Allegis Group, Inc. et al v. Jordan et al

Filing 107

MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 3/18/2016. (dass, Deputy Clerk)

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND ALLEGIS GROUP, INC., et al., : Plaintiffs, : v. : JUSTIN JORDAN, et al., : Defendants. Civil Action No. GLR-12-2535 : MEMORANDUM OPINION THIS MATTER is before the Court on Plaintiffs’, Allegis Group, Inc. (“Allegis”), Aerotek, Inc. (“Aerotek”), and Teksystems, Inc., Second Motion for Summary Judgment (ECF No. 102). Having considered the Motion and supporting documents, the Court finds no hearing necessary. (D.Md. 2014). See Local Rule 105.6 For the reasons stated below, the Court will deny the Motion without prejudice. I. This matter involves BACKGROUND six former Aerotek employees, including Defendants Justin Jordan, Daniel Curran, and Michael Nicholas, 1 Jordan and served their as a activities Regional before Vice and President after and resigning. 2 Curran and Nicholas served as National Account Managers and Directors of 1 Though Ana Neto Rodrigues, Alexander Ferrollo, and Chris Hadley are named Defendants in this matter, for purposes of this memorandum, “Defendants” shall refer to Jordan, Curran, and Nicholas only. 2 The background facts are set forth in this Court’s June 10, 2014 Memorandum Opinion. (See ECF No. 85). 1 Strategic Sales. Allegis selected Jordan, Curran, and Nicholas to participate in its Incentive Investment Plan (“IIP”), which awards participants “incentive investment units” equivalent to a common share of Allegis stock. (“Units”), While employed at Aerotek, participants receive cash dividends twice a year based on the value of their Units. Allegis awards Units through Award Agreements, which employees must sign each time they earn Units. Each Defendant signed Award Agreements. Once an IIP participant’s employment has ended, Allegis pays the participant the principle balance of the value of his Units, known as “IIP payments,” as follows: five-percent of their balance is paid every quarter for ten quarters, and then the remaining thirty fifty-percent months. The Award of their Agreements balance is state “the paid after terms and conditions set forth in Section 9 [of the IIP] are material and essential terms of your award of Units and your eligibility to receive payment for any Units.” (ECF No.75-8). Section 9 includes non-solicitation provisions and is effective for thirty months after termination of employment. (Pls.’ Opp’n to Defs.’ Mot. for Partial Summ. J., Ex. 4 [“IIP”], at 5-6, ECF No. 75-6). After termination participants were stating, inter and before required alia, a to breach receiving sign of IIP Acknowledgment Section 9 payments, Letters terminates their ability to receive IIP payments and requires them to refund any 2 IIP payments made. Jordan (ECF Nos. 75-7, -25, -35). resigned obligations expired on on February August 21, 21, 2009, 2011; and Curran his IIP resigned on September 16, 2011, and his IIP obligations expired on March 16, 2014; and Nicholas resigned on January 3, 2012, and his IIP obligations expired on July 3, 2014. Jordan received all of his IIP payments, totaling over $1.45 million. At the time of their resignations, Curran was scheduled to receive $196,470 in IIP payments and Nicholas Curran, however, Nicholas only discontinued only was received received the IIP scheduled one two receive payments payment payments, to of of $138,268. $8,851, $6,195. contending that and Allegis Curran and Nicholas breached their IIP Agreements. Plaintiffs brought claims for breach of contract, rescission, and unjust enrichment against Defendants. 26). On Partial December Summary 23, Judgment 2013, on regarding the IIP Agreements. Plaintiffs their filed breach (ECF No. 75). of a (ECF No. Motion contract for claim On June 10, 2014, the Court granted Plaintiff’s Motion, finding that Defendants breached their IIP Agreements. 3 (ECF No. 85). On June 29, 2015, Plaintiffs filed a Second Motion for Summary Judgment on the 3 The Court found that Defendants breached their IIP Agreements at some time before their IIP obligations expired, but did not determine the specific date that the breaches occurred. 3 issue of damages related to Defendants’ breach. 4 (ECF No. 102). Specifically, Plaintiffs seek the return of all IIP payments made to Defendants. On July Response to the Motion. Plaintiffs filed a Reply. 16, 2015, (ECF No. 103). Defendants filed a On July 27, 2015, (ECF No. 104). II. DISCUSSION A. Standard of Review Under Federal Rule of Civil Procedure 56, the Court must grant summary judgment if the moving party demonstrates there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). In reviewing a motion for summary judgment, the Court views the facts in Anderson a v. light Liberty most favorable Lobby, Inc., to the 477 non-moving U.S. 242, 255 party. (1986) (citing Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970)). Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). “[T]he between the mere existence parties will of some not defeat 4 alleged an factual otherwise dispute properly Plaintiffs also seek entry of summary judgment and dismissal as to Counts II, III, and IV of Defendant’s Amended Counterclaim (ECF No. 32). The Court dismissed the Counts on April 17, 2013. (ECF Nos. 44, 45). The Court will, therefore, deny the Motion as to the Amended Counterclaim. 4 supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” at 247-48. Anderson, 477 U.S. A “material fact” is one that might affect the outcome of a party’s case. Id. at 248; see also JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001) (citing Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001)). Whether a fact is considered to be “material” is determined by the substantive law, and “[o]nly disputes over facts that governing might law judgment.” affect will the outcome properly of preclude the the suit entry under of the summary Anderson, 477 U.S. at 248; accord Hooven-Lewis, 249 F.3d at 265. B. Analysis 5 1. Restitution/Rescission Plaintiffs rescission due Agreements. argue to Sch. are Defendants’ entitled material to restitution breach of and their IIP “Restitution . . . is referred to as an action for unjust enrichment.” of they Comm’rs, Alts. Unlimited, Inc. v. New Balt. City Bd. 843 A.2d 252, 275 (Md.Ct.Spec.App. 2004) (quoting Mogavero v. Silverstein, 790 A.2d 43 (Md.Ct.Spec.App. 2002)). In Maryland, it is well settled that a claim for unjust 5 It is undisputed that the IIP contains a choice of law clause designating Maryland as the applicable law. (See Pls.’ Opp’n Ex. 4 [“IIP”], at 10, ECF No.75-6). The Court will, therefore, apply Maryland law when evaluating the IIP, Award Agreements, and Acknowledgment Letters. 5 enrichment may not be brought when an express contract exists between the parties governing the subject matter of the claim. Cty. Comm’rs of Caroline Cty. v. J. Roland Dashiell & Sons, Inc., 747 A.2d 600, 607 (Md. 2000) (quoting FLF, Inc. v. World Publ’ns, Inc., 999 F.Supp. 640, 642 (D.Md. 1998)). Courts have allowed unjust enrichment claims, however, when there has been a material breach or mutual rescission of the contract or when rescission is warranted. Id. at 608-09. When “there has been a material breach of a contract by one party, the other party has a right to rescind it.” Maslow v. Vanguri, 896 A.2d 408, 423 (Md.Ct.Spec.App. 2006) (quoting Wash. Homes, 1978)). Inc. v. Interstate Land Dev. Co., 382 A.2d 555 (Md. A material breach of a contract “destroys the main object of that agreement.” Contract Materials Processing, Inc. v. KataLeuna GmbH Catalysts, 303 F.Supp.2d 612, 653 (D.Md. 2003) (citing Plitt v. McMillan, 223 A.2d 772, 774 (Md. 1966)). Nevertheless, “[c]ourt imposed rescission is an extreme remedy, appropriate only in situations where there is ‘well established breach of a contract, and the injury caused thereby is irreparable, or if the damages that might be awarded would be impossible or difficult to determine or inadequate.’” U.S. Foodservice, Inc., 361 F.Supp.2d 470, 485 Miller v. (D.Md. 2005) (emphasis added) (quoting Vincent v. Palmer, 19 A.2d 183, 188 (Md. 1941)). 6 The IIP and Award Agreements state the terms and conditions set forth in Section 9 of the Plan are material and essential terms of your award of Units and your eligibility to receive payment for any Units. 2014 Memorandum (ECF Nos. 75-6, 75-8). Opinion, the Court found In the June 10, that Defendants breached their IIP Agreements by violating Section 9. 85). (ECF No. The Court stated Section 9 encompasses the main purpose of the IIP, which is to provide IIP participants with an incentive to promote the best interests and long-term economic growth of Allegis and its subsidiaries, undermines that purpose. finds Defendants however, irreparable or an a (Id.). materially Plaintiffs, and have award violation of Section 9 As such, the Court further breached not of their shown damages that would IIP their be Agreements. injury is impossible to determine or inadequate. Additionally, a contracting party displeased with the other’s performance may either: (1) “reaffirm the existence of the contract and . . . claim damages for its breach,” or (2) repudiate the contract altogether and request rescission. Lazorcak v. Feuerstein, 327 A.2d 477, 480 (Md. 1974) (citing Kemp v. Weber, 24 A.2d 779 (Md. 1942)). both.” They Id. at 481. argue that they “Obviously he cannot do Here, Plaintiffs seek to do just that. are entitled to rescission and full restitution of the IIP payments to prevent Defendants’ unjust 7 enrichment, while simultaneously seeking to enforce the terms of the Acknowledgement Letters requiring participants to return all IIP payments upon breach of Section 9. failed to demonstrate the Because Plaintiffs have appropriateness of a court-imposed rescission and restitution, the Court will deny the Motion as to these requests. 