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O'Brien & Gere Engineers, Inc. v. City of Salisbury

Court of Special Appeals of Maryland

April 28, 2015

O'BRIEN & GERE ENGINEERS, INC.
v.
CITY OF SALISBURY

Eyler, Deborah S., Nazarian, Moylan, Charles E., Jr. (Retired, Specially Assigned), JJ.

OPINION

Eyler, Deborah S., J.

The primary issue in this appeal is whether the absolute litigation privilege may immunize a party to a non-disparagement agreement from liability for breaching that agreement when the breach was by words spoken by a lawyer or witness in court, during a judicial proceeding. We hold that it may, and that in the circumstances of this case it did, as a matter of law.

FACTS AND PROCEEDINGS

The parties to this appeal are O'Brien & Gere Engineers, Inc. ("OBG"), the appellant, and the City of Salisbury ("City"), the appellee. In the early 2000's, the Maryland Department of the Environment ("MDE") directed the City to upgrade its outdated wastewater treatment plant to comply with federally mandated standards. In 2004, the City contracted with OBG to perform the design engineering for the plant upgrade. The next year, the City contracted with Construction Dynamics Group, Inc. ("CDG") to serve as the construction manager for the plant upgrade. Among other things, CDG's contract required it to oversee OBG's design engineering work and report any problems with the design to the City.

It is an understatement to say the plant upgrade did not go well. The City paid over $80 million dollars for the upgrade, but the plant as upgraded never satisfied federal standards. Ultimately, the MDE required the City to complete an entirely new plant upgrade.

On February 28, 2011, in the Circuit Court for Wicomico County, the City sued OBG and CDG, alleging breaches of contract and wrongful acts and omissions that caused the plant upgrade to fail ("The Plant Upgrade Case"). OBG joined a number of subcontractors and some of their sureties as third party defendants. The City amended over against the third party defendants, and OBG filed cross-claims against them. The parties engaged in extensive discovery. Expert witnesses were disclosed in early 2012. The case was specially assigned and given a November 1, 2012 trial date.

On June 7, 2012, the City and OBG entered into a comprehensive settlement, which they memorialized in a written Settlement Agreement ("the Agreement"). The salient terms are as follows. OBG agreed to pay the City $10 million ($10, 000, 000) and the City agreed to release OBG from all claims the City had made or could have made against it relating to the plant upgrade. All claims, cross-claims, and third-party claims relating to OBG would be dismissed and OBG would dismiss a separate suit it had brought against the City under the Maryland Public Information Act ("MPIA"). No provision of the Agreement would "inure to the benefit of" anyone else, including any other party to the Plant Upgrade Case.

OBG denied fault and tortfeasor status. The City and OBG agreed that if, at the trial of the Plant Upgrade Case, OBG were found to be a tortfeasor, then any judgment in tort in favor of the City would be reduced in accordance with the Maryland Uniform Contribution Among Joint Tort-Feasors Act. See Md. Code (2013 Repl. Vol.), §§ 3-1401 et seq.

The City agreed to defend, indemnify, and hold harmless OBG from any claim made against it at any time by any other party to the Plant Upgrade Case, relating to the design or construction of the Plant. The stated purpose of this provision was to protect OBG from having to expend "any further monies" in connection with the Plant Upgrade Case and, together with the joint tortfeasor provision, to protect OBG "from any liability and expense associated with any claims that the City is now pursuing, or hereafter may initiate or pursue, against any person other than OBG arising from or in any way relating to the [plant upgrade] and the facts and events alleged by the City in the [Plant Upgrade Case]." In addition, the City agreed to defend, indemnify, and hold harmless OBG from any claim or suit made or filed against it at any time concerning the design and construction of the plant upgrade. In consideration for the release and indemnification agreements, OBG agreed to release the City from any claims -- past, present, and future -- relating to the plant upgrade, except claims for enforcement or breach of the Agreement.

The City and [OBG] mutually agree that they will not make, or cause or encourage other persons or entities to make, any disparaging remarks or comments about each other relating to any matter having occurred prior to the effective date of this Settlement Agreement or in the future relating directly or indirectly to the Salisbury wastewater treatment plant through any means, including without limitation, oral, written or electronic communications, or induce or encourage others to publicly disparage the other settling party.

"Disparaging" is defined to mean:

[A]ny statement made or issued to the media, or other entities or persons that adversely reflects on the other settling party's personal or professional reputation and/or business interests and/or that portrays the other settling party in a negative light.

In addition, the clause states with respect to injunctive relief and damages:

The parties agree that, in the event of any breach of this non-disparagement provision, damages/actual losses will be difficult or impossible to prove with requisite precision, and that an adequate remedy at law will not exist. Accordingly, in the event of a breach of this provision, the non-breaching party shall be entitled to equitable relief including but not limited to a temporary restraining order, a preliminary injunction, and a permanent injunction. Further, the non-breaching party shall not be required to post any bond in connection with seeking or obtaining a temporary restraining order, a preliminary injunction, and/or a permanent injunction. Further, the non-breaching party shall be entitled to an award of reasonable attorney's fees and other litigation costs and expenses associated with enforcement of this provision against the breaching party.

