Kumar v. Dhanda (Ct. of Appeals)

Filed May 2, 2012
Opinion By Judge Clayton Greene, Jr.

Held:
While nonbinding arbitration, mandated by the contract, may have constituted a condition precedent to litigation, pursuing arbitration neither postponed the accrual of the underlying breach of contract claims nor otherwise tolled the statute of limitations applicable to maintaining an action in court.

Facts:
Petitioner and Respondent entered into an employment agreement on August 28, 2001. The contract contained a non-compete clause which prohibited Respondent from practicing within a specified radius of Petitioner’s multiple offices or soliciting or accepting Petitioner’s patients for three years following the expiration of the contract, or through August of 2005. The contract also included a standard mandatory, non-binding arbitration clause.

The agreement was not renewed upon termination on August 31, 2002. Soon thereafter, Respondent filed an initial suit for breach of contract against Petitioner in the Circuit Court for Anne Arundel County seeking damages for a breach of contract based on Petitioner’s refusal to grant Respondent partner status and the withholding of certain monies.

Four months later, on February 26, 2003, Petitioner filed a motion to compel arbitration and to dismiss the action. The judge presiding in Anne Arundel County dismissed the action without prejudice on April 24, 2003, stating that the “claims are subject to mandatory arbitration,” but noting that “[t]he case may be reopened to enforce the arbitration.”

On April 29, 2005 Petitioner filed, in the Circuit Court for Baltimore City, a petition to compel arbitration and to appoint an arbitrator. The petition also included separate counts concerning the substantive claims for breach of contract and breach of the non-compete provision. On March 9, 2006, Respondent filed both a response to Petitioner’s petition to compel arbitration and his own motion to dismiss the substantive counts for improper venue and as claims subject to mandatory arbitration. Petitioner then filed a response to the motion to dismiss, offering to withdraw the substantive counts if the Circuit Court would compel arbitration in order to resolve the issues. The court dismissed the substantive counts on April 28, 2006, but did not order arbitration. On August 25, 2006, Petitioner filed a motion for summary judgment, urging the Circuit Court for Baltimore City to grant the earlier petition to compel arbitration. Following a bench trial on November 20, 2006 the  judge granted the petition to compel arbitration.

Petitioner submitted the matter to the arbitrator in March of 2008. The arbitrator denied all relief to Petitioner and also denied relief to Respondent, save for an award of $868.00 as reimbursement for certain disability insurance premiums.

Finally, on March 16, 2009, almost a year after the arbitration award was issued, Petitioner filed the instant action in the Circuit Court for Montgomery County. The complaint stated that “[t]he Agreement requires arbitration as a requirement before Plaintiff can pursue a remedy in court . . . [t]he matter went to arbitration, and a decision in favor of the Defendant was rendered in June of 2008. This matter is brought de novo.” Respondent filed a motion to dismiss, arguing that the applicable three-year statute of limitations barred the action because the alleged breaches of contract occurred between 2002 and 2005. Petitioner filed in opposition, contending that, because completion of arbitration was a condition precedent to filing a claim, the statute of limitations had not begun to run until the arbitration decision of June 20, 2008. After a hearing and supplemental briefing by the parties, Judge McGann, of the Circuit Court for Montgomery County dismissed the action with prejudice.

Analysis:
The applicable statute of limitations is encompassed in § 5-101 of the Courts and Judicial Proceedings Article, which states: “[a] civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.” In the context of the statute of limitations, “[t]he law is concerned with accrual in the sense of testing whether all of the elements of a cause of action have occurred so that it is complete.” St. Paul Travelers v. Millstone, 412 Md. 424, 432 (2010). In the instant case, although not specifying the particular dates, both parties agree that the alleged breaches of contract occurred more than three years prior to the filing of the complaint in the Circuit Court for Montgomery County.

The cases Petitioner cites in order to assert that the statute of limitations does not begin to run until a plaintiff can “maintain his action to a successful result” all concerned whether the necessary elements of a cause of action had arisen under the facts that were presented. In the instant case, neither party disputes that all of the elements of Petitioner’s breach of contract claims existed, at the very latest, as of the dates upon which the applicable contractual provisions terminated.  Like the situation in Arroyo v. Board of Educ. of Howard County, 381 Md. 646 (2004), while resolution of the legal action must wait until the satisfaction of the condition precedent, the court’s jurisdiction may be maintained and the claim properly stayed prior to that time.

