Faw, Casson & Co. v. Everngam

• Decision Date: 01 September 1992
• Docket Number: No. 285,285
• Citation: 616 A.2d 426,94 Md.App. 129
• Parties: FAW, CASSON & CO., et al. v. K. Thomas EVERNGAM, Jr. ,
• Court: Court of Special Appeals of Maryland

Page 129

94 Md.App. 129

616 A.2d 426

FAW, CASSON & CO., et al. v. K. Thomas EVERNGAM, Jr.

No. 285, Sept. Term, 1992.

Court of Special Appeals of Maryland.

Nov. 30, 1992.

Certiorari Denied April 21, 1993.

Allen R. Snyder (Douglas A. Fellman, Hogan & Hartson, Washington, D.C., Sally D. Adkins and Adkins, Potts & Smethurst, Salisbury, on the brief), for appellants.

David F. Albright (Harry M. Rifkin and Semmes, Bowen & Semmes, on the brief), Baltimore, for appellee.

Argued before MOYLAN, BISHOP and BLOOM, JJ.

BISHOP, Judge.

Appellee/Cross-Appellant, K. Thomas Everngam ("Everngam") filed declarations (now referred to as complaints) in the Circuit Court for Talbot County against Appellants- /Cross-Appellees, Faw, Casson & Co. and its past and present partners (hereinafter collectively referred to as "FC"), alleging, inter alia, restraint of trade--statutory (Count One), restraint of trade--common law (Count Two), and breach of partnership agreement (Count Six). The trial court granted FC summary judgment as to Counts One and Two. The trial court then issued an order providing for the method by which damages under Count Six would be determined. Count Six was tried before a jury, after which judgment was entered in favor of Everngam. Counts Three, Four, Five, Seven and Eight are not relevant to this appeal.

Issues

FC's Appeal

I. Did the trial court err by ruling, as a matter of law, that the aggregate amount of Everngam's continued income participation payments would not be reduced to present value before being offset by Everngam's debt to FC?

II. Did the trial court err by allowing the jury to award prejudgment interest based upon FC's liability to Everngam, without instructing the jury to consider Everngam's liability to FC?

III. Did the trial court exclude evidence which should have been considered by the jury when considering whether pre-judgment interest should be awarded?

Everngam's Cross-Appeal

IV. Did FC's withholding of continued income participation payments after Everngam violated the noncompetition covenant of the partnership agreement constitute an unreasonable restraint of trade under Maryland common law and statutory law?

Facts

FC is a partnership engaged in the practice of public accounting. Everngam, a certified public accountant, became a FC partner in 1965 and continued as such until he resigned effective June 2, 1983. During Everngam's tenure, the partnership was governed by a series of written partnership agreements, including the 1980 Faw, Casson & Company Partnership Agreement ("the Agreement"). This controversy arose when Everngam withdrew from the partnership and, almost immediately thereafter, became a partner in a competitive public accounting firm. The issues concern the interpretation and application of Sections XVII and XXI of the Agreement.

Section XXI of the Agreement included the following noncompetition covenant:

Any partner withdrawing from the partnership voluntarily or involuntarily hereby covenants and agrees that he or she will not engage in the general practice of public accountancy or any of its allied branches, either individually or with any other person, firm or corporation, either directly or indirectly, at any place within a forty mile radius of any of our offices for a period of five years from the date of such withdrawal. If within these limits the partner engages in the general practice of public accountancy or any of its allied branches, ... he or she agrees to pay Faw, Casson & Co. or its successor, 100% of the prior year's fee for any clients that were Faw, Casson & Co.'s who engage the services of the withdrawing partner during the five year period. Any amounts due such partner under item XVII shall be forfeited by such partner. However, such forfeited vested amounts will be used to offset payments above. If there is a balance due Faw, Casson & Co. after offsetting of vested amounts, the partner's individual capital account will be used to offset the balance. Any remaining balance will be secured by a note to Faw, Casson & Co. from the partner payable over a three year period.

The Agreement's five year noncompetition period was judicially limited to three years in litigation that dealt with the same agreement in Holloway v. Faw, Casson & Co., 319 Md. 324, 351, 572 A.2d 510 (1990). In the case sub judice, the parties limited the duration of the noncompetition covenant to three years.

