Storetrax v. Gurland

• Decision Date: 31 March 2006
• Docket Number: No. 418 September Term, 2004.,No. 1047 September Term, 2004.,418 September Term, 2004.,1047 September Term, 2004.
• Citation: 168 Md. App. 50,895 A.2d 355
• Parties: STORETRAX.COM, INC. v. Joshua GURLAND.
• Court: Court of Special Appeals of Maryland

895 A.2d 355

168 Md. App. 50

STORETRAX.COM, INC. v. Joshua GURLAND.

No. 418 September Term, 2004.

No. 1047 September Term, 2004.

Court of Special Appeals of Maryland.

March 31, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Ronald L. Early (Lerch, Early & Brewer, Chartered, on the brief), Bethesda, for Appellant.

Thomas D. Murphy (James A. Mood, Jr., on the brief), Rockville, for Appellee.

Panel: KENNEY, DEBORAH S. EYLER and RAYMOND G. THIEME, (Ret'd, specially assigned), JJ.

KENNEY, Judge.

Two appeals, No. 418, September Term 2004, and No. 1047 September Term 2004, involve the same parties and arose from the same dispute between Joshua Gurland ("Gurland") and Storetrax.com, Inc. ("Storetrax"). The appeals were argued at the same time. Because the facts and issues are interrelated, we have addressed both appeals in a single opinion to be filed in each case. In case number 1047 ("Case I"), Storetrax appeals the judgment of the Circuit Court for Montgomery County, granting Gurland's motion for partial summary judgment. Storetrax poses one question, which we have slightly reworded:

Did the circuit court err in granting Gurland's motion for partial summary judgment because genuine disputes of material fact exist as to whether Gurland materially breached the terms the employment agreement?

We answer that question in the affirmative and shall reverse the judgment of the circuit court.

In case number 418 ("Case II"), Storetrax appeals the judgment of the Circuit Court for Montgomery County, finding that Gurland had not breached his fiduciary duties to the corporation. Storetrax poses three questions for our review, which we have reworded as follows:

A. Did the circuit court commit reversible error in applying the substantive law of Maryland to Storetrax's breach of fiduciary duty claim, rather than the substantive law of the state of incorporation, Delaware?

B. Did the circuit court err in finding that Gurland did not breach his fiduciary duties to the corporation?

C. Did the circuit court err in denying Storetrax the opportunity to cross-examine Gurland regarding a statement he had made to another member of Storetrax's board of directors?

For the following reasons, we answer each of these questions in the negative and shall affirm the circuit court.

FACTUAL AND PROCEDURAL HISTORY

In 1997, Joshua Gurland conceived of the idea for an Internet based computer database containing commercial property listings. In January 1998, he incorporated Storetrax.com, originally a Maryland corporation, for that purpose. Gurland operated Storetrax as its sole employee until 1999.

Desiring to grow the corporation, in 1999, Gurland began discussing with potential investors the idea of issuing stock to raise capital. Storetrax was reincorporated in Delaware, and on October 25, 1999, Storetrax, through Gurland as its president and CEO, entered into a stock purchase agreement with several investors. The stock purchase agreement provided for an Employment Agreement ("the Agreement") between Gurland and Storetrax, which was also executed on October 25, 1999.

The Agreement contained the following relevant provisions:

1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to work for the Company, subject to the terms and conditions below, for a term of one (1) year, beginning on the date first written above and ending on the first anniversary of such date (the "Initial Term"). At the end of the Initial Term, this Agreement shall automatically renew for successive one (1) year periods unless either party hereto shall notify the other in writing not less than (90) days prior to the expiration of the Initial Term or any renewal term....

2. Compensation; Benefits. Subject to the terms and conditions of this Agreement the Company shall pay to the Employee a base salary as set forth on Schedule A (as the same may be increased from time to time, the "Base Salary"), attached hereto and made a part hereof, payable in accordance with the Company's regular payroll policies.... On at least an annual basis, the Company shall review the Employee's performance and may make increases to the Base Salary if the Executive Committee of the Company's Board of Directors determines that any such increase is warranted....

