Spacesaver Sys., Inc. v. Adam

440 Md. 1

98 A.3d 264

SPACESAVER SYSTEMS, INC.

v.Carla ADAM.

No. 98, Sept. Term, 2013.

Court of Appeals of Maryland.

Aug. 27, 2014.

Patricia M. Weaver (Glenn M. Cooper, Paley, Rothman, Goldstein, Rosenberg, Eig & Cooper, CHTD., Bethesda, MD), on brief, for petitioner.

Harry R. Silver (Potomac Law Group of Washington, DC; Brian E. Frosh, Karp, Frosh, Wigodsky & Norwind, P.A., Bethesda, MD), on brief, for Respondent.

Argued before BARBERA, C.J., HARRELL, BATTAGLIA, GREENE, ADKINS, McDONALD and LAWRENCE F. RODOWSKY (Retired, Specially Assigned), JJ.

ADKINS, J.

Oil and water naturally resist each other. No matter how much one tries, the two cannot be mixed together successfully. As this case demonstrates, the same is often true of family and business. Following a dispute between sibling business partners, we are asked to re-examine the contours of the firmly established doctrine of at-will employment. We do so in order to determine if a written contract containing a for-cause provision, but no definite term of employment, exists as an at-will contract, a lifetime contract, or something else.

FACTS AND LEGAL PROCEEDINGS

Petitioner, Spacesaver Systems, Inc. (“SSI”), was incorporated in the District of Columbia in 1973 by Jack and Alyce Schmidt. SSI sells and installs mobile storage equipment, including tracked shelving systems, to businesses and governmental organizations with large storage needs. In the 1990's, the Schmidts began transferring ownership of the business to their three children: Carla Adam (“Respondent”), Amy Hamilton (“Hamilton”), and David Craig (“Craig”). As the Schmidts eased out of the business and moved to Florida, the three siblings assumed greater responsibility in the company.

In 2006, Adam and Hamilton became concerned that Craig was stealing from SSI. Hamilton, Respondent, Albert Ellentuck (SSI's corporate attorney), and Erik Kloster (SSI's corporate accountant) met to discuss Craig's affiliation with SSI. As a result of this meeting, Ellentuck revised the siblings' employment agreements, which subsequently contained a provision for termination for cause. This provision appeared as follows:

4.2 Termination by the Company For Cause. The Company may, at any time and without notice, terminate the Employee for “cause”. Termination by the Company of the Employee for “cause” shall include but not be limited to termination based on any of the following grounds: (a) insubordination or refusal to perform duties of employee's position as directed by the President of Company and affirmed by a majority vote of the Directors; (b) fraud, misappropriation, embezzlement or acts of similar dishonesty; (c) conviction of a felony involving moral turpitude; (d) illegal use of drugs or excessive use of alcohol in the workplace; (e) intentional and willful misconduct that may subject the Company to criminal or civil liability; (f) breach of the Employee's duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company; (g) willful disregard of Company policies and procedures; (h) material breach of any of the terms herein; and (i) material nonperformance or negligence in Employee's performance of her duties.

Adam's Executive Employment Agreement (the “Employment Agreement”) references a “term of this Employment Agreement,” but the parties failed to define this term.

Along with the revised employment agreements, Ellentuck drafted a Stock Purchase Agreement so that if an employee were terminated from SSI, she could be compelled to sell her stock to the other shareholders. Articles 3 and 5 of the Stock Purchase Agreement provide that SSI will redeem the stock in the event of disability or death of a shareholder. Article 4 provides that shareholders can be forced to sell their shares if they engage in “Prohibited Acts.” These “Prohibited Acts” generally mirror the for-cause provisions listed in the Employment Agreement.¹

On October 19, 2006, Adam, Craig, and Hamilton each signed the individual executive employment agreements and stock purchase agreements drafted by Ellentuck. Shortly after the employment agreements were executed, Craig resigned as President and Director of SSI. Pursuant to Adam's Stock Purchase Agreement, Craig's stock was sold equally to Adam and Hamilton, who consequently each held a 50% interest in SSI.

Despite Craig's departure, sibling harmony did not last long, as Hamilton and Adam began to have disputes about their respective job responsibilities and compensation. According to Hamilton, Adam's sales performance was “not very good.” Consequently, Adam was removed from the sales force.

