Volkman v. Hanover Investment, Inc.

BERGER, J. This appeal arises out of two orders of the Circuit Court for Montgomery County. The first denied Susan Volkman’s (‘Volkman’s”), appellant’s, motion for summary judgment against Hanover Investments, Inc.; Hanover’s shareholders; and Hanover’s wholly owned subsidiary, One Call Concepts, Inc. (“OCC”) (collectively, “Hanover”), appellees. Secondly, Volkman appeals the trial court’s order granting a declaratory judgment in favor of Hanover. Volkman contends the circuit court erred in denying her motion for summary judgment and rendering a declaratory judgment while another matter involving the same issues was pending in the court of another state.

Additionally, Volkman avers that the circuit court erred in interpreting and applying the contractual agreement between Volkman and Hanover. On appeal, Volkman presents three issues for our review. 1 We rephrase the first issue as follows: ⁶⁰⁷ Whether the circuit court erred in rendering a declaratory judgment while an action involving the same parties and same issues was pending before a court in Minnesota. For the reasons set forth below, we shall reverse the judgment of the Circuit Court for Montgomery County. As a result, we need not address the issues presented in Volkman’s latter two questions due to our determination on the first issue.

FACTUAL AND PROCEDURAL BACKGROUND OCC is a Maryland corporation that exists to serve utility companies and process telephone calls from individuals who intend to undertake excavation projects. OCC maintains contracts for its services in a number of states across the county. At the time OCC was incorporated, it was owned by Thomas Hoff (“Hoff’). Volkman was hired by OCC in 1984.

When Volkman was hired, she held the title of Director of Operations. In 1993, Volkman entered into an employment agreement whereby Volkman would serve as vice president of OCC in its corporate office in Minnesota. Under this agreement, Volkman could only be terminated for “Good Cause,” or upon fifteen days’ prior notice. Volkman’s responsibilities as vice president of OCC included, but were not limited to, facilitating acquisitions, making hiring decisions, and establishing policies and procedures.

Additionally, Volkman was tasked with maintaining a contract in Minnesota with Gopher State One Call (“GSOC”). Volkman was a longtime employee of OCC who had worked her way up ⁶⁰⁸ through the organization. She was highly compensated, earning in excess of $400,000 per year. In or around 2007, Hoff expressed an intent to divest himself of his interest in OCC and retire.

In recognition that much of OCC’s value is derived from Hoffs association with the company, Hoff created Hanover Investments, Inc., as a holding company that existed for the sole purpose of owning shares of OCC. Under this arrangement, Hoff personally secured financing for Hanover to acquire OCC. OCC shares served as collateral for the debt. As OCC and Hanover paid down the debt, the liens on the shares were released, and the purchase price was disbursed to Hoff.

As a result, Hoff was able to gradually back away from the company. In pursuit of Hoffs objective to maintain the successive management of OCC, Hoff sold shares of Hanover to certain longtime OCC employees, including Volkman, at nominal prices. Hoff sold a 19% interest, the single largest interest, to Volkman. In consideration for her shares in Hanover, Volk-man entered into a shareholders’ agreement and paid $190 for her interest in Hanover. 2 Under the terms of the shareholders’ agreement, shareholders subscribed to a voting trust agreement whereby the shareholders could not vote their shares until Hoffs financial interest in Hanover was terminated.

Additionally, Hoff encouraged successive management by requiring Hanover to redeem the shares of any OCC employee who is terminated for good cause at a 90% discount. The shareholders’ agreement provides, “[i]f a Shareholder’s employment with OCC is terminated for Good Cause and the Board of Directors of the Company agrees that OCC terminat ⁶⁰⁹ ed the Shareholder for Good Cause, the Company shall redeem ... [the] Shareholder’s Common Stock.” Notably, the shareholders’ agreement provides that “ ‘[g]ood [e]ause’ shall be construed to mean, but not be limited to, the following:” (a) dishonesty of a Shareholder in a material matter; (b) the use of narcotics or alcohol by Shareholder to an extent which materially interferes with Shareholder’s performance of his duties as an employee as he normally performs such duties; (c) repeated failure by Shareholder to devote proper time and attention to his duties as an employee of OCC or the Company; (d) material and repeated failure by Shareholder to carry out the directions, instructions, policies, rules, regulations or decisions of the Board of OCC or the Company; (e) conviction of a crime involving moral turpitude or reflection upon the reputation of the Company, but excluding minor traffic violations and similar offenses; (f) repeated and unexcused absenteeism after reasonable notice from the Board of OCC or the Company; or (g) the material breach by Shareholder of any of his obligations or agreements contained in the Agreement, his or her employment agreement with the Company, the Voting Trust Agreement of the Company, the Employee Restriction Agreement or any other agreement to which the Company or OCC and the Shareholder are parties. On January 8, 2010, OCC terminated Volkman’s employment. The parties disagree as to whether thé termination was for good cause.

