Bainbridge St. Elmo Apts v. White Flint Express Realty (Ct. of Special Appeals)

Filed: July 18, 2017

Opinion By: Raker

Holding: Bainbridge was liable for White Flint's attorney's fees under an express attorney fees shifting provision found in the indemnification agreement between the parties.

Facts: The case involves a written easement agreement between the parties that permitted Bainbridge St. Elmo Apartments ("Bainbridge") access to White Flint Express Realty's ("White Flint") property for a construction project of a 17 story high rise building immediately adjacent to White Flint's property in Bethesda, Maryland.  Bainbridge promised in the agreement to perform in a professional manner and would not use a pile-drive system to secure the hole for the foundation of the apartment building.  In exchange, Bainbridge received the right of access to the White Flint property, including air rights for a crane, as a part of the construction.

Article 9 of the agreement provided that "[t]he prevailing party in any arbitration shall be awarded reasonable counsel fees, expert and non-expert witness costs and expenses and all other costs and costs and expenses reasonably incurred, directly or indirectly, in connection with said arbitration, and all costs and fees of such arbitration shall be borne exclusively by the non-prevailing party.”  Article 19 provided the following indemnification language: "Bainbridge hereby indemnifies, and agrees to defend and hold harmless White Flint . . . from any and all claims, demands, debts, actions, causes of action, suits, obligations, losses, costs, expenses, fees, and liabilities (including reasonable attorney’s fees, disbursements, and litigation costs) arising from or in connection with Bainbridge’s breach of any terms of this Agreement or injuries to persons or property resulting from the Work, or the activities of Bainbridge or its employees, agents, contractors, or affiliates conducted on or about the White Flint Property, including without limitation, for any rent loss directly attributable to any damage to the White Flint Property caused by the construction of the Project, however Bainbridge shall not be liable for matters resulting from the negligence or intentional misconduct of White Flint, its agents, employees, or contractors. The indemnification obligations set forth herein shall survive the termination of this Agreement indefinitely.”

During construction, damaged occurred to the buildings on White Flint's property, resulting in a stop work order from Montgomery County, leading to White Flint terminating the agreement for material breach by Bainbridge.  Subsequently, White Flint filed an action against Bainbridge, resulting in the grant of a motion for summary by the trial court, finding: "that Bainbridge’s obligations survived the termination, that Bainbridge materially breached the agreement ... [and] under Article 19 of the Agreement, White Flint was entitled to attorney’s fees."  After a hearing, the trial court then entered an order awarding a total of $3,931,648.47 in attorney's fees and costs to White Flint.  Bainbridge appealed the fee order.

Analysis: The Court of Appeals analyzed the dispute over first-party attorney fee shifting by using traditional contract interpretation principles, including interpreting language in a contract based on its customary meaning, and looking at the entire agreement for context of a disputed provision. Under Maryland law, the American Rule for attorney fee shifting means that each party typically bears its own attorney's fees in a lawsuit, absent an applicable exception to that rule.  One such exception - where the parties have agreed to a fee shifting provision - is at issue in the present litigation.  Under the American Rule, typically an agreement to indemnify a party may include a fee shifting provision, but that Rule distinguishes between first and third party attorney's fees.  The former - where a party expends attorney's fees to determine the existence of an indemnification obligation - is distinguished from the latter - where a party expends attorney's fees to defend itself from a third party claim which was the obligation of the other party to defend.  Generally, first party attorney's fees are not recoverable under the American Rule in indemnification clauses where third party attorney's fees are recoverable in such clauses.

The Court then explains that the Nova Research v. Penske, 405 Md. 435 (2008), case required that first party fee shifting provisions must be express and strictly construed in indemnity agreements to be enforceable, using traditional contract interpretation principles.  The Court goes on to distinguish Nova Research from the present case, as Article 19 of the agreement here expressly provided for recovery of attorney's fees as a part of the indemnification obligations of Bainbridge to White Flint.  The Court then construed Article 19 by examining the purpose of the agreement - to make sure White Flint was made whole in the event that Bainbridge caused damage during construction - and then by examining the specific language in the indemnification provision itself.  The Court held that the clause involved three different clauses of indemnification, and that each clause was read independently.  Only the latter two of these clauses involved defense of third-party claims by Bainbridge, meaning that Bainbridge was still obliged "to defend and hold harmless White Flint" in the event that Bainbridge breached the agreement.  This first clause contained an express provision to shift attorney's fees.

The Court's view was that the indemnity agreement between the parties.  "Bainbridge and White Flint designed the agreement to ensure that Bainbridge, and not White Flint, carried all of the risk from the construction work; otherwise, White Flint had no incentive to support Bainbridge’s plans. Thus, the parties designed Article 19 to ensure that White Flint would be made whole if Bainbridge breached the agreement, which supports first-party fee shifting."

As a result, the Court affirmed the Court of Special Appeals and the trial court's order, directing Bainbridge to pay White Flint's attorney's fees incurred in the litigation.

The full opinion is available in PDF.