SKRIPCHENKO et al v. VIRxSYS CORPORATION et al

Filing 33

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 9/26/2014. (Attachments: # 1 Attachment A)(rss, Deputy Clerk)

UNITEll STATES DISTRICT COURT
DISTRICT OF MARYLAND

YELENA SKRIPCIIENKO, el al ..

PlaintilTs,

v.

Civil Action No. TDC.13.0004

VIRXSYS CORPORATION, el al..
Defendant.

MEMORANllU~1

OI'INION

This matter is before the Court on Plaintiffs'! Motion for Partial Summary Judgment as to
Plaintiffs'

Maryland Wage Payment Collection Law C'MWPCL") Claim (Count I) against
EeF No. 24. The issue before the Court is

Defendant VIRxSYS Corporation C'YIRxSYS'").

whether PlaintitTs have demonstrated sufficient undisputed facts to show that VIRxSYS failed to
pay Plaintiffs their earned wages in violation of the MWPCL, thereby entitling Plaintiffs to
judgment as a matter of law. The Court has reviewed the pleadings and supporting documents
and heard oral argument on September 3.2014.

For the reasons outlined below. the Motion \vill

be GRANTED IN I'ART and DENIED IN I'ART.
RACKGROUNll
On January 2, 2013, Plaintiffs filed suit against their fonner employer VIRxSYS, a
privatcly.held

biotechnology company. and othcr Defendants to recover unpaid wages for the

I The moving
plaintiffs are Yelena Skripchenko ("Skripehenko"), Jun \\lang (""Wang"),
Katherine Radd ("Radd"), Eden Deauscn ("Deausen"). Yue Sun ('.Sun"), Scott Jendrek
("Jendrek"). Stephen Gary Manstield ("Mansfield"), Laura Talmadge ("Talmadge"). Shirley
John ("John"). Raehelle Williams ("Williams"), Ta\'.:anda Palmer ("Palmer"). and Michael
Belvcrud ("I3e1verud") (together, "Plaintiffs"). Benyan Asefa and Lan Fei Chang, also plaintiffs
in this action, do not join in this Motion. Mot. Partial Summ. J. at 1 n.l. ECF No. 24.

period between February 1,2012 and the end of their employment on March 15.2012.2
NO.1.

Eer

The other Defendants in this case are Signature Capital, LLC ('''Signature Capital").

William J. Turner ("'Turner"), and Dr. Lawrence L. Michaelis ("Michaelis',).3

Ho\\:ever.

PlaintifTs' MWPCL claim against Signature Capital and their additional claims of negligent
misrepresentation

(Count II), Fair Labor Standards Act violations (Count III), and Quantum

Meruit (Count IV) against some or all Defendants are not at issue in this Motion for Partial
Summary Judgment.
On April 24, 2013, VIRxSYS and Michaelis filed their Answer. stating In vaTlOus
paragraphs throughout:
As Plaintiffs are aware, Virxsys's4 operations ceased on or about March 2012 and
Defendants have had no access to any of Virxsys's business records. Defendants
arc \\ithout sutlicient knowledge to admit or deny the allegations . . . .
E.g., VIRxSYS's Answer ~ 23, ECF NO.4.
Defendants'

On August 26, 2013, having received the rest of the

Answers, the Court entered a Scheduling Order. setting a discovery deadline of

January 8, 2014. This deadline was later extended to March 28, 2014. ECF No. 18.
On February 3, 2014, Plaintiffs filed a Motion for Sanctions and Order of Default Against
VIRxSYS for its "total and complete failure to serve any response to PlaintifTs' First Set of

On January 9, 2013, Plaintiffs tiled an Amended Complaint that neither added nor amended
any factual allegations or claims, but added Belverud to the case as a plaintiff. ECr Nu. 3.

2

3 Plaintiffs' Complaint identifies Signature Capital as a venture capital company that, at all
relevant times. funded and directed operations and research at VIRxSYS; Turner as a Directnr,
Co-Founder, and member of the Board of Directors of VIRxSYS and also a Managing Director
and co-founder of Signature Capital: and Michaelis as the VIRxSYS's Interim President and
Chief Executive Otlicer, and a member of the Board of Directors of VIRxSYS since 2003 and
Chairman of the Board since 2004. Am. Comp!. 'It~
4-10.

The parties appear to alternate between using "VIRxSYS" and "Virxsys'. in their filings. The
Court will use "VIRxSYS," unless it is quoting directly from the parties' filings that use the
lower case spelling.

4

2

Interrogatories

and First Set of Requests

for Production of Documents:'

despite several

extensions to which Plaintiffs had voluntarily agreed. Mot. Sanctions ~~ 5, 8, ECF No. 19. In its
Opposition to the Motion for Sanctions, VIRxS YS requested that the Court deny the Motion
because, "[a]s explained in VIR.xSYS's Answer to Plaintiffs' Amended Complaint. in March
2012. VIRxSYS's

day-to-day operations ceased due to lack of funding;" and ''[a]s a result.

VIRxSYS hard] no access to any of its business records. including personnel files and payroll
records."

Opp. Mot. Sanctions at 1-2, ECF No. 21. VIRxSYS stated that it had been "working

diligently" to secure funding through Signature Capital and requested that the Court allow it
additional time to gain access to its documents. fd. at 2-3.
On March 10.2014, U.S. Magistrate Judge William Connelly granted Plaintiffs' Motion.
reasoning that "even though Defendant VIRxSYS lack[ed] access to its business records which
includes personnel files and payroll records, Defendant VIRxSYS should have made a good faith
effort by answering and responding [to]. to the best of its ability. Plaintiffs' disco\'ery requests:"
and ordered as waived any objections, except objections based on privilege, that VIRxSYS could
have asserted to Plaintiffs'
Production of Documents.