The Agreement does not include a confidentiality or non-disclosure provision.

The Council of the City of Salisbury approved the Agreement the day it was signed. Five days later, after receiving the $10 million payment, the City filed a stipulation of voluntary dismissal with prejudice of OBG from the Plant Upgrade Case. OBG voluntarily dismissed with prejudice its cross-claims and the MPIA case. Soon thereafter, the City dismissed with prejudice the claims it had filed against the defendants originally brought into the case by OBG. That left CDG as the only remaining defendant. The City filed an amended complaint against CDG for breach of contract only, with an ad damnum clause reduced from $60 million dollars to $4 million dollars.

The jury trial in the Plant Upgrade Case began on schedule on November 1, 2012. The City advocated that CDG had breached its contract in a number of ways, including by failing to oversee OBG's design engineering work and by failing to bring flaws in that work to the City's attention; and that those design flaws caused the plant upgrade to fail. The City theorized that CDG did not report the problems with OBG's design engineering because the year before CDG executed its contract with the City, CDG and OBG had entered into a "teaming agreement, " in which they were collaborating to win a $20 million construction contract in the District of Columbia, and it would not have served CDG's interests in seeking that lucrative contract to reveal OBG's design flaws in the plant upgrade.[1]

In opening statement, the City's lawyer told to the jurors that the evidence would show that CDG's contract required it to inform the City of any design flaws in the plant upgrade, but that CDG failed to do so:

This becomes very important. Because most of the problems at this plant, and this plant was a disaster, most of the problems were design problems created by the design engineer, [OBG]. And [CDG] should have been advising the City of those problems. Particularly when, you'll hear at the end of the project, this plant didn't work. But [CDG] walked away, they didn't advise the City.

(Emphasis added.) He continued:

[CDG] [f]ailed to provide the required information in their monthly reports. They failed to tell us about all of the things that weren't working. They failed to tell us about the myriad of design problems that they should have told us about. Remember the word design.

(Emphasis added.) The lawyer foreshadowed the evidence about the teaming agreement, characterizing it as a conflict of interest on CDG's part:

I'll talk to you about conflicts of interest. Why didn't CDG report the engineer [OBG]? Why didn't CDG come to the City and say the engineer is causing problems or has caused problems big time? The engineering was a mess. This engineering, you'll hear, most of it failed. But CDG wasn't reporting that. Why?
Well, what we found out is, remember, CDG is hired in 2005, in 2004 CDG entered into what's called a teaming agreement with the engineering firm [OBG] an agreement to try to get a job in the District of Columbia. A job in the District of Columbia, which, if they got it, would give them 20 million dollars for the package. Millions each. Six million for CDG. Six million for [OBG], O'Brien and Ge[re]. Six million for another partner. They entered into a teaming agreement in 2004.
So you're going to – it doesn't matter to us whether they [CDG] mistakenly and in breach of their contract declared this plant substantially complete because they're incompetent or because they're in bed with the engineer . . .

(Emphasis added.) The City's lawyer mentioned OBG by name four times in his opening statement.

CDG's defense was that it had fulfilled all its contractual obligations to the City by ensuring that the plant was upgraded in accordance with specifications. It took the position that OBG's design, not anything it had done or not done, caused the plant upgrade to fail; and it was not responsible for OBG's design failures and could not have done anything to make the upgraded plant functional. In his opening statement, CDG's lawyer explained that OBG's design for the plant upgrade was "experimental" and emphasized that as the construction manager, CDG's responsibilities did not include uncovering the problems with that design. CDG's lawyer mentioned OBG by name 23 times in his opening statement.

The evidence phase of the trial began the next day. The City called Enos Stover, Ph.D., an expert in environmental engineering. On direct examination, Dr. Stover was asked to identify component-by-component the failures in the plant upgrade. He did so, opining that most of the components failed due to "design issues." On cross-examination, Dr. Stover stated that OBG's design for the plant upgrade had been "likely to fail" from the outset. The City then called John Jacobs, the former director of the City's Department of Public Works. Mr. Jacobs testified that under the terms of its contract with the City, CDG was responsible for overseeing OBG's work, including bringing any "design issues" to the City's attention.

That same day, the Daily Times, a Salisbury newspaper, published a story headlined, "Attorneys set stage in city sewer plant trial." The story summarized the opening statements in the Plant Upgrade Case, quoting the City's lawyer as having said that CDG was "in bed – partners – with the very engineering firm they were supposed to watch." It reported that CDG's lawyer countered, "There's nothing a construction manager can do to make a failed design work. . . There was no harm caused to the [C]ity by CDG because the project was built on time, on budget and with no construction deficiencies." The article, which described the plant upgrade as "the largest public works project in the [C]ity's history, " did not identify OBG by name.

OBG's lawyer read the Daily Times article and immediately ordered trial transcripts and sent the City a "cease and desist" letter. In the letter, he said he was "monitoring" the trial, quoted the non-disparagement clause in the Agreement, and "instruct[ed] the City, its attorneys, and any witnesses it calls to testify at trial to comply strictly and fully [with that clause], " by "regulat[ing] [its] conduct at trial (in regard to [its] arguments and [its] questioning of any and all witnesses)" and by "prepar[ing] [its] witnesses accordingly, so that OBG is not disparaged . . . in any way."

