Friday, January 10, 2020

Credible Behavioral Health, Inc. v. Johnson (Ct. of Appeals)



Filed: November 20, 2019

Opinion by: Judge Clayton Greene Jr.

Holding: On appeal, the circuit court must review the district court’s factual determinations for clear error and legal conclusions de novo.  Pursuant to a valid promissory note, an obligation to repay an employer-provided tuition loan exists whether the employee is fired or quits.

Facts:

Petitioner (“Employer”) offered a tuition loan program to its employees in an effort to both cultivate professional development and incentivize employee retention. Under this program, Employer agreed to provide tuition payments toward undergraduate, graduate, or post-graduate programs in the form of a loan to the participating employee. Upon completing their study, the employee might have to repay Employer the full cost, some percentage, or enjoy loan forgiveness depending on how long they remained at the company.

Respondent (“Borrower”) was in the service of Employer in 2016 and entered into its tuition loan program that year. Borrower signed an unsecured promissory note which stated in relevant part:
1. Principal Repayment: (a) The principal balance of the Loan plus all accrued interest thereon shall be due and payable in accordance with the following schedule:
(i) If you terminate employment with the Company within 12 months following achievement of the degree, 100% of the loan;
(ii) If you terminate employment with the Company after the 12 month anniversary but on or before the 24 month anniversary following achievement of the degree, 75% of the Loan;
(iii) If you terminate employment with the Company after the 24 month anniversary but on or before the 36 month anniversary following achievement of the degree, 50% of the Loan;
(iv) If you terminate employment with the Company after the 36 month anniversary following achievement of the degree, 0% of the Loan;
The appropriate percentage of the Loan… shall be due and payable 90 calendar days after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever…
Employer loaned Borrower $12,529 under the tuition loan program, but terminated him in December 2017. At that time, Borrower had not yet acquired his degree. Employer and Borrower entered into a repayment plan under which Borrower made one payment in February 2018 and no further payments.

Employer’s attorneys issued a demand letter in April 2018 for full payment of the loan balance by May 2018. Receiving no subsequent payments, in June 2018 Employer sued Borrower in the District Court of Maryland sitting in Montgomery County.

The court found in Borrower’s favor, reasoning that the amounts under the repayment plan only became due if Borrower quit because the provisions within 1(a) were inconsistent: subsections 1(a)(i)-(iv) applied where an employee quit while the paragraph following applied where an employee was terminated. Without a basis to determine how much Borrower owed, the trial judge found the inconsistency should go against the party who drafted the contract.

On appeal, the Circuit Court for Montgomery County found the lower court not clearly erroneous in its interpretation and affirmed the judgment.

Employer subsequently sought and received a writ of certiorari.

Analysis:

Three questions lay before the court: (1) whether the appellate court correctly applied Md. Rule 7-113(f) when it reviewed the trial court’s contract construction for clear error rather than de novo, and (2) whether the plain terms of the contract entitled Employer to a judgment against Borrower, and (3) whether Maryland law required the appellate court to choose one of two possible readings of the contract consistent with the parties’ intent.

The court began by referencing both statute (Md. Rule 8-131(c)) and case law (Friendly Finance v. Orbit, 378 Md. 337, 342-43 (2003)) to delineate the standards of review under Md. Rule 7-113(f): judgments of a bench trial court on the evidence should not be set aside unless clearly erroneous, but the trial court’s conclusion, interpretation, or application of law must be reviewed de novo.

Contract interpretation is a clear example of a legal determination and therefore subject to de novo review. Therefore the appellate court improperly applied Md. Rule 7-113(f) in failing to review the trial court’s promissory note interpretation anew.

Accordingly, the court began a de novo review. The basic dispute centered about whether an obligation to repay existed depending on whether an employee was fired or had quit. The court found the language of 1(a) to have two contrary interpretations: an obligation to repay in both situations (fired or quits), or an obligation to repay only where the employee quits.

Examining the promissory note’s text, the court inquired into the intent of the parties by determining from the language of the agreement what a reasonable person would have meant at the time. The promissory note’s preamble communicated that “…[Borrower] unconditionally promises to pay…the aggregate principal…with all accrued and unpaid interest thereon.” The paragraph following 1(a) also clearly constituted an obligation to repay the loan: “The appropriate percentage of the Loan set forth above, plus all accrued interest thereon shall be due and payable (i) ninety (90) calendar days after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever…” The subsections 1(a)(i-iv) merely determined the amount owed based on the employee’s tenure after attaining his degree.

Finding the conditions of 1(a) meaningful although awkwardly worded, the court could see no substantive indication that the amount owed should become due only where an employee unilaterally ended his employment. Because both parties had stipulated to the promissory note’s clarity (lack of ambiguity), the court declined to construe its terms against the drafter.

Finally, the court reminded that Maryland courts consistently strive to interpret contracts in accordance with common sense, and that the lower courts’ interpretation ran contrary to common sense because of the resulting disparate treatment of employees based on whether they were fired or voluntarily quit. In the nonsensical construction, a fired employee received loan forgiveness while the employee who quit kept his obligation. If this construction controlled, an employee who wanted to leave Employer and shirk his promissory note obligation could simply act in a manner that would compel the company to fire him.

Reversing the appellate court’s decision, the court determined its interpretation – that the parties intended the tuition loan to be repaid regardless of whether the employee quit or was fired – to be reasonable, in accord with a common sense approach, and with an effect of harmonizing the substance of the various sections of the promissory note.

The full opinion is available in PDF.