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Ocean City v. Barufaldi

Court of Appeals of Maryland

September 24, 2013


Barbera, C.J. Harrell Battaglia Greene Adkins McDonald [*] Bell JJ.


McDonald, J.

The vast majority of states, including Maryland, follow what is known as the "American Rule" on the allocation of the costs of litigation – that is, each party bears its own costs, including attorneys' fees, regardless of the outcome.[1] This is in contrast to the practice in Great Britain – and most other legal systems in the Western world – which follows what is known as the "English Rule" under which the successful party in a law suit may recover the costs of litigation from the losing party.[2]

The American Rule is subject to numerous exceptions, most notably when the Legislature has authorized the award of attorneys' fees by statute.[3] Among the many Maryland statutes that allow for an award of attorneys' fees is the Maryland Wage Payment and Collection Law, codified at Maryland Code, Labor & Employment Article ("LE"), §3-501 et seq. That law establishes a private right of action for a worker to obtain compensation from an employer for unpaid wages. Under that law, a successful plaintiff may recover the cost of legal representation from an employer who wrongfully withheld the plaintiff's pay.

This Court has previously stated that, in light of the purpose of the Wage Payment and Collection Law, a trial court "should exercise [its] discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that case."[4] This case concerns whether, in making that determination, a Maryland court should look to the standards that are applied by federal courts in deciding whether to award attorneys' fees in actions brought under the federal Employee Retirement Income Security Act of 1974 ("ERISA"). The trial court in this case applied the ERISA standards in deciding not to make an award.

We hold that the purposes and operation of the two statutory schemes, and their respective fee-shifting provisions, are sufficiently dissimilar that the analysis under ERISA should not be imported into the Wage Payment and Collection Law.


Maryland Wage Payment and Collection Law

The Wage Payment and Collection Law sets certain standards for the frequency and methods of compensation, permissible deductions from pay, and notification of employees about the details of pay and changes in the amount or method of payment. LE §3-502 through §3-505. "Wage" is defined to include "all compensation that is due to an employee for employment, " including bonuses, commissions, overtime, fringe benefits, and other forms of compensation. LE §3-501(c).

The statute provides for enforcement by the State Commissioner of Labor and Industry[5] through administrative actions and civil proceedings. LE §§3-507, 3-507.1. It also establishes misdemeanor criminal offenses for willful violations of the statute and for knowingly false statements made to a governmental unit or official with respect to an investigation or proceeding under the statute. LE §3-508.

Pertinent to this case, the statute creates a private right of action for an employee to recover wages that have been wrongfully withheld. LE §3-507.2. Under that provision, an employee may bring an action to recover unpaid wages if the employer has failed to make payment in accordance with the statute and if two weeks have elapsed since the wages should have been paid. LE §3-507.2(a). The statute also provides for a successful plaintiff to recover attorneys' fees and costs in certain circumstances:

(b) If, in an action under subsection (a) of this section, a court finds that an employer withheld 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 reasonable counsel fees and other costs.

LE §3-507.2(b).

The Chamber of Commerce Hires Mr. Barufaldi

Petitioner Ocean City, Maryland Chamber of Commerce, Inc. (the "Chamber"), is a private, nonprofit organization that draws its members from various businesses and professional organizations. It was founded in 1953 to promote local tourism and commerce and derives its income from membership dues, donations, and advertising revenue generated by a subsidiary corporation, Ocean City Guide, Inc., through its publication "The Guide." The Chamber states that it has not earned or reported a "net profit" in recent years.[6]

In the fall of 2005, the Chamber hired Respondent Daniel Barufaldi as its executive director. His compensation was outlined in a written, back-dated employment agreement executed two months after he had actually begun work. The agreement provided that, during the three-year term of the agreement, he was to receive an annual base salary of $52, 000 supplemented by incentive compensation. The incentive compensation was to be computed as a percentage of the Chamber's net revenue – as calculated each quarter – above a baseline figure to be set by the parties within the two months after execution of the agreement. However, the parties did not agree to a baseline amount within that time period or afterwards.

On October 31, 2006, the Chamber proposed to Mr. Barufaldi a new employment agreement that did not include incentive-based compensation and that provided that he could be fired without cause on 30 days notice. At the trial of this case, the Chamber asserted that Mr. Barufaldi asked for this contract and was agreeable to its terms. Mr. Barufaldi contended that the Chamber had no intention of paying him the incentive-based compensation contained in the original agreement and attempted to force him to accept the new contract without that element of compensation. In any event, it is undisputed that Mr. Barufaldi never executed the second contract.

Resignation, Lawsuit, and Trial

On January 23, 2007, Mr. Barufaldi resigned as executive director of the Chamber and took a position with another chamber of commerce in Charles County. On April 3, 2008, he filed a lawsuit in the Circuit Court for Worcester County against the Chamber and six former members of the Chamber's board of directors, alleging breach of contract, negligent misrepresentation, and violation of the Wage Payment and Collection Law. The Chamber filed a counterclaim alleging that Mr. Barufaldi himself had breached the contract by failing to perform his duties, by actively seeking employment elsewhere during the contract period, and by resigning prior to the end of his employment term.

A jury trial was held on April 15 to 17, 2009. At the outset, Mr. Barufaldi voluntarily dismissed his negligent misrepresentation claim and his claims against four of the individual board members; at the close of his case, the court dismissed his claims against the two remaining board members. At the close of the entire case, the Chamber's counterclaim was also dismissed by the court.

The jury returned a verdict in Mr. Barufaldi's favor on both his breach of contract claim and claim under the Wage Payment and Collection Law. It found that the Chamber owed him $60, 000 in damages, but declined to award treble damages. The jury also found that there was no "bona fide dispute" regarding the unpaid compensation. The trial court entered a judgment for $60, 000 against the Chamber on April 20, 2009.

Motion for an Award of Attorneys' Fees under the Statute

Mr. Barufaldi then filed a motion for an award of attorneys' fees and costs under the Wage Payment and Collection Law. He sought $141, 523.50 in attorneys' fees and $18, 752.47 in costs. The Chamber opposed the request, arguing that the jury's finding of "no bona fide dispute" was erroneous and that the court was not bound by it in determining whether to award attorneys' fees and costs. The Circuit Court denied Mr. Barufaldi's motion without elaborating on the basis for its decision. Both parties noted an appeal. In order to stay the enforcement ...

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