O'Brien & Gere Eng'rs, Inc. v. City of Salisbury

• Decision Date: 28 April 2015
• Docket Number: No. 1734, Sept. Term, 2012.,1734, Sept. Term, 2012.
• Parties: O'BRIEN & GERE ENGINEERS, INC. v. CITY OF SALISBURY.
• Court: Court of Special Appeals of Maryland

222 Md.App. 492

113 A.3d 1129

O'BRIEN & GERE ENGINEERS, INC.

v.CITY OF SALISBURY.

No. 1734, Sept. Term, 2012.

Court of Special Appeals of Maryland.

April 28, 2015.

Bruce F. Bright (Ayres, Jenkins, Gordy & Almand PA, on the brief) Ocean City, MD, for Appellant.

Howard G. Goldberg (Kevin M. Kelly, Goldberg & Banks, PC, Baltimore, MD, and Paul D. Wilber, Chris S. Mason, Webb, Burnett, Cornbrooks, Wilber, Vorhis, Douse & Mason, LLP, Salisbury, MD), on the brief, for Appellee.

Panel: DEBORAH S. EYLER, NAZARIAN, CHARLES E. MOYLAN, JR. (Retired, Specially Assigned), JJ.

Opinion

DEBORAH S. EYLER, J.

The primary issue in this appeal is whether the absolute litigation privilege may immunize a party to a non-disparagement agreement from liability for breaching that agreement when the breach was by words spoken by a lawyer or witness in court, during a judicial proceeding. We hold that it may, and that in the circumstances of this case it did, as a matter of law.

FACTS AND PROCEEDINGS

The parties to this appeal are O'Brien & Gere Engineers, Inc. (“OBG”), the appellant, and the City of Salisbury (“City”), the appellee. In the early 2000's, the Maryland Department of the Environment (“MDE”) directed the City to upgrade its outdated wastewater treatment plant to comply with federally mandated standards. In 2004, the City contracted with OBG to perform the design engineering for the plant upgrade. The next year, the City contracted with Construction Dynamics Group, Inc. (“CDG”) to serve as the construction manager for the plant upgrade. Among other things, CDG's contract required it to oversee OBG's design engineering work and report any problems with the design to the City.

It is an understatement to say the plant upgrade did not go well. The City paid over $80 million dollars for the upgrade, but the plant as upgraded never satisfied federal standards. Ultimately, the MDE required the City to complete an entirely new plant upgrade.

On February 28, 2011, in the Circuit Court for Wicomico County, the City sued OBG and CDG, alleging breaches of contract and wrongful acts and omissions that caused the plant upgrade to fail (“The Plant Upgrade Case”). OBG joined a number of subcontractors and some of their sureties as third party defendants. The City amended over against the third party defendants, and OBG filed cross-claims against them. The parties engaged in extensive discovery. Expert witnesses were disclosed in early 2012. The case was specially assigned and given a November 1, 2012 trial date.

On June 7, 2012, the City and OBG entered into a comprehensive settlement, which they memorialized in a written Settlement Agreement (“the Agreement”). The salient terms are as follows. OBG agreed to pay the City $10 million ($10,000,000) and the City agreed to release OBG from all claims the City had made or could have made against it relating to the plant upgrade. All claims, cross-claims, and third-party claims relating to OBG would be dismissed and OBG would dismiss a separate suit it had brought against the City under the Maryland Public Information Act (“MPIA”). No provision of the Agreement would “inure to the benefit of” anyone else, including any other party to the Plant Upgrade Case.

OBG denied fault and tortfeasor status. The City and OBG agreed that if, at the trial of the Plant Upgrade Case, OBG were found to be a tortfeasor, then any judgment in tort in favor of the City would be reduced in accordance with the Maryland Uniform Contribution Among Joint Tort–Feasors Act. See Md.Code (2013 Repl.Vol.), §§ 3–1401 et seq.

The City agreed to defend, indemnify, and hold harmless OBG from any claim made against it at any time by any other party to the Plant Upgrade Case, relating to the design or construction of the Plant. The stated purpose of this provision was to protect OBG from having to expend “any further monies” in connection with the Plant Upgrade Case and, together with the joint tortfeasor provision, to protect OBG “from any liability and expense associated with any claims that the City is now pursuing, or hereafter may initiate or pursue, against any person other than OBG arising from or in any way relating to the [plant upgrade] and the facts and events alleged by the City in the [Plant Upgrade Case].” In addition, the City agreed to defend, indemnify, and hold harmless OBG from any claim or suit made or filed against it at any time concerning the design and construction of the plant upgrade. In consideration for the release and indemnification agreements, OBG agreed to release the City from any claims—past, present, and future—relating to the plant upgrade, except claims for enforcement or breach of the Agreement.

