Kreter v. Healthstar Communications, Inc.

• Decision Date: 02 January 2007
• Docket Number: No. 1849, September Term, 2005.,1849, September Term, 2005.
• Parties: Linda B. KRETER v. HEALTHSTAR COMMUNICATIONS, INC.
• Court: Court of Special Appeals of Maryland

914 A.2d 168

172 Md. App. 243

Linda B. KRETER v. HEALTHSTAR COMMUNICATIONS, INC.

No. 1849, September Term, 2005.

Court of Special Appeals of Maryland.

January 2, 2007.

COPYRIGHT MATERIAL OMITTED

Joel A. Dewey, Baltimore (Cynthia Young, on brief, Annapolis), for appellant.

Rignal W. Baldwin (Jonathan P. Kagan, Brassel Baldwin Kagan & May, PA, on brief), Annapolis, for appellee.

Panel SALMON, ADKINS and WOODWARD, JJ.

ADKINS, J.

In this case, we examine the limits of the Maryland common law rule restraining courts from interpreting an indemnification agreement, even a broadly worded one, to cover negligence of the indemnitee, without explicit language unequivocally showing such intent. See Heat and Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 602, 578 A.2d 1202 (1990). We shall refer to this common law rule as the "Presumption Against Indemnification For Negligence," or simply, the "Presumption."

In connection with a stock sale and termination of an executive employment contract, Linda B. Kreter, appellant, entered into a written agreement to indemnify HealthSTAR Communications, Inc. (HealthSTAR), appellee, from all claims brought against HealthSTAR by her former husband. Relying on the Presumption, she argues that, because her agreement to indemnify HealthSTAR would not cover HealthSTAR's own negligence, that it obviously did not cover HealthSTAR's fraud. She asks us to review the Circuit Court for Anne Arundel County's declaratory judgment adverse to her position. Because we do not interpret the Presumption Against Indemnification For Negligence as broadly as does appellant, we affirm the circuit court's decision.

FACTS AND LEGAL PROCEEDINGS

Appellant, Linda B. Kreter, married Charles R. Kreter in 1978.¹ During their marriage, they founded two companies for the purpose of providing patient recruitment, enrollment, and other support services for pharmaceutical trials. The two companies also provided marketing service applications for the pharmaceutical industry. The first company, Pharmaceutical Research Consulting, Inc. ("PRC"), was founded on April 27, 1994. The second company, Pharmaceutical Research Plus("PRP"), was founded on November 15, 1995. When these two companies were formed, Linda Kreter owned 52% of the stock and Charles owned 48% of the stock. The stock ownership of these two companies was eventually adjusted so that Linda owned 55%, Charles owned 35% and other minority stockholders owned 10%.

Linda and Charles separated on March 1, 1999. On December 6, 1999, Charles was fired from his position as Chief Financial Officer of the companies. Linda remained the majority and controlling shareholder and the Chief Executive Officer of both companies.

In July 2000, Linda began negotiations with HealthSTAR regarding the purchase of all stock of PRP and PRC. On November 17, 2000, Charles was informed of the proposed sale to HealthSTAR. At shareholder meetings in December 2000, Linda presented identical letters of intent from HealthSTAR to purchase the stock of PRP and PRC, with one letter addressed to Charles and the other to Linda. The letters stated that the purchase price for each share of the stock would be identical for each shareholder. Then Linda, Charles and the minority shareholders agreed to sell 100% of the stock to HealthSTAR and signed letters of their intent to convey.

Under the conditions of this sale to HealthSTAR, Linda was required to continue as the president of PRP. Because of this condition, Linda and HealthSTAR were engaged in employment contract negotiations at the same time the stock purchase discussions were occurring.

Before closing on the sale of the stock, HealthSTAR agreed to pay Linda an additional $1 million of consideration. This arrangement was not disclosed to Charles. On June 18, 2001, HealthSTAR purchased 100 percent of the PRP and PRC stock. On July 24, 2001, Linda and Charles were divorced by Judgment of Absolute Divorce.

Even though the sale of stock was complete, the terms of Linda's employment contract with HealthSTAR remained unsettled. In support of her Memorandum in Opposition to HealthSTAR's Motion for Summary Judgment, Linda stated under oath that she "understood she had reached an agreement in principle with HealthSTAR on the terms of her contemplated employment, [but] that agreement had not been reduced to a satisfactory writing." She further stated that HealthSTAR insisted that she sign the signature pages of an employment agreement, when the terms of same were not completely set forth, or "the entire transaction would collapse."

