URS Corp. v. Fort Myer Construction Corp.

McDonald, J. This appeal concerns the application of two rules. One rule is critical to the determination of appellate jurisdiction. The other sets the standard for imposing monetary sanctions when a litigant prosecutes a case in bad faith or without substantial justification. Petitioner Maryland-National Capital Park and Planning Commission (“the Commission”) contracted with Respondent Fort Myer Construction Corporation (“Fort Myer”) to build a pedestrian bridge in accordance with design documents provided by the Commission.

After running into several issues that delayed construction of the bridge, Fort Myer sued the Commission claiming that the design documents were at fault. The Commission impleaded Petitioner URS Corporation (“URS”), the engineering firm that created the design documents, on the theory that URS was contractually obligated to defend the Commission against Fort Myer’s claims and would be liable for any damages. URS, in turn, countersued the Commission for contract payments that the Commission had withheld from URS. ⁵² Fort Myer’s original complaint was eventually dismissed by the Circuit Court without prejudice, but the claims between the Commission and URS went to trial. URS and the Commission each prevailed on their claims against each other.

Both the Commission and URS asked the court to award monetary sanctions against their common adversary—Fort Myer—un-der Maryland Rule 1-841 on the basis that the construction company had litigated its original complaint “without substantial justification.” The Circuit Court did so. All three parties appealed those rulings. The timing of the appeals of URS and the Commission, and its effect on appellate jurisdiction, became the dispositive issue for those appeals. The Court of Special Appeals initially dismissed the appeals by URS and the Commission for being too late and then, after reconsidering the matter, decided that their appeals were, in fact, too early.

On the other hand, the intermediate appellate court determined that Fort Myer’s appeal of the sanctions awards was just right—both temporally and substantively—and reversed the Circuit Court’s sanctions awards. URS and the Commission ask us to reverse the decision of the Court of Special Appeals on the sanctions awards, proposing both procedural and substantive grounds for doing so. The procedural issue turns on the requirement of Maryland Rule 2-601 that a final judgment—ordinarily necessary to trigger appellate jurisdiction—be incorporated in a “separate document.” In its revised opinion, the intermediate appellate court explained that the appeals by URS and the Commission were too early because the Circuit Court had not incorporated its judgment in favor of the Commission against URS in a separate document. Adopting that reasoning, URS and the Commission argue that Fort Myer’s appeal of the sanctions awards was no more ripe for decision than their own appeals and, accordingly, the Court of Special Appeals should not have decided it, The substantive issue turns on the merits of the Circuit Court’s conclusion that Fort Myer had prosecuted its com ⁵³ plaint “without substantial justification.” The Court of Special Appeals found that conclusion to be unsupported by the factors cited by the Circuit Court and therefore clearly erroneous—which rendered the Circuit Court’s award of sanctions an abuse of discretion.

URS and the Commission argue that, even if there was appellate jurisdiction of Fort Myer’s appeal, the Court of Special Appeals should be reversed because the Circuit Court acted within its discretion in awarding sanctions. We hold that the Court of Special Appeals properly exercised jurisdiction to decide the appeal of Fort Myer (and in fact had jurisdiction to decide those of URS and the Commission). Because the separate document requirement is intended to clarify the deadline for filing an appeal—not to create delay for its own sake—the separate document requirement may be waived when waiver does not prejudice appeal rights. Such is the case in this appeal.

As for the sanctions awards against Fort Myer, we agree with the Court of Special Appeals that the Circuit Court’s explanation of its reasoning did not support a finding that Fort Myer’s pursuit of its claim was “without substantial justification.” I Background A. Proceedings in the Circuit Court A Bridge Contract Beset by Delays In 2008, Fort Myer contracted with the Commission to build a pedestrian bridge over Veirs Mill Road in Montgomery County. The contract required Fort Myer to construct the bridge according to design documents that had been prepared for the Commission by URS under a separate, earlier contract between the Commission and URS. Several problems arose during construction, and completion of the bridge was delayed by more than four months. Fort Myer Sues the Commission Alleging that the construction issues and delay resulted from problems with the design documents, Fort Myer sued ⁵⁴ the Commission on October 12, 2012, in the Circuit Court for Montgomery County.

In Count I of the complaint, Fort Myer asserted breach of contract and sought $876,822.03 in damages related to Fort Myer’s increased costs and lost profits. In Count II, Fort Myer asked for. a declaratory judgment requiring the Commission to pay Fort Myer $315,000 in contractual payments that the Commission was withholding as liquidated damages for the delays. The Commission Impleads URS; URS Counterclaims Some months later, on March 27, 2013, the Commission filed a third-party complaint against URS pursuant to Maryland Rule 2-332, seeking indemnification and contribution for any amount for which the Commission might be found liable to Fort Myer. The Commission also alleged that, under the design contract, URS had a duty to defend the Commission against Fort Myer’s claims, and that URS had refused to do so.

