Weichert Co. of Maryland, Inc. v. Faust

⁴ MATRICCIANI, J. These consolidated appeals arise from an employment dispute between appellant, Weichert Company of Maryland, Inc. (“Weichert”), and appellee, Dorothy Crago Faust (“Faust”). Weichert brought suit against Faust in the Circuit Court for Montgomery County, alleging breach of contract, employee piracy, breach of fiduciary duty, and unfair competition. Faust counterclaimed for breach of contract, fraud, negligent misrepresentation, and violation of the Maryland Wage Payment and Collection Law (“Maryland Wage Act”), Maryland Code (1991, 2008 Repl.Vol.), §§ 3-501 et seq. of the Labor and Employment Article. A jury found Faust liable for breach of her duty of loyalty and awarded Weichert $250,000.00 in damages.

The jury also found that Weichert violated the Maryland Wage Act and awarded Faust $116,000.00. After trial, both parties petitioned for attorney’s fees and expenses under Faust’s employment agreement with Weichert. The trial court granted Faust’s petition and awarded her $946,014.50 in attorney’s fees, but denied Weichert’s petition. Weichert now seeks our review of those rulings.

QUESTION PRESENTED Weichert presented two questions, which we have rephrased and consolidated for clarity, in light of the law and our discussion: I. Did the court err when it granted appellee’s petition for attorney’s fees of $946,014.50 and denied appellant’s petition under the fee-shifting provision of their employment contract? For the reasons set forth below, we shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS Faust was a Weichert vice-president and manager of its Bethesda, Maryland real estate brokerage office. Faust’s employment agreement (the “Agreement”) with Weichert included a “Manager’s Addendum,” which contained a non- ⁵ solicitation clause.

The non-solicitation clause (“Paragraph 22”) comprised an introduction and eight subsections, the last of which was a mutual fee-shifting provision (the “Fee Provision”): H. If [Weichert] brings any action(s) (including an action seeking injunctive relief) to enforce its rights hereunder and a judgment is entered in [Weichert]’s favor, then [Faust] shall reimburse [Weichert] for the amount of [Weichert]’s attorney fees incurred in pursuing and obtaining the judgment. If [Faust] prevails in such a suit, then [Weichert] shall reimburse [Faust] for the amount of [Faust]’s fees incurred in same. Faust resigned from Weichert’s employ in 2003 and began working for the Long & Foster Companies (“Long and Foster”). Weichert devotes a significant portion of its brief to the details of Faust’s departure, most of which are not relevant to this appeal.

Those that are will be supplemented by our discussion, where necessary. What ensued was three years of litigation, culminating in a five week trial on Weichert’s claims and Faust’s counterclaims. Weichert alleged breach of contract, employee piracy, breach of fiduciary duty, and unfair competition. 1 Faust brought counterclaims for Maryland Wage Act violations, breach of contract, fraud, and negligent misrepresentation. The jury found Faust liable only for breach of her duty of loyalty and awarded Weichert $250,000.00 in damages. 2 On Faust’s counterclaims, the jury found on one count that Weichert had violated the Maryland Wage Act and awarded Faust $116,000.00 in damages. ⁶ After trial, both parties petitioned for attorney’s fees and expenses under the Fee Provision of the Agreement.

Faust sought attorney fees and expenses of $1,485,500.43, and Weichert sought fees and expenses totaling $2,203,037.65. The court denied Weichert’s petition but granted Faust’s petition, awarding her $946,014.50 in attorney’s fees. 3 DISCUSSION ‘ Weichert first argues that the trial court erred when it granted Faust’s — and, consequently, denied Weichert’s — petition for attorney’s fees on the common ground that Faust “prevailed” according to the terms of the Fee Provision. Weichert next argues that the trial court erred in its award because Faust did not “incur” the fees and expenses awarded, and because she breached her employment contract. Finally, Weichert argues that the court’s fee award was not reasonable and not supported by the evidence.

The Court of Appeals recently summarized the proper review of a contract providing for attorney’s fees: Contract clauses that provide for the award of attorney’s fees generally are valid and enforceable in Maryland, subject to a trial court’s examination of the prevailing party’s fee request for reasonableness. Myers v. Kayhoe, 391 Md. 188, 207 , 892 A.2d 520 (2006). The interpretation of a written contract is a question of law for the court subject to de novo review. Diamond Point v. Wells Fargo, 400 Md. 718, 751 , 929 A.2d 932 (2007).