On November 5, 2012, after receiving the trial transcripts, OBG's lawyer filed a "Complaint for Injunctive and Other Relief" against the City, also in the Circuit Court for Wicomico County, alleging that the City had breached the non-disparagement clause of the Agreement by the words spoken by its lawyer in opening statement at the trial of the Plant Upgrade Case and by Dr. Stover and Mr. Jacobs in their trial testimony. It sought a temporary restraining order ("TRO") and preliminary and permanent injunctive relief, claiming it would suffer "immediate substantial and irreparable injury" if the City were not enjoined from making disparaging statements about it in the ongoing trial in the Plant Upgrade Case. It asked the court to "restrain[] and enjoin[] the City (and its counsel, witnesses, employees, and officials) from making any statements at the trial in the [Plant Upgrade Case] or otherwise that portray OBG in a negative light" and to award it attorneys' fees. It also sought $1.5 million in damages.[2]

On November 7, 2012, the City and OBG appeared for a hearing on the TRO request, before the same judge specially assigned to the Plant Upgrade Case. The trial in that case still was in progress. OBG argued that the City was violating the non-disparagement clause by making arguments and introducing evidence critical of OBG's design work on the plant upgrade. The City responded that, among other things, it was evident when the parties entered into the Agreement that if the Plant Upgrade Case went to trial, other defendants would be taking the position that OBG's design had caused the plant upgrade to fail, and therefore had caused the City's injuries and damages. It argued that in any event the non-disparagement clause could not be enforced to restrain speech by lawyers and witnesses in a judicial proceeding because words spoken in that setting are covered by the absolute litigation privilege.

The court denied the request for a TRO. The judge opined that the non-disparagement clause was "enforceable between the parties" and that the City and OBG were "bound by [its] terms." He concluded, however, that when the City and OBG executed the Agreement, it was "clear . . . that the question of the . . . appropriateness of [OBG's] design of the [plant upgrade] would remain an issue in the [Plant Upgrade Case], " and therefore evidence critical of OBG's design would be introduced and commented upon in any trial of the case.

Also on November 7, 2012, the City moved to dismiss OBG's complaint and OBG amended its complaint, adding a count for unjust enrichment. Two days later, OBG noted an appeal from the interlocutory order denying a TRO.

The trial in the Plant Upgrade Case continued until November 16, 2012, when the jury returned a verdict in favor of the City and against CDG for $1, 968, 417.43 in damages.

On November 19, 2012, the City filed an amended motion to dismiss OBG's amended complaint. It argued that the conclusion of the trial in the Plant Upgrade Case had rendered the request for injunctive relief moot; the Agreement only permitted injunctive relief, not damages, for breach of the non-disparagement clause; and if recovery of damages were permitted under the terms of the Agreement, OBG did not state a claim for which relief could be granted, because the absolute litigation privilege immunized the City from liability for damages based on the words spoken by its lawyer and witnesses in the trial of the Plant Upgrade Case, including any liability for damages for breach of the non-disparagement clause.

OBG filed an opposition, arguing that its claim for equitable relief was not moot because, in all likelihood, CDG would appeal the judgment against it [3]; the language of the Agreement permits equitable relief and damages; the absolute litigation privilege only applies to defamation actions, not to any other cause of action, including an action for breach of contract; and the City entered into the Agreement with full knowledge that the non-disparagement clause would foreclose it from criticizing OBG's design work at any trial in the Plant Upgrade Case.

Shortly before the hearing on the motion to dismiss, OBG filed a motion to disqualify the City's counsel of record. Citing Maryland Lawyer's Rules of Professional Conduct ("MRPC") 3.7 (Lawyer as Witness), it asserted that because the conduct and statements of the lawyers representing the City in the trial of the Plant Upgrade Case were directly at issue, they were "necessary witnesses" and could not continue to act as advocates for the City.[4]The City countered that the motion to disqualify was premature given the pending motion to dismiss because, were the court to grant that motion, the case would come to an end without any witness testimony.

On December 21, 2012, the court held a hearing on the pending motions. It denied the motion to disqualify counsel, agreeing that it was premature. It granted the motion to dismiss on the basis of the absolute litigation privilege. Noting that the gravamen of the complaint "relate[d] solely to statements and utterances spoken by witnesses and lawyers within the confines of the courtroom, " the judge concluded that although the law respects "the principles that protect non-disparagement agreements, the larger principle" of "permitting, encouraging free statements, vigorous statements, between the parties and lawyers to aid in the resolution of a dispute is paramount." Thus, even if in trying its case against CDG the City breached the Agreement by disparaging OBG's design work on the plant upgrade, the absolute litigation privilege protected the City from liability for that breach.[5]

The court entered a judgment dismissing the case with prejudice. OBG noted an appeal, which was consolidated with its earlier appeal from the order denying its TRO request.

OBG poses three questions for review, which we have rephrased slightly:
I. Did the circuit court err in granting the City's ...

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