URS answered the third-party complaint, asserting various defenses to the claims of both the Commission and Fort Myer. 1 URS also asserted a counterclaim against the Commission, alleging that the Commission owed URS $103,420, which was due for services URS had provided to the Commission, but which the Commission had withheld in light of the impending claim by Fort Myer. Thereafter, the parties engaged in pretrial discovery. Various discovery disputes arose, which resulted in requests for sanctions. The Circuit Court referred some of those disputes to a special master, and ultimately adopted the recommendations of the master, which did not include sanctions.

Dismissal of Fort Myer’s Complaint without Prejudice On February 26, 2014, after more than a year of litigation, URS moved to dismiss Fort Myer’s complaint, or, in the alternative, for summary judgment. URS argued that Fort ⁵⁵ Myer’s complaint was deficient under a State statute because Fort Myer had not filed a certificate of a qualified expert (“CQE”) in conjunction with its complaint. See Maryland Code, Courts and Judicial Proceedings Article (“CJ”), § 3-2C-01 et seq. That statute requires a plaintiff to file a CQE within 90 days of filing a malpractice claim against a licensed professional engineer. 2 If a plaintiff fails to file a timely CQE, the statute provides for dismissal of the complaint without prejudice.

See CJ § 3-2C-02(a). Fort Myer initially opposed the URS motion. In its response, it noted that, given the statutory definition of “claim,” the CQE requirement applies only when a claim is “filed ... against a licensed professional [engineer] or the employer, partnership, or other entity through which the licensed professional [engineer] performed professional services ... [and] based on the licensed professional’s alleged negligent act or omission in rendering professional services.... ” CJ § 3-2C-01(b) (emphasis added). Fort Myer argued that this requirement did not pertain to its complaint because its claims were asserted against the Commission, and not URS (which presumably employed the licensed professional engineers who created the design documents at issue).

In the meantime, URS and the Commission filed several summary judgment motions, seeking to dispose of the case on various legal grounds. 3 ⁵⁶ On March 11, 2014, a few days after the summary judgment motions were filed and shortly before the scheduled trial, Fort Myer withdrew its opposition to URS’s motion to dismiss, implicitly agreed that the CQE requirement applied to its complaint, and consented to dismissal of its complaint without prejudice. In a subsequent filing and at two pretrial hearings, counsel for Fort Myer explicitly agreed that the CQE statute applied and stated that the court was required to dismiss its complaint without prejudice. Unsurprisingly, URS and the Commission agreed that the complaint should be dismissed, but argued that the dismissal should be with prejudice. (The Commission took the position that the CQE statute did not apply to Fort Myer’s claim, but that its complaint should be dismissed with prejudice for other reasons set out in its summary judgment motion).

At a motions hearing on March 31, 2014, the Circuit Court decided to dismiss Fort Myer’s complaint without prejudice. The third-party claim of the Commission against URS and URS’s counterclaim against the Commission survived the dismissal of Fort Myer’s complaint and remained pending, however. Sanctions Awards against Fort Myer URS and the Commission pursued an award of sanctions against Fort Myer with respect to the ill-fated complaint that had been dismissed without prejudice. Their respective motions were brought under Maryland Rule l-341(a), which authorizes a court to require a party or the party’s attorney to pay the costs of a proceeding and reasonable expenses, including attorney’s fees, incurred by an adverse party when the ⁵⁷ court finds that a party acted “in bad faith or without substantial justification” in maintaining or defending a proceeding. 4 In its motion, the Commission alleged, among other things, that Fort Myer had failed to retain expert witnesses despite representing that it had done so; that Fort Myer’s witnesses failed to appear for properly-noticed depositions; and that Fort Myer proceeded with depositions of Commission witnesses despite “full knowledge that its complaint was fatally flawed” because of the failure to file a CQE.

The Commission sought recovery of the costs and attorney’s fees incurred in defending against Fort Myer’s complaint, which it computed to be $376,597.68. URS joined in the Commission’s motion and sought recovery of its attorney’s fees and costs incurred in the amount of $248,638.31. Fort Myer opposed the motions, arguing that its claims were made neither in bad faith nor without substantial justification. The Circuit Court held a hearing on the motions for sanctions on April 28, 2014.