The court could find no applicable exception to § 5-101, or language within the Maryland Uniform Arbitration Act, §§ 3-201 to 3-234, that would toll the statute of limitations in this case. In Philip Morris v. Christensen, the court explicated for the first time two factors that continue to guide  consideration of whether to apply a judicial tolling exception in a particular case. In order for an exception to be applied the court must find that: “there is persuasive authority or persuasive policy considerations supporting the recognition of the tolling exception, and, recognizing the tolling exception is consistent with the generally recognized purposes for the enactment of statutes of limitations.” Philip Morris, 394 Md. at 238 (2006).  While, to be sure, arbitrating parties are on notice of any possible claims against them, thereby guarding them from stale claims, another purpose of the statute of limitations would be threatened by tolling in this situation. The court has repeatedly touted the value of statutes of limitations as not only ensuring fairness between the parties, but also as essential to judicial economy and the pursuit of diligence in litigation. Petitioner’s pursuit of his legal claims was not vigilant.

The full opinion is available in PDF.

College Park Pentecostal Holiness Church v. General Steel Corp. (Maryland U.S.D.C.)

Filed January 19, 2012.
Opinion by Judge Peter Messitte

Held: An arbitration clause in a contract may be unconscionable, and thus unenforceable, if there is stark inequality of bargaining power between the parties and the terms unreasonably favor one side over the other. 

Note: In this case, the court applied Colorado law pursuant to the terms of the contract (which is substantively similar to Maryland law).

Facts: This case arises from a contract dispute between a church and a building supplies company.  The church was located in Maryland; supplier was located in Colorado.  The church was presented with a contract and told they had one day to sign because a pricing special would no longer be available.  The church signed the contract with supplier which included an arbitration clause.  The arbitration clause provided 1) that any arbitration hearing shall be held in Denver, 2) any challenge that relates to whether claims are arbitrable shall obligate the challenging party to pay the attorney's fees and costs of defense to the non-challenging party, and 3) the party initiating arbitration shall advance all costs thereof. 

The church filed a breach of contract claim.  The supplier filed a motion to dismiss and sought to enforce the venue clause, thus forcing the church into arbitrating the matter in Colorado.  The church claimed that portions of the arbitration clause were unconscionable, specifically the venue and cost allocation provisions. 

Analysis: Under Colorado law, unconscionability requires an overreaching on the part of one party (i.e. inequality of bargaining power or an absence of meaningful choice by the second party) and contract terms which unreasonably favor the first party.  Factors relevant to an unconscionability analysis include:

"[A] standardized agreement executed by the parties of unequal bargaining strength; lack of opportunity to read or become familiar with the document before signing it; use of fine print in the portion of the contract containing the provision; absence of evidence that the provision was commercially reasonable or should reasonably have been anticipated; the terms of the contract, including substantive unfairness; the relationship of the parties, including factors of assent, unfair surprise and notice; and all the circumstances surrounding the formation of the contract, including its commercial setting, purpose and effect." quoting Davis v. M.L.G. Corp., 712 P.2d 985, 991 (Colo. 1986).

The Maryland case law governing unconscionability is similar to the Colorado law.  In Walther v. Sovereign Bank, the Maryland Court of Appeals held that unconscionability requires both a procedural and substantive unfairness.  386 Md. 412 (2005).   Procedural unfairness is evident by one party's lack of meaningful choice or unfair bargaining power.  Substantive unfairness is evident by contractual terms that unreasonably favor the other party.  Id. 

In this case, the court, following Colorado law, found that the church was in an unfair bargaining position because the church representative who reviewed and signed the contract did not have business acumen or benefit of counsel.  The court also found that the pressure to sign within one day added to the lack of meaningful choice.  The court also found the terms of the arbitration clause unreasonably favored the supplier because of the economic hardships the church would incur by arbitrating in Colorado rather than in Maryland.  The court also found the provision requiring the church to pay up front all costs of the arbitration and attorney's fees for the supplier was extremely unfair. 

The full opinion is available in PDF. 

Weinberg v. Gold, et al. (Maryland U.S.D.C.)

Filed: March 12, 2012
Opinion by Judge James K. Bredar

Held: In a shareholder's derivative suit, the plaintiff shareholder failed to plead sufficient factual allegations to excuse demand on the corporation under the demand futility exception set forth in Werbowsky v. Collomb, 766 A.2d 123 (Md. 2001).

