O'BRIEN & GERE ENGINEERS, INC.
CITY OF SALISBURY
Argued: January 11, 2016
Circuit Court for Wicomico County No. 22-C-12-001782
Barbera, C.J. Greene Adkins McDonald Watts Harrell, Glenn T., Jr. (Retired, Specially Assigned) Wilner, Alan M. (Retired, Specially Assigned), JJ.
The litigation privilege immunizes a party for statements made in a judicial proceeding and is fundamental to the courts' truth-finding mission. We have previously analyzed this privilege only in the defamation context. Today we address two distinct questions that arise out of a dispute between a city and a design engineer's settlement agreement to, among other things, not disparage one another. Can the litigation privilege immunize a party from a claim for breach of a non-disparagement clause? If so, can a party waive that privilege? We examine these questions to determine whether a trial court correctly granted a motion to dismiss a complaint for failure to state a claim for breach of contract.
FACTS AND LEGAL PROCEEDINGS
The Maryland Department of the Environment required the City of Salisbury ("the City") to upgrade its wastewater sewage treatment plant ("WWTP"). The City then embarked on an $80 million large public works project by hiring O'Brien & Gere Engineers, Inc. ("OBG") as its design engineer and Construction Dynamics Group ("CDG") as its construction manager. The project failed because the WWTP did not work as expected and required.
Believing it did not get what it bargained for, the City sued OBG and CDG, among others, for various torts and breach of contract ("the WWTP Litigation").
With the advice of their respective attorneys, the City and OBG settled their dispute pursuant to an agreement ("the Settlement Agreement") in June 2012. In pertinent part, OBG agreed to pay the City $10 million in exchange for the City's promise to release OBG from all claims relating to the WWTP.
The City also made promises to OBG in the Settlement Agreement so that "OBG [would] not hav[e] to expend any further monies in connection with" the WWTP Litigation and would be protected "from any liability and expense associated with any [of the City's] claims" relating to the WWTP. First, the City agreed to defend, indemnify, and hold OBG harmless if any party (whether in the WWTP Litigation or in any future claim the City might bring) were to sue OBG "relating to the design or construction of or equipment supplied for [the WWTP]." Second, the City agreed to indemnify and hold OBG harmless if any such party obtained a judgment against OBG. Third, the City agreed that it would reduce any damages it recovered if OBG was "determined to be a joint tortfeasor" because of any final judgment. In exchange for these promises, OBG agreed to release the City from all of its WWTP claims.
OBG and the City also agreed not to disparage one another about the WWTP upgrade. The non-disparagement clause states:
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. For purposes of this paragraph, the term "disparaging" means any 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.
The parties agreed that, in the event of a breach of this provision, the non-breaching party "shall be" entitled to injunctive relief and reasonable attorney's fees. OBG believes that the City committed such a breach.
After the City released OBG from all claims relating to the WWTP Litigation, the City pursued a claim for breach of contract against CDG ("the CDG Lawsuit").
On November 1, 2012, in his opening remarks to the jury, the City's trial counsel, Howard Goldberg, explained that "[the City] hired [CDG], and over the next three and a half years paid them $2, 786, 462.43. And the City just simply didn't get what they paid for." As to CDG's obligations to the City, Goldberg stated: "[CDG was] to advise [the City] of deficiencies which are discovered or suspected by the construction manager [CDG] which involve the design of the project." As to the deficiencies, Goldberg said: "[M]ost of the problems were design problems created by the design engineer, [OBG]. And they [CDG] should have been advising the City of those problems."
CDG used its opening statements to establish that it was not responsible under its contract to the City for any of the design issues at the WWTP. CDG averred that it caused no harm to the City "because the project was built on time, on budget, and there were no construction deficiencies."
Also on the first day of trial, the City used its first witness, Dr. Enos Stover ("Dr. Stover"), to explain to the jury the design problems that plagued the WWTP. On the second day of trial, the City used its second witness, John Jacobs ("Jacobs"), to establish CDG's obligations to the City, specifically, to report issues relating to OBG's design work. ("The construction manager is to overview any design issues, they're not to solve the design issue, but at least raise the issue to the City so that we can resolve it.").
When OBG caught wind of the City's statements in the CDG Lawsuit through a newspaper article, OBG sent a "cease and desist" letter to the City, but it was not assured, in its view, that the City would comply with the non-disparagement clause. OBG then filed a complaint against the City for injunctive and monetary relief. The City filed a motion to dismiss for failure to state a claim. The Circuit Court for Wicomico County denied OBG injunctive relief without issuing a ruling on the City's motion to dismiss. The City later filed an amended motion to dismiss ("the Amended Motion to Dismiss"), which the Circuit Court granted.