Ruling from the bench at the hearing, the Circuit Court granted the motions of the Commission and URS. The court stated that its decision was not based on Fort Myer’s failure to file a CQE, but rather on the “the posture of the entire case.” The court then expressed its frustration with what it referred to as “blatant violations of the discovery rules” that had caused it to take the unique step, in its experience, of referring the discovery disputes to a special master. In explaining its reasoning, the court stated that it was “not a question of whether [Fort Myer] had a right to pursue [its] case,” but rather whether it had “a legal obligation to do it without fatal flaws.” The court reiterated that it believed that the failure to file a CQE by itself would not merit sanctions, but that the failure to do so, when coupled with the discovery violations, the dismissal of the complaint on the eve of trial, and Fort Myer’s subsequent motion seeking sanctions against ⁵⁸ the Commission, had led the court to conclude that a sanctions award against Fort Myer was appropriate. The court summarized that “there has been a [Rule] 1-341 violation taking place in its entirety, discovery violations, conduct of counsel, lacking substantial justification.” While the court stated that there was “lack of substantial justification,” it conceded that Fort Myer’s underlying claim “may be a cause of action in some other court, some other day, for some other judge to decide.” The court explicitly declined to find that Fort Myer had acted in bad faith.

At the hearing the court awarded $376,597.68 to the Commission and $248,638.31 to URS—the total amounts requested by each. The court incorporated its oral ruling in a written order dated May 29, 2014, which included a finding that the “conduct of Fort Myer in maintaining [its] case was without substantial justification.” The court clerk entered two separate written documents, each entitled Notice of Judgment, on June 2, 2014—one memorializing the award in favor of URS and the other the award in favor of the Commission. Trial of Claims Between the Commission and URS In the meantime, the Commission and URS had continued to litigate their claims against one another. The Circuit Court held a bench trial on those claims on April 7 and 8, 2014.

In an Order and Opinion issued on May 5, 2014, the Circuit Court decided in URS’s favor on its counterclaim against the Commission and found that the Commission owed URS $103,420 with respect to the contract payments that the Commission had withheld from URS. The clerk entered a separate document in the record entitled Notice of Judgment in that amount. In the same opinion, the Circuit Court also decided in the Commission’s favor on its third-party claim against URS concerning the URS’s contractual duty to defend the Commission against Fort Myer’s claims. The court did not compute the amount of damages at that time or enter a separate ⁵⁹ document incorporating its judgment. 5 Some months later, on December 18, 2014, the Circuit Court held a hearing on the amount of damages owed by URS to the Commission on the duty-to-defend claim. 6 At that hearing, the Circuit Court ruled from the bench that URS owed the Commission $852,355.68 on that claim.

That judgment was entered on the court’s docket that same day in the following words: “Court enters judgment in favor of the defendant Maryland-National Capital Park and Planning Commission against the defendant URS Corporation-Maryland in the amount of three hundred fifty-two thousand, three hundred fifty-five dollars and sixty eight cents ($352,355.68).” However, no separate written document reflecting the judgment on this claim was filed in the record at that or any later time. Motion for Reconsideration of Sanctions Awards On November 10, 2014, 7 Fort Myer asked the Circuit Court to reconsider the awards of sanctions, arguing that its alleged bad acts during the litigation were not relevant to the question of whether its claim was filed or maintained “without substantial justification.” Opposing this motion, the Commission and URS again pointed to the alleged discovery violations and the lack of expert witnesses and a CQE. The Circuit Court took up the motion at the hearing on December 18, 2014—the same hearing at which it determined the damages on the Commission’s third-party claim against ⁶⁰ URS. In a subsequent order entered February 19, 2015, the court denied the motion for reconsideration, noting that “[n]o new facts or legal argument [were] presented in the motion” and “[n]o good reason [wa]s presented” to reconsider the previous decision.

B. Proceedings in the Court of Special Appeals Appeals Noted In March 2015, each party filed a notice of appeal. In their respective notices of appeal, Fort Myer indicated that it was challenging the award of sanctions and URS stated that it was challenging the Circuit Court’s ruling that it owed the Commission a duty to defend. 8 The Commission also filed a notice of appeal but ultimately did not pursue its appeal—ie., it did not file an appellant’s brief, although it did file appellee briefs in response to briefs filed by Fort Myer and URS. The appeals were consolidated in the Court of Special Appeals. Although no party had addressed the issue of timeliness of the appeals in their briefs, the issue was raised by the court at oral argument.