Facts: Plaintiff Arnold Weinberg (the "Shareholder") brought a derivative suit against various officers and directors of Biomed Realty Trust, Inc. (the "Company") alleging, among other things, breach of fiduciary duty for failing to rescind approval of an executive compensation plan rejected in a "say on pay" vote by the shareholders of the Company. The plan was formulated by a three-member compensation committee of directors and approved by the board. The issue before the Court was whether the Shareholder pled sufficient factual allegations to justify filing the suit without first making a demand on the Company.

Analysis: The Court cited Werbowsky v. Collomb, 766 A.2d 123 (Md. 2001) as the most recent, authoritative exposition of Maryland law on the issue of demand futility. Werbowsky affirmed the demand futility exception but limited it to matters in which the "allegations or evidence clearly demonstrate, in a very particular manner, either that (1) a demand, or a delay in awaiting a response to a demand, would cause irreparable harm to the corporation, or (2) a majority of the directors are so personally and directly conflicted or committed to the disputed decision that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule."

Recognizing the Werbowsky court's clear statement that mere participation in or approval of the challenged transaction by the directors does not excuse demand, the Court dismissed the Shareholder's argument that demand was futile because each director named in the suit was on the board when the compensation plan was approved, three directors were members of the compensation committee and two of the seven directors were officers of the Company and beneficiaries of the compensation plan. The Court recognized that the two directors who were officers of the Company and beneficiaries of the compensation plan were arguably "so personally and directly conflicted" that they could not reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule. However, Werbowsky requires that a majority of the board be so personally disqualified before demand is excused. Likewise, the fact that directors are named in the suit does not mean that prior to the suit demand would have been futile. It if did, the Court opined, the demand requirement would be nullified in every suit that named directors are defendants.

The Shareholder also sought to excuse demand on the basis that the directors' actions were not the product of valid business judgment. Werbowsky, however, implicitly disallows consideration of the merits of the case in analyzing demand futility. While recognizing that a "say on pay" vote can arguably provide the board with an opportunity to reconsider its executive compensation decisions, the Court concluded that it is not the equivalent of a pre-suit demand. Such a vote can, however, be reasonably considered as a non-conclusive factor in the demand futility analysis. The Court also rejected the Shareholder's analysis of the "say on pay" vote under Ohio and Delaware standards for demand futility because neither standard is comparable to the standard set forth in Werbowsky.

The full opinion is available in pdf.

Boland v. Boland; Boland v. Boland Trane Associates, Inc. (Ct. of Appeals)

Filed: October 25, 2011
Opinion by Judge Sally D. Adkins.

Held:

Holding 1: After a motion to dismiss or for summary judgment against a derivative plaintiff, Maryland courts must review a special litigation committee's ("SLC") independence, and whether it made a reasonable investigation and principled, factually-based conclusions. In this inquiry, the SLC is not entitled to a presumption that it was sufficiently independent from a corporation's directors.

Holding 2: When a court grants summary judgment in a derivative suit based on an SLC's determination that continuing the lawsuit is not in the corporation’s best interest, that court decision is not a final adjudication on the merits so as to preclude a direct suit under the doctrine of res judicata. The court makes no determination of the merits of the allegations when reviewing an SLC's decision. Moreover, a direct action, which asserts individual rights, is an entirely different cause of action than a derivative action, which is brought on behalf of the corporation.

Facts: Two lawsuits arose when a family business, consisting of two corporations and owned primarily by eight siblings (collectively, the "Corporation"), attempted to repurchase the stock of one sister upon her death pursuant to a Stock Purchase Agreement. When the sister's estate refused to sell the stock, the Corporation filed a declaratory judgment action seeking enforcement of the Stock Purchase Agreement. Meanwhile, non-director siblings who had learned of earlier stock transactions that resulted in director siblings acquiring additional corporate stock for themselves, sent a demand for litigation to the Corporation and filed a derivative action in the Circuit Court alleging self-dealing and a breach of fiduciary duty. They also filed "direct" claims, as cross-claims in the declaratory judgment action.

In response, the corporations appointed an SLC consisting of two newly hired "independent directors" to examine the claims. The SLC determined that the stock transactions were legitimate and the Stock Purchase Agreement was enforceable.