On May 28, 2009, Hamilton wrote Adam expressing her intent to acquire Adam's SSI stock, and concluding that Adam's employment was terminated. The conflict reached its apex when, on January 28, 2010, SSI sent Adam a letter terminating her employment. In response, Adam filed a Complaint on April 9, 2010 against SSI and Hamilton in the Circuit Court for Montgomery County. On July 30, 2010, Adam filed an Amended Complaint, which alleged that she was terminated without cause in violation of her Employment Agreement.

Adam filed a Motion for Partial Summary Judgment, contending that the Employment Agreement established that she could only be terminated for cause. SSI filed an Opposition to Motion for Partial Summary Judgment and Cross–Motion for Summary Judgment, denying that the Employment Agreement guaranteed Adam lifetime employment and asserting that even if the Employment Agreement were so construed, Adam had failed to give “additional consideration” for a lifetime contract.

Following a hearing, the motions court denied both motions for summary judgmenton August 19, 2011. The hearing judge found the contract ambiguous, ruling that “extraneous evidence of what the parties intended may be admitted to assist the court in determining the agreement of the parties.” After three days of testimony, the trial court ultimately concluded that the Employment Agreement transformed what had previously been an “at-will relationship” to a “lifetime contract,” such that Adam could only be terminated for cause, death, or disability. Crucial to the trial court's analysis was that the for-cause provision would be rendered superfluous if the Employment Agreement were construed as at-will. The trial judge rhetorically asked, “why in the world would you have to worry about [cause] if you had an at-will contract?” The trial judge found a breach of the Employment Agreement, and awarded Adam $255,868.20, representing lost salary and commission.

SSI appealed to the Court of Special Appeals, asserting that the trial court erred in concluding that the Employment Agreement was not an at-will contract, but rather a for-cause lifetime contract. Spacesaver Sys., Inc. v. Adam, 212 Md.App. 422, 69 A.3d 494 (2013). On June 27, 2013, the Court of Special Appeals partially affirmed and partially reversed the trial court's interpretation of the contract, holding that the contract's plain language created a “continuous contract terminable for-cause,” which obviated the need for special consideration. Id. at 447, 69 A.3d at 510.

SSI petitioned for writ of certiorari, which this Court granted on October 18, 2013 to answer the following questions: ²

1. Is there any difference between lifetime and “continuous for-cause” contracts?

2. Did the Court of Special Appeals err in applying dicta from Towson University v. Conte, 384 Md. 68, 862 A.2d 941 (2004), which suggests that a “just cause” provision transforms at-will employment into lifetime employment terminable only for cause?

3. Does the presence of a for-cause provision, which does not state employment is terminable only for cause, transform at-will employment to lifetime employment terminable only for cause?

As to the second question, we affirm the judgment of the Court of Special Appeals. The first and third questions we shall answer in the course of explaining why this written employment contract is distinct from the alleged “lifetime employment contracts” that we have historically held to be unenforceable.

STANDARD OF REVIEW

“The interpretation of a contract, including the determination of whether a contract is ambiguous, is a question of law, subject to de novo review.” Towson Univ. v. Conte, 384 Md. 68, 78, 862 A.2d 941, 946 (2004) (quoting Sy–Lene v. Starwood, 376 Md. 157, 163, 829 A.2d 540, 544 (2003)). Maryland law dictates the objective interpretation of contracts, which provides for the following:

[A court is to] determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant. Consequently, the clear and unambiguous language of an agreement will not give away to what the parties thought that the agreement meant or intended it to mean.

Gen. Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261, 492 A.2d 1306, 1310 (1985). In determining whether a contract is ambiguous, a court may consider “the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution[.]” Calomiris v. Woods, 353 Md. 425, 436, 727 A.2d 358, 363 (1999) (quoting Pac. Indem. v. Interstate Fire & Cas., 302 Md. 383, 388, 488 A.2d 486, 488 (1985)) (internal quotation marks omitted).³

DISCUSSION

Petitioner attacks the opinion of the Court of Special Appeals on several grounds. First, Petitioner maintains that when the Employment Agreement is read in conjunction with SSI's Employee Handbook,⁴ it is clear that the contract could be terminated with or...