6 2. Damages Provision Plaintiffs seek a refund of all IIP payments made to Defendants based on the Acknowledgment Letters which state a breach of payments Section made. 9 requires Defendants Defendants argue to this refund IIP term damages any is unenforceable. a. Modification or Single Contract? First, Defendants argue the damages term is unenforceable because it is only included in the Acknowledgment Letters, thereby constituting an impermissible modification of the IIP and Award Agreements unsupported by consideration. argue the acceptance Acknowledgment of the offer to Letters receive constitute payments for Plaintiffs Defendants’ the Units awarded by the Award Agreements under the IIP. 7 6 The parties state that judgment as to damages would be inappropriate if the Court holds that restitution is not required by the Plan and operation of law. 7 Plaintiffs also state the Acknowledgment Letters merely restate the legal consequences of breaching the IIP—a refund of all IIP payments. The Court notes the damages term is not 8 “The fundamental rule in the construction and interpretation of contracts is that the intention of the parties as expressed analysis.” in the language of the contract controls the Ford v. Antwerpen Motorcars Ltd., 117 A.3d 21, 25 (Md. 2015) (quoting Curtis G. Testerman Co. v. Buck, 667 A.2d 649, 654 (Md. interpretation 1995)). is to In be Maryland, determined contract objectively, formation giving meaning to the unambiguous language of the agreement. Inc. v. Mattingly, 829 A.2d 626, 632 (Md. and plain DIRECTV, 2003). Such interpretation looks to “what a reasonably prudent person in the same position would have understood as to the meaning of the agreement.” Cochran v. Norkunas, 919 A.2d 700, 710 (Md. 2007) (citing Walton v. Mariner Health, 894 A.2d 584, 594 (Md. 2006)). A court’s inquiry “is focused on the four corners of the agreement,” and the court should give effect to every clause so as not to disregard a meaningful part of the express language of the written contract. 2008) (quoting Clancy v. King, 954 A.2d 1092, 1101 (Md. Cochran, 919 A.2d at 710). Even so, “[t]he circumstances of the instruments’ drafting and the content of the written instruments provide guidance to interpret the scope of the parties’ agreement.” Jaguar Land Rover N.Am., LLC v. Manhattan Imported Cars, Inc., 738 F.Supp.2d 640, 648 (D.Md. 2010), aff’d, 477 F.App’x 84 (4th Cir. 2012). stated in the IIP or Award Agreements. 9 Contracts need not be formed in a single document; they may span over multiple documents which “evidenc[e] the intention of the parties in regard to the single transaction. This is true even though the instruments were executed at different times and do not in terms refer to each other.” A.2d 531, 545 (Md. 1966). are to be construed Rocks v. Brosius, 217 In those instances, “the documents together, harmoniously, so that, to the extent possible, all of the provisions can be given effect.” Rourke v. Amchem Prod., 863 A.2d 926, 941 (Md. 2004). Further, “a party who signs a contract is presumed to have read and understood its terms and as such will be bound by its execution. . . . [The Court is] loath to rescind a conspicuous agreement that was signed by a party whom now, for whatever reason, does not desire to fulfill that agreement.” Inc. v. Lobach, 919 A.2d 722, 727 Koons Ford of Balt., (Md. 2007) (citations omitted). The Court will examine the express terms of the IIP, Award Agreements, and Acknowledgment Letters. The IIP encompasses the manner in which participants become eligible to earn the right to eventually receive payments for Units awarded by Allegis. Throughout the IIP, various provisions explicitly state the allocation of Units does not entitle a participant to payment. It states the Units allocated to participants’ accounts “have no value other than as a potentiality of income that may be earned 10 in accordance with the terms and conditions of the [IIP].” (IIP at 4). The IIP further states that “[t]he establishment and maintenance of any [a]ccounts do not create in any [p]articipant any rights in, or entitle any [p]articipant to any payments with respect to, any Units until payments with respect to such Units are earned in accordance with Section 9 of the [IIP].” 