Central to this appeal, the Agreement contains a mutual non-disparagement clause:

The City and [OBG] mutually agree that they will not make, or cause or encourage other persons or entities to make, any disparaging remarks or comments about each other relating to any matter having occurred prior to the effective date of this Settlement Agreement or in the future relating directly or indirectly to the Salisbury wastewater treatment plant through any means, including without limitation, oral, written or electronic communications, or induce or encourage others to publicly disparage the other settling party.

“Disparaging” is defined to mean:

[A]ny statement made or issued to the media, or other entities or persons that adversely reflects on the other settling party's personal or professional reputation and/or business interests and/or that portrays the other settling party in a negative light.

In addition, the clause states with respect to injunctive relief and damages:

The parties agree that, in the event of any breach of this non-disparagement provision, damages/actual losses will be difficult or impossible to prove with requisite precision, and that an adequate remedy at law will not exist. Accordingly, in the event of a breach of this provision, the non-breaching party shall be entitled to equitable relief including but not limited to a temporary restraining order, a preliminary injunction, and a permanent injunction. Further, the non-breaching party shall not be required to post any bond in connection with seeking or obtaining a temporary restraining order, a preliminary injunction, and/or a permanent injunction. Further, the non-breaching party shall be entitled to an award of reasonable attorney's fees and other litigation costs and expenses associated with enforcement of this provision against the breaching party.

The Agreement does not include a confidentiality or non-disclosure provision.

The Council of the City of Salisbury approved the Agreement the day it was signed. Five days later, after receiving the $10 million payment, the City filed a stipulation of voluntary dismissal with prejudice of OBG from the Plant Upgrade Case. OBG voluntarily dismissed with prejudice its cross-claims and the MPIA case. Soon thereafter, the City dismissed with prejudice the claims it had filed against the defendants originally brought into the case by OBG. That left CDG as the only remaining defendant. The City filed an amended complaint against CDG for breach of contract only, with an ad damnum clause reduced from $60 million dollars to $4 million dollars.

The jury trial in the Plant Upgrade Case began on schedule on November 1, 2012. The City advocated that CDG had breached its contract in a number of ways, including by failing to oversee OBG's design engineering work and by failing to bring flaws in that work to the City's attention; and that those design flaws caused the plant upgrade to fail. The City theorized that CDG did not report the problems with OBG's design engineering because the year before CDG executed its contract with the City, CDG and OBG had entered into a “teaming agreement,” in which they were collaborating to win a $20 million construction contract in the District of Columbia, and it would not have served CDG's interests in seeking that lucrative contract to reveal OBG's design flaws in the plant upgrade.¹

In opening statement, the City's lawyer told to the jurors that the evidence would show that CDG's contract required it to inform the City of any design flaws in the plant upgrade, but that CDG failed to do so:

This becomes very important. Because most of the problems at this plant, and this plant was a disaster, most of the problems were design problems created by the design engineer, [OBG]. And [CDG] should have been advising the City of those problems. Particularly when, you'll hear at the end of the project, this plant didn't work. But [CDG] walked away, they didn't advise the City.

(Emphasis added.) He continued:

[CDG] [f]ailed to provide the required information in their monthly reports. They failed to tell us about all of the things that weren't working. They failed to tell us about the myriad of design problems that they should have told us about. Remember the word design.

(Emphasis added.) The lawyer foreshadowed the evidence about the teaming agreement, characterizing it as a conflict of interest on CDG's part:

I'll talk to you about conflicts of interest. Why didn't CDG report the engineer [OBG]? Why didn't CDG come to the City and say the engineer is causing problems or has caused problems big time? The engineering was a mess. This engineering, you'll hear, most of it failed. But CDG wasn't reporting that. Why?

Well, what we found out is, remember, CDG is hired in 2005, in 2004 CDG entered into what's called a teaming agreement with the engineering firm [OBG] an agreement to try to get a job in the District of Columbia. A job in the District of Columbia, which, if they got it, would give them 20 million dollars for the package. Millions each. Six million for CDG. Six million for [OBG], O'Brien and Ge[re]. Six million for another partner. They entered into a teaming agreement in 2004.

* * *

So you're going to—it doesn't matter to us whether they [CDG] mistakenly and in breach of their contract declared this

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