Hanover avers that Volkman’s termination was warranted because she failed to properly manage the operation of OCC’s call center in Minnesota, which contributed to the loss of the GSOC account. Hanover further alleges that under Volkman’s leadership, the Minnesota center failed to record approximately 8,400 phone calls resulting in a breach of ⁶¹⁰ the GSOC contract, and Volkman’s subordinates were uncomfortable with her management techniques. Volkman, for her part, argues that she was not responsible for the lost call records, and her difficult relationship with GSOC was the result of an unreasonable personal vendetta on the part of the management at GSOC. Further, Volkman argues that her relationship with GSOC could not have been a significant contributing factor to the termination of that contract, because by the time GSOC terminated the contract, Volkman had already been removed from Minnesota operations.

Finally, Volkman denied that her relationship with any of her subordinates was strained or unduly strenuous. Indeed, Volkman maintains that she was not terminated because of her job performance, but rather because her supervisors succumbed to pressure from an influential client to have her terminated. On February 3, 2010, Hanover sent notice to Volkman that it was redeeming Volkman’s stock. Thereafter, Hanover commenced an arbitration proceeding to determine the appropriate redemption price for Volkman’s stock under the shareholders’ agreement as a result of OCC terminating her employment.

At that time, Volkman’s stock was determined to be valued at $19,000. Hanover further maintained that pursuant to the shareholders’ agreement it was entitled to redeem Volkman’s stock at a 90% discount, or $1,900. On April 17, 2012, Volkman filed an action (the “employment action”) against OCC and Hoff in Montgomery County. The record reflects only that the parties stipulated to a dismissal with prejudice of this action on March 22, 2013.

Hanover avers that Volkman was terminated for good cause and that this determination was pivotal in both the employment action and the declaratory judgment action which is the subject of this appeal. Aside from the stipulated dismissal, however, the record is silent as to the substance of the claims or any adjudications rendered in the employment action. On January 16, 2013, while the employment action was pending, Volkman filed a breach of contract action in Minneso ⁶¹¹ ta alleging that Hanover violated the shareholders’ agreement by redeeming her stock at a 90% discount. In the breach of contract action Volkman sought specific performance of the shareholders’ agreement.

In response to the Minnesota breach of contract action, Hanover filed a motion to dismiss Volkman’s case in Minnesota for lack of personal jurisdiction on March 15, 2013. On April 25, 2013, the Minnesota trial court denied Hanover’s motion to dismiss. Hanover filed an interlocutory appeal challenging the denial of its motion to dismiss. Thereafter, on March 3, 2014, the Minnesota Court of Appeals affirmed the trial court’s denial of Hanover’s motion to dismiss the Minnesota action and remanded the case back to the trial court.

See Volkman v. Hanover Inv., Inc., 843 N.W.2d 789 (Minn.Ct.App.2014). On June 26, 2013, while Hanover’s Minnesota appeal was pending, Hanover filed a declaratory judgment action in the Circuit Court for Montgomery County seeking to have the circuit court declare that Hanover fulfilled its obligations with regard to the redemption of Volkman’s shares under the shareholders’ agreement. Volkman and Hanover filed cross-motions for summary judgment. Neither party requested a hearing on their cross-motions for summary judgment.