8 (Id.). Lastly, become entitled the to IIP states receive that payment “[i]n for order the to Units earn and allocated to a [p]articipant’s [a]ccount . . . , the [p]articipant shall not, during the thirty (30) month period following the date of his” termination violate Section 9. (Id. at 5). The Award Agreement informs a participant of the number of Units he has been awarded and reiterates that the participant’s eligibility to earn and eventually receive payment for the Units is contingent on the participant’s adherence to Section 9. (ECF No. 8). The Acknowledgment Letter states the participant has the “opportunity to earn and receive payment for the [U]nits allocated to [his] account . . . subject to [the participant’s] compliance with the terms and conditions of Section 9.” Nos. 75-7, -25, -35). (ECF Additionally, the Acknowledgment Letter 8 Contrary to Defendants’ contentions, they did not earn and were not entitled to any payments for the value of the Units merely because the Units were placed in their accounts. 11 includes the IIP payment schedule for each participant, with the final payment to be dispersed on the date the participant’s IIP obligations expire. reiterates that (Id.). a breach While the Acknowledgment Letter of Section 9 will terminate the participant’s ability to earn the Units, it also requires the participant to refund any amounts previously paid with respect to the Units upon such breach. It is clear that (Id.). the IIP, Award Agreements, and Acknowledgment Letters relate to a single matter—an employee’s ability to receive payment for awarded Units upon termination of employment. Each document has a distinct function—the IIP creates the system under which an employee may be selected to participate and become eligible for Units; the Award Agreements periodically inform participants of the number of Units assigned to their accounts; and the Acknowledgment Letters inform the participants of the monetary value of the Units awarded to their accounts, the amount of each payment, and when the payments are scheduled to be made. The totality of the circumstances indicates that documents were meant to be read and construed together. Jaguar Land Rover N.Am., 738 F.Supp.2d at 648. Court finds that the Acknowledgement 12 Letter the See As such, the is not a modification requiring additional consideration. It is, instead, a part of a single contract. 9 Though this single contract spanned multiple documents executed at different times, when read together, the documents evidence the intentions of the parties—earning payment for the Units is contingent upon continued compliance with Section 9. Construing the documents harmoniously, giving effect to every provision expressly stated therein, a breach of Section 9 within the thirty-month period participant to refund presumed to have document comprising read following termination of all and understood their IIP payments. contracts the with requires Defendants express terms Plaintiffs and a are each are, therefore, bound by every term. b. Liquidated Damages Clause? Next, unenforceable Defendants argue liquidated that damages the damages clause. In provision Maryland, is a liquidated damages clause is defined as “a specific sum of money . . . expressly stipulated by the parties to a . . . contract as the amount of damages to be recovered by either party for a breach of the agreement by the other.” 9 Bd. of Educ. of Talbot Defendants also argue that the damages provision is an amendment or modification in contravention of Section 14 of the IIP, which states no action shall “materially and adversely affect any Units previously earned under the Plan.” (IIP at 8). Because the Court finds that all documents constitute one contract, the Court will not evaluate this argument. 13 Cty. v. Heister, 896 A.2d 342, 351 (Md. 2006) (quoting Mass. Indem. & Life Ins. v. Dresser, 306 A.2d 213, 216 (Md. 1973)). There are three elements of a valid and enforceable liquidated damages clause: First, such a clause must provide ‘in clear and unambiguous terms’ for “a certain sum.” Secondly, the liquidated damages must reasonably be compensation for the damages anticipated by the breach. Thirdly, liquidated damage clauses are by their nature mandatory binding agreements before the fact which may not be altered to correspond to actual damages determined after the fact. Heister, 896 A.2d at 352 (citations omitted). A liquidated penalty, however, damages where clause the may be stipulated deemed amount an is invalid “grossly excessive and out of all proportion to the damages that might reasonably have been expected to result from such breach of the contract.” Barrie Sch. v. Patch, 933 A.2d 382, 389-90 (Md. 2007) (quoting Balt. Bridge Co. v. United Rys. & Elec. Co., 93 A. 420, 422 (Md. 1915)). “Whether a contract provision is a penalty or a valid liquidated damages clause is a question of law . . . .” Id. at 388 (citing Heister, 896 A.2d at 351). The Court may deem a liquidated damages clause valid, and not a penalty, upon satisfaction of two requirements: “[f]irst, the clause must provide a fair estimate of potential damages at the time the parties entered into the contract[; and s]econd, 14 the damages must have been incapable of