Tricat Industries, Inc. v. Harper

748 A.2d 48

131 Md. App. 89

TRICAT INDUSTRIES, INC., et al. v. Paul E. HARPER.

No. 742, Sept. Term, 1999.

Court of Special Appeals of Maryland.

March 10, 2000.

Julie C. Janofsky (David M. Wyand and Brocato, Price & Bushel, P.A., on the brief), Baltimore, for appellants.

Charles M. Kerr (Kerr McDonald, LLP, on the brief), Baltimore, for appellee.

Argued before EYLER, THIEME and SONNER, JJ.

EYLER, Judge.

Paul E. Harper, appellee, filed suit in the Circuit Court for Baltimore City against Tricat Industries, Inc. (Tricat) and

KataLeuna GmbH (KataLeuna), appellants, for breach of an employment agreement. Appellants appeal from a jury verdict and resulting judgment in favor of appellee and contend that the circuit court committed several legal errors. Appellee has filed a cross-appeal, contending that he was entitled to pre-judgment interest. For the reasons that follow, we shall reverse and remand for a new trial.

Facts

Tricat is an Oklahoma corporation with its principal place of business in Baltimore County. KataLeuna is a German corporation with its principal place of business in Leuna, Germany. KataLeuna is a partially owned subsidiary of Tricat Management GmbH (Tricat Management), which is a wholly owned subsidiary of Tricat Europe S.A., which is a wholly owned subsidiary of Tricat.

In January, 1996, Dr. P. Kenerick Maher, President of Tricat, contacted appellee to see if he would be interested in serving as chief financial officer of Tricat and its affiliated companies. On February 9, 1996, as "President" of Tricat and "Chairman" of KataLeuna, Dr. Maher extended a written offer to appellee for the position of senior vice president and chief financial officer of Tricat and executive vice president and supervising financial officer of KataLeuna. Appellee was to be compensated at the rate of $120,000 per year, with adjustments "if circumstances justify." Appellee accepted the offer the same day.

The agreement dated February 9, 1996, also provided (1) that appellee would be provided with housing and a car in Germany, (2) the standard family medical insurance and 401-K plan presently in effect or being installed in the United States, (3) four weeks vacation per year, (4) a stock option for 3,000 shares of Tricat's Class B non-voting stock at $16 per share as a "signing bonus," (5) participation in any annual company stock and cash bonus plans, (6) that with respect to severance, "if terminated for reasons other than `cause' six months salary. Ongoing termination will be developed," and (7) that Tricat was to provide limited personal legal assistance, personal tax return assistance, and pay medical and other coverages during the COBRA period.

According to appellants, in March, 1996, the Board of Directors of Tricat, at a meeting attended by Dr. Maher and appellee, approved appellee's employment at a salary of $120,000 per year for a trial period of six months. Between then and late July, 1996, several written documents were generated between Dr. Maher and appellee, which took the form of new employment agreements, "[a]ddenda to employment agreement," "clarification of employment agreement," a memo, and a "side letter." The documents addressed the terms of appellee's employment, and while most were undated, they purported to be effective as of March 1, 1996. Some of the agreements recited that appellee's salary had been increased to $160,000 and provided for a 3-year term of employment.

According to appellants, in June, 1996, at a board of directors meeting attended by Dr. Maher and appellee, the board refused to approve a salary for appellee in excess of $120,000. Subsequent to that meeting, appellee retained an attorney, with Dr. Maher's consent, who drafted an employment agreement between appellee, on the one hand, and Tricat and Tricat Management on behalf of its subsidiaries, on the other hand. This agreement (hereinafter Agreement) did not bear a date of execution, but the circuit court determined, based on uncontradicted evidence, that it had been executed on July 31, 1996. The Agreement expressly indicated that it had been executed by Dr. Maher as both "President" of Tricat and as "authorized agent" of Tricat Management.

The Agreement contained an "explanatory statement," which provided as follows:

Employee currently provides services to the Employers pursuant to a contract dated March 1, 1996. Because of time pressures at the time such contract was entered into, and the desire of the Employers to have the Employee begin his employment at the earliest possible date, certain understandings with regard to the Employee's employment by the Employers were not adequately referenced or set forth in the original contract, and both the Employee and the Employers wish to clarify and set out in writing their agreement as to those additional understandings, and incorporate them with the original contract into one document for ease of reference.

