Willard v. Javier
| Decision Date | 01 June 2006 |
| Docket Number | No. 2097, September Term, 2004.,2097, September Term, 2004. |
| Citation | 169 Md. App. 109,899 A.2d 940 |
| Parties | WILLARD PACKAGING COMPANY, INC. v. Demetrio I. JAVIER. |
| Court | Court of Special Appeals of Maryland |
Philip R. Murray, Wheaton, for appellant.
William M. Krulak, Jr. (Rachel T. McGuckian, Miles & Stockbridge, on brief), Baltimore, for appellee.
Panel SALMON, SHARER, and CHARLES E. MOYLAN, JR., (Retired, Specially Assigned) JJ.
Appellant, Willard Packaging Company ("Willard"), and appellee, Demetrio Javier, formerly enjoyed an amicable employer-employee relationship. After Javier left Willard's employment, Willard filed a breach of contract action in the Circuit Court for Montgomery County seeking to recover liquidated damages based upon the terms of an employment contract.
After a bench trial, the circuit court awarded appellant nominal damages of one dollar, rejecting appellant's argument that it was entitled to liquidated damages of $50,000 pursuant to the terms of an employment contract. Disaffected with its Pyrrhic victory, appellant has noted this appeal, raising a single issue:1
Whether the circuit court erred in failing to uphold the entire contract duty of confidentiality and covenant not to compete, where the court found that the contract was valid, that the Appellee had breached the noncompetition clause of the agreement, but rejected the agreed upon liquidated damage clause and awarded a nominal sum of one ($1.00) dollar.
For the reasons discussed, we shall affirm the circuit court's judgment.
Willard is a Maryland corporation that manufactures and distributes packaging materials, including corrugated boxes, bubble wrap, tape, and foam packaging throughout Virginia, Maryland, the District of Columbia, and Delaware. In March 1998, Dana Salkeld, one of the owners of Willard, and also its president, hired Javier to be an outside salesman for the company. This position entailed pursuing established leads, as well as cold calling, to generate sales to businesses needing corrugated boxes or packaging materials. Javier began as a salaried employee and remained as such for approximately two and one half years. Ultimately, Javier began to be compensated by commission, resulting in a decrease in his earnings, precipitating his departure from Willard and subsequent employment with a Willard competitor.
On June 19, 1998, shortly after being hired by Willard, Javier was called to a sales meeting held by its owners. At this meeting, which was also attended by senior staff, and other personnel, the sales staff, including Javier, was presented with a document entitled "Duty of Confidentiality and Covenant Not to Compete" ("contract"). As its title implies, the contract included a restrictive covenant prohibiting Javier from working for a competing business within a 75-mile radius of Willard's principal place of business for one year after leaving Willard's employ, subject to a liquidated damages provision of $50,000 in the event of a breach.2
Before those present at the meeting signed the contract, Salkeld read it out loud and informed the employees that if they did not sign their futures at Willard "would not be very bright." Without much objection, Javier and the others then signed the contract and, as consideration, each signator received $50 in cash. At trial, Javier testified that he did not read the contract before signing it, and that he had never subsequently read the restrictive covenant giving rise to this litigation.
On April 11, 2003, Javier voluntarily terminated his employment with Willard. Before Javier left, Salkeld conducted an exit interview with him during which Salkeld discussed the provisions of the restrictive covenant. Approximately six months after leaving Willard, after working for other employers and for a time receiving unemployment insurance, Javier took a position with Atlas Alexandria Packaging, LLC ("Atlas"), located in Northern Virginia. Atlas also manufactures and distributes packaging materials, and was a major competitor of Willard in the District of Columbia area market. In mid-October 2003, Salkeld became aware of Javier's employment after placing a call to him at Atlas's offices. We shall set forth additional facts necessary for resolution of the issues below.
On October 23, 2003, Willard filed a complaint in the circuit court, seeking injunctive relief and damages due to Javier's alleged breach of the restrictive covenant. The circuit court denied appellant's request for injunctive relief on October 24, 2004, and the remaining claims for breach of contract and damages came on for a bench trial on November 9, 2004.
