Under Armour, Inc. v. Ziger/Snead, LLP

Wilner, J. The issue before us arises out of a contract for design and professional management services to be provided by appellee, Ziger/Snead LLP, a firm of architects, to appellant, Under Armour, Inc., in connection with the construction of a Visitor ⁵⁵⁰ Center at appellant’s corporate campus in Baltimore City. Disputes arose, and, when appellant withheld $56,249 allegedly due under the contract, appellee filed suit in the Circuit Court for Baltimore City to collect the unpaid fees plus accrued interest on those fees. Appellant responded, in part, with a counterclaim for losses and damages suffered as a result of appellee’s allegedly substandard design work and inadequate management. All of this was presented to a jury, which found in favor of appellee, on both its amended complaint and on appellant’s counterclaim, and awarded damages of $58,940.

The contract contained what we may characterize as an expense-shifting clause. Section 11.10.2 provided: “If Architect employs counsel or an agency to enforce this Agreement, Owner [appellant] agrees to pay the attorneys’ fees, costs, expenses, and losses incurred by Architect prior to and through any trial, hearing, and/or subsequent proceeding, relating to such enforcement.” Notwithstanding appellant’s initial claim that this clause did not constitute a “prevailing party” provision because it contained no language stating that it was such, the parties ultimately agreed that it should be treated as if it were a “prevailing party” provision and that any claim pursuant to it would be deferred until after the jury determined liability on the underlying claim. See Md. Rules 2-705 and 2-703. Following entry of the jury’s verdict, appellee filed a motion pursuant to § 11.10.2 for $288,617 in attorneys’ fees, costs, expenses, and losses, claiming $179,142 in attorneys’ fees, $155 in costs, $47,129 in expenses, and $62,190 in losses.

After a hearing, the court, with some relatively minor adjustments, granted the motion and awarded appellee $182,735 in attorneys’ fees, $155 in costs, $42,830 in expenses (consisting mostly of mediation, deposition, and copying costs), and $62,190 in losses. Final judgment in the aggregate amount of $287,920 was entered on June 1, 2016. Appellant paid all but the $62,190 awarded for “losses,” and appealed that part of the ⁵⁵¹ judgment, contending, for several reasons, that there was no basis for such an award. Multiple issues were presented to the Circuit Court with respect to the § 11.10.2 claim, many dealing with the claim for attorneys’ fees, but, in light of the limited nature of the appeal, the only issue before us deals with the “losses” claimed by appellee.

Those losses consisted entirely of the value of the time expended by Mr. Ziger, a principal in the firm, and several employees of the firm, “on matters related to the enforcement of the contract, including investigation of the matter and performing litigation-related tasks at the request of Ziger’s attorneys.” The evidence appellee presented on that claim consisted of time-tracking records showing the number of hours Ziger and each of the other employees spent on those matters, multiplied by the hourly rates Ziger and the employees charged to .clients for performing work the firm was engaged to perform. Ziger asserted that his role in the firm included the marketing of new business, that the effort he devoted to pursuing the claim against Under Armour detracted from his ability to solicit new business, and that valuing the impact of that diversion by the hourly rate he charged to clients for professional services was reasonable. He was not seeking “lost profits” on new business not obtained but merely the value of his time that he was not able to devote to that pursuit. In this appeal, appellant does not contest either the number of hours claimed or the reasonableness of the hourly rates.

Its defense is more general—that, under the language of the clause and the type of evidence presented, the court should not have awarded anything for “losses.” It contends (1) that § 11.10.2 “is not sufficiently specific to permit a claim for time spent by Ziger’s principals and employees performing litigation-related tasks,” and (2) even if that were not the case, “the hourly rates used by the Circuit Court were not an appropriate measure, and having introduced no evidence from which an award may be determined, Ziger is not entitled to any award.” Spending time on what was required to enforce the contract, ⁵⁵² in appellant’s view, “gave rise to no additional expense; the employees would have been paid in any event.” To that extent, appellant appears to be conflating “losses” and “expenses.” DISCUSSION Standard of Review The heart of the two issues presented by appellant is a question of contract construction—does § 11.10.2 permit recovery for the value of employee time diverted to litigation-related tasks and, if so, does it contemplate that value being determined by the hourly rates those employees charge for providing architectural services to other clients? That is a matter of contract construction, which presents a question of law that we review de novo. See Pines Plaza v. Berkley Trace, 431 Md. 652, 663 , 66 A.3d 720, 727 (2013); Cas Severn v. Awalt, 213 Md.App. 683, 692 , 75 A.3d 382, 387 (2013). To the extent those issues involve the relevance and admissibility of the evidence produced by appellee, the standard of review depends on the context of the trial court’s ruling.

As recently stated in Perry v. Asphalt & Concrete Servs., 447 Md. 31, 48 , 133 A.3d 1143, 1153 (2016): “Our standard of review on the admissibility of evidence depends on whether the ‘ruling under review was based on a discretionary weighing of relevance to other factors or on a pure conclusion of law.’[ ] Generally, ‘whether a particular item of evidence should be admitted or excluded is committed to the considerable and sound discretion of the trial court’ and reviewed under an abuse of discretion standard. [ ] However, we determine whether evidence is relevant as a matter of law. The de novo standard of review applies ‘[w]hen the trial judge’s ruling involves a legal question’ ” [citations omitted]. As we have observed, whether the time-tracking evidence was relevant, and therefore admissible, is governed in this case entirely by whether § 11.10.2 permits recovery for diverted employee time, which is an issue of law subject to de novo review. We reject the view presented in appellee’s brief that ⁵⁵³ the trial court’s conclusion that appellee suffered losses in the enforcement of the contract was a finding of fact subject to a clearly erroneous standard of review.

True enough, the court found that appellee had suffered losses, but the critical determination was that those losses were compensable under § 11.10.2. That is a conclusion of law, not a finding of fact. But for that conclusion, the finding as to both the existence of a loss and its amount would be irrelevant. Construction of § 11.10.2 The basic contract, to which § 11.10.2 was added, was a standard form of agreement between an owner and an architect drafted by the American Institute of Architects (Document B132-2009), but, along with several other provisions, § 11.10.2 was not a part of the standard form contract.

It was negotiated separately by the parties and added as their addendum. It is, as we have characterized it, an expense-shifting provision. The entitlement it provides to appellee was not treated by the parties or the court as a part of general contract damages for a breach. 1 Appellee’s entitlement to recovery under that provision was never submitted to the jury, and no evidence regarding it was offered during the respective cases-in-chief. By its own express terms, it comes into play only if appellee “employs counsel or an agency to enforce this Agreement,” and ultimately the parties agreed that it was to be treated as a prevailing party entitlement.

Except for the word “losses,” it covers reimbursement for only those kinds of expenses that are typical in a fee-shifting provision—attorneys’ fees, costs, and expenses clearly related to enforcement following a breach by appellant. 2 What we are about here is ⁵⁵⁴ determining whether the right to reimbursement for “losses,” as contemplated by § 11.10.2, covers the value of diverted employee time. The thrust of the first prong of appellant’s argument is that contractual fee-shifting provisions are an exception of the “American Rule,” under which each party is responsible for its own legal fees and costs, and that, as a result, those kinds of provisions are strictly construed in order to avoid inferring duties that the parties did not intend to create. That statement is generally correct, at least with respect to attorneys’ fees. A court will not infer a contractual fee-shifting obligation where the agreement does not clearly provide for it.

See Nova v. Penske, 405 Md. 435, 454-58 , 952 A.2d 275, 286-89 (2008); Thomas v. Capital Medical Management, 189 Md.App.