Storetrax.Com v. Gurland

• Decision Date: 06 February 2007
• Docket Number: No. 40, September Term, 2006.,40, September Term, 2006.
• Citation: 915 A.2d 991,397 Md. 37
• Parties: STORETRAX.COM, INC. v. Joshua GURLAND.
• Court: Court of Special Appeals of Maryland

915 A.2d 991

397 Md. 37

STORETRAX.COM, INC. v. Joshua GURLAND.

No. 40, September Term, 2006.

Court of Appeals of Maryland.

February 6, 2007.

Ronald L. Early (Jennifer S. Thomas of Lerch, Early & Brewer, Chartered of Bethesda, on brief), for petitioner.

Thomas D. Murphy (James A. Mood, Jr. of Murphy & Mood, P.C. of Rockville), on brief, for respondent.

BELL, C.J., RAKER,^* WILNER, CATHELL, HARRELL, BATTAGLIA, and GREENE, JJ.

HARRELL, J.

This case considers whether a member of a corporation's board of directors breached his fiduciary duty owed to the corporation when he, removed as an employee of the corporation, filed suit against the corporation in order to enforce severance pay provisions of his employment agreement, pursued summary judgment by default after the corporation failed to file a timely answer, and sought to enforce his money judgment, over the corporation's opposition, by attaching the bank account of the corporation. The Circuit Court for Montgomery County held that the board member did not breach his fiduciary duty. The Court of Special Appeals affirmed. We also shall affirm.

I. Background

Petitioner, Storetrax.com, Inc. ("Storetrax"), is a Delaware corporation with its principal place of business in Rockville, Maryland. Storetrax operates an internet-based commercial real estate listing service marketed principally to lessors of retail rental space. The business was founded originally in 1997 by Respondent, Joshua A. Gurland ("Gurland"), and incorporated in January 1998. On 25 October 1999, Respondent entered into a written agreement with a group of investors who acquired a majority interest in Storetrax's shares. Gurland remained a member of the board and, in conjunction with the stock sale, executed an employment agreement with Storetrax whereby he was named president and chief executive officer of the corporation.¹

The terms of the employment agreement provided for successive one-year terms, renewed automatically unless either party notified the other in writing "not less than ninety (90) days prior to the expiration of the Initial Term or any renewal term." Storetrax further could terminate the agreement at any time, with or without cause, upon ten days written notice. The termination clause provided the following language:

In the event that this Agreement is terminated by [Storetrax] for Cause . . . , the Company shall pay the Employee the Base Salary due him under this Agreement (plus all accrued and unpaid benefits and reimbursable expenses) through the day on which such termination is effective, in accordance with the Company's normal payroll practices. In the event that the Employee is terminated without Cause, the Company shall, subject to the provisions of this Agreement and in lieu of any other payment, pay to the Employee compensation equal to twelve (12) months of the Employee's Base Salary as of the date of termination (plus any earned bonuses and all accrued and unpaid benefits and reimbursable expenses), payable in accordance with normal payroll practices.

Gurland's employment was terminated by the corporation on 15 November 2001. Respondent continued to serve on the board of directors, however, until he resigned from that position on 5 December 2002.

A dispute arose between the parties whether Gurland was entitled to the twelve months severance payment provided for by the termination provision of the employment agreement. Gurland drafted and delivered on 11 December 2001 a letter addressed to Storetrax and its board of directors outlining what he perceived to be his entitlement to severance payment. He stated:

I regret that we have come to this point, and sincerely hope that we can resolve the severance issue amicably and in a timely fashion. However, I have consulted an attorney and will not hesitate to avail myself of every possible remedy in the event of dispute. If the issue remains unresolved as of [21 December 2001] I will instruct my attorney to proceed.

On 20 December 2001, counsel for Storetrax responded in a letter which communicated the board of directors' view that Respondent was not entitled to severance payment. Specifically, the letter took the position that, because of the frequent changes in Respondent's job title and related downward adjustments in his salary, the employment agreement was no longer in effect. Alternatively, the letter explained that, even if the agreement remained valid, "cause" existed for the termination.² The letter concluded

[t]here is still an opportunity to part on amicable terms, provided that you withdraw your demand for severance. If you desire to litigate this issue, the Company is prepared to defend itself, as well as to assert any counterclaims it may have against you for breach of your fiduciary duties as an executive and Director of the Company.