First Set of Interrogatories

and First Set of Requests for the

Order on Mot. Sanctions ~~ 7-9, ECF No. 23. Magistrate Judge

Connelly, however, deferred the request for an order of default to the presiding district court
judge to resolve. fd. ~ 2.
On April 24, 2014. Plaintiffs filed a Motion for Partial Summary Judgment as to their
MWPCL claim against VIRxSYS.

ECF No. 24. Plaintiffs argued that there was no dispute that

their wages were owed and had not been paid. in violation of the MWPCL. /d. at I. In support
of their Motion. Plaintiffs attached individual. s\••.. declarations from the moving plaintiffs that
om
collectively stated that they were employed by VIRxSYS for varying lengths of time until March

3

15,2012, and that at the end of their employment, VIRxSYS failed to pay their salaries for the
period from February 1,2012 through Mareh 15,2012. E.g, Skripehenko Decl.

'.'i 4-5, ECF No.

24.5.
All declarations except those of Jendrek, Talmadge, and Palmer also stated: ""Inor about
December 2011, Virxsys promised and agreed to pay me an earned bonus equal to one (I) month
of my salary if I continued to work for Virxsys not\\'ithstanding that Virxsys had previously
become erratic and inconsistent in paying my salary on the date payment \vas due to be paid:"
and that ""in or about December 2011:' VIRxSYS paid each Plaintiff one half of the promised
and earned bonus but failed to pay the second half of the bonus at the end of each Plaintiffs
employment.

E.g., id. at

Plaintiffs
Interrogatories,

117-8.

also attached to their Motion VIRxSYS's
ECF No. 24-2, and VIRxSYS's

Answers to the First Set of

Responses to the First Set of Requests for

Production of Documents, ECF No. 24-3. In their lnterrogatories, Plaintiffs asked VIRxSYS to,
among other things: identify each person having discoverable infonnation that tends to support a
position or affirmative defense (Interrog. No.2);
Plaintiff's

employment,

identify the tenns and conditions of each

including salary, bonuses, and benelits (Interrog. No, 6): state the

number of hours worked weekly by each Plaintiff for the time period between January 1,2010 to
the present (Interrog. No.7); state the amount of all wages or other forms of compensation paid
to each Plaintiff for that time period (Interrog. No.8); state whether it contends that it does not
o,\'e any wages as alleged in the Complaint (lnterrog. No. 10); and state whether ",,'ages were
withheld from any Plaintiff as a result of a dispute (Interrog. No. 11). Ans",,'ers Interrog. at 4, 67, EeF No. 24-2. To each of these Interrogatories, VIRxSYS's response was nearly identical,
stating that ;';'asPlaintiffs are aware, Defendant has no access to its payor business records:' and

4

as a result, is "unable to identify any responsive documents" or is othef\",'ise "unable to fully
respond to this request," but that "[wJhen Defendant gains access to these records, Defendant
will respond to this Interrogatory:'

Id.

In Interrogatory Number 16, Plaintiffs asked, "Plea<;e provide a full factual basis for each
Atlirmative Defense raised in your Answer." Id. at 9. VIRxSYS replied:
Defendant states that it has not yet established a set position with regard to its
defenses, as discovery is not yet complete in this matter and Defendant does not
[have] the benefits of the contents of its payroll and other records. Furthermore,
the ultimate burden on Defendant is to assert and prove its affirmative defenses at
trial rather than through the course of discovery.
VIRxSYS did provide a substantive response to Plaintiffs' Interrogatory No. 14. Plaintiffs'
Interrogatory No. 14 asked VIRxSYS:
At any time during the time period January 20 I0 through the present. did you or
any of your agents ever promise or otherwise advise any Plaintiff that any
delinquent or otherwise owed wages were forthcoming or \\-'ould be paid at some
future time? If yes, identify and describe the circumstances of each responsive
incident.
Id. at 8.

VIRxSYS responded, "Defendant states that some oflicers may have promised to

compensate all former employees for wages owed, if any, under applicable state and federal law
once Defendant secured sufficient funding." Id.
On May 27, 2014, VIRxSYS filcd its Memorandum in Opposition to Plaintiffs' Motion
for Summary Judgment. RCF No. 27, and with it a previously unfiled affidavit from Michaelis
stating that, in 20 I0, the former Chief Executive Officer ("'CEO") and Chief Financial Officer
("CFO") of V1RxSYS promised employees a "retention bonus" of two weeks' pay if they
remained on board, "contingent upon the financial performance of the company," Michaelis AfT.
4, ECF No. 27-1. In "approximately early 2011," half of the retention bonus, or one week's
pay, was paid to eligible employees, but "[b]ecausc of VIRxSYS's

5

poor tinancial condition,

employees were never eligible for any additional bonus payments:'
stated that, in early 2012, Michaelis '"infonned

employees

Id .• ~5. The Aflidavit also

that if VIRxSYS's

financial

perfonnance improved and the company secured additional funding. [he J would ask the Hoard of
Directors to find a way to reward employees for their loyalty," but ."[t]his reward was contingent
on securing additional funding," as ",,'ellas Board of Director approval. and no dollar figure was
discussed.