Following OBG's timely notice of appeal,  the Court of Special Appeals affirmed. O'Brien & Gere Eng'rs, Inc. v. City of Salisbury, 222 Md.App. 492, 530 (2015). The intermediate appellate court reasoned that the proper inquiry was "whether immunity from liability is consistent with and will serve the public policy objectives of the [litigation] privilege." Id. at 522. Analyzing the facts in light of the public policy objectives, the intermediate appellate court concluded that "[t]he administration of justice would be served (and was served) by applying the absolute litigation privilege to immunize the City from liability for breaching the non-disparagement agreement by introducing evidence and making arguments to the trier of fact that included negative information about OBG's design of the plant upgrade." Id. at 526. In pertinent part, the court determined that "[e]vidence about flaws in OBG's design for the plant upgrade and any cause and effect between flaws in the design and the plant upgrade failure was indispensable to an informed factual resolution of the City's contract claim against CDG." Id. at 524–25. Judge Nazarian dissented.
Following OBG's appeal, we granted its Petition for Writ of Certiorari to address the following questions:
1. Whether the Court of Special Appeals erred in expanding the scope of the "litigation privilege" and finding that, as an absolute matter of law and without regard to the parties' intentions, no claim can stand for a deliberate and voluntary breach of a binding non-disparagement agreement when the disparaging statements are made in legal proceedings (even when the agreement contains no exception for statements made in legal proceedings, and the breaching party is not compelled by subpoena or other compulsory process or circumstance to make the disparaging statements).
2. Whether the Court of Special Appeals erred in deciding the case on a preliminary Motion to Dismiss, without resolving or allowing any exploration and litigation of important factual questions (related to the parties' expectations and intentions) bearing on the scope and effect of the non-disparagement clause, including whether it waived the litigation privilege.
We think both questions presented are so intertwined as to warrant a unified discussion, and we conclude, as to the second question, that the Court of Special Appeals correctly affirmed the judgment of the Circuit Court. We explain, however, that whether the litigation privilege applies to a breach of contract claim turns in a particular case on whether applying the litigation privilege advances the policies favoring the privilege.
STANDARD OF REVIEW
In reviewing a motion to dismiss a complaint for failure to state a claim, we "must determine whether the trial court was legally correct, examining solely the sufficiency of the pleading." Ricketts v. Ricketts, 393 Md. 479, 492 (2006). Our review of the pleading may extend to "its incorporated supporting exhibits, if any." Id. at 491 (citations and internal quotation marks omitted). As we stated in Allied Investment Corp. v. Jasen, when a trial or appellate court reviews a motion to dismiss for failure to state a claim, it is necessary to "assume the truth of all well-pleaded, relevant, and material facts in the complaint and any reasonable inferences that can be drawn therefrom. 'Dismissal is proper only if the alleged facts and permissible inferences, so viewed, would, if proven, nonetheless fail to afford relief to the plaintiff.'" 354 Md. 547, 555 (1999) (citations omitted).
OBG and the City dispute whether the City violated the non-disparagement clause in the Settlement Agreement because of the City's statements during the CDG Lawsuit. Conceding that the litigation privilege is absolute with respect to "defamation and other torts arising from statements made in legal proceedings, " OBG argues that we should adopt a different approach with respect to its breach of contract claim. Because of the public policy favoring settlements, OBG contends, parties can waive the litigation privilege by contract. OBG views the proper question, then, as whether "the intentions and expectations of the parties or the particular factual context of the case" reveal a waiver of the litigation privilege. Remand is necessary, in OBG's view, because the Circuit Court granted the City's Amended Motion to Dismiss without a sufficient record to answer this question.
The City contends that OBG's focus is off because the nature of the claim-tort or contract-does not matter. In reading our defamation case law, the City deduces that "Maryland has always 'struck heavily in favor of the free disclosure of information during a judicial proceeding'" because of strong public policy reasons, which are just as relevant to OBG's breach of contract claim. (Quoting Imperial v. Drapeau, 351 Md. 38, 45 (1998)). Moreover, the City argues that the Circuit Court committed no error because the available facts supported the court's grant of the Amended Motion to Dismiss: (1) all allegedly ...