April 1 Opinion On April 1, 2016, in an unreported opinion (“April 1 opinion”), the Court of Special Appeals dismissed URS’s appeal as ⁶¹ untimely. (The Commission’s appeal was also dismissed as untimely, although the court acknowledged that the Commission had not pursued its appeal). However, the intermediate appellate court regarded Fort Myer’s appeal as timely and reached the merits of that appeal, reversing the sanctions awards. In the April 1 opinion, the court concluded that URS’s appeal was late because its notice of appeal was filed in March 2015, which was more than 30 days after December 18, 2014— the date that the Circuit Court had ruled from the bench and assessed $352,355.68 in damages in favor of the Commission, a ruling reflected on the docket that same day.

With respect to Fort Myer’s appeal of the sanctions awards, the Court of Special Appeals held that the basis of the Circuit Court’s ruling—that Fort Myer had conducted the litigation without substantial justification—was clearly erroneous. The court observed that the Circuit Court’s decision turned largely on Fort Myer’s failure to file a CQE and Fort Myer’s subsequent decision, shortly before trial, to agree to dismissal of its complaint for that reason. The intermediate appellate court stated that the question whether Fort Myer was required to file a CQE was “fairly debatable” under the case law, as evidenced by the fact that URS had raised the issue relatively late in the proceedings and that the Commission itself had initially taken the position that a CQE was not required. The Court of Special Appeals found the Circuit Court’s other “sweeping and nonspecific observations” insufficient to support a finding that Fort Myer had prosecuted its claim without substantial justification.

While the Circuit Court had expressed its frustration with the discovery disputes, it had not identified specific violations. Moreover, the Court of Special Appeals observed, the discovery rules provide their own sanctions for such violations, but the Circuit Court had accepted the special master’s recommendations and declined to impose any such sanctions. Finally, the intermediate appellate court also opined that, if the Circuit Court believed that Fort Myer’s own motion for sanctions against the Commission was ⁶² itself without substantial justification, the sanctions award in favor of the Commission should have been limited to the expenses incurred in defending that motion. In light of its conclusion that the Circuit Court had been clearly erroneous in finding that Fort Myer acted without substantial justification, the Court of Special Appeals held that the trial court had abused its discretion in awarding sanctions under Rule l-341(a).

For the same reasons, it also held that the Circuit Court abused its discretion when it denied Fort Myer’s motion to reconsider the sanctions awards. Motion for Reconsideration Ten days after the April 1 opinion was issued, URS filed a motion asking the Court of Special Appeals to reconsider its dismissal of URS’s appeal. URS pointed out that, although the Circuit Court had announced its computation of the damages owed by URS to the Commission from the bench on December 18, 2014, that judgment had never been reduced to written form in a separate document as required by Maryland Rule 2-601(a). Because the deadline for filing an appeal is computed from entry of final judgment and because the separate document is ordinarily part of the entry of a final judgment, URS argued, its appeal was not late, because the “clock” that sets the deadline for filing an appeal had never actually begun to run.

To rectify the situation, URS asked the Court of Special Appeals to rescind its dismissal and retain jurisdiction of its appeal. It also suggested that the court could regard the separate document requirement as waived. April 28 Opinion In response to the motion for reconsideration, the Court of Special Appeals withdrew its April 1 opinion and issued a partially revised unreported opinion on April 28, 2016 (“April 28 opinion”). In the April 28 opinion, the court agreed with URS that the absence of a separate document memorializing the December 18, 2014 judgment meant that final judgment had not yet been entered in accordance with Rule 2-601.

It then dismissed the appeals by URS and the Commission “as ⁶³ not permitted by law.” 9 The Court of Special Appeals did not address URS’s argument that it could retain jurisdiction because the separate document requirement had been waived. The April 28 opinion retained in full the portion of the April 1 opinion overturning the Rule 1-341 sanctions against Fort Myer. C. Petitions for Certiorari to Court of Appeals URS and the Commission each petitioned this Court for a writ of certiorari, which we granted. URS and the Commission challenge the intermediate appellate court’s reversal of the sanctions awards against Fort Myer on two bases: (1) that the Court of Special Appeals lacked any jurisdiction to consider Fort Myer’s appeal because there was not a final judgment—essentially tracking the reasoning of the intermediate appellate court when it dismissed their own appeals—and (2) that, even if there was a final judgment, the Court of Special Appeals erred in reversing the awards of sanctions against Fort Myer.

II Discussion For reasons outlined below, we agree with URS and the Commission that, in this case, the question whether there was an appealable final judgment for Fort Myer merits the same answer as whether there was an appealable final judgment for URS and the Commission. In our view, the answer is that there was appellate jurisdiction over all of these appeals. The only element lacking for purposes of entry of final judgment under Rule 2-601 was a separate document incorporating the Circuit Court’s judgment in favor of the Commission against URS. In light of the absence of any objection, the Court of ⁶⁴ Special Appeals should have regarded the separate document requirement of Rule 2-601(a) as waived.