Id. ~ 6. On the basis of the additional facts stated in the Aflidavit. VIRxSYS asks

that the Court deny Plaintiffs' Motion for Partial Summary Judgment as to the bonus payments
allegedly owed to all moving Plaintiffs except Jendrik. Talmadge. and Palmer.
DISCUSSION
I.

Le~al Standard
Under Federal Rule of Civil Procedure 56(a), the Court must grant summary judgment if

the moving party demonstrates that there is no genuine issue as to any material fact. and that the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In doing so. the
Court views the facts in a light most favorable to the nonmoving party, Anderson v. Liherty
Lohby. Inc., 477 U.S. 242. 255 (1986), which has the burden of showing that a genuine dispute
exists, Afatsilshita Elec. Induli. Co, v. Zenith Radio Corp" 475 U.S. 574, 586-87 (1986).
Moreover, ""the mere existence of some alleged factual dispute between the parties will
not defeat an othef\vise properly supported motion for summary judgment; the requirement is
that there be no genuine issue of material fact."

Anderson. 477 U.S. at 247-48 (emphasis in

original). A material fact is one that might aOect the outcome ofa party's case. Id. at 248; .iKC
Holding Co, v. Wash. Sports Ventures. Inc., 264 F.3d 459. 465 (4th CiT. 2001). A genuine issue
concerning a material fact arises when the evidence is sufficient to a11o\l a reasonable jury to
..
'
return a verdict in the nonmoving party's favor. Anderson. 477 U.S. at 248.

6

II.

I\1\VPCL Claim for Unpaid \\'ages
Under the MWPCL, an employer is requircd to pay an employee "all wagcs due for work

that thc employee performed before the termination of employment. on or before the day on
which the employee would have been paid the wages if the employment

had not been

terminated."' Md. Code Ann .• Lab. & Empl. ~ 3-505(a) (West 2014). Where an employer fails
to do so, the employee may bring an action against the employer to recover the unpaid wages
under

* 3-507.2(a).

In order for a plaintiff to establish a viable claim, the monies claimed must

constitute a "wage" within the meaning of that law. The MWPCL defines ",,,:agc" to mcan "all
compensation that is due to an employee for employment;'

including "a bonus; a commission; a

fringe benefit; ... or any other remuneration promised for service."

* 3-501(c).

In their Motion for Partial Summary Judgment. Plaintiffs argue that there is no dispute
that each Plaintiff is owed earned wages for the period between February 1,2012 and March 15,
2012, \lihich include unpaid salary and earned and unused vacation days for that time period,
and. for all moving Plaintiffs except for Jendrek, Talmadge, and Palmer, promised and earned
bonuses.

BelO\v. the Court will discuss unpaid salaries and earned and unused vacation time

separately from bonuses.
A. Unpaid Salaries and Earncd and Unused Vacation Time
PlaintitTs have presented sutlicient facts to support summary judgment on their MWCPL
claim for unpaid salaries and earned and unused vacation time.

In support of their Motion.

Plaintiffs have attached individual, sworn declarations that collectively state the amount of
unpaid salary and earned and unused vacation time they are owed, and that they "performed all
job duties and obligations" entitling them to those wages. E.g., Skripchenko Decl. "; 4-6.11-12.
14. Although the Plaintiffs note that the exact wages owed are "slightly approximated" because

7

the relevant documents were not produced by VIRxSYS during discovery. e.g .• Skripchenko
Decl. ~ 13, the spreadsheet

attached to PlaintiHs'

Motion for Partial Summary Judgment

indicates that they calculated their owed salary by multiplying their monthly salary--computed
by dividing a Plaintifrs

annual salary by twelve-by

1.5 months to account for the February I.

2012 through March 15.2012 period of unpaid wages, see Mot. Partial Summ. J., Ex. 3, ECF
No. 24-4. The Declarations also that state each Plaintitrs owed earned and unused vacation time
wages. \vhich were evidently calculated by multiplying the number of such hours owed to each
Plaintiff by the Plaintiffs hourly pay rate. as derived from the Plaintitrs annual salary. Id.
VIRxSYS has provided no factual evidence that contradicts PlaintifTs' calculations--or
any factual evidence at all.

To the extent that VIRxSYS raises any objections to Plaintiffs'

sworn statements in its Opposition to Plaintiffs

Motion for Summary Judgment. it argues

generally and without citing any law that the Court should deny summary judgment on these
claims "'[flor reasons of fundamental

due process and basic fairness," because VIRxSYS

continues to lack access to the pay and time records in possession of its landlords. despite
"'diligent efforts" to obtain them. Opp. Mot. Partial Summ. J. at 3. At oral argument, however,
VIRxSYS acknO\vledged that during discovery it made no elTort to obtain the documents through
a Rule 45 subpoena to the landlord in possession of the records.
Although Plaintiffs' claim of unpaid wages is presently based on their s\vorn statements
alone, such statements ean support summary judgment if uncontested.

See Turner

l'.

Human

Genome Scis .. Inc., 292 F. Supp. 2d 738. 748 (D. Md. 2003) (finding that, when records are
unavailable, testimony on hours of overtime worked can establish a prima facie case requiring
the defendant to produce contradicting evidence).