The Circuit Court, applying the business judgment rule, deferred to the judgment of the SLC and granted summary judgment to the Corporation on the derivative action. The Circuit Court also dismissed the cross-claims relying on res judicata.

Analysis: On appeal in the Court of Appeals, the Court upheld the application of the business judgment rule by the Circuit Court and held that after a motion to dismiss or for summary judgment against a derivative plaintiff, Maryland courts must review the SLC’s independence, and whether it made a reasonable investigation and principled, factually-based conclusions. However, in this inquiry, the SLC is not entitled to a presumption that it was sufficiently independent from the directors. Because the Circuit Court presumed the independence and good faith of the SLC without requiring that the Corporation prove the SLC's independence, the Court of Appeals vacated the Circuit Court's judgment and remanded for further proceedings.

The Court referred to its holding as an "Auerbach enhanced" standard, in reference to Auerbach v. Bennett, 393 N.E.2d 994 (N.Y. 1979). In so holding, the Court rejected the so-called Zapata standard under which Delaware courts review a SLC’s recommendation on the merits, applying their “independent business judgment.”

The Court reasoned that "a procedural review under the business judgment rule, although clearly the more deferential standard [toward the Corporation], nonetheless provides for a thorough review of an SLC’s independence, good faith, and methodology, and such inquiry gives trial courts the ability to scrutinize SLC decisions and protect shareholders against collusive practices or inadequate investigations."

On the issue of whether the non-director siblings' "direct" claims, brought as cross-claims in the declaratory judgment action were precluded by res judicata, the Court held that the Circuit Court's grant of summary judgment in the derivative action, based on a recommendation of the SLC, does not form a basis for res judicata because it is not a determination on the merits. Accordingly, the Court held that a trial court's resolution of a derivative complaint, when based on the recommendation of an SLC, cannot be said to be a final judicial resolution on the merits of the claims.

The full opinion is available in PDF.

Meade v. Shangri-La Partnership (Ct. of Appeals)

Filed: January 26, 2012
Opinion by Judge John C. Eldridge

Held: A plaintiff with a latex allergy proffered enough evidence of discrimination because of a "handicap" under the Maryland code by showing that her son's school declined her request that it use non-latex products so she could enter the school safely and that the school asked her to withdraw her son when she threatened litigation.

Facts: A plaintiff with a latex allergy asked her son's school to switch from latex gloves to non-latex gloves for changing diapers so that she could safely enter the school. The school declined. In response, the plaintiff sent a letter to the school stating that she had rights and asking the school not to deny her of her rights. The school replied by asking the plaintiff to withdraw her son, stating that it did not wish to be exposed to litigation from the plaintiff.

The plaintiff sued the school for discrimination on the basis of a handicap in violation of Maryland Code Article 49B and the Howard County Code. The plaintiff claimed that the latex allergy was a "handicap" under the county code and that the school refused to make reasonable accommodations and then retaliated against her for complaining.

The plaintiff won a jury verdict in the circuit court, and the defendant appealed. The Court of Special Appeals reversed, holding that the term "handicap" should be construed to establish a demanding standard. The Court of Special Appeals held that there was no evidence to support a finding that the plaintiff's allergy prevented or severely restricted a major life activity. Accordingly, she was not handicapped. The plaintiff then appealed.

Analysis: At the Court of Appeals, the plaintiff argued that it was error to construe the term "handicap" to create a demanding standard. The Court of Appeals agreed, and it reversed the Court of Special Appeals.

The Court noted that "handicap" is defined as a physical or mental impairment that substantially limits on or more major life activity. The Court held that these phrases must be given their "usual meaning." Using this standard, the Court held that there was sufficient evidence from which the jury could conclude the plaintiff had shown an substantial impairment to a major life activity - her ability to socialize and interact with her son at school.

The Court expressly rejected a "demanding standard" and said that actions like the plaintiff's are to be liberally construed in favor of the person claiming to be the victim.

Dissent: In dissent, Judge Adkins cautioned that such an open-ended, uncritical approach to disability claims created a worrisome precedent without giving sufficient guidelines other than the doctrine advising liberal interpretation of remedial legislation. She pointed out that the opinion gives no standards on how to determine what constitutes a "substantial limitation" or a "major life activity." Because of this, the plaintiff's claim, and future plaintiff's claims, are not subject to any rigorous legal standard other than a jury's opinion.

