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‘Disloyal’ worker keeps $1M fee award

A Bethesda real estate brokerage won a breach-of-contract battle with a former employee but lost the nearly $1 million war over attorneys’ fees.

Maryland’s top court affirmed a $946,014.50 award in legal fees to brokerage manager Dorothy C. “Dottie” Faust, though she was found liable for $250,000 in damages for disloyalty to her former employer, Weichert Co. of Maryland.

Lower courts had concluded that, although Faust breached her contractual duty of loyalty to Weichert, she did not violate the non-solicitation provision of her employment agreement. The agreement provided that the loser would pay the winner’s attorneys’ fees in a dispute over the non-solicitation clause.

Affirming the lower courts, the Court of Appeals rejected Weichert’s argument that an employee who breaches the duty of loyalty forfeits any claim to attorneys’ fees.

Faust had breached the duty by performing work on behalf of Long & Foster, Weichert’s competitor, during her employment.

Wednesday’s 5-2 decision said a breach of loyalty does not invalidate an attorneys’ fee award tied to an unrelated contractual provision that was not violated.

Since the non-solicitation clause “presented divisible rights and obligations” from the rest of the contract, “a breach of the inherent duty of loyalty did not affect those rights,” Judge Clayton Greene Jr. wrote for the majority. “Therefore, Faust’s breach of the duty of loyalty did not result in a forfeiture of her rights under the fee-shifting provision of the non-solicitation clause.”

Judge Sally D. Adkins dissented, assailing the majority’s decision as “flawed and incongruent with hornbook contract law.”

Violating “the ‘fundamental’ duty of loyalty” was an egregious breach of the employment contract, Adkins wrote for herself and Judge Joseph F. Murphy Jr.

“Accordingly, as the injured party, Weichert is excused from any remaining contractual obligations,” she wrote, “and Faust, as the materially breaching party, is not entitled to the contractual benefit of attorney’s fees.”

Faust’s attorney, Stewart S. Manela, said he is “very pleased” with the decision that followed nearly six years of time-consuming litigation.

The litigation involved more than 80 depositions and over 100,000 pages of documents, the naming of a special master to resolve many discovery disputes, a five-week trial and a week of jury deliberations, Manela said in explaining the size of the attorneys’ fees.

“It certainly was a very substantial endeavor,” said Manela, who is with Arent Fox LLP in Washington, D.C.

Weichert’s attorney, Sharon P. Margello, did not return telephone messages seeking comment. Margello is with Ogletree, Deakins, Nash, Smoak & Stewart PC in Morristown, N.J.

Competitor’s branch

The legal dispute arose over Faust’s decision in early 2003 to leave Weichert and help open a Long & Foster branch in the same Bethesda building.

A few couple of weeks after the new Long & Foster office opened at 4733 Bethesda Ave., Faust made her move, and a number of Weichert agents followed. (Weichert has since moved to nearby 7200 Wisconsin Ave.)

Weichert sued Faust and Long & Foster in May 2005 for, among other things, breach of contract and employee piracy. Faust counterclaimed.

After the trial in early 2008, a Montgomery County Circuit Court jury awarded Weichert $250,000 in damages on the loyalty count, but awarded Faust $116,000 on her Maryland Wage Payment and Collection Law claim. (The jury also found that Long & Foster engaged in unfair competition, but the Court of Special Appeals overturned that award in August 2009.)

Both parties filed petitions for their attorneys’ fees. Weichert requested $2.2 million, and Faust sought almost $1.5 million. In January 2009, Judge William J. Rowan III granted the majority of Faust’s petition, but denied Weichert’s.

The Court of Special Appeals affirmed in March 2010 and Weichert petitioned for certiorari.

Weichert, in its appeal, also argued that Faust was not entitled to attorneys’ fees because she had not incurred them; Long & Foster had retained and paid for her lawyers.

The high court rejected that argument.

“[A] general obligation to pay for incurred attorneys’ fees refers to those fees incurred on behalf of the prevailing party,” Greene wrote. “Thus, although Ms. Faust may not be personally responsible for the payment of the attorneys’ fees, this fact is not relevant to our determination of whether she ‘incurred’ the fees under the terms of the agreement.”

WHAT THE COURT HELD

Case:

Weichert Co. of Maryland Inc. v. Faust, CA No. 43, Sept. Term 2010. Reported. Opinion by Greene, J. Dissent by Adkins, J. Filed April 27, 2011.

Issue:

May an employee who breached the contractual duty of loyalty collect attorneys’ fees after a jury finds she did not violate the contract’s non-solicitation provision?

Holding:

Yes; breaching the duty of loyalty does not void independent contractual provisions that entitle a litigant to attorneys’ fees.

Counsel:

Sharon P. Margello for petitioner; Stewart S. Manela for respondent.

RecordFax # 11-0427-22