See also Khalil \'. Subway af Arundel Mills

OJJke Park, Inc" No, CCB-09-158, 2011 WL 231793, at '2 (D, Md, Jan. 24, 2011) (stating that

8

an employee's

affidavit providing the number of uncompensated overtime h(mrs worked, if it

wcre uncontested, might entitle the employee to summary judgment on his overtime claim. even
absent other evidence in the record to support his position).

Based on Plaintiffs'

sworn

statements, and in the absence of any other evidence in this case, contradictory or otherwise, the
Court concludes that VIRxSYS has not met its burden of shO\•... that there is a factual dispute
ing
in this case, and Plaintiffs have laid out sufficient. undisputed

facts to support summary

judgment in their favor as to the issue of unpaid salaries and earned and unused vacation time.
As set forth in Attachment A to this Memorandum Opinion, VIRxSYS owes PlaintifTs a total of
$149,851.72 for unpaid salaries and vacation time under the MWPCL.

n.

Earned Bonuses

Plaintiffs Skripchenko, Wang, Radd, Deausen. Mansfield. John, Williams, and Belverud
also state in their Declarations that they were promised a one-month bonus, of which they \Aiere
only paid halfbefore the end of their employment.
10, ECF No. 24-6; Radd Decl.

1,', 7-10.

Skripchenko Decl.

~'i Wang Decl. ~ ' 77-10:

ECF No. 24-7; Deausen Decl. ,,~ 7-10, ECF No. 24-8;

Mansfield Decl. \\ 7-10. ECF No. 24-11; John Decl. ,,~ 7-10, ECF No. 24-13; Williams Decl. ,,~
7-10. ECF No. 24-14; Belvcrud Decl.

'ItU 7-10,

ECF No. 24-16. PlaintilTs thus argue that they arc

also entitled to summary judgment for the unpaid half of their promised and earned bonuses.
VIR..xSYS, challenging Plaintiffs' entitlement to the bonus payment for the first time at this
summary judgment stage. has submitted a previously unfiled affidavit from Michaelis, the most
recent interim President and CEO of the company and also a defendant in the case. As described
below, the Michaelis Atlidavit creates a genuine issue of material fact whether Plaintiffs are
entitled to the bonus payments.
the requirement

Although. as PlaintifTs argue, VIRxSYS failed to comply \vith

of Federal Rule of Civil Procedure 26(e) to disclose the contents of the

9

Michaelis Affidavit during discovery, the Court declines to exclude the atlidavit under Rule
37(c) and instead reopens discovery to allow Plaintiffs to depose Michaelis on the bonus issue.
The Court will also consider from Plaintiffs any motions for other discovery sanctions pennitted
under Rule 37(c).

The Motion for Partial Summary Judgment as to the bonus payments is

denied.

In their declarations. Skripchenko, Wang. Radd, Deausen. Mansfield. John. Williams,
and Belverud state that:
In or about December 20 11, Virxsys promised and agreed to pay me an earned
bonus equal to one (I) month of my salary if I continued to work for Virxsys.
noh\ithstanding that Virxsys had previously become erratic and inconsistent in
paying my salary on the date payment was due to be paid.

E.g, Skripehenko Decl. ~ 7. Plaintiffs further state that they continued "employment with
Virxsys under conditions wherein Virxsys continued its erratic. inconsistent, and untimely salary
payments," and that VIRxSYS paid Plaintiffs one-half of the bonus "in or about December
2011," but failed to pay the second of the promised and earned bonus at the end of their
employment.

E.g.• id. , 8-10.

In opposition to this motion. VIRxSYS has submitted an affidavit from Michaelis. which
states that, in 2010, the fonner CEO and CFO promised employees a "retention bonus" of two
weeks'

pay if they remained on board, "contingent

company."

Michaelis Aff.

'i 4.

on the financial perfonnance

of the

In 2011, half ofthc retention bonus, or one week's pay. was paid

to eligible employees, but because VIRxSYS was in poor financial condition, no additional
bonus payments were made.

Id. ~ 5. Michaelis further states that he informed employees in

early 2012 that if VIRxSYS's

financial performance

improved and the company secured

additional funding, he would ask the Roard of Directors to tind a way to reward employees for
10

their loyalty, though no dollar amount was discussed and the reward was contingent on securing
additional funding. /d. ~ 6.
First, VIRxSYS argues that the Michaelis Affidavit contradicts the facts laid out in
Plaintiffs'

Declarations

regarding the conditions

creating a genuine issue of material fact
alleged "bonuses"

under which the bonuses were promised,

Second, it argues that the Allidavit shows that any

do not meet the definition of .'wages" under the M\VPCL because a"

described by Michaelis, any additional payments ""'ere discretionary in that the company retained
the option not to pay them ifVIRxSYS's

financial health did not improve. Under the MWPCL.

the term "bonus'. is included in the definition of "wage," Md. Code Ann., Lab. & Empl. ~ 3501(c)(2), but any monies to be paid to employees. regardless of label, are "wages" only if they
were promised as a term of employment as compensation for the employee's services and were
not dependent on conditions other than the employee.s efforts,

Varghese v, Hone}weJl Inn.

