New Maryland Case on Attorney's Fee Awards - Fixed Percentage Fees in Promissory Notes & Post-Judgment Attorney Fee Awards

The Maryland Court of Special Appeals recently addressed an issue that affects lawyers and other contract and promissory note drafters. In Suntrust Bank v. Goldman, the Court ruled that actual reasonable attorneys' fees incurred are the proper measure of an attorney fee award even where the promissory note calls for a fixed percentage fee based on the amount of the obligation due.

In the case, Sunstrust's Credit Line agreement provided that Suntrust was entitled to an award of attorneys' fees equal to 15% of the principal due "or reasonable attorneys' fees allowed by law." Suntrust asked for an award of $60,206.00 (15% of the balance due) and the Circut Court for Baltimore County awarded actual attorneys' fees of only $3,094.00.

The Court of Special Appeals agreed with the Circuit Court. The Court's opinion is here. Specifically, the Court held: "Thus, Maryland law limits the amount of contractual attorneys fees to actual fees incurred, regardless of whether the contract provides for a greater amount. The contract may provide that the amount of fees is determined by a percentage or some other method, but to comply with the indemnification requirement, the amount of fees paid pursuant to the agreement between the claimant and its attorneys must equal or exceed the amount provided for in the contract."

The Court also dealt with the issue of attorneys' fee awards for post-judgment collection efforts, and seemingly recommended that if a creditor wanted to be able to pursue reimbursement for post-judgment colection efforts, it could include clear language in its agreements providing that the parties intend that the attorneys' fee provision shall not merge into a judgment on the agreement.

New Business & Technology Opinion - Montgomery County Circuit Court

The Circuit Court for Montgomery County, Maryland, Judge Ronald Rubin, recently issued an opinion in the Hospitality Partners, LLC v. Brewmasters Hotel, LLC case.

The case is summarized and linked to by Edward Sharkey of the Maryland State Bar Association's Business Law Section at http://bit.ly/r5Jx0h.

In the case, the Defendant argued (on a motion for new trial) that a $2.8 million judgment was inappropriate where there was a contractual clause allowing the Defendant to terminate a contract without cause and calling for a termination payment far below the $2.8 million awarded.

The court held that the Defendant did not argue applicability of that clause at trial, and could not do so now on a motion for new trial. In essence, the Defendant was stuck with its decision to try and terminate the contract "for cause."

Maryland Court of Special Appeals: Perpetual Waiver of Statute of Limitations Unenforceable

In 2009, I helped my partner David Lease try the case of Ahmad v. Eastpines Terrace Apts. in the Circuit Court for Montgomery County. In that case, the plaintiff sued a company owned by his elderly father alleging that he was entitled to payment for services allegedly rendered to the company, and for amounts allegedly advanced on behalf of the company.

Defendant denied owing anything to Mr. Ahmad, and argued that even if any amounts ever had been due Plaintiff for his claims, those claims were barred by Maryland's three year statute of limitations. Plaintiff argued that a document he drafted and had his elderly father sign waived the statute of limitations. [The document had been drafted in English, and Plaintiff's father could not read English]

At trial, the Circuit Court held that the document did not perpetually waive the statute of limitations, and that in any event, a perpetual waiver would be against public policy and unenforceable. Judgment was entered in favor of our client on all of Plaintiff's claims. Plaintiff appealed to the Court of Special Appeals.

The Court of Special Appeals affirmed the Circuit Court. The appellate Court held that the document in question did not specifically say that it waived limitations perpetually, and that even if it did, perpetual waivers of limitations would be unenforceable under Maryland law.

A copy of the opinion is here.

New Case on Attorneys' Fee Awards

The Maryland Court of Special Appeals today decided Friolo v. Frankel, which will be known as Friolo IV because it is the fourth appeal of this case on the issue of attorneys' fees in a wage payment and collection case under Maryland law.

The opinion is here.

It is likely that none of the parties in the case are happy with the result. According to Plaintiffs' counsel, they have billed hundreds of thousands of dollars in this case, but were only awarded a fraction of those fees. Defendants have spent similar amounts and the result of the case requires that they pay Plaintiffs the original (small) judgment in the case and more than four times that much in legal fees to the Plaintiffs' counsel.