As to the second issue, we agree with the Court of Special Appeals that the Circuit Court’s finding that Fort Myer maintained its action -without substantial justification was clearly erroneous, and, correspondingly, that the Circuit Court abused its discretion when it awarded sanctions and denied the Fort Myer’s motion to reconsider those sanctions. A Whether There Was Appellate Jurisdiction URS and the Commission first contend that the decision of the Court of Special Appeals—expressed in both the April 1 opinion and the April 28 opinion—to overturn the sanctions awards against Fort Myer must be reversed because the intermediate appellate court lacked appellate jurisdiction over Fort Myer’s appeal. Appellate jurisdiction was lacking, they argue, because the Circuit Court failed to enter a final judgment in accordance with the Maryland Rules even though it had adjudicated all of the claims in the case. This is the same rationale that the Court of Special Appeals gave in its April 28 opinion for dismissing the appeals of URS and the Commission as premature.

Essentially, URS and the Commission argue that the Fort Myer appeal should have been dismissed for the same reason as their appeals. We agree that the various appeals in this case should be treated the same for purposes of appellate jurisdiction. 10 But we reach a different outcome than the Court of Special Appeals. We conclude that the separate document required under Rule 2-601 (a) was the only element lacking for an appealable final judgment with respect to any of these appeals, that this requirement was waived, and that the Court of ⁶⁵ Special Appeals properly had jurisdiction over Fort Myer’s appeal. Therefore, we uphold that court’s exercise of jurisdiction over Fort Myer’s appeal of the Rule 1-341 sanctions. 11 The Final Judgment Rule As a general rule, under Maryland law, litigants may appeal only from what is known as a “final judgment.” CJ § 12-301 (“a party may appeal from a final judgment entered in a civil or criminal case by a circuit court”); see also Waterkeeper Alliance, Inc. v. Maryland Dept. of Agriculture, 439 Md. 262, 278 , 96 A.3d 105 (2014).

This requirement is designed to further the “long-established policy against piecemeal appeals.” Waterkeeper, 439 Md. at 278 , 96 A.3d 105 . Although established by statute, this limitation on appellate jurisdiction is defined by rule and case law. Harris v. David Harris, P.A., 310 Md. 310, 314 , 529 A.2d 356 (1987) (“it is for the courts to define and give content to the meaning of final judgment”). Under our rules and case law, a final judgment exists only when the trial court intends an “unqualified, final disposition of the matter of the controversy” that completely adjudicates all claims against all parties in the suit, and only when the trial court has followed certain procedural steps when entering a judgment in the record.

Waterkeeper, 439 Md. at 278-79 , 96 A.3d 105 . The Separate Document Requirement One of the procedural steps for entry of final judgment—the “separate document requirement”—requires the trial court to memorialize the judgment in a separate document that is signed by either the court clerk or the judge and ⁶⁶ entered in the docket. Rule 2-601(a) and (b); 12 see also Hiob v. Progressive American Ins. Co., 440 Md. 466, 478-80 , 103 A.3d 596 (2014).

Maryland’s version of the separate document requirement was based upon a similar requirement in Rule 58 of the Federal Rules of Civil Procedure. See Hiob, 440 Md. at 473 , 103 A.3d 596 . Both rules clarify the deadline for noting an appeal. In Maryland, the “notice of appeal shall be filed within 30 days after entry of the judgment or order from which the appeal is taken.” Maryland Rule 8-202.

The separate document requirement is designed to eliminate confusion about what is the “entry of the judgment” from which the deadline is computed. Hiob, 440 Md. at 475-76 , 103 A.3d 596 . Clarity in this area is important, because uncertainty could result in an inadvertent loss of appeal rights. Id. at 476 , 103 A.3d 596 .

As is the practice in the federal courts, courts in Maryland “mechanically apply” the separate document requirement when determining the timeliness of an appeal. Byrum v. Horning, 360 Md. 23, 32 , 756 A.2d 560 (2000) (quoting Bankers Trust Co. v. Mallis, 435 U.S. 381, 386 , 98 ⁶⁷ S.Ct. 1117, 55 L.Ed.2d 357 (1978)). That is, if the trial court has not complied with the separate document requirement of Rule 2-601(a), a litigant’s appeal cannot be considered late, because the “clock” that sets the deadline has not started to run. See, e.g., Hiob, 440 Md. at 474-75 , 103 A.3d 596 .

Waiver of the Separate Document Requirement There are certain circumstances, however, when the separate document requirement may be waived in order to preserve an appeal, rather than eliminate it as untimely. Again, this Court has followed the lead of the United States Supreme Court in developing a