Inc., 424 FJd 411, 419-20 (4th Cir. 2005); Medex •.. McCabe, 811 A.2d 297, 302-03 (Md. 2002)
(explaining that "not all bonuses constitute wages" under the MWPCL unless the bonus is in
exchange or remuneration of employee's work, such as "incentive fees" given to employees in
exchange for meeting target sales goals).
Although Michaelis's
significantly

reference to a promised retention b()nus in 2010 stems from a

different time period than the December 2011 promised bonus described by

PlaintifTs, and therefore may not controvert Plaintitls'

account, Michaelis's

reference to his

commitment in early 2012, that he would ask the Board of Directors to lind a way to reward
employees for their loyalty if the company"s financial performance improved and it secured
additional funding, more clearly presents an alternative to Plaintiffs' version of events. Because
Michaelis a<;serts that any commitment

he made was non-specific

11

and dependent

on the

company's fortunes, the Michaelis Atlidavit establishes a genuine issue of material fact ""hether
Plaintiffs were promised a bonus that constitutes a wage under the MWPCL. such that the failure
to pay the second half of the bonus would constitute a violation of the statute. Indeed, Plaintill's'
Counsel conceded at oral argument that the Michaelis Affidavit. if not excluded. creates a
genuine issue of material fact as to the bonus issue.
2. Violation of Rule 26(c)
Plaintiffs argue that summary judgment is still appropriate because the Court should
exclude the Michaelis Affidavit altogether due to VIRxSYS's failure to disclose the infonnation
contained in the Affidavit in response to Plaintiffs' discovery requests.

Under Federal Rule of

Civil Procedure 37(c). a party that has failed to produce infonnation required by Rules 26(a) and
(e) may not present the undisclosed infonnation in its defense on summary judgment or at trial.
unless the failure was "substantially justified or hannless:'

Fed. R. Civ. P. 37(c)(I).

In this

instance. there was no violation of Rule 26(a) because the parties were not required to make Rule
26(a)(I) initial disclosures in this case, see Scheduling Order at 2. ECF No. 13. and the late
submission of the Michaelis Atlidavit violates neither Rule 26(a)(2) regarding disclosure of
expert testimony, nor Rule 26(a)(3) regarding pretrial disclosures of \\itnesses.

Ho\,,'ever, the

relevant parts of Rule 26(e) require a party that has responded to an interrogatory or request for
production of documcnts to supplement or correct its response "in a timcly manncr if the party
learns that in some material respect the disclosure or response is incomplete or incorrect, and if
the additional or corrective infonnation has not otherwise been made known to the other parties
during the discovery process or in \\Titing." Fed. R. Civ. P. 26(e)(I)(A).
Here, Plaintiffs argue that VIRxSYS \vas required to share the infonnation contained in
the Michaelis Affidavit in response. or as a supplement or correction to its previous responses. to

12

Interrogatory

Numbers

10, II,

14, and 16.

See Reply at 2-3.

Having examined

the

Interrogatories and VIRxSYS's Ans\,.rers, the Court finds that the inionnation contained in the
Michaelis Affidavit would not have been clearly responsive to Interrogatory Numbers 11 or 14.
Specifically.

Interrogatory

Number 11 asks whether any wages \":ere "withheld

from any

Plaintiff as a result of a dispute" between the individual and VIRxSYS. Answers Interrog. at 7.
Michaelis's

statements that company agents promised in 2010 to pay Plaintiffs a one-month

bonus ifVIRxSYS's

financial health improved. and that he committed in 2012 to ask the Hoard

of Directors to find a way to reward employees for their loyalty if financial conditions improved.
should not be construed as clearly responsive

10

this question because Michaelis docs not

acknowledge in his Affidavit that there was any dispute or any failure on VIRxSYS's part to pay
any wages that were the subject of a dispute.
Likewise, Interrogatory Number 14 asks: "At any time during the time period fbetween]
January 2010 through the present. did you or any of your agents ever promise or otherwise
advise any Plaintiff that any delinquent or othef\vise owed \I;'ages were forthcoming or would be
paid at some future timeT

Id. at 8. VIRxSYS responded: "Defendant states that some otliccrs

may have promised to compensate

all tonner employees

for wages owed, if any, under

applicable state and federal law once Defendant secured suJlicient funding:'

It!. Again, it is not

clear that VIRxSYS was required to include in its response to this question the information
contained in Michaelis's Affidavit, or provide it subsequently as an addition or correction to the
original Answer. because the question does not a<;kwhether future bonuses ""'ere promised, but
only whether Plaintiffs were promised forthcoming payment of their already O\ved wages.
However, the Court agrees with Plaintiffs that-while

very general in their wording-

Interrogatory Numbers 10 and 16 required VIRxSYS to disclose the information contained in the

13

Michaelis Atlidavil.

Interrogatory Number 10 asks: "Do you contend that you do not O\\'e any

Plaintiff wages as alleged in the ComplaintT
Interrogatories,

/d. at 7. In its original Answer to Plaintiffs'

VIRxSYS stated that it could not respond to the Interrogatory because it was

unable to gain access to its business records.

Id.

Information contained in the late-filed

Michaelis Affidavit would have been responsive to this Interrogatory in that it effectively asserts
that VIRxSYS does not owe the bonuses referenced in the Complaint, because they were either
not promised or were discretionary
Similarly,

Interrogatory

Number

and therefore not owed as wages under the MWPCL.

16 asks:

..Please provide a full factual basis for each

Affirmative Defense raised in your Ansv.,'er." Id. at 9. In its response, VIR,xSYS stated that it
had not yet established a set position with regard to its defenses because it lacked access to its
records.