estimation, difficult to estimate, at the time of contracting.” (citations omitted). reasonableness uncertainty breach. of of or very Id. at 390 The crux of the Court’s analysis is the the damages estimating provision actual rather damages than resulting the from a Willard Packaging Co. v. Javier, 899 A.2d 940, 954 (Md.Ct.Spec.App. 2006). The party seeking to set aside a bargained for contractual provision has the burden of proving the provision should not be enforced. Barrie Sch. v. Patch, 933 A.2d at 388. Here, the damages provision states that a participant that breaches Section 9 of the IIP must “refund to [Allegis] any amounts previously paid.” (ECF Nos. 75-7, -25, -35). The Court concludes that this provision establishes a certain sum because “amounts previously paid” may be calculated readily and with certainty as a definite amount. Also, the altered Instead, parties to correspond Defendants liquidated do damages not contend with focus See Heister, 896 A.2d at 352. on clause, that actual the the damages second arguing that provision after element the may the of a be fact. valid provision is unreasonable because the Acknowledgement Letters were presented 15 to the Defendants after their terminations and without any bargaining over the terms. 10 [B]argaining position of the parties contributes to the prima facie determination of the validity of a particular stipulated damages provision. . . . [A] non-breaching party cannot simply survive the legal test of reasonableness, regardless of the assignment of the burden of proof, where . . . the court is not dealing with a freely negotiated damages provision made between two parties of equal sophistication. Thus, the ultimate question of the assignment of the burden of proof, in cases where gross inequality of bargaining power exists, ought to be resolved in favor of the non-proponent of the provision, because the stipulated damage may prove unreasonable a. priori. Willard Packaging, 899 A.2d at 952. 10 Defendants present this argument under unconscionability. In Maryland, a contract term must be both procedurally and substantively unconscionable for the Court “to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” Doyle v. Fin. Am., LLC, 918 A.2d 1266, 1274 (Md.Ct.Spec.App. 2007) (citing Holloman v. Circuit City Stores, Inc., 894 A.2d 547, 560 (Md. 2006)). Procedural unconscionability is evidenced by “‘one party’s lack of meaningful choice’ in making the contract,” and substantive unconscionability relates to terms that “‘unreasonably favor’ the more powerful party.” Rose v. New Day Fin., LLC, 816 F.Supp.2d 245, 256 (D.Md. 2011) (quoting Walther v. Sovereign Bank, 872 A.2d 735, 744 (Md. 2005)). While Defendants argue they lacked a meaningful choice in signing the Acknowledgment Letters, they state the damages provision is substantively unconscionable because the damages are “draconian.” (ECF No. 103). In essence, Defendants argue the liquidated damages provision is substantively unconscionable simply because it seeks liquidated damages. Because liquidated damages provisions may be upheld so long as they meet the requirements elucidated above, the Court finds Defendants have failed to demonstrate the provision is substantively unconscionable. 16 Defendants, however, fail to point the Court to evidence in the record supporting their contention that they were unable to freely negotiate the damages provision inequality of bargaining power existed. finds Defendants have failed to or that a gross The Court, therefore, meet their burden of demonstrating the damages provision is unreasonable. Similarly, Plaintiffs have not directed the Court to facts in the record reasonable. demonstrating See Barrie that Sch., the 933 damages A.2d at provision 391 is (finding liquidated damages provision reasonable by evaluating testimony regarding the difficulty in estimating damages at the time of contracting); CAS Severn, Inc. v. Awalt, 75 A.3d 382, 392 (Md.Ct.Spec.App. 2013) (same). The Court will, therefore, deny Plaintiffs’ Motion without prejudice and direct Plaintiffs to file a motion for summary judgment as to the reasonableness of the liquidated damages provision within thirty days of this Memorandum Opinion. C. CONCLUSION For the reasons stated above, the Second Motion for Summary Judgment (ECF No. 102) is DENIED WITHOUT PREJUDICE. shall file a motion for summary judgment Plaintiffs as to the reasonableness of the liquidated damages provision within thirty days of this Memorandum Opinion. Defendants shall response within fourteen days of Plaintiffs’ motion. 17 file a Plaintiffs shall file a reply within seven days of Defendants’ response. separate Order follows. Entered this 18th day of March, 2016 /s/ _____________________________ George L. Russell, III United States District Judge 18 A

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