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URS Corp. v. Fort Myer Construction Corp.

Court of Appeals of Maryland

March 24, 2017

URS Corporation, et al.
Fort Myer Construction Corporation

          Argument: December 2, 2016

         Circuit Court for Montgomery County Case No. 369478V

          Barbera, C.J. Greene Adkins McDonald Watts Hotten Battaglia, Lynne A. (Senior Judge, Specially Assigned), JJ.


          McDonald, J.

         This appeal concerns the application of two rules. One rule is critical to the determination of appellate jurisdiction. The other sets the standard for imposing monetary sanctions when a litigant prosecutes a case in bad faith or without substantial justification.

         Petitioner Maryland-National Capital Park and Planning Commission ("the Commission") contracted with Respondent Fort Myer Construction Corporation ("Fort Myer") to build a pedestrian bridge in accordance with design documents provided by the Commission. After running into several issues that delayed construction of the bridge, Fort Myer sued the Commission claiming that the design documents were at fault. The Commission impleaded Petitioner URS Corporation ("URS"), the engineering firm that created the design documents, on the theory that URS was contractually obligated to defend the Commission against Fort Myer's claims and would be liable for any damages. URS, in turn, countersued the Commission for contract payments that the Commission had withheld from URS.

         Fort Myer's original complaint was eventually dismissed by the Circuit Court without prejudice, but the claims between the Commission and URS went to trial. URS and the Commission each prevailed on their claims against each other. Both the Commission and URS asked the court to award monetary sanctions against their common adversary - Fort Myer - under Maryland Rule 1-341 on the basis that the construction company had litigated its original complaint "without substantial justification." The Circuit Court did so.