Maryland Court of Appeals Rules: "Landlord - No License, No Rent Case"

For a long time I have wondered how the Maryland Court of Appeals would rule in a summary ejectment (rent case) landlord-tenant case if the tenant challenged the validity of the suit based on the landlord’s lack of a license required by the local jurisdiction where the property is located. On May 4, 2011, the Court of Appeals ended my speculation. In McDaniel v. Baranowski, (copy here) the Court ruled that a landlord without a license to rent his or her property cannot bring a summary ejectment action against the tenant.

In light of the McDaniel case, every tenant lawyer will be searching the licensing records of the landlord to see if the rent case can be dismissed on a preliminary motion. Every landlord would be wise to make sure that all licensing requirements are followed.

A question remaining is what happens next if you are a landlord? How can you remove your tenant for failing to pay rent if you are not licensed? Well, the Court seems to say that as long as the landlord obtains a license and pleads and proves that licensure in Court, the landlord can proceed. Therefore, the landlord appears to be able to cure the defect; and even though the landlord was not licensed at the time of the lease to the tenant, a newly licensed landlord may sue for possession after a tenant’s failure to pay rent.

Negligent Hiring/Negligent Retention Claims not Barred by Workers' Compensation Law

A common issue encountered in running a business is the application of the Workers’ Compensation laws. These laws provide for benefits to be paid to injured employees, and preclude employees from suing their employers for such injuries. Employers have, on occasion, sought to use these Workers’ Compensation laws to further narrow the scope of claims that an employee may bring.

On March 21, 2011, the Maryland Court of Appeals decided Ruffin Hotel Corporation of Maryland v. Gasper. In Ruffin Hotel, the Circuit Court for Montgomery County had dismissed Plaintiff’s negligent hiring/retention claim after finding that the cause of action was barred due to preemption by the State’s Workers’ Compensation laws. The Plaintiff appealed, and the Court of Special Appeals reversed, finding that the Workers’ Compensation laws did not preclude an employee from suing an employer for negligent hiring/retention of a fellow employee.

After the Court of Special Appeals’ decision, both parties sought review in the Court of Appeals. The Court of Appeals affirmed, stating that: “We reject the proposition that the General Assembly intended the Workers’ Compensation Commission is the exclusive forum in which a negligent hiring/retention claim must be litigated whenever such a claim is asserted by an employee against his or her employer as a result of intentional and unlawful misconduct of a fellow employee.”

A copy of the decision is found here.

Reported Maryland Court of Special Appeals Case on Personal Jurisdiction: Owning Unimproved Real Estate is not Sufficient Minimum Contacts

An issue that often is litigated is personal jurisdiction, or “can we sue the defendant here?” Last week, the Maryland Court of Special Appeals rendered a published opinion on the issue in the case of Cappel v. RIASO, LLC. A copy of the opinion is here. In this case, the court was asked to determine whether, in an action to enforce a confession of judgment clause in a guarantee of a promissory note that was signed outside of the State of Maryland, the Circuit Court for Montgomery County, Maryland had personal jurisdiction over the guarantors (Mr. & Mrs. Cappel) by virtue of their owning unimproved real estate in Maryland that was unrelated to the issues in the case. The Circuit Court had found that it did have jurisdiction over the Cappels because by owning the land the Cappels were “transacting business” in Maryland and they had sufficient “minimum contacts” with the State of Maryland to allow personal jurisdiction.

The Court of Special Appeals reversed and vacated judgments against the Cappels for $2,938,312.51. The Court found that owning unimproved real estate in the State of Maryland was not sufficient to allow for personal jurisdiction in Maryland where the real estate in question had nothing to do with the dispute between the parties.

This means that the Plaintiff will now need to start over and sue the Cappels in either D.C. or Virginia, and that the lien on the Cappel’s Maryland real estate that was created by the judgment will be vacated. One wonders whether the Cappels will be able to sell the property before the creditor is able to obtain a new judgment in D.C. or Virginia and then record it as a lien against the Cappels’ Maryland property.

New Fourth Circuit Opinion on Arbitration -- Appeal of Arbitrability Decision Divests Trial Court of Jurisdiction

I have addressed arbitration issues many times before on this Business Law Blog. They are important because so many agreements now contain mandatory arbitration clauses. On February 10, 2011, the United States Court of Appeals for the Fourth Circuit issued an opinion in the case of Levin v. Alms and Associates, Inc. A copy of the decision can be found here. In this case, the appellate court held that when a trial court order regarding arbitrability of a dispute was appealed, the trial court is divested of jurisdiction and cannot continue on to handle the case until the appeal is resolved. The appellate court reversed the trial court which had allowed what it believed was the “non-arbitrable” portion of the case to go forward while the appeal was pending.

