Weichert Co. of Md. Inc. v. Dorothy Crago Faust.

• Decision Date: 27 April 2011
• Docket Number: 2010.,Sept. Term,No. 43,43
• Citation: 19 A.3d 393,419 Md. 306,32 IER Cases 808
• Parties: WEICHERT CO. OF MARYLAND, INC.v.Dorothy Crago FAUST.
• Court: Maryland Court of Appeals

419 Md. 306

19 A.3d 393

32 IER Cases 808

WEICHERT CO. OF MARYLAND, INC.

v.Dorothy Crago FAUST.

No. 43

Sept. Term

2010.

Court of Appeals of Maryland.

April 27, 2011.

Sharon P. Margello (Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Morristown, NJ; John B. Flood of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Washington, D.C.), on brief, for petitioner.Stewart S. Manela (Randall A. Brater and Leah C. Montesano of Arent Fox LLP, Washington, D.C.), on brief, for respondent.Argued before BELL, C.J., HARRELL, BATTAGLIA, GREENE, MURPHY, ADKINS and BARBARA, JJ.

GREENE, J.

In this case, Petitioner, Weichert Co. of Maryland, Inc. (“Weichert”), instituted a breach of contract claim against its former employee, Respondent, Dorothy Crago Faust (“Faust”). Weichert claimed that Faust violated the terms of her employment agreement by breaching the duty of loyalty, and by breaching a non-solicitation clause which was included in the contract. Under the terms of the contract, if Weichert brought a claim under the non-solicitation clause, and did not succeed on that claim, Faust would be entitled to recover attorney's fees incurred in defending against the claim. A jury determined that Faust breached the duty of loyalty, but did not violate the non-solicitation clause. After the trial, Faust petitioned for attorney's fees under the terms of the non-solicitation clause. Faust was awarded attorney's fees by the Circuit Court, and the Court of Special Appeals affirmed. We shall affirm the intermediate appellate court and hold that Faust's breach of the duty of loyalty did not result in a forfeiture of her rights under the non-solicitation clause, and thus Faust was entitled to recover attorney's fees.

FACTS AND PROCEDURE

Faust served as Vice President and Manager of Weichert's Bethesda, Maryland, Real Estate Sales Office. At the start of her employment, Faust and Weichert executed a contract entitled the Manager's Employment Agreement (“Agreement”), which detailed Faust's duties as manager as well as the obligations of the parties following the conclusion of her employment. Paragraph 22 of the Agreement consisted of a non-solicitation clause, which stated “that during the period of one year from the date of termination,” Faust could not, “directly or indirectly, in any capacity, solicit for employment with any other company, any persons receiving compensation of any type from [Weichert].” Paragraph 22 consisted of an introduction and eight subsections. Subsection H of the non-solicitation clause contained a mutual fee shifting provision, which provided that:

If COMPANY brings any action(s) (including an action seeking injunctive relief) to enforce its rights hereunder and a judgment is entered in the COMPANY'S favor, then MANAGER shall reimburse COMPANY for the amount of the COMPANY'S attorney fees incurred in pursuing and obtaining judgment. If MANAGER prevails in such a suit, then COMPANY shall reimburse MANAGER for the amount of MANAGER's fees incurred in the same.

This appeal concerns the trial court's award of attorney's fees to Faust as the prevailing party under the quoted provision.

Faust managed Weichert's Bethesda office from May 1994 until February 2003. Two weeks after Faust ended her employment with Weichert, she joined Long & Foster Real Estate, Inc. (“Long & Foster”). On May 20, 2005, Weichert filed a Complaint against Faust and Long & Foster in the Circuit Court for Montgomery County, asserting multiple claims. Relevant to this appeal, Weichert claimed that Faust breached the duty of loyalty owed to Weichert and that Faust breached the non-solicitation clause of the Agreement. Specifically, Weichert alleged that Faust recruited Weichert's sales agents and employees to work for Long & Foster. Faust filed a counterclaim, alleging that Weichert withheld her bonus in violation of the Maryland Wage Payment and Collection Law, Md.Code Ann., Labor and Employment, § 3–501–3–509 (“MWPL”). The Circuit Court granted Faust's motion for summary judgment on her counterclaim. After determining that Weichert violated the MWPL, and that Faust was entitled to a bonus under the contract, the court reserved the issue of damages for determination by the jury.

Following a trial on the merits as to other contract claims, the jury returned its verdict that Faust breached the duty of loyalty owed to Weichert, and awarded damages to Weichert in the amount of $250,000. The jury also found, however, that Faust did not breach the non-solicitation clause. As to Faust's counter-claim, the jury awarded Faust $116,000 as liquidated damages for Weichert's violation of the MWPL.