Judge Adkins noted that claimants and the businesses they sue will "have virtually no standard for differentiating acceptable and unacceptable conduct in terms of dealing with people's differences in health status." She stated that the Court "should consider the extensive litigation spawned by the almost identical ADA, much of it based on non-qualifying claims."

The full opinion is available in PDF.

Lavine v. American Airlines, Inc. (Ct. of Special Appeals)

Filed: December 1, 2011

Opinion by Judge James Kenney III

Held: A "no oral modification" clause of a contract can preclude oral modifications where it constrains the authority of agents to act without written authorization from a corporate officer.

Facts: This case arises from a contract dispute between an airline and two airline passengers. Passengers booked airline tickets online and received an "E-Ticket Confirmation" email which included a link "Conditions of Carriage" providing the terms and conditions of the contract. The "Conditions of Carriage" stated in part, "[n]o agent, employee or representative of American has authority to alter, modify or waive any provision of the Conditions of Carriage unless authorized in writing by a corporate officer of American."

Due to a delay in the passengers outbound flight, an employee of the airline represented to passengers that a connecting flight would be provided. The outbound flight did not arrive at the connecting destination in time to board the connecting flight. The passengers were not provided a substitute connecting flight until the following day. The passengers contend that the airline employee's representation orally modified the terms of the contract.

Analysis: Even if an employee's representations amount to what would generally be an oral modification to a contract, the modification would not have been valid because of the specific language in the non-modification clause. The Court did not address whether or not the employee's representation otherwise would amount to an oral modification. The Court only addressed whether the employee had authority to make a modification.

[ed. Compare this result with the one in Hovnanian Land v. Annapolis Towne Ctr., 415 MD. 337, 1 A.3d 467 (2010), where the Court of Appeals held that a condition precedent may be waived by a party's conduct despite a non-waiver clause which required any waiver to be in writing.]

In Lavine, the Court held a non-modification clause of a contract which provides that no agent, employee or representative of the party has authority to alter, modify or waive any provision of the contract unless in writing by an officer of the party will withstand challenges that a contract has been orally modified, so long as the agent, employee or representative that made the oral modification did not have written authorization.

The full opinion is available in pdf.

Roger E. Herst Revocable Trust, et al. v. Blinds to Go (U.S.) Inc., et al. (Maryland U.S.D.C.)

Filed: October 26, 2011

Opinion by Judge Ellen Lipton Hollander

Held: When a tenant is contractually obligated to pay rent even after acts that could be considered termination of the lease as a matter of real property law, the damage principles of contract law apply and, in the absence of a lease provision with reasonable clearness to the contrary, a defaulting tenant is entitled to the benefit of any excess rent realized from reletting the premises.

Facts: Crest Net Lease, Inc., as landlord, entered into a triple net commercial Lease with Blinds to Go (U.S.) Inc. ("BTG"), as tenant, on September 21, 2011 and entered into a Guaranty with Blinds to Go Inc. ("BTG's Parent"), the parent company of BTG, on the same date for the guaranty of the obligations of BTG under the Lease. On August 21, 2011, Crest Net Lease, Inc. assigned all of its right, title and interest in the Lease and Guaranty with the Blinds to Go entities to the plaintiffs, Roger E. Herst Revocable Trust, Dr. Roger E. Herst, Trustee of the Roger E. Herst Revocable Trust, and Joshua R. Herst (collectively, the "Plaintiffs"). Under the terms of the Lease, all rent was due and payable on the first day of each calendar month during the term and there was a late charge of 3% of the monthly rent each time the rent was late and interest also accrued on all amounts that had not been paid to the landlord at the rate of 5.25%. On or about August 31, 2009, BTG abandoned and vacated the leased premises and sent a letter to the Plaintiffs on the next day informing the Plaintiffs of the decision to vacate the leased premises. In its letter, BTG informed the Plaintiffs that it would cease paying any and all rent and additional rent otherwise payable under the Lease and suggested that it was in the best interests of the parties to terminate the Lease due to the rental rates under the Lease being well below market rates and permit the Plaintiffs to directly recover a higher rent from a new tenant. Following receipt of the BTG's letter, the Plaintiffs sent a letter to BTG informing it the the Plaintiffs "fully rejected the unilateral termination" by BTG of the Lease and would hold BTG responsible for payment of all rent and expenses set forth in the Lease through the expiration date of the Lease. Subsequent to sending the letter to BTG, the Plaintiffs also entered into an Exclusive Leasing/Sales Agreement with StreetSense Retail Advisors, LLC ("StreetSense") to authorize StreetSense to act as the Plaintiffs' agent to obtain a new tenant of the leased premises. In attempting to find a tenant, StreetSense reached out to KLNB to see if any of KLNB's clients would be interested in the premises. BTG also contacted Bialow Real Estate, LLC ("Bialow") in an effort to find a new tenant for the leased premises. On November 30, 2009, Bialow sent KLNB, on behalf of Vitamin Shoppe a letter for intent to express Vitamin Shoppe's interest in the premises. The letter of intent eventually made it to the Plaintiffs and was countersigned by the Plaintiffs on December 7, 2009. On August 3, 2010, the Plaintiffs and Vitamin Shoppe executed a lease agreement (the "Vitamin Lease") for the premises with an initial term of 10 years. The premises were delivered to Vitamin Shoppe on September 1, 2010. Because the Vitamin Lease contained provisions that gave the tenant a build-out period of 90 days in which to make tenant improvements to the premises for purposes of getting the premises ready for Vitamin Shoppe's business and a building improvement allowance of up to $87,500. The Vitamin Lease's term began on December 1, 2010 and , unlike BTG's Lease, was not a triple net lease. For delivering Vitamin Shoppe as a tenant and because there were three brokers involved, StreetSense, KLNB and Bialow, the Plaintiffs' paid commission equal to $81,218.