The Agreement also provided that it "supersedes and replaces in its entirety the employment agreement dated as of March 1, 1996 between the Employee and Tricat in effect prior to the execution of this Agreement." The Agreement provided for a three-year term commencing as of March 1, 1996, "which term shall be extended on February 28, 1997, and on each anniversary of that date thereafter for a further period of one year to a date three years from the date of the extension, unless otherwise terminated in accordance with Section 11 hereof."

Section 11 of the Agreement provided that appellee would receive severance pay equal to three years compensation if terminated without cause. Finally, in pertinent part, the Agreement provided for an annual salary of $160,000 retroactive to March 1. The evidence is in conflict as to whether this Agreement was ever approved by the board of directors. The terms of Tricat's bylaws were disputed at trial, but there was some evidence that its bylaws provided that the board of directors had to approve officers' salaries.

On December 4, 1996, Dr. Maher terminated appellee for cause but requested him to remain until January 31, 1997 to tie up loose ends. The purported cause for termination was that he devoted too much time to personal matters, misused company resources, had a volatile temperament, and failed to produce work on time. Subsequently, the board of directors removed Dr. Maher as President of Tricat and managing director of KataLeuna.

Appellee sued for breach of the Agreement for failure to make severance payments. At the time of trial, the circuit court determined that the Agreement was valid and binding as a matter of law and submitted only one question to the jury, i.e., whether appellee's employment was terminated for cause or without cause. The jury returned a verdict for appellee in the amount of $500,000. Additional facts will be discussed as necessary as we address the issues.

Questions Presented

Appellants

A. Did the trial court err in holding, as a matter of law, that a corporate officer's alleged contract, containing a six-figure severance arrangement, was valid and binding, where there was extensive evidence to the contrary?

B. Did the trial court err in refusing to give any instruction whatsoever to the jury as to what constitutes "just cause" for the termination of a contract employee under established principles of Maryland law?

C. Did the trial court err by instructing the jury that it could not consider anything that happened after a corporate officer was notified of his termination, where there was evidence that after that date, but before the date the employers' alleged obligation to pay severance pay began, the officer removed and/or failed to return thousands of corporate documents, materially breaching the same agreement which he was seeking to enforce, and which he contended required the payment of $500,000 severance pay to him?

D. Did the trial court improperly shift the burden of proof to the Defendant employers, by instructing the jury that the Defendants had the burden of proving that they terminated the Plaintiff employee for just cause?

E. Did the circuit court err in holding that venue was proper in Baltimore City?

Appellee

F. Did the trial court err in declining to award Harper pre-judgment interest at the constitutional rate of six percent from the date of the breach of Harper's employment contract on February 1, 1996, through the date judgment was entered in favor of Harper on April 20, 1999, in the amount of $66,409.52?

Discussion

A.

Appellants contend that the circuit court erred in ruling as a matter of law that the Agreement was valid and binding. First, appellants contend that the Agreement, which contained a salary and severance package in excess of that approved by the board of directors in March, 1996, was never approved by the board and that such approval was required. Appellants further contend that Dr. Maher had neither actual nor apparent authority to enter into the Agreement providing for a salary in excess of $120,000 a year or for more than a six-month term.

Appellants explain that there was no evidence of actual authority, and with respect to apparent authority, words or conduct of the principal is required—in this case—the board. Additionally, the agent—in this case—appellee, had a duty to investigate the scope of authority, and most important, appellee had actual knowledge that Dr. Maher lacked authority. The knowledge was obtained from the bylaws and from attendance at the board of directors meetings in March and June. Appellants conclude that they were entitled to a ruling as a matter of law that the Agreement was invalid, or alternatively, if appellants were not so entitled, the issue should have been submitted to the jury.

Second, appellants argue that the existence of multiple agreements created a dispute of fact with respect to the terms of the actual agreement. The circuit court held that the Agreement was valid and binding and, based on the parol...