Spacesaver Sys., Inc. v. Adam

• Decision Date: 27 June 2013
• Docket Number: No. 1797,Sept. Term, 2011.,1797
• Parties: SPACESAVER SYSTEMS, INC. v. Carla ADAM.
• Court: Court of Special Appeals of Maryland

212 Md.App. 422

69 A.3d 494

SPACESAVER SYSTEMS, INC.

v.Carla ADAM.

No. 1797, Sept. Term, 2011.

Court of Special Appeals of Maryland.

June 27, 2013.

Meredith S. Campbell (Fred S. Sommer, Stacey L. Schwaber, Shulman, Rogers, Gandal, Pordy & Ecker, PA, Potomac, MD, Thomas D. Murphy, James A. Mood, Jr., Peter A. Bodner, Murphy and Mood, PC, Rockville, MD), on the briefs, for Appellant.

Brian E. Frosh (Karp, Frosh, Wigodsky & Norwind, PA, on the brief), Bethesda, MD, for Appellee.

Panel: DEBORAH S. EYLER, WRIGHT, JAMES A. KENNEY III, (Retired, Specially Assigned), JJ.

KENNEY, J.

Spacesaver Systems, Inc., appellant, appeals the judgment of the Circuit Court for Montgomery County entered in favor of Carla Adam, appellee, in the amount of $255,868.20. Spacesaver presents four questions for our review,¹ which we have consolidated, rephrased and renumbered as follows:

1. Did the trial court err in finding that the Employment Agreement was not an at-will contract, but rather a for-cause lifetime contract?

2. Did the trial court err in awarding damages where compensation, in the form of either salary or commissions, was not set in the Employment Agreement?

For the reasons that follow, we hold that the Employment Agreement is neither an at-will contract nor a contract for lifetime employment, and that Adam, under the circumstances of the case, could only be terminated for-cause. We shall affirm the award of damages.

FACTUAL AND PROCEDURAL BACKGROUND

Nineteenth century Russian literary critic Ivan Kireevsky chided that, “[i]n the West, brothers make contracts with brothers.” Harold J. Berman, The Weightier Matters of the Law, in Solzhenitsyn at Harvard (Ronald Berman ed., Ethics and Public Policy Center 1980). In this case, siblings and half-siblings saw the need to contract with each other, and the result was, in the words of the trial court, “a family fractured by business problems.” This Court is called upon to sort out the essential nature of those contracts, with Spacesaver arguing that Adam's employment contract was at-will, and Adam contending that it was a “lifetime contract” terminable only for-cause.

To be sure, lifetime employment contracts are like exotic, rare birds that have been identified and described in their occasional flights into Maryland, although they have rarely nested in our appellate jurisprudence. Their somewhat illusory nature was expressed by former University of Iowa football coach Hayden Fry when he said: “I thought I had a lifetime contract. Then I found out the other day that if I have a losing season, they're going to declare me legally dead.” Ray Yasser, A Comprehensive Blueprint for the Reform Of Intercollegiate Athletics, 3 Marq. Sports L.J. 123, 148 (1993).

The background facts are not in dispute. Spacesaver is a Washington, D.C. corporation with 53 full or part-time employees. Its corporate office is in Kensington, Maryland. Spacesaver sells and installs tracked shelving and storage systems for business and governmental organizations with large storage needs. It was formed by Jack and Alice Schmidt in 1973. A Voting Trust Agreement gives each of the Schmidts' three children, Carla Adam, Amy Hamilton and David Craig,² a 1/3 capital stock interest in the company. ³ Erik Kloster, a business advisor to Spacesaver, was the original trustee. He appointed Adam, Hamilton, and Craig as additional trustees. ⁴ In 1995, all three of the Schmidts' childrenwere employed by Spacesaverin executive capacities and served on its board of directors.⁵

Controversies among them led to the 2006 drafting of identical (except for name and title) “Executive Employment Agreements” for each of the Schmidts' three children, along with a “Stock Purchase Agreement.” These documents were drafted by Albert Ellentuck, Spacesaver's corporate attorney.⁶

At issue in this case is Adam's Employment Agreement, which she signed as the “Employee” and which Craig signed as the “President” on behalf of Spacesaver. It includes the following provisions:

• Section 2.1 (“Compensation and Benefits: Base Salary”):

Employee shall be paid an annual base salary in an amount specified on Exhibit A attached hereto and made a part hereof.... ⁷ Any increases or decreases in Employee's Base Salary for years beyond the first year of Employee's employment shall be reflected on an amended Exhibit A, and shall be in the sole discretion of Company management, and nothing herein shall be deemed to require any such change.