The Plaintiffs filed suit against in the Fall of 2010 against BTG and BTG's Parent (collectively, the "Defendants") alleging breach of the Lease and the Guaranty and seeking recovery for damages incurred as a result of such breaches, including unpaid rent from the Defendants for a total of 23 1/3 months, representing the amount of time from Defendants' breach in September 2009 until when the Plaintiffs received rent payments from Vitamin Shoppe, late charges for unpaid rent, repayment of real estate taxes and utilities, reimbursement of brokers' commission, reimbursement for costs with entering into the Vitamin Lease, administrative costs, litigation costs, and prejudgment interest. In response to the claims of Plaintiffs, the Defendants challenged the reasonableness of the Plaintiffs' efforts in mitigating their losses, the reasonableness of some of the concessions made in connection with the Vitamin Lease, the necessity of the build-out period and the reasonableness of the tenant improvement allowance, the administrative charge, litigation expenses regarding zoning issues for Vitamin Shoppe's signage and brokers' commission. The Defendants also argued that the Plaintiffs' claimed damages should be prorated to account for the time period that the Vitamin Lease extends beyond the term of the BTG's Lease and that their liability should be offset by the surplus rent that the Plaintiffs are receiving as a result of the rent being charged under the Vitamin Lease being much more than that under BTG's Lease.

Analysis: Because the parties stipulated as to the amount of unpaid rent and the amount of late charges, the Court turned first to addressing the Defendants' arguments that the length of time it took the Plaintiffs' to execute a lease with Vitamin Shoppe was unreasonable. The Court noted that while the Defendants' claim that the Plaintiffs received four originals of the lease for execution from Vitamin Shoppe's attorney on May 15, 2010 but did not sign the lease until August 3, 2010, the Defendants failed to provide any evidence indicating whether the lease that was finally signed was identical to the lease that was delivered in May. Even with such evidence, the Court explained that it would not have mattered because not only did the exact terms of the lease provide that the projected delivery date of the premises would be on September 1, 2010 but that it was clear from the outset that the lease would not be executed until the end of 2010 due to the letter of intent expressing Vitamin Shoppe's desire for the premises to be delivered "on or about January 3, 2011." The Court then quickly dismissed the Defendants' argument that the inclusion of a 90 day build-out period was unreasonable in light of BTG having been granted a 180 day build-out period under its lease with the Plaintiffs. While the Court found the number of hours claimed by Dr. Herst for purposes of performing administrative services as a result of the Defendants' breach, the Court found the hourly charge of Dr. Herst to be commensurate with market rates and awarded the Plaintiffs' recovery of the administrative charges due to them being expressly allowed under the terms of the Lease, less the number of hours the Court found to be excessively high or covered as a result of professionals hired by the Plaintiffs. Similarly, to the other challenges of Defendants' questioning the reasonableness of the brokers' commission, the title fees, the litigation fees expended to unsuccessfully deal with a zoning issue for Vitamin Shoppe's signage, the Court found all such charges to be reasonable, within the ability of the Plaintiffs' to recover as a result of Defendant's breach and within market rates.