Maryland applies an objective interpretation of contracts. Id. If a contract is unambiguous, the court must give effect to its plain meaning and not contemplate what the parties may have subjectively intended by certain terms at the time of formation. Id. at 751 , 929 A.2d 932 .

A contract is ambiguous if, when read by ⁷ a reasonably prudent person, it is susceptible of more than one meaning. Id. In interpreting a contract provision, we look to the entire language of the agreement, not merely a portion thereof. Jones v. Hubbard, 356 Md. 513, 534-35 , 740 A.2d 1004 (1999).

When interpreting a contract’s terms, we consider “the customary, ordinary and accepted meaning of the language used.” Atlantic v. Ulico, 380 Md. 285, 301 , 844 A.2d 460 (2003). Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 405 Md. 435, 447-48 , 952 A.2d 275 (2008). A. The Meaning of “Rights Hereunder” Weichert argues that Faust did not “prevail” under the Fee Provision because Weichert obtained a verdict on its claim for breach of the duty of loyalty. Weichert argues that the plain meaning of the word “hereunder,” as contained in the Fee Provision, extends beyond Paragraph 22 and encompasses all rights and duties under the contract, including the duty of loyalty that Faust breached.

Faust argues that the duty of loyalty is not one of the “rights hereunder” described in the Fee Provision, and that she is entitled to a fee award because she “prevailed” on the fundamental claim for breach of contract. When we interpret a contract, we must examine the contract as a whole, in order to determine the intention of the parties. Janusz v. Gilliam, 404 Md. 524, 540 , 947 A.2d 560 (2008) (citing Moscarillo v. Professional Risk Management Services, Inc., 398 Md. 529, 540 , 921 A.2d 245 (2007)). Weichert relies upon the plain meaning of “hereunder,” which is, generally, “in accordance with this document.” See MERRIAM-WEBSTER ONLINE DICTIONARY, available at http://www.m-w.com/dictionary/hereunder (defining “hereunder” as “under or in accordance with this writing or document”) (last visited January 14, 2010).

We disagree with Weichert’s argument because, when read in conjunction with the rest of the Agreement, the meaning of “hereunder” narrows to the provisions of a single paragraph in the Manager’s Addendum. ⁸ Paragraph 22 is similar to the contract term we interpreted in Burdette v. Lascola, 40 Md.App. 720 , 395 A.2d 169 (1978), where the last sentence of the parties’ arbitration provision read: “Should either party hereto bring suit in court to enforce the terms hereof, it is agreed that the losing party shall pay to the successful party his costs and reasonable attorney’s fees.” Id. at 735 , 395 A.2d 169 . We held that “terms hereof’ referred to “the provisions of that paragraph which only relate to the agreement to arbitrate.” Id. at 735-36 , 395 A.2d 169 . This is similar to the position advocated by Faust’s petition for fees, which argument the trial court adopted and quoted: The [Manager’s Addendum] consists of 22 paragraphs. Only one paragraph of the Agreement — paragraph (22) — is broken into subsections.

Paragraph “22” sets forth the non-solicitation clause, and in 8 separate clauses lettered (A) through (H) establishes the parties’ rights and obligations under the non-solicitation clause, as well as the mechanism for enforcement of the non-solicitation obligation. In various subsections of paragraph (22), the agreement makes clear that only disputes concerning a non-solicitation clause are enforceable by any legal means, including injunctive relief, and that involvement by a court of competent jurisdiction is contemplated in enforcement of the non-solicitation clause____No other section of the agreement refers to attorney’s fees. Just as subsection (22)(A) through (22)(G) all relate to the non-solicitation clause, it follows [that] subsection (22)(h) of paragraph (22) ... relates exclusively to the non-solicitation clause and entitles the prevailing party to attorney’s fees only in a suit based on paragraph (22). We agree with both Faust and the trial court.

The structure of the contract indicates that the word “hereunder” refers only to the provisions of that paragraph numbered 22. Our result may have been different if the Fee Provision were its own paragraph, but here it is merely an appurtenance to Paragraph 22. ⁹ Having narrowed the scope of the fee provision to the non-solicitation agreement in Paragraph 22, we must address Weichert’s alternative argument that Paragraph 22 included the duty of loyalty. In fact, the opposite is true: the duty of loyalty includes Paragraph 22. This is a crucial difference and means that the breach of one does not necessarily imply the breach of the other.