The senior management of Storetrax and the Board of Directors (excepting yourself) have each reviewed this letter and the facts surrounding your demand for severance. Everyone concurs with the Company's refusal to consider any severance package.

In January 2002, a member of Storetrax's board attempted to settle the severance pay dispute. The board of directors communicated to Respondent a settlement offer. Respondent assured the board that he would consider the offer. There was no further correspondence between the parties.

Gurland filed in the Circuit Court for Montgomery County on 31 January 2002 a complaint against Storetrax alleging breach of contract and seeking $150,000.00 in severance pay under the termination provisions of the employment agreement. He joined with the complaint a motion for summary judgment. Subsequent to filing the complaint, Respondent visited Petitioner's office on two occasions, but did not inform anyone there of the pendency of the suit.

Pursuant to Maryland Rule 2-124(d), service of process was made upon Storetrax's resident agent on 1 February 2002. Despite proper service of the summons, complaint, and motion for summary judgment, the resident agent failed to deliver to the corporation the documents.³ As a result, Storetrax failed to file a timely answer to the complaint, or a timely response to the summary judgment motion. The Circuit Court granted, by way of default, Respondent's motion for summary judgment on 8 March 2002, entering against Petitioner a judgment in the amount of $150,000. Respondent, in an effort to enforce the money judgment entered in his favor, petitioned ten days later for a writ of garnishment attaching Storetrax's bank account.⁴ The Circuit Court issued the writ on 19 March 2002.

Petitioner had no actual notice of the suit until it received on 19 March 2002 notice of the attachment on its bank account. The following day, Storetrax's bank garnished the corporation's account in the amount of the judgment. Counsel for Storetrax wrote a letter to Gurland on 21 March 2002 requesting that he agree "(1) to voluntarily set aside [the] default, and (2) to withdraw the garnishment of the Company's bank account," thus enabling the corporation to answer the suit and have its day in court. Respondent refused. Petitioner filed on 3 April 2002, pursuant to Maryland Rule 2-535, a motion to set aside the summary judgment entered by default. Storetrax also filed a motion to quash the writ of attachment. The trial court denied both motions, and Storetrax noted an appeal to the Court of Special Appeals. The intermediate appellate court, in an unreported opinion, reversed the judgment, holding that it was an abuse of discretion for the Circuit Court to deny Storetrax's motion to set aside the summary judgment. The case was remanded to the Circuit Court for further proceedings. On the eve of trial, Gurland moved for partial summary judgment as to whether Storetrax had terminated him for cause. The trial court granted this motion. The case proceeded to trial to determine the remaining issues. A jury returned a verdict in favor of Gurland in the amount of $150,000.

While Storetrax's appeal was pending from the judgment in Gurland's favor in the breach of contract action, Storetrax filed suit against Gurland in the Circuit Court on 8 November 2002, alleging primarily that Gurland, by pursuing his claim to judgment, breached the fiduciary duty that he owed to the corporation by virtue of his membership on the board of directors. Petitioner asserted that "[a]s a director, Gurland owed fiduciary duties of due care, loyalty, and good faith to Storetrax." Specifically, Petitioner alleged that Respondent breached this duty despite knowing that Storetrax was insolvent at the time of the lawsuit⁵ and vehemently opposed and had a viable defense to the breach of contract claim. Moreover, Gurland: (1) never advised the corporation of the existence of his lawsuit in spite of several visits to the corporation's offices subsequent to the filing of his complaint; (2) concealed the existence of the lawsuit in order to obtain garnishment, which was aimed at disrupting the corporation's daily operations; (3) obtained summary judgment by default despite knowing that the corporation opposed his breach of contract claims; (4) attached Storetrax's bank account in the amount of the judgment; and (5) opposed all attempts to have the judgment and garnishment set aside, notwithstanding express requests from Storetrax's senior management that he acquiesce. The breach of fiduciary duty claim was tried at a bench trial in March 2004. The trial court found in favor of Gurland.

Petitioner appealed the trial court's judgment in the breach of fiduciary duty case also. The Court of Special Appeals consolidated the two appeals for oral argument. The intermediate appellate court issued on 31 March 2006 a reported opinion reversing the Circuit Court's grant of partial summary judgment in the contract case on the basis that there was a triable question whether Gurland was dismissed "with cause." See generally Storetrax.com, Inc. v. Gurland, 168 Md.App. 50, 67-77, 895...