It was four days after his withdrawal from FC that Everngam became a partner of another accounting firm located in Easton, Maryland, the same city where Everngam had practiced as a FC partner. During the next three years, over 300 clients and accounts of FC became clients of Everngam. Consequently, Everngam became indebted to FC for 100% of the prior year's fees of those clients under Section XXI's "fee-equivalent" formula (the "fee-equivalent damages"). At trial, the jury determined that the clients had generated a gross income of $253,975.00 to FC during the twelve months preceding Everngam's withdrawal.

Section XVII of the Agreement provided for Continued Income Participation ("CIP") payments:

Equal monthly [CIP] payments shall be made, without interest thereon, to a terminated partner for a period of ten years following the effective date of any termination. The aggregate amount, subject to adjustments as provided elsewhere in this agreement, of such [CIP] payments shall be an amount equal to the terminated partner's allocable share of the "fees" of the firm.

It was stipulated by counsel that Everngam was entitled to $419,117 in CIP payments. Nevertheless, no CIP payments were made following Everngam's departure. It was FC's original position that Everngam's CIP payments had been forfeited pursuant to Section XXI. At some point during the ensuing litigation, apparently as late as July of 1985, FC changed its position. FC stated that Everngam would be entitled to receive CIP payments to the extent they exceed the amount he owes FC under Section XXI. Everngam and FC did not resolve their differences regarding the offset between Everngam's CIP entitlement and FC's fee-equivalent damages.

On December 6, 1983, Everngam filed a declaration against FC in the Circuit Court for Talbot County; he subsequently amended it on January 29, 1986. Referring to Section XXI's noncompetition covenant as applied to Everngam, Count One of the declaration alleged an unreasonable restraint of trade under the Maryland Antitrust Act, Md.Com.Law II Code Ann. § 11-204 (1990) and Count Two alleged an unreasonable restraint of trade under Maryland common law. Count Six of the Amended Declaration alleged FC failed to make payments due to Everngam under Section XVII of the Agreement. On December 3, 1985, the trial court granted FC's motion for summary judgment as to Counts One and Two, the counts alleging restraint of trade. On July 16, 1990, the trial court, in a letter to counsel, explained that damages under Count Six would be calculated:

by offsetting the total aggregate amount that [FC] owed [Everngam] in C.I.P. payments pursuant to Section XVII ... against the total aggregate amount that [Everngam] owed [FC] pursuant to Section XXI's "fee-equivalent" liquidated damages clause and then calculating pre-judgment interest on the resulting difference....

(Emphasis in original). On June 5, 1991, the trial court issued an order directing the use of this formula in computing damages. It determined, however, that the award of pre-judgment interest would be an issue left to the jury's discretion.

At the conclusion of the two-day jury trial, Everngam was awarded $255,970 in damages under Count Six, which amount included $90,828 in pre-judgment interest. Accordingly, the jury found that the CIP payments due Everngam exceeded Everngam's liability to FC under the fee-equivalent formula of Section XXI by $165,142 ($255,970 minus $90,828). This appeal followed.

I Computation of Damages--Count Six

Maryland follows the objective law of contracts. See State, Dep't of Economic and Community Dev. v Attman/Glazer P.B. Co., 323 Md. 592, 604, 594 A.2d 138 (1991); Aetna Casualty & Surety Co. v. Insurance Comm'r, 293 Md. 409, 420, 445 A.2d 14 (1982).

A court construing an agreement under this test must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contact intended it to mean, but what a reasonable person in the position of the parties would have thought it meant. Consequently, the clear and unambiguous language of an agreement will not give way to what the parties thought that the agreement meant or intended it to mean.

General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261, 492 A.2d 1306 (1985). "It is well settled that the construction of a written contract is ordinarily considered to be an issue of law for resolution by the trial judge." Board of Educ. v. Plymouth Rubber Co., 82 Md.App. 9, 26, 569 A.2d 1288, cert. denied, 320 Md. 505, 578 A.2d 778 (1990). However,

when there is a bona fide ambiguity in the contract's language or legitimate doubt as to its application under the circumstances[,] ... the contract [is] submitted to the trier of the fact for interpretation. Ambiguity arises if, to a reasonably prudent person, the language used is susceptible of more than one meaning and not when one of the parties disagrees as to the meaning of the subject language.

Id. (emphasis in original) (citations omitted). With these principles in mind, we now turn to the case sub judice.

In its July 16, 1990 letter to counsel, the trial court explained its reasons for adopting Everngam's suggested approach to calculating damages. [...