After the trial, both parties filed petitions for costs and attorney's fees. The court held an evidentiary hearing and found that Faust was entitled to attorney's fees pursuant to the fee shifting provision in Paragraph 22, subsection H of the Agreement, and that Weichert was not so entitled. Faust was awarded $946,014.50 in attorney's fees. Subsequently, Weichert filed a timely appeal to the Court of Special Appeals. That court affirmed the judgment of the Circuit Court, holding that because Faust prevailed under the terms of the fee shifting provision, the award of attorney's fees was proper. Weichert Co. of Maryland, Inc. v. Faust, 191 Md.App. 1, 10, 989 A.2d 1227, 1232 (2010).

In the Court of Special Appeals, Weichert asserted that Faust was not entitled to recover under the terms of the fee shifting provision because Weichert prevailed on its claim that Faust breached the duty of loyalty. Weichert, 191 Md.App. at 7, 989 A.2d at 1230. Weichert also argued that Faust did not personally “incur” any attorney's fees and was therefore not entitled to recover them, i.e., Long & Foster paid counsel to represent Faust. Weichert, 191 Md.App. at 10–11, 989 A.2d at 1232. Weichert based this claim on the grounds that Long & Foster indemnified Faust for all her litigation costs and there was no indication that she was required to repay those costs. Finally, Weichert argued that Faust's breach of the duty of loyalty was material and therefore, according to Weichert, its performance under the fee shifting provision should be excused. Weichert, 191 Md.App. at 13, 989 A.2d at 1234.

The Court of Special Appeals held that Faust's “breach of the duty of loyalty did not forfeit her contractual right to attorney's fees and costs.” Weichert, 191 Md.App. at 14, 989 A.2d at 1234. The court explained that the term “hereunder” in the fee shifting provision referred only to action taken under the non-solicitation clause, and thus Faust's breach of the duty of loyalty was irrelevant to the awarding of attorney's fees. Id. (stating that the “Agreement limits fee shifting to breaches of Paragraph 22, which addresses only non-solicitation.”). Regarding Weichert's claim that Faust did not personally incur the fees, the court stated that Weichert “ignores a crucial aspect of the wording: the Fee Provision refers to Weichert's or Faust's ‘fees incurred,’ but it does not specify by whom they must be incurred.” Weichert, 191 Md.App. at 11, 989 A.2d at 1232. The court then held that Faust was entitled to the award of attorney's fees because the fees were incurred on her behalf, regardless of who actually paid the costs. Weichert, 191 Md.App. at 12–13, 989 A.2d at 1233. The court also held that Weichert was not excused from performing under the fee shifting provision based on Faust's breach, stating that the “Fee Provision appears to contemplate—and Weichert's petition for fees confirms—that the court could award opposite and simultaneous fee awards, predicated on mutual breach of contract.” Weichert, 191 Md.App. at 14, 989 A.2d at 1234.

We granted Weichert's Petition for a Writ of Certiorari, Weichert v. Faust, 415 Md. 38, 997 A.2d 789 (2010), which presented the following issues for our review:

1. May an employee who breaches her duty of loyalty seek to enforce certain of the provisions of the contract which she breached? ¹

2. Can a party recover attorney's fees pursuant to a contract provision that provides reimbursement of fees incurred when a third party retained and paid counsel and the party did not pay attorneys fees, nor have any obligation to pay attorneys fees?We shall affirm the judgment of the Court of Special Appeals and hold that Faust is entitled to the attorney's fees award under the terms of the non-solicitation clause of the Agreement.

DISCUSSION

In Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 405 Md. 435, 952 A.2d 275 (2008), we discussed the proper standard for reviewing a contractual provision regarding attorney's fees. We stated:

Contract clauses that provide for the award of attorney's fees generally are valid and enforceable in Maryland, subject to a trial court's examination of the prevailing party's fee request for reasonableness. The interpretation of a written contract is a question of law for the court subject to de novo review. Maryland applies an objective interpretation of contracts. If a contract is unambiguous, the court must give effect to its plain meaning and not contemplate what the parties may have subjectively intended by certain terms at the time of formation. A contract is ambiguous if, when read by a reasonably prudent person, it is susceptible of more than one meaning. In interpreting a contract provision, we look to the entire language of the agreement, not merely a portion thereof. When interpreting a contract's terms, we consider the customary, ordinary and accepted meaning of the language used.

Nova Research, 405 Md. at 447–48, 952 A.2d at 283 (internal citations omitted). The interpretation of a contract is therefore ordinarily a question of law, subject to de novo review.²

Id.

A

We address first whether Faust's breach of the duty of loyalty resulted in a forfeiture of her rights under the contract. Even if the breach of the duty of loyalty was not material, Weichert argues that by engaging in “egregious” behavior, ...