9,1993). In contrast, House Bill 1006, as originally filed, would have provided for the automatic award of attorneys’ fees and treble damages to a successful plaintiff, regardless of whether there was a “bona fide dispute” about the employee’s entitlement to ³⁹³ the wages. Opponents argued that the bill would discourage settlements and encourage litigation as employees might opt to go to trial in hopes of winning automatic treble damages.

Letter from the Maryland Chamber of Commerce to Senator Thomas P. O’Reilly (March 31, 1993) at 2. There was also concern that, without a “bona fide dispute” defense, “employers would be vulnerable to unscrupulous individuals who might pursue claims in court to obtain payment of such fees and costs.” Id. A compromise was ultimately reached. The final version of the legislation allowed (rather than mandated) an award of attorneys’ fees as well as treble damages to a successful plaintiff, contingent upon a finding that the withholding of the wages was not part of a “bona fide dispute.” See Chapter 578, Laws of Maryland 1993. 9 This presumably would enhance access to legal representation for an employee wrongfully treated by an employer without encouraging unnecessary litigation.

The private right of action under the statute was thus designed as “a vehicle for employees to collect, and an incentive for employers to pay, back wages.” Medex v. McCabe, 372 Md. 28, 39 , 811 A.2d 297 (2002). Importantly, it was also designed to ensure that an employee will have the assistance of competent counsel in pursuing what is likely to be a relatively small claim. Friolo v. Frankel, 403 Md. 443, 457-58 , 942 A.2d 1242 (2008) (“Friolo III ”) (fee shifting provision is an incentive for “attorneys to agree to take on wage dispute cases, even where the dollar amount of the potential recovery may be relatively small”). In light of the purposes of the fee-shifting provision of the statute, this Court has stated that when the factfinder concludes that there was no “bona fide dispute” as to the employer’s liability, “courts should exercise their discretion liberally in favor of awarding a reasonable fee, unless the circum ³⁹⁴ stances 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 (quoting Hensley v. Eckerhart, 461 U.S. 424, 429 , 103 S.Ct. 1933 , 76 L.Ed.2d 40 (1983)). 10 -ERISA ERISA sets uniform federal standards for employer-sponsored benefit plans, including health and retirement plans.

It was intended to “protect ... the interests of participants in employee benefit plans and their beneficiaries” and provide for “appropriate remedies, sanctions, and ready access to the Federal courts.” 29 U.S.C. § 1001 (b). ERISA reflects a policy choice that employee benefit plans be “operated under traditional trust principles” so as to protect employee interests in those plans. Cent. States, Se., & Sw.

Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559 , 570 n. 10, 105 S.Ct. 2833 , 86 L.Ed.2d 447 (1985). It applies concepts of trust law to the relationship between employer and employee in the context of an employee benefit plan. Individuals who administer and exercise control over a plan are fiduciaries, and typically ³⁹⁵ include the trustee, investment advisors, plan administrators, and those who select the plan administrators.

See United States Department of Labor, “Meeting Your Fiduciary Responsibilities,” available at http://www.dol.gov/ebsa/ publications/fiduciaryresponsibility.html. Accordingly, in resolving legal questions related to the statute, courts have looked to “the law of trusts that ‘serves as ERISA’s backdrop.’ ” Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 294 , 129 S.Ct. 865 , 172 L.Ed.2d 662 (2009) (quoting Beck v. PACE Int’l Union, 551 U.S. 96, 101 , 127 S.Ct. 2310 , 168 L.Ed.2d 1 (2007)). ERISA allows federal courts to award attorneys’ fees and other costs. 11 This is no doubt related to its roots in the law of trusts.

Under general principles of trust law, trustees may recover attorneys’ fees and