Id. at 9. The statements in the late-filed Michaelis Affidavit were responsive to this

Interrogatory because by effectively asserting that the alleged bonuses were never promised or
were contingent on the company's

performance, they provide a partial factual ba<;is for the

Answer's asserted defense that "Plaintiffs'
compensation

claims are barred to the extent Plaintifl1s] seek[)

for activities that are not compensable under the FLSA and/or the MWPCL:'

Answer at 14 ~ 10. Thus, under Rule 26(e), VIRxSYS \vas required to correct its responses to
Interrogatory Numbers 10 and 16 with the information contained in the Michaelis Atlidavit.
During oral argument, VIRxSYS's Counsel argued that because Plaintiff's' Interrogatories
requested information regarding '.wages:' VIRxSYS had no obligation to provide Plaintiffs \vith
the information contained in the Michaelis Aflidavit in response to the Interrogatories, as it was
VIR."SYS's position that the bonuses were not wages under the MWPCL.

However. as noted

above, Interrogatory Number 10 specifically asks \-vhether VIRxSYS contends that it does not
"owe any PlaintifT wages as alleKed in the Complaint:' id. at 7 (emphasis added). and the

14

Complaint alleges that the bonuses are wages. see Am. Compl.

.N~43, 48.

The Court therefore

concludes that VIRxSYS was required under Rule 26(e) to share the information contained in the
Michaelis Affidavit in its responses to, or as an addition or correction to, its responses to
Plaintiffs' Interrogatory Numbers 10 and 16.5
The Court further notes that Interrogatory Number 2 asked VIRxSYS to identify "each
person ...

having discoverable information that tends to support a position that you have taken

or intend to take in this action. including any affirmative defense. and state in detail the
information possessed by each person identilied."

Ansv,:ers Interrog. at 4. In response to this

Interrogatory, VlRxSYS answered that it had "not yet established a set position with regard to its
defenses, as discovery [was] not yet complete in this matter"' and it lacked access to any of its
business records. /d. While Interrogatory Number 2 is broadly-\\'orded, VIRxSYS was required
to identify Michaelis as a person containing such discoverable information and to disclose the
information contained in Michaelis's

Aflidavit in its respnnse.

This Interrogatory provides

further suppm1 for the conclusion that VIRxSYS violated Rule 26(e) when it failed to provide
the information contained in the Michaelis Aflidavit to Plaintitfs during discovery.
3. Rule 37(c) Oisco\'{'I')' Sanctions
As the Advisory Committee

Note to the 1993 Amendment

to the Rule explains.

Rule 37(c) provides a "self-executing sanction'" of the exclusion of evidence improperly withheld
during discovery that requires no motion.
(c) (1993).

Fed. R. Civ. P. 37 advisory committee note. subdiv.

However. a court may forego this sanction if the failure to provide infonnation as

required by Rule 26(a) or (e) was substantially justified or harmless.

/d.: see ,'letson-Sa/abes,

VIRxSYS's Counsel conceded during oral argument that the information contained in the
Affidavit would have been responsive to Interrogatory Number 16, which requested factual bases
for all of VIRxSYS's aflirmative defenses without specific mention of wages. and that VIRxSYS
\vas therefore required to update and correct their response to Interrogatory Number 16,
5

15

Inc. v. Morningside Dev., LLC, 284 FJd 505, 512 n.lO (4th Cir. 2002). In Southern States Rack
& Fixture, Inc. v. Sherwin-Williams

Co., 318 F.3d 592 (4th Cir. 2003), the Fourth Circuit has

stated that district courts, in exercising

their broad discretion to determine

whether the

nondisclosure of evidence is substantially justified or harmless should be guided by a five-factor
test:
(I) the surprise to the party against whom the evidence ,vould he offered; (2) the
ability of that party to cure the surprise; (3) the extent to which allowing the
evidence would disrupt the trial; (4) the importance of the evidence; and (5) the
nondisclosing party's explanation for its failure to disclose the evidence.
ld. at 597.
On the first factor, surprise to the party against whom the evidence would be offered, it is
clear that Plaintiffs were entirely unaware of the new information.

After being told repeatedly

during discovery that VIRxSYS had no access to any relevant information. and receiving no
indication

of any facts contradicting

Plaintiffs'

version of events, Plaintiffs were clearly

surprised to learn that VIRxSYS ,••..
ould be asserting, for the first time at the summary judgment
stage, a claim that the bonuses
performance.

were never promised

or ""ere contingent

on company

However. there is more ability to cure the surprise at this stage of the litigation

than if the evidence ''''ere disclosed for the first time at trial. See JficroStralej{Y, Inc. v. Bus.
Objects. S.A., 429 F.3d 1344, 1357 (4th Cir. 2005) (affirming district court's application of
Southern Stales analysis to exclude ne'''' damages theories introduced on the eve oftnal because
surprise could not be cured without postponing trial and reopening discovery).

At this stage, no

pretrial scheduling order has been issued and no trial date has been set in this case. Therefore. as
to the second factor. V1RxSYS is able to cure the surprise by permitting Plaintiffs to depose
Michaelis.