Every Maryland employment contract gives rise to the duty of loyalty. See Maryland Metals, Inc. v. Metzner, 282 Md. 31, 38 , 382 A.2d 564 (1978) (“we have read into every contract of employment an implied duty that an employee act solely for the benefit of his employer in all matters within the scope of employment”). Here, Weichert argues that because Faust breached the duty of loyalty, she necessarily breached the non-solicitation agreement of Paragraph 22. Though it is true that a breach of Paragraph 22’s non-solicitation provision would generally be a breach of the duty of loyalty, solicitation is not the only way that the duty of loyalty can be breached.

Add to this the fact that the jury specifically found that Faust did not breach her employment contract, and the only remaining logical conclusion is that the duty of loyalty must have been breached in some manner other than solicitation in contravention of Paragraph 22. 4 Weichert also cites to Stratakos v. Parcells, 172 Md.App. 464 , 915 A.2d 1022 (2007), in which we held that a party could recover attorney’s fees on claims of misrepresentation because ¹⁰ they arose out of the contract. However, the contractual language in Stmtakos, “arising out of,” was much broader than the word “hereunder” in the Fee Agreement. We held that “the words ‘arising out of require a showing of a causal relationship.” Id. at 472 , 915 A.2d 1022 (citing CSX Transp., Inc. v. Mass Transit Admin., 111 Md.App. 634 , 683 A.2d 1127 (1996), aff'd, 349 Md. 299 , 708 A.2d 298 (1998)). Therefore, while the phrase “arising out of’ could, hypothetically, include common law duties, the parties’ Fee Agreement did not.

Turning to the trial court’s construction, the only claim brought pursuant to Paragraph 22 was Weichert’s claim for breach of contract, which it lost. The only claim upon which Weichert prevailed was for breach of the duty of loyalty, which, as we have shown, was not occasioned by a breach of Paragraph 22. 5 Therefore, the trial court did not err in its finding that Faust “prevailed” according to the terms of the parties’ Agreement and that she was entitled to reasonable attorney’s fees and costs, while Weichert did not and was not. B. The Meaning of “Incurred” Weichert next argues that Faust did not “incur” fees and so is not entitled to recover them by operation of the Fee Provision. 6 We begin by revisiting the text of the Fee Provision: ¹¹ H. If [Weichert] brings any action(s) (including an action seeking injunctive relief) to enforce its rights hereunder and a judgment is entered in [Weichertj’s favor, then [Faust] shall reimburse [Weichert] for the amount of [Weichertfs attorney fees incurred in pursuing and obtaining the judgment. If [Faust] prevails in such a suit, then LWeichert] shall reimburse [Faust] for the amount of [Faustfs fees incurred in same.

Weichert contends that because Faust’s new employer, Long and Foster, agreed to indemnify her litigation costs, and because there is no evidence that she is required to repay those fees, that Faust did not “incur” the fees. This ignores a crucial aspect of the wording: the Fee Provision refers to Weiehert’s or Faust’s “fees incurred,” but it does not specify by whom they must be incurred. 7 This case is governed by the Court of Appeals’ decision in Dutta v. State Farm Ins. Co., 363 Md. 540 , 769 A.2d 948 (2001), where the Court held that an insured was entitled to reimbursement under his automobile insurance policy, even though his health maintenance organization (“HMO”) had initially paid his medical bill and had already been reimbursed by the third-party tortfeasor. In order to decide that case, the Court had to interpret the meaning of “incurred” as it appeared in the parties’ insurance agreement and in Maryland Code (1995, 1997 Repl.Vol.), Title 19, subtitle 5 of the Insurance Article (“IA”).

The insurance agreement provided coverage for “[r]easonable charges incurred within three years after the date of the accident,” Dutta, 363 Md. at 556 , 769 A.2d 948 , while the statute required coverage of “reasonable and necessary expenses that arise from a motor vehicle accident and that are incurred within 3 years after the accident.” IA § 19- ¹² 505. As in this case, neither sentence specifically stated who must incur the expenses in question. The Court thus had to decide the plain meaning of “incurred,” in that context. Id. at 557-58, 769 A.2d 948 .