The appellate court also went on to decide that the trial court was wrong on the merits. That is, the appellate court held that the trial court was wrong to decide that certain claims were not subject to arbitration.

Before including an arbitration provision in your business agreements, you should be sure to consult with counsel to determine whether such a provision is in your interest and to discuss the scope and effect of such a provision.

Dan Snyder v. The Washington City Paper -- Why Didn't Snyder Choose Home Field Advantage?

In a case of note, local businessman Daniel Snyder of Rockville/Potomac, MD brought a libel suit in New York against local free newspaper The City Paper. A link to the lawsuit is here.

There is obviously a lot being written about this case now. One issue that I have not seen any information on is the choice of forum/venue. Snyder sued in New York, when he is a Montgomery County, Maryland resident, and would presumably have "home field advantage" here in Rockville. Or, maybe he thought that his reputation locally was so bad that he had to seek a venue where fewer people (Judges and Jurors alike) have formed an opinion of him.

I will wait and hope that the issue of venue/jurisdiction is litigated and that the case comes home to Rockville where it belongs.

Federal Court: Injunction Denied Where It Would Put Restaurant Out of Business

Franchisors often seek injunctions in situations where their franchisees are violating the terms of the operative franchise agreements. In a case pending before the United States District Court for the District of Maryland (Greenbelt) titled Prosperity Systems, Inc. v. Ali, the Pizza-Bolis franchisor (Prosperity) sued its franchisee (Ali) alleging various violations of the parties’ franchise agreement. Specifically, Prosperity alleged that Ali advertised outside of his limited territory and that he used an unauthorized website. Prosperity sought an injunction that would have shut down Ali’s restaurant. The Court found that Prosperity was likely to win the case, and that Ali almost certainly was in breach of the franchise agreement. Nevertheless, the Court denied the request for an injunction finding that that the damage that Ali would suffer if the injunction was entered and the restaurant was shut down would outweigh the damage caused to the franchisor, Prosperity, resulting from Ali’s breaches of the agreement. A copy of the opinion is found here.

This shows a litigant that even where one can prove a breach of contract that does not mean that the court will necessarily grant an injunction barring further breaches of that contract; nor will a court shut down a business if lesser restrictions are available.

Attorney's Fee Request Denied in Unusual Citizenship Case

On January 13, 2011, the United States Court of Appeals for the Fourth Circuit decided the case of Cody v. Caterisano. In this unusual case which deals with attorney’s fee awards, an Irish citizen enrolled at the United States Naval Academy. At the time, the Irish government was funding the cost of his attendance at the Academy. Once enrolled at the Academy, the Irish government indicated that it would not fund the cost of attendance. The student obtained alternative funding and continued to attend the Academy. Because the Irish government was not paying for his education, the student did not have any obligation to serve in the Irish military upon graduation from the Academy. The student decided that he wanted to serve in the United States Navy after graduation, and decided to apply for United States citizenship. His application for citizenship hinged upon whether or not attending the Naval Academy constituted serving honorably in an active-duty status during a period in which the Armed Forces of the United States were engaged in military operations involving armed conflict with a foreign force. The Naval Academy had initially completed a form indicating that the student’s attendance at the Academy constituted such “active-duty” status. Later, the Academy withdrew that form and reversed its position indicating that attending the Academy did not constitute active duty service. The USCIS, which decides immigration applications, failed to make a decision within the time allotted.

The student then sued to obtain a decision on his application. The United States District Court for the District of Maryland (Baltimore) found that the student qualified for naturalization and the United States government did not appeal.

The student then sought his attorney’s fees under the Equal Access to Justice Act (EAJA) and the District Court denied that request. Under the EAJA, a victorious party to litigation against the Government may be entitled to an award of counsel fees “unless the court finds that the position of the United States was substantially justified. . ..” The Fourth Circuit Court of Appeals affirmed, holding that the particular circumstances of the student’s case, the Government’s position in contesting naturalization, while ultimately unsuccessful, was “substantially justified.”

This is another example of courts being hesitant to award attorneys’ fees, and being restrictive in awards, whether the basis for the request for the attorneys’ fee award is statutory or contractual. The opinion is found here.