The Court next turned its attention to the argument of Defendants' that the damages should be prorated to account for the additional months of tenancy obtained by the Plaintiffs as a result of the term of the Vitamin Lease being longer than the remainder of BTGs' Lease. As support for their argument, the Defendants pointed to Wilson v. Ruhl, 277 Md. 607 (1967), and the Maryland Court of Appeals approval of the proration of a broker's commission that a landlord paid to procure a replacement tenant. The Plaintiffs argued that Wilson was inapplicable because it concerned a residential lease and not a commercial lease and, even if it applicable to commercial leases, it was overruled by Millison v. Clarke, 287 Md. 420 (1976). The Court first noted that Wilson's holding regarding the proration of a brokerage fee to exclude that portion of the brokers' commission that is for a term in excess of the breaching tenant did differ for residential and commercial leases and then explained that Millison only overruled dicta of Wilson that suggested that a landlord's reletting of premises for a term longer than the original term of the lease was the landlord accepting the surrender of the the premises by the original tenant and not the proration holding. The Court also found that while the express language of the Lease obligated BTG to pay the brokers' commission as one of the listed items that can be incurred in reletting the premises if there is a breach by BTG, it did not warrant disregarding the holding of Wilson. Therefore, with respect to the brokers' commission, the Court held that to the extent that amount requested for the brokers' commission would be reduced to allocate to the Plaintiffs that amount of the brokers' commission that was applicable solely to Vitamin Shoppe's tenancy beyond the balance of the remainder of BTG's tenancy under the Lease.

Turning to the Defendant's next argument, the Court addressed Defendants' argument that they were entitled to setoff the damages owed by them by the amount of the surplus rent that has already been received, and that will be received, by the Plaintiffs as a result of Vitamin Shoppe's rent under the Vitamin Lease being higher than BTG's rent under the Lease. The Plaintiffs' argued that the Defendants were not entitled to a deduction for such surplusage. Because neither of the parties cited any cases, the Court reviewed secondary sources and cases from other jurisdictions regarding Defendants' argument. The Court found the New York case Hermitage Co. v. Levine, 162 N.E. 97 (N.Y. 1928), to be particularly instructive. In Hermitage, the court held that "in the absence of a lease provision to the contrary, a defaulting tenant was entitled to the benefit of any excess rent realized from reletting." The court also acknowledged that a contract damages provision could be drafted in such as way to not require the landlord to account for surplus. In referencing the terms of the Lease, the Court noted that Section 17.2.3 of the Lease expressly authorized the Plaintiffs to relet the premises without terminating the Lease and required the Plaintiffs to apply any rent received by the Plaintiffs "to the account of [BTG], not to exceed [BTG's] total indebtedness to [Plaintiffs]". Because the express terms of the Lease required the Plaintiffs to apply any amount received from reletting to the account of the Defendants, the Court held that the Defendants were entitled to set-off as a result of the surplus rent being received, but that the surplus amounts had to be adjusted to account for present value of future surplus and, in light of the fact that BTG's Lease was a triple net lease and the Vitamin Lease is not a triple net lease, the amounts that would have been paid for taxes utilities and maintenance by the Defendants.

Lastly, the Court addressed the issue of prejudgment interest. Referencing Fourth Circuit precedent that applied state law to questions involving prejudgment interest and Maryland precedent setting prejudgment interest at 6% per annum unless another percentage is established by contract or statute, the Court held that the Plaintiffs would be entitled to prejudgment interest in the amount of 5.25% per annum, as set forth in the Lease, for unpaid rent and late charges beginning on the date due, but were only entitled to pre-judgment expenses for all other awards of damages, including the brokers' commission, the attorneys' fees, the administrative costs and any other amounts from the date of the Court's order until the date judgment was entered against the Defendants. The Court explained that pre-judgment interest was allowable for the unpaid rent and late charges from the date due because those amounts had previously become due and were capable of precise calculation from the date that they were due. The other damages could not have been determined precisely as of any date certain prior to the ruling of a trier of fact and therefore could not begin running interest until they became due and certain as a result of the resolution of the case.

The full opinion is available in PDF.