After closing on the stock sale, Linda and HealthSTAR continued to disagree on the terms of her employment, and on May 14, 2002, Linda filed suit against HealthSTAR. That action was resolved with a settlement agreement, effective November 15, 2002, which memorialized the termination of Linda's business relationship with HealthSTAR. This settlement agreement contained an indemnification clause which provided:

11. Indemnification of HealthSTAR Parties for Charles Kreter claims

(a) Indemnification. [Linda] Kreter shall indemnify and hold the HealthSTAR parties harmless from and against any claim, loss, damage, judgment or expense (including but not limited to reasonable attorney's fees and costs)arising out of or related to claims by or on behalf of Charlie Kreter related to: (i) remuneration in cash or stock that was paid or payable to Kreter as a result of or under the Stock Purchase Agreement, the Employment Agreement or the Incentive Compensation Agreement; or (ii) the manner in which the June 2001 transaction between HealthSTAR and Kreter was structured including but not limited to any matters concerning or related to the incentive compensation payable to Kreter as referred to in the Employment Agreement or the Incentive Compensation Agreement or (iii) monies paid to Kreter by PRP or PRC prior to June 18, 2001, (collectively or separately the following are hereinafter referred to as the "Charlie Kreter claims").

(b) Defense of Charlie Kreter Claims. At HealthSTAR's election, Kreter shall defend the HealthSTAR parties from and against any of the Charlie Kreter Claims. If HealthSTAR elects for Kreter to defend the HealthSTAR Parties from and against the Charlie Kreter Claims, Kreter shall provide a defense to the HealthSTAR parties with counsel selected by Kreter, at her sole cost and expense. The HealthSTAR parties shall, at their sole cost and expense, have the right to defend their interests in any litigation or arbitration instituted by Charlie Kreter. If Kreter accepts the tender of the defense at HealthSTAR's request, the HealthSTAR parties shall have the right to have their counsel present as co-counsel in any such defense, at HealthSTAR's sole cost and expense.

On May 15, 2003, Charles filed suit against HealthSTAR, PRP, PRC, and Linda. His suit included allegations that Linda, PRP, and PRC wrongfully paid Linda a substantial bonus and director fees in December of 2000. He also claimed HealthSTAR and Linda defrauded him and conspired to defraud him in HealthSTAR's purchase of the PRP and PRC stock. Finally, Charles argued that Linda had breached the escrow agreement that PRP and PRC shareholders had made with HealthSTAR at the time of the sale. In an amendment, Charles added a shareholder's derivative action against Linda, PRP, and PRC regarding employee bonuses and director fee payments in 2000. He also added a claim that HealthSTAR had aided and abetted Linda in defrauding him.

When Charles served his original complaint, HealthSTAR asked Linda to provide a defense against all of his claims except the escrow claim, pursuant to the indemnification section in their settlement agreement. Linda engaged the firm of Brassel and Baldwin, P.A. to defend HealthSTAR, PRP, and PRC, and has paid all of that firm's charges, pursuant to the settlement agreement.

The Circuit Court for Anne Arundel County dismissed all of Charles' claims against Linda, PRP, and PRC. In granting Linda's motion to dismiss, the court determined that any fraud she committed was intrinsic to the divorce, and therefore his claims were barred by res judicata. As additional grounds for Linda's dismissal, the court found that Charles released his rights to Linda's property by signing the divorce agreement.

The only remaining claim in Charles's litigation was his allegation of fraud against HealthSTAR. On August 20, 2004, Linda sent HealthSTAR a letter reserving her right to contest her obligation to indemnify HealthSTAR, notwithstanding her continuing payment of Brassel and Baldwin P.A. HealthSTAR responded by claiming Linda could not assert such a reservation of rights. HealthSTAR also filed a complaint for declaratory judgment against Linda regarding her obligation to indemnify it for Charles' claim. HealthSTAR moved for summary judgment.

Linda filed a counter-complaint for declaratory judgment, stating she was not required to indemnify HealthSTAR in the Charles Kreter litigation, and she then filed a cross-motion for summary judgment on July 26, 2005. HealthSTAR filed an answer and moved for summary judgment on the counter-complaint.

The circuit court issued an oral opinion and verdict from the bench in the underlying Charles Kreter litigation on April 21, 2005. It found the $1,000,000 signing bonus was consideration for Linda's decision to move forward with the sale. Also, the circuit court found that Linda deliberately induced Charles to go forward with the settlement agreement in the divorce and the corporate sale simultaneously, to prevent Charles from having access to any assets she acquired in the sales transaction. Additionally, it found that Linda told HealthSTAR about the divorce litigation, and that HealthSTAR agreed with her to conceal from Charles any information about the $1,000,000 signing bonus. The court concluded it "would be fair, reasonable and appropriate compensation to award Mr. Kreter 35 percent of...