The parties both argued that they were entitled to judgment as a matter of law, but Volkman also argued that it was improper to render a declaratory judgment while the matter in Minnesota was still pending. Both motions for summary judgment were denied. Because no hearing was requested or held, the record contains no reasons why the cross-motions were denied. On June 16 and 17, 2014, the circuit court entertained a trial on the merits.

On August 18, 2014, after the Minnesota appeal had been decided, but before the case was heard by the Minnesota trial court on remand, the circuit court rendered judgment in favor of Hanover, finding that Volkman was properly terminated for cause pursuant to the shareholders’ agreement. 3 Thereafter, ⁶¹² Volkman filed this timely appeal. Additional facts will be discussed as necessitated by the issues presented. DISCUSSION I. The Trial Court Erred In Issuing A Declaratory Judgment While An Action Involving The Same Parties And Issues Was Pending In Minnesota. A. Standard of Review Maryland Code (1973, 2013 Repl.

Vol.), § 3-409(a) of the Courts and Judicial Proceedings Article (“CJP”) provides: “a court may grant a declaratory judgment ... if it will serve to terminate the uncertainty or controversy giving rise to the proceeding....” (emphasis added). For the most part, because “[a] court ‘may grant a declaratory judgment;’ [the] declaratory judgment generally is a discretionary type of relief.” Converge Servs. Grp., LLC v. Curran, 383 Md. 462, 477 , 860 A.2d 871 (2004) (quoting CJP § 3-409(a)). “Thus, we generally review a trial court’s decision to grant or deny declaratory judgment under an abuse of discretion standard.” Sprenger v. Pub. Serv.

Comm’n of Md,., 400 Md. 1, 21 , 926 A.2d 238 (2007); Tanner v. McKeldin, 202 Md. 569, 577 , 97 A.2d 449 (1953) (“[I]t is clear that the exercise of declaratory jurisdiction is within the sound discretion of the court.”). Contrary to the permissive ‘may’ language used in CJP § 3-409(a), we have historically enforced the provisions of the Declaratory Judgment Act and insisted that courts declare the rights of parties when presented with an action properly ⁶¹³ susceptible to a declaratory judgment. Rarely, we have held, is it permissible to dismiss an action for declaratory judgment in lieu of declaring the rights of the party seeking the judgment. Post v. Bregman, 349 Md. 142, 159-60 , 707 A.2d 806 (1998).

Additionally, This Court has emphasized, time after time, that dismissal “is rarely appropriate in a declaratory judgment action.” Popham v. State Farm, 333 Md. 136 , 140 n. 2, 634 A.2d 28 , 30 n. 2 (1993), quoting Broadwater v. State, 303 Md. 461, 465 , 494 A.2d 934, 936 (1985). See, e.g., Turnpike Farm v. Curran, 316 Md. 47, 49 , 557 A.2d 225, 226 (1989); Boyds Civic Ass’n v. Montgomery County, 309 Md. 683 , 687 n. 2, 526 A.2d 598 , 600 n. 2 (1987); Jennings v. Government Employees Ins., 302 Md. 352, 355, 356 , 488 A.2d 166, 167-168 (1985); State v. Burning Tree Club, 301 Md. 9, 17 , 481 A.2d 785, 789 (1984); Koontz v. Ass’n of Classified Emp., 297 Md. 521, 529 , 467 A.2d 753, 758 (1983); Carroll Co. Educ. Ass’n v. Bd. of Educ., 294 Md. 144, 155-156 , 448 A.2d 345, 351 (1982); East v. Gilchrist, 293 Md. 453 , 461 n. 3, 445 A.2d 343 , 347 n. 3 (1982); Mauzy v. Hornbeck, 285 Md. 84, 90-92 , 400 A.2d 1091, 1095 (1979), and cases there cited. Christ by Christ v. Md. Dept. of Natural Res., 335 Md. 427, 435 , 644 A.2d 34 (1994).