At the conclusion of appellant's case, Javier moved for judgment, pursuant to Md. Rule 2-519, claiming that appellant had failed to prove that the $50,000 liquidated damages amount in the restrictive covenant was supported by a reasonable expectation of damages.3 Thus, the issue before the circuit court was refined to the propriety of the liquidated damages provision of the contract. The court, in a ruling from the bench, granted appellee's motion for judgment, considering all inferences in the light most favorable to appellant. The court ruled that Javier, by taking employment with Atlas within one year and within the 75-mile restriction, was in breach of the restrictive covenant. As to damages, the court ruled that the liquidated damage clause in the contract was not based upon a reasonable expectation of damages, hence it was a penalty, and that Willard had failed to prove any other actual damages. The court awarded nominal damages of one dollar.
In its ruling, the court noted:
The law, generally is, as it applies to this case with respect to liquidated damages, that a contract can contain a provision fixing the amount to be paid in the event of a breach, if the amount so fixed is, in fact, compensation for damages and such an agreement is usually up-held [sic] when entered into in good faith by the parties, where the damages are uncertain in nature or amount or are difficult to ascertain and the amount agreed upon is not extravagant and is not unreasonably disproportionate to the damages that would actually result from a breach of contract.
Generally, an order for a provision for liquidated damages of a stated amount on breach of the contract to be considered as a valid liquidated damage clause, it is required that the damages to be anticipated are uncertain in amount or difficult to be proved, as I just said, and that the parties intended to liquidate them in advance and the amount stated is a reasonable one and is not disproportionate to the presumed loss or injuries. In other words, it has to be in reasonable expectation of the damages that were expected to be suffered in the event of a breach of contract. This case, at this point, the Court, of course, is required to review the evidence produced by the plaintiff in light of the most favorable to the plaintiff.[4]
In this case, a contract has been proven. A contract entitled "A Duty of Confidentiality and Covenant Not to Compete." This contract, the language of the contract, essentially, was borrowed, if you will, from a friendly competitor of the plaintiffs, and it was, essentially, word for word, the contract used by Cantwell Cleary, again, a friendly competitor and it is identical enough so that the liquidated damages clause amount of $50,000 was the same as was used by Cantwell Cleary. It was, this Court determines, reasonable and [sic] certain aspects, certainly with respect to the covenant not to compete. It was reasonable as to time and space, with respect to the non-compete provision. It is plaintiff's burden, as I have quoted the law, to prove that the liquidated damage clause bears a reasonable relationship to the damages likely or expected to be incurred.
This Court determines, based on plaintiff's case, alone, unrebutted at this point, that the plaintiff has proven no damages in this case. The business about the Wilhelm case,[5] that is a completely separate case, it was not the same agreement, it would only involve speculation for this Court to be able to relate that case to this case. I have no idea what happened in that case and what the damages were, what the expenses were. Certainly, litigation expenses to enforce that agreement could not be considered by this Court as damages.
The contract was breached in that the defendant did go to work for a competitor within one year after he left, and that was Atlas Alexandria. The plaintiff also posits that damages have been incurred because when an employee in a salaried position, as defendant was, for the first couple of years, he is not earning money for the company. And then, when he is switched to a commission employee, he even earns less, I believe, the amount goes roughly from $35,000, plus car expenses, to about twenty-two or so thousand, plus six thousand for car expenses. But that comes with the territory, that has no relationship to the breach. While he is working for the plaintiff, whether or not he is earning money for the company has no bearing on damages incurred by the plaintiff when and if the defendant, as he did in this case, leaves within the one year. So those losses, if you will, that the plaintiff experiences are so irrespective of this agreement and this breach of contract and those facts arose prior to and irrespective of this agreement.
So both theories that the plaintiff posits with respect to any damages suffered whatsoever are not supported by the evidence. Therefore, there is no evidence before this Court whatsoever that this liquidated damage clause bears a reasonable expectation to the damages that the plaintiff expected to lose. It is an arbitrary figure. It was taken from the Cantwell Cleary contract in the opinion of this Court. Based on the plaintiff's evidence and the Court's taking...
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