Likewise, with respect to the third factor, because trial has not yet begun or been

scheduled, permitting inclusion orthe evidence does not disrupt a trial.
16

On the fourth factor, although the information in the Michaelis Affidavit is important
because it goes directly to Plaintiffs'

MWPCL claim for v.'ages, it aJTects only Plaintiffs'

entitlement to bonus payments and is therefore only one part of the case, and an issue that
Plaintiffs can explore prior to trial through a deposition of Michaelis and any necessary witnesses
identified through that deposition.
As to the fitlh factor. VIR.xSYS has not provided a substantial justification for its failure
to disclose to Plaintiffs the information contained in the Michaelis Atlidavit.
argument. VIRxSYS's

During oral

Counsel stated that, despite its best eOarts. VIRxSYS continued to be

unable to access its business records. and therefore did not knO\v how it would defend the case.
The information contained in the Michaelis Aftidavit, however. relied not on business records,
but on the personal knowledge of Michaelis, a named Defendant and the individual identified in
the response to Interrogatory Number I as having prepared the responses to the Interrogatories.
See Answers Interrog. at 4. As discussed above, VIRxSYS's argument that it did not consider
the Michaelis Affidavit information responsive to the Interrogatories is convincing as to some.
but not all, of the Interrogatories.

Thus, the Court finds that this explanation does not rise to the

level of a substantial justification.
Balancing all of the factors, the Court ''''ill not exclude the Michaelis Allidavit under
Rule 37(c). Although Defendants had no substantial justification lar the failure to disclose the
information, the Court takes note of the fact that the Interrogatories in response to which the
information should have been disclosed were not specifically targeted to obtain facts about bonus
discussions.

Furthermore. Plaintiffs. for their part. did not diligently pursue such information. in

that they never sought to depose Michaelis despite his clear connection to this case, and at least
one substantive

Interrogatory

response, stating that "some otlicers may have promised to

17

compensate

all former employees for wages owed . . . once Defendant secured sufficient

funding," Answers Interrog. at 8 (Answer to Interrog. No. 14), should have put them on notice
that there was relevant infonnation

to be discovered.

Particularly because the harm to the

Plaintiffs can be largely addressed by allowing additional discovery and perhaps by imposing
,

alternative

sanctions for the discovery violation. the Michaelis Aflidavit

is not excluded.

Because, as discussed above, the Michaelis Atlidavit creates a genuine issue of material fact
whether Plaintiffs are entitled under the MWPCL to the second half of their claimed bonuses.
Plaintiffs' Motion for Partial Summary Judgment as to the bonus payments is denied.
The Court will, however, reopen discovery so that Plaintiffs may depose Michaelis on the
issue of bonus payments.

Rule 37(c) states that "[i}n addition to or instead of' excluding late-

filed evidence, a court may, on motion. order payment of reasonable expenses caused by the
failure to disclose or "impose other appropriate sanctions. including any of the orders listed in
Rule 27(b)(2)(A)(i)-(vi)."

Fed. R. Civ. P. 37(e)(I)(A), (C). Thus, tbe Cuun will also entenain

any motion from Plaintiffs for other appropriate sanctions. including. for example. a motion to
order payment of reasonable expenses for the cost of the portions of Plaintiffs' Motion for Partial
Summary Judgment that address the unpaid bonuses issue. a motion to order payment of the cost
of Plaintiffs' deposition of Michaelis. or both.
III.

Enhanced

Ilamagcs and Attornc}"s Fees

Having denied summary judgment

on Plaintiffs'

MWPCL claim as to their bonus

payments. the Court ,,,ill consider PlaintitTs' request for treble damages and attorney's fees with
regard only to Plaintiffs' owed salaries and earned and unused vacation time.

18

A.

Enhanced Damages

Under the MWPCL, when a court finds •.that an employer \vithheld the wage of an
employee in violation of this subtitle and not as a result of a bona fide dispute, the court may
award the employee an amount not exceeding 3 times the wage, and rea'ionable counsel fees and
other costs."

Md. Code Ann., Lab. & Empl.

an employer resists the employee's

* 3-507,2(b).

A "bona lide dispute" exists where

claim for unpaid wages and has a "good faith basis" for

doing so because there is a "legitimate dispute over the validity of the claim or the amount that is
ow'ing.'" Admiral Mortg .. Inc., v. Cooper, 745 A.2d 1026. 1031 (Md. 2000).

Gencrally, the

existence of a bona fide dispute at the time of the termination is a question of fact Icft for a jury
and not the judge.

Bait. Harhors Charier LId. v. Ayd, 780 A.2d 303, 321-22 (Md. 2000).

However, it is still appropriate for a court to grant summary judgment where there is no evidence
to suggest that a bona fide dispute existed. See Marroquin v. Canales, 505 F. Supp. 2d. 283. 296
(D. Md. 2007).

Here, VIRxSYS neither submits any evidence of, nor raiscs the argument that

there was, a bona fide dispute over Plaintiffs' O\\'ed salaries or carned and unused vacation timc.
Accordingly, the Court concludes that no bona fide dispute exists and that PlaintifTs are entitled
to up to treble damages for their unpaid salaries and earned and unused vacation time. At oral
argument, both sides agreed that in the event of a grant of partial summary judgment on the
MWPCL claim, the determination of the amount of damages rests with the Court.
The Court of Appeals of Maryland recently provided limited guidance on the issue of
how to determine how much should be awarded in damages in MWPCL cases in which treble
damages are authorized.

Peters v. Early Healthcare Giver. Inc.• No. 86, Sept. Term 2013. 2014

WI. 3938810, at '7 (Md. Aug. 13, 2014).

Recounting the history of the MWPCI., the court

explained that the treble damages option was "included in the statute for a remedial purpose-to

19

cure what the Legislature saw as a problem with 'wage theft ..• and to provide employers with "a
greater incentive ...
citation omitted).

to pay employees the amounts owed to them. in full."

Id. (footnote and

The court further noted that the Legislature \vas seeking to address the

"practical ditliculties that employees have in bringing lawsuits to recover wages owed,"

Id.