It is, however, “within the discretion of the circuit court to ‘refuse a declaratory judgment when it does not serve a useful purpose or terminate controversy.’ ” Polakoff v. Hampton, 148 Md.App. 13, 27 , 810 A.2d 1029 (2002) (quoting Staley v. Safe Deposit & Trust Co., 189 Md. 447, 457 , 56 A.2d 144 (1947)); see Edwin M. Borchard, The Uniform Declaratory Judgments Act, 18 Minn. L. Rev. 239 , 267 (1934) [hereinafter Borchard, The Uniform Declaratory Judgments Act ] (“the declaration is an instrument of practical relief and will not be issued where it does not serve a useful purpose.”). The question presented in this case is whether the issuance of a declaratory judgment is inappropriate notwithstanding the applicant otherwise satisfies the conditions of CJP § 3-409(a). ⁶¹⁴ B. Propriety of A Declaratory Judgment While A Similar Action is Pending One such instance where a declaratory judgment does not generally serve a useful purpose or terminate controversy is when there is another action pending in a different court involving the same parties and the same issues. Indeed, generally “courts will not entertain a declaratory judgment action if there is pending, at the time of the commencement of the action for declaratory relief, another action or proceeding involving the same parties and in which the identical issues that are involved in the declaratory action may be adjudicated.” Waicker v. Colbert, 347 Md. 108, 113 , 699 A.2d 426 (1997).

This rule rests on the principle that, “[wjhere an action or proceeding is already pending in another forum involving the same issues, it is manifestly unwise and unnecessary to permit a new petition for a declaration to be initiated .... ” Edwin Borchard, Declaratory Judgments 350 (2nd ed. 1941) [hereinafter Borchard, Declaratory Judgments']. This rule can be traced back to the equity courts of England, where principles of comity between the high Court of Chancery and the Court of Exchequer required “that where they have both an entirely concurrent jurisdiction of the same matter, that court is entitled to retain the suit, in which it has been first commenced.” Brown v. Wallace, 4 G. & J. 479, 496-97 (1832); see also Brooks v. Delaplaine, 1 Md.Ch. 351 (1848) (“When two courts have concurrent jurisdiction over the same subject matter, the court, in which the suit is first commenced, is entitled to retain it. This rule is vital to the harmonious movement of the courts; and, any other would unavoidably, lead to perpetual collisions, and be productive of the most calamitous results.”); accord Withers v. Denmead, 22 Md. 135, 145 (1864) (quoting Brooks, supra, 1 Md.Ch. 351). This rule survives in the context of a declaratory judgment action out of recognition that the declaratory judgment is distinguishable from other judgments because “courts are empowered to adjudicate upon disputed legal rights whether or not further relief is or could be claimed.” Borchard, The ⁶¹⁵ Uniform, Declaratory Judgments Act, supra, at 289.

In order for declaratory judgments to retain the procedural requisites of justiciability: two principal criteria guid[e] the policy of rendering declaratory judgments ... (1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding. It follows that when neither of these results can be accomplished, the court should decline to render the declaration prayed. Id. at 265.

Pursuant to these principles, Maryland courts have generally held that the practical purposes of the declaratory judgment are ill-served when a court makes a declaration while an action involving the same issues and the same parties is pending before another court. As an initial matter, Hanover averred at oral argument that with respect to the Maryland and Minnesota actions, neither the parties nor the issues presented are truly the same. We are unpersuaded. First, in both actions Volkman argues against the actions made by Hanover Investments.

Whether the Hanover shareholders or directors are named as parties to the action is an immaterial distinction where all the parties interact through the conduit of the Hanover corporation. Further, Hanover attempts to distinguish the actions by arguing that the declaratory judgment action is merely an attempt to legitimize its process for redeeming shares under their shareholders’ agreement, whereas the Minnesota action seeks to adjudicate whether Volkman was properly terminated for cause. While we agree that the Maryland and Minnesota actions are not completely identical actions, our analysis merely inquires whether “identical issues ... are involved” in the two actions. Waicker, supra, 347 Md. at 113 , 699 A.2d 426 .

