Monday, March 8, 2010

Weichert Co. of Maryland, Inc.. v. Faust (Md. Ct. of Special Appeals)

Opinion by Judge Albert Matricianni


Pursuant to the narrow scope of the fee provision in the employment agreement, the Court of Special Appeals affirmed the trial court’s decision on awarding attorney fees to an employee who prevailed against the employer's breach of contract claim and denied the employer’s claim for attorney fees even though the employer was successful with its breach of duty of loyalty claim.

Brief Facts:

This suit arises from an employment dispute whereby the employer initiated an action against the employee alleging breach of contract, employee piracy, breach of fiduciary duty, and unfair competition. The employee counterclaimed for breach of contract, fraud, negligent misrepresentation, and violation of the Maryland Wage and Payment Act. At trial, the jury found the employee liable for breach of her duty of loyalty and awarded the employer $250,000 in damages and the employer liable for violation of the Maryland Wage and Payment Act and awarded the employee $116,000 in damages.

At the conclusion of trial, both parties (employee - $1,485,500 and employer $2,203,037) petitioned for an award for attorney’s fees pursuant to the employment agreement between the parties. The trial court granted the employee’s petition for attorney’s fees that were reduced to $946,014 but denied the employer’s petition. The employer appealed.

The contested fee provision provided as follows:
If employer brings any action(s) (including seeking injunctive relief) to enforce its rights hereunder and a judgment is entered in employer’s favor, then the employee shall reimburse the employer for the amount of employer’s attorney fees incurred in pursuing and obtaining the judgment. If the employee prevails in such a suit, then the employer shall reimburse the employee for the amount of the employee’s fees incurred in same.

On appeal, the employer challenged the trial court’s award of attorney’s fees to the employee and the lower court’s denial of the employer’s claim to attorney fees. The employer argued the following:

(i) The employee did not “prevail” under the agreement because the employer obtained a verdict on its claim for breach of the duty of loyalty;

(ii) The employee did not incur the fees and expenses;

(iii) The fee award to the employee should be denied since the employee was in breach of the duty of loyalty and the breach should excuse the employer of its performance; and

(iv) The fee award was not reasonable nor supported by the evidence.

The Court rejected the employer’s claim that the lower court erred in denying the employer its legal fees and the Court rejected the employer’s claim that the employee did not “prevail” as required under the fee provision. The employer argued on appeal that the term “hereunder” encompasses all rights and duties under the agreement including the duty of loyalty. The Court, however, interpreted the term “hereunder” in the fee-shifting provision narrowly, to apply exclusively to non-solicitation claims since the fee provision was an appurtenance to the non-solicitation paragraph. Because the employee prevailed against the employer's breach of contract claim and the employer's breach of duty of loyalty claim was not due to a breach of the non-solicitation paragraph of the agreement, the Court affirmed the trial court's grant of attorney's fees to the employee and the denial of the same to the employer.

Relying on the meaning of the term "incurred" as specified by the Dutta v. State Farm Ins. Co., 363 Md. 540 (2001), the Court rejected the employer’s argument that the employee did not “incur” the fees and expenses but rather her current employer which agreed to indemnify her from any damages arising in the case because the fee provision does not specify “by whom” the fees must have been incurred. The Court reasoned that the employee, in effect, incurred the attorney’s fees since her compensation at her new employment reflected the indemnification arrangement.

The Court rejected the employer’s claim that the employee’s breach of the agreement excuses it from paying the employee’s legal fees on the grounds that the employee’s duty of loyalty was not a condition precedent to the employer paying the employee’s legal fees and expenses.

The Court also rejected the employer’s argument on the amount of the legal fees since the court found that the lower court properly applied the “common core of fact” doctrine and that the employee was able to reasonably document the amount of the fees.

Practitioner’s Tip

Parties drafting fee provisions should be careful of its location and concise and unambiguity in the language used in the provision.

The full opinion is available here.

1 comment:

  1. Well, thanks for the shared case. I can see that the employer and employee have the same wrong the law and so they are responsible for whatever the consequence that is given by the court. Another insights in using the due process of law, well, I’ve been wanting to take up law classes but I guess even I get big tax returns - it is not enough to support my schooling. Hope for more cases updates and interesting cases here. Thanks a lot!


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