• Section 3 (“Duties and Performance”):

The Employee acknowledges and agrees that she is being offered a position of employment by the Company with the understanding that the Employee possesses a unique set of skills, abilities, and experiences which will benefit the Company, and she agrees that her continued employment with the Company, whether during the term of this Employment Agreement or thereafter,is contingent upon her successful performance of her duties as noted above, or in such other position to which she may be assigned.

• Section 3.2 (“Specific Duties”):

The employee shall have the title of Managing Director, and shall have the following duties:

1) Create and manage a well balanced executive management team to ensure long term success and provide the ability for planning, organizing, control and leadership. Head towards setting company up for a transitional role of active management.

2) Contribute to company profitability through sales.

3) Ensure company profitability through accurate and effective management of Administration. Includ[ing] the training and development of staff, project planning, management, communication of status, and all other aspects.

4) Manage employee job performance and compliance of all company policies and procedures. Coach supervisors in the performance management process.

5) Provide active oversight, management and direction for sales, sales management and financial administration of the company.

6) Foster an environment of team orientation and individual ownership by establishing constructive relationships between employees. Inspire [ ] teamwork between employees, provides effective management, exhibit [ ] personal responsibility for team goals and attend[ ] bi-weekly management team meeting.

7) And all other duties as decided by the board of directors.

• Section 4 (“Termination of Employment”):

Employee's employment with the Company may be terminated, prior to the expiration of the term of this Employment Agreement[,] in accordance with any of the following provisions:

[212 Md.App. 430]4.1 Termination by Employee. The employee may terminate her employment at any time during the course of this agreement by giving three (3) months notice in writing to the President of Company....

4.2 Termination by the Company For Cause. The Company may, at any time and without notice, terminate the Employee for “cause.” Termination by the Company of the Employee for “cause” shall include but not be limited to termination based on any of the following grounds: (a) insubordination or refusal to perform duties of employee's position as directed by the President of Company and affirmed by a majority of the Directors; (b) fraud, misappropriation, embezzlement or acts of similar dishonesty; (c) conviction of a felony involving moral turpitude; (d) illegal use of drugs or excessive use of alcohol in the workplace; (e) intentional and willful misconduct that may subject the Company to criminal or civil liability; (f) breach of the Employee's duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company; (g) willful disregard of Company policies and procedures; (h) material breach of any of the terms herein; and (i) material nonperformance or negligence in Employee's performance of her duties.

4.3 Termination by Death or Disability. The Employee's employment and rights to compensation under this Employment Agreement shall terminate if the Employee is unable to perform the duties of her position due to death, or disability as defined above....

• Section 6 of the Employment Agreement includes non-compete and non-solicitations clauses during and for two years after employment with Spacesaver.

• And, section 8.2 (“General Provisions: Amendments and Termination: Entire Agreement”): “[t]his Agreement may not be amended or terminated except by a writing executed by all of the parties hereto.”

Article 4 (“Option to Purchase Shares”) of the Stock Purchase Agreement states:

In the event any of the Shareholders has committed any Prohibited Act (as defined below) in relation to the Company (“Designated Shareholder”), the other Shareholders may elect to purchase all or a portion of the shares of the Designated Shareholder.... A prohibited Act is defined for these purposes as one or more of the following: (1) fraud, misappropriation, embezzlement or acts of similar dishonesty; (2) conviction of a felony involving moral turpitude; (3) illegal use of drugs or excessive use of alcohol in the workplace; (4) intentional and willful misconduct that may subject the Company to criminal or civil liability; (5) breach of duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company, (6) willful disregard of Company policies and procedures; (7) material breach of any of the terms herein, and (8) termination for whatever reason of said Shareholder's employment with the Corporation.⁸

The Stock Purchase Agreement also includes provisions for the sale of stock upon the death or disability of a shareholder.

Craig resigned as President of Spacesaver and as a director on January 19, 2007. On March 28, 2008, he sold half of his Spacesaver stock to Adam, and the other half to Hamilton.⁹In February 2009, the board elected Hamilton as President and Chief Executive Officer of Spacesaver, and Adam as Secretary and Treasurer. Adam's Employment Agreement also lists her title as Managing Director of Spacesaver—reporting to the...