4. Title; Duties. The Employee shall initially be employed as President and Chief Executive Officer of the Company. The Employee shall diligently, conscientiously and exclusively devote his full time and attention and his best efforts to discharge the duties assigned to him by the Company.... The Employee acknowledges that his title and duties may change in the event that a prospective substantial investor in the Company specifically requires such a change as a condition to investment in the Company.

6. Termination by the Company.

(a) The Company shall have the right to terminate this Agreement, with or without Cause (as defined below), at any time during the term of this Agreement by giving written notice to the Employee. The termination shall become effective on the date specified in the notice, which termination date shall not be a date prior to the date ten (10) days following the date of the notice of termination itself. In the event that this Agreement is terminated by the Company for Cause (as defined below), 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 a 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.

(b) For purposes of this Section 6, "Cause" shall mean (i) a material continuing breach by the Employee of any covenant or condition hereunder or a material failure of performance by the Employee under this Agreement following written notice to Employee of such material continuing breach or material failure and failure by the Employee to cure the same within thirty (30) days of such notice; (ii) conviction of, or plea of nolo contendere by, the Employee of any federal, state or local felony; (iii) material violation by the Employee of the Company's policies as set forth in the Company's personnel handbook, if one has been adopted, or announced by Company management from time to time; (iv) the performance by the Employee of any material act or omission demonstrating an intentional or reckless disregard of the interests of the Company; (v) misappropriation or attempted misappropriation of a material business opportunity of the Company for the benefit of the Employee; or (vi) repeated and deliberate failure to follow the direction of the Company's Board of Directors of lawful instructions or actions.

15. Notices. Any notice expressly provided for under this Agreement shall be in writing, shall be given either manually or by mail and shall be deemed sufficiently given when actually received by the party to be notified or when mailed, if mailed by certified or registered mail, postage prepaid, addressed to such party, at their addresses as set forth below....

16. Governing Law. This Agreement shall be executed, construed and performed in accordance with the laws of the State of Maryland without reference to conflict of laws principles. The parties agree that the venue for any dispute hereunder will be the state or federal courts sitting in Maryland and the parties hereby agree to the exclusive jurisdiction thereof.

18. Entire Agreement; Amendments. This Agreement constitutes and embodies the entire agreement between the parties in connection with the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings in connection with such subject matter. No covenant or condition not expressed in this Agreement shall affect or be effective to interpret, change or restrict this Agreement. In the event of a conflict or inconsistency between the terms of this Agreement and the Company's policies regarding employees, the terms of this Agreement shall supersede the conflicting or inconsistent Company policies. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding unless in writing signed by the Employee and on behalf of the Company by an officer thereunto duly authorized by the Company's Board of Directors (or its compensation committee, if one exists). No modification, waiver, termination, rescission, discharge or cancellation of this Agreement shall affect the right of any party to enforce any other provision or to exercise any right or remedy in the event of any other default.

Schedule A to the Agreement set Gurland's initial salary at $135,000.

Following execution of the Agreement, Gurland, in addition to serving as the corporation's President and CEO, served as a director on Storetrax's five member Board of Directors ("the Board"). In January 1999, one of the investors and co-chairman of the Board, Robert Rosenfeld, expressed interest in working for Storetrax on a full time basis and becoming Storetrax's CEO. Gurland agreed to relinquish that title and serve solely as the corporation's president.

In November 2000, after several of the company's directors and officers requested an increase in compensation, a panel of four of the corporation's vice presidents were entrusted to settle the salary requests and set a compensation schedule. Pursuant to that schedule, Gurland's salary was decreased to $115,000, but he was provided the potential of earning an additional $50,000 worth of stock options.

In early 2001,...