Monday, May 8, 2017

Under Armour, Inc. v. Ziger/Snead, LLP (Ct. of Special Appeals)

Filed:  April 27, 2017

Opinion by:
  Alan M. Wilner

Holding:  An award of losses in the amount of the value of time spent by principals and employees in performing litigation-related activities was proper, given an expense-shifting provision negotiated separately by sophisticated parties calling expressly for reimbursement in the event of losses.

Facts:  Appellant Under Armour, Inc. (“Owner”) engaged Appellee Ziger/Snead, LLP (“Architect”) to provide design and management services related to a construction project.  After a contract dispute arose, Owner withheld approximately $55,000.  In the Circuit Court for Baltimore City, Architect sued for the sum plus accrued fees while Owner counterclaimed for losses and damages suffered as a result of allegedly substandard work and inadequate management.

After the jury found in favor of Architect and awarded nearly $60,000, Architect filed a motion pursuant to the contract’s expense-shifting clause seeking nearly $300,000 in attorney fees, costs, expenses, and losses.  The court generally agreed and entered final judgment in the amounts of $182,735, $155, $42,830, and $62,190 respectively.  Owner paid all but the $62,190 awarded for losses and appealed the basis for such an award.

With respect to the losses claim, evidence presented below consisted of time tracking records and hourly rates charged by Architect’s employees in performing the kind of work the firm was engaged to perform.  Architect therefore sought not “lost profits” on new business but the value of the time its principals and employees were not able to devote to the pursuit of providing professional services to its other active clients.

Owner did not contest Architect’s accounting, but generally appealed that the court should not have awarded anything for “losses,” arguing (1) that the expense-shifting clause was not sufficiently specific to permit a claim for time spent by principals and employees performing litigation-related tasks, and (2) in any event the hourly rates were an inappropriate measure because Architect’s employees would have been paid regardless of whether they had been engaged in litigation-related activities or their usual work.

  The court began by dispensing with Architect’s initial position that the appeal concerned whether it had actually suffered losses, a question of fact which would necessitate a “clearly erroneous” standard of review.  Instead finding that the principal matter was one of contract construction and thus a question of law – whether the losses suffered were compensable under the contract’s expense-shifting provision – the court continued with its de novo review.

Focusing next on the contract itself, the court noted that the expense-shifting provision had been separately negotiated along with other provisions as an addendum to a standard form contract drafted by the American Institute of Architects.  The provision was not a mere general contract damages breach clause, but came into play only where the prevailing party had “[employed] counsel or an agency to enforce [the] Agreement,” and expressly provided for reimbursement of attorney’s fees, costs, expenses, and losses.  Although the contract failed to define losses, the court deemed the absence of such a definition within a document negotiated by sophisticated organizations not to be fatal.  Instead the court looked to intent and determined the lack of specificity to be precisely the point: avoiding the need to spell out each and every kind of loss that might accrue from breach.

So: did losses include diverted employee time to tasks that litigants typically undertake without compensation?  Finding support from a sundry list of cases decided in various states and Circuits, the court was persuaded that the issue was not whether employees would have in any event been compensated for their time, or whether the complaining party had incurred additional expenses or lost profits, but whether a breach had deprived the complaining party of services it had compensated its employees for providing.

Examining the record, the court noted unchallenged evidence of more than 300 hours spent in activities such as investigating facts, conducting discovery requests, preparing for and attending mediation, preparing for and attending depositions, and preparing for and attending trials.  Diversion of that many hours at hourly rates ranging $100 to $200 per hour from income-generating work to defend a meritless lawsuit for wrongfully-withheld fees constituted losses under the contract.  Accordingly, the court found no error in the lower court’s decision to award $62,190 in losses.

The full opinion is available in PDF.

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