To resolve the plain meaning of “incurred,” the Dutta Court cited to other jurisdictions that had addressed the issue and had included collateral sources in the plain meaning of “incurred.” In particular, the Dutta opinion relied on Kopp v. Home Mutual Insurance Company, 6 Wis.2d 53 , 94 N.W.2d 224 (1959), where the question was whether an insured was entitled to personal injury protection claims from his automobile insurer that had already been paid by his health insurer. The Dutta opinion quoted Kopp to the effect that: It is clear from the undisputed facts that no such debt was incurred by the plaintiff to pay for such hospitalization. However, a debt was incurred on the part of Blue Cross to pay such expense to Luther Hospital, and the plaintiff had paid quarterly premiums to Blue Cross as consideration for Blue Cross undertaking so to do. Thus expense was incurred for hospital services furnished ‘to or for’ the plaintiff insured.

However, where the injured person (in this case the insured) pays a consideration to have the expense of such medical or hospital services paid without liability to such injured person, it is our considered judgment that the injured person should be permitted to recover such expense under the policy clause in question. Kopp, 6 Wis.2d at 56-58 , 94 N.W.2d 224 . The Dutta Court concluded that “an expense was incurred on the petitioner’s behalf,” and that the insurer was therefore liable to the insured. 363 Md. at 561 , 769 A.2d 948 . Here, just as an insured would pay a premium to its insurer, Faust provided consideration for her indemnification through the net benefits of her services to her new employer.

See Dutta, 363 Md. at 560-61 , 769 A.2d 948 (citing State Farm v. Fuller, 232 Ark. 329, 333 , 336 S.W.2d 60, 63 (1960) (holding that “the ¹³ federal government, in effect, ‘incurred’ the hospital costs of [Mrs. Fuller] in consideration for her services in the armed forces”)). The Dutta decision also addresses Weichert’s argument that we should not consider Faust’s fees “incurred” because there is no evidence that Faust must surrender her fee award to Long and Foster. In Dutta , even though the medical insurer had already recovered its outlay and the insured would “pocket” the claim award, the court held that the insured was entitled to recovery. Faust thus stands in precisely the same position as the insured in Dutta , who was held to have “incurred” expenses.

For the foregoing reasons, we hold that Faust’s fees and expenses were “incurred” pursuant to the terms of the parties’ Agreement. C. Breach Weichert also argues that Faust should be denied the benefits of the Fee Provision because she materially breached the Agreement. Weichert argues that Faust’s breach of the duty of loyalty excuses its performance under the Fee Provision, so that the petition should have been denied. In order for Weichert’s performance under the Fee Provision to be excused, loyalty must be a condition precedent.

Weichert cites our opinion in Chai Management, Inc. v. Leibowitz, 50 Md.App. 504 , 439 A.2d 34 (1982), which answered the “narrow” question: “Whether an employer who fires an employee for cause (upon a material breach of contract) must be required to pay the employee for the notice period designated by the employment contract?” Id. at 505 , 439 A.2d 34 . We held that the employer was not so required. However, the facts of Chai distinguish it from this case. In Chai, we presumed — for purposes of review — that the employee had “wilfully disobeyed his employer’s explicit command to obtain immediately more toilet paper.” Id. at 506 , 439 A.2d 34 .

We noted that, under the employee’s theory of the case, it was “as if the employee has breached the provision ¹⁴ that requires him to go to work and then sues under the provision which specifies his salary.” Although not stated precisely, the implication of Chai is that material compliance with the terms of a contract is a condition precedent to notice of termination. See id. at 514 , 439 A.2d 34 (“we can neither find nor imagine an interpretation of such a notice provision that would require a non-breaching employer to give an employee, who blatantly breaches his employment contract, the notice specified in the contract”). We cannot extend the logic of Chai to this case because a narrowly-drawn fee-shifting provision is of a different kind compared to provisions for notice of termination or, as supposed by the Chai court, for salary payments. The Fee Provision appears to contemplate — and Weichert’s petition for fees confirms — that the court could award opposite and simultaneous fee awards, predicated on mutual breach of contract.

Even if this were not so, the Agreement limits fee-shifting to breaches of Paragraph 22, which addresses only