Filed: September 12, 2011
Opinion by Judge Ronald B. Rubin
Held: A defendant cannot attempt to terminate a contract for cause under one termination provision and, upon failing to justify the termination and losing a jury trial, invoke a different termination provision (that it did not comply with) to argue that the plaintiff's "expectation interest" in the contract, and thus its claim for damages, must be limited.
Facts: A hotel management contract had multiple clauses providing for termination, including termination for "no cause" whereby the terminating party would owe only 6 month's notice. The defendant terminated the contract for cause, on the ground that the plaintiff was grossly negligent in performing. The plaintiff sued and won a $2.8 million damages verdict from a jury. The defendant moved for a new trial on the ground that, had it terminated the contract for no cause, it would have owed only six month's notice. The defendant argued that, because it could have terminated for no cause upon six month's notice, the plaintiff's expectation interest in the contract was limited to six month's worth of damages.
Analysis: The court held that the defendant was not entitled to invoke the "no cause" termination clause after attempting, and failing, to terminate the contract pursuant to a different clause. The court distinguished the case from other Maryland cases where a plaintiff's expectation interest was deemed limited to the amount of notice it was entitled to receive before termination of a contract: Cottman v. Maryland Dep't of Natural Res., 51 Md. App. 380 (1982) and Storetrax.com, Inc. v. Gurland, 168 Md. App. 50 (2006).
The court pointed out that the defendant had not invoked or attempted to comply with the requirements of the "no cause" provision. The contract was a complex set of interlocking promises and promised benefits. The parties clearly had the expectation that, absent good faith compliance with the express terms of the available termination provisions, the contract would last ten years. The defendant could have availed itself of the "easy out" of terminating for no cause if it had given notice and paid a small fee. Instead, the defendant chose another path and refused to give notice or pay the fee. After failing to justify its termination, the defendant was not entitled to invoke a different termination provision in order to cap its exposure to damages proven at trial.
The full opinion is available in .pdf.