Notably, the MWPCL private right of action with the possibility of treble damages was enacted
in 1993 to provide an alternative means for employees to receive redress because budget
constraints had rendered the existing remedy, lawsuits initiated by the Maryland Commissioner
of Labor and Industry. insullicient "to handle the high number of enforcement actions nceded,"

/d. at *8; Friola v. Frankel, 819 A.3d 354, 363 (Md. 2003). The treble damages provision was
provided to give private litigants "the same results as if the matter had been handled by the
Commissioner of Labor and Industry." Peters. 2014 WL 3938810. at *8 (quoting Wage Payment

and Collection - A"(ion for Unpaid Wages: /learing on S. B. 27-1Be.li:>re •. Camm. on Fin.,
the \'en.
1993 Leg., 407th Sess. (Md. Feb. 4, 1993) (statement of Sen. Paula C. Hollinger, Member Sen.
Comm. on Fin.). The Commissioner had identical authority to seek up to treble damages. which
Maryland courts granted in the vast majority of cases:

as of 1993. the Commissioner

had

received treble damages in 80 percent of unpaid wages cases. Frioli, 819 A.2d at 363. Rather
than identify specific factors to consider or formulas to employ in arriving at a damages figure,
the Peters court's guidance was as follo\vs: "[W]e simply say that trial courts are encouraged to
consider the remedial purpose of the [M]WPCL when deciding whether to award enhanced
damages to employees."

Peters, 2014 WL 3938810, at *7.

With this context, the Court concludes that this case is appropriate for an order of treble
damages.

This case demonstrates both the need for remedial action to encourage employers to

pay their employees

in full and the "practical ditliculties

20

that employees have in bringing

lawsuits to recover wages owed." Throughout the litigation, VIRxSYS has not even attempted to
identify a legal basis for its failure to pay their employees their earned wages.
required Plaintiffs to endure the difliculties of modem civil litigation:
substantive responses to Plaintiffs'

interrogatories.

Yet it has also

it failed to provide

requiring PlaintilTs to tile a Motion for

Sanctions that was granted by the U.S. Magistrate Judge, Order on Mot. Sanctions. then it
continued to withhold infonnation

required to be disclosed.

See supra Part 11.A.2. As

justification, VIRxSYS repeatedly asserted that it had no access to relevant business records, but
at oral argument VIRxSYS counsel acknowledged that the company refrained from employing a
Rule 45 subpoena to obtain the records. These tactics are referenced not to criticize VIRxSYS or
seek to sanction it through enhanced damagcs-a
aggressively-but

to illustrate

that, indeed,

defendant is within its rights to litigate

there are significant

"practical

difficulties"

employees must face to recover earned and unpaid \vages, \vhich have caused Plaintiffs in this
case to go \vithout their earnings for ovcr two and a half years now.

Because thcre was

absolutely no legal defense to thc claim for unpaid \•..
'ages, and \\ith due consideration of thc
remedial purposes of the statute to provide a greater incentive for employers to pay wages in full,
the Court Ends that Plaintiffs are entitled to treble damages on their claims for unpaid salary and
unuscd vacation time. Total damages owed by VIRxSYS, as sct forth in Attachment A to this
Memorandum Opinion. are therefore $449.555.16.
R. Attorney's Fees
A court may also award attorneys' fees to a prcvailing party under the MWPCL. Courts
employ a three step process in deciding to grant attorneys'

fees:

(I) detennining

that the

withholding of wages was not the result of a bona tide dispute; (2) detennining whether to award
attorney's fees in its discretion; and (3) detennining the amount orthe attorney's fees. Barufaldi

21

v. Ocean City. Md. Chamber of Commerce. Inc.. 47 A.3d 1097. 1103-04 (Md. Ct. Spec. App.
2012). oD'd.. 75 A.3d 952 (Md. 2013).

As stated above. the withholding of Plaintiffs' wages was not a result of a bona fide
dispute.

The Court will therefore move on to the second step of determining \,,-hether to award

the attorney's fees. In Barufaldi, the Court of Special Appeals of Maryland explained that "there
is no presumption in favor of attorneys' fees in a [M]WPCL case:- and that the court should
"exercise

its discretion

[M]WPCL."

liberally, in a manner that is consistent with the purposes of the

Id.. at 1110. See also Friolo v. Frankel. 819 A.2d 354. 364 (Md. 2003).

In this

case. VIRxSYS has failed to pay Plaintiffs their salaries and earned and unused vacation time for
the time period between February 1,2012 and March 15. 2012. As discussed above. PlaintillS'
suit is consistent \\'ith the MWPCL's

purposes in protecting employees from deprivation of

wages. Accordingly. the Coun concludes that Plaintiffs are entitled to attorney's fees.
The third step is the determination of the amount of fees to av.'ard. At PlaintitTs' request.
the Court will not calculate the specific amount until Plaintiffs tile a petition for the specific
amount of reasonable attorney's

fees and expenses relating to the action to recover unpaid

salaries and earned and unused vacation time. Plaintiffs shall file such petition within 30 days of
the date of this Memorandum Opinion and accompanying Order.
CO:-;CLUSION
For the foregoing reasons, it is hereby ORDERED that Plaintiffs' Motion for Partial
Summary Judgment is GRANTED IN PART and DENIED IN PART. A separate Order follows.

£<~

Dale: Seplemher 26, 2014

THEODDRED:CHUa
United States District Judge

22

.