While the specific causes of action, legal theories, and objectives of litigation may differ between the declaratory judgment action and the Minnesota action, an adjudication with respect to the interpretation of the shareholders’ agreement and the performance of that agreement are necessary issues common ⁶¹⁶ to both actions. Accordingly, for the purpose of this analysis, the declaratory judgment action and the Minnesota action involve the same parties and the same issues. Although, for our purposes, this declaratory judgment action and the Minnesota action involve the same parties and same issues, the question remains as to if it was appropriate for the circuit court to issue a declaratory judgment notwithstanding the pending Minnesota action. In A.S. Abell Co. v. Sweeney, 274 Md. 715 , 337 A.2d 77 (1975), the Court of Appeals quoted Professor Borchard in analyzing when a declaratory judgment may be appropriate notwithstanding the pendency of another similar action.

Id. at 721 , 337 A.2d 77 . The Court commented that “ ‘[wjhere an action or proceeding is already pending in another forum involving the same issues, (absent very unusual and compelling circumstances,) it is manifestly unwise and unnecessary to permit a new petition for a declaration to be initiated.’ ” Id. (quoting Borchard, Declaratory Judgments, supra, at 350). Notably, the parenthetical in the rule expressed in A.S. Abell Co. (i.e. “absent very unusual and compelling circumstances”), was absent from Professor Borchard’s treatise.

Critically, the Court of Appeals’ opinion in A.S. Abell Co. represents the first instance when the “unusual and compelling” language entered our jurisprudence. Compare A.S. Abell Co., supra, 274 Md. at 721 , 337 A.2d 77 , with Borchard, Declaratory Judgments, supra, at 350. The Court of Appeals’ analysis in A.S. Abell Co., relied on its holding six years prior in Grimm v. Cnty. Comm’rs of Washington Cnty., 252 Md. 626 , 250 A.2d 866 (1969).

A.S. Abell Co., supra, 274 Md. at 719-21 , 337 A.2d 77 . Grimm involved a criminal defendant who was charged with violating a county ordinance regarding the “fencing, burning and stacking of motor vehicles.” Grimm, supra, 252 Md. at 628 , 250 A.2d 866 . After the county issued warrants for the violation of the ordinance, Grimm pursued a declaratory judgment action requesting that the court declare the ordinance unconstitutional. Id.

In light of the pending criminal action, the ⁶¹⁷ trial judge refused to issue a declaratory judgment and dismissed the action. Id. at 630 , 250 A.2d 866 . In affirming the trial court’s finding that a declaratory judgment was inappropriate, the Court of Appeals in Grimm noted: there appears to be a division of authority between those jurisdictions which hold that it is an abuse of discretion to grant a declaratory judgment when there is a pending criminal prosecution involving the same parties and same issues, and those which hold that in a proper case, it is within the trial judge’s discretion to grant such relief. We are not convinced, however, that the two lines of authority may not be reconciled on the basis of differences in local procedure or the types of interests threatened....

Grimm, supra, 252 Md. at 639, 250 A.2d 866 . We, then, are tasked with addressing the “local procedures or the types of interests” that make a circumstance unusual and compelling so as to warrant issuing a declaratory judgment when an action involving similar issues is pending before another court. Id. When a litigant initiates a declaratory judgment under such circumstance, the trial court generally does not abuse its discretion by refusing to issue a declaration.

Sprenger v. Pub. Serv. Comm’s of Md., 400 Md. 1, 33 , 926 A.2d 238 (2007) (holding that trial judge is legally correct in dismissing declaratory action when two actions are substantially the same, issues were identical, and the identical action was still pending); accord Popham, supra, 333 Md. at 140 n. 2, 634 A.2d 28 ; Haynie v. Gold Bond Bldg. Prods., 306 Md. 644, 653-54 , 511 A.2d 40 (1986); Brohawn v. Transamerica Ins.

Co., 276 Md. 396, 405-06 , 347 A.2d 842 (1975); Grimm, supra, 252 Md. at 640, 250 A.2d 866 ; Polakoff v. Hampton, 148 Md.App. 13, 39 , 810 A.2d 1029 (2002). The question then arises whether the same standard applies when a trial judge fails to dismiss a declaratory judgment and elects to issue a declaratory judgment when the parties and issues are substantially the same as an action that is pending in a court of concurrent jurisdiction. We are cognizant that ⁶¹⁸ the Court of Appeals has expressly held that the failure to dismiss a declaratory action is, under many circumstances, an abuse of discretion when a similar action is pending. See, e.g., Waicker, supra, 347 Md. 108 , 699 A.2d 426 ; Tpk.

Farm, Ltd. P’ ship, supra, 316 Md. 47 , 557 A.2d 225 (reversing, in per curiam decision, a declaration made by a trial court because similar action involving same issues was pending in the same court). The Court of Appeals has repeatedly “made clear that, as a general rule, courts will not entertain a declaratory judgment action ‘if there is pending, at the time of the commencement of the action for declaratory relief, another action or proceeding involving the same parties and in which the identical issues that are involved in the declaratory action may be adjudicated.’ ” Post, supra, 349 Md. at 160 , 707 A.2d 806 (quoting Waicker, supra, 347 Md. at 113 , 699 A.2d 426 ). Similarly, in Brohawn, supra, the Court of Appeals held that “where, as here, the question to be resolved in the declaratory judgment action will be decided in pending actions, it is inappropriate to grant a declaratory judgment.” 276 Md. at 406 , 347 A.2d 842 ; see also Aetna Cas. & Sur. Co. v. Kuhl, 296 Md. 446 , 450 n. 1, 463 A.2d 822 (1983) (observing that “a declaratory judgment action brought by an insurer is inappropriate where the same issue is pending in another proceeding”).

Moreover, when the circuit court exercises its discretion to affirmatively render, as distinguished from abstaining from rendering, a declaration while another similar action involving the same parties and same issues is pending, we are to reverse the judgment absent “unusual and compelling circumstances.” Waicker, supra, 347 Md. at 113 , 699 A.2d 426 . In Waicker , the Court of Appeals adopted a narrow construction of the term “unusual and compelling” when addressing the appropriateness of entertaining a declaratory judgment action notwithstanding a pending action involving the same issues in another forum. Waicker, supra, 347 Md. at 116 , 699 A.2d 426 . There, the defendant in a civil tort case, a court appointed property manager, filed a declaratory judg ⁶¹⁹ ment action in the same court to resolve an issue that would be outcome determinative of the pending tort lawsuit.

Id. at 110 , 699 A.2d 426 . The circuit court issued a declaration against the property manager, and the property manager appealed the judgment. Id. The Court of Appeals raised the issue, sua sponte, of whether issuing a declaration was appropriate in light of the pending tort action.

Id. at 112-13 , 699 A.2d 426 . The Court articulated that a strong public policy in favor of resolving litigation in a single action, as well as a policy against “interlocutory orders and against piecemeal appeals” weighed against rendering a declaration under those circumstances. Id. at 115-16 , 699 A.2d 426 (quoting Haynie, supra, 306 Md. at 653-54 , 511 A.2d 40 ). The Court of Appeals, therefore, held that there were no unusual or compelling circumstances so as to permit the issuance of a declaratory judgment when an action was pending involving the same issue.

Id. at 116, 699 A.2d 426 . Accordingly, the Court reversed the declaratory judgment issued by the trial court. 4 Id. Similar to Waicker , in State v. 91st St. Joint Venture, 330 Md. 620 , 625 A.2d 953 (1993), the Court of Appeals, in a per curiam order, vacated an interlocutory injunction ordered by the Circuit Court for Baltimore City, while the same parties were litigating the same issues in the Circuit Court for Worcester County. 91st St. Joint Venture, 330 Md. at 623 , 625 A.2d 953 . In that case, the State Department of Natural Resources (“DNR”) filed an action to enjoin the defendants from constructing a gazebo in a protected area in Ocean City, ⁶²⁰ Maryland.

Id. at 623-24 , 625 A.2d 953 . Rather than respond to the action, the defendants filed a complaint in the Circuit Court for Baltimore City seeking declaratory and injunctive relief. Id. at 624 , 625 A.2d 953 . The Circuit Court for Baltimore City, then, issued an injunction prohibiting the DNR from enforcing its regulations and prohibiting the DNR from proceeding with the action in Worcester County.

Id. at 625 , 625 A.2d 953 . On appeal, the Court of Appeals held that “the Circuit Court for Baltimore City abused its discretion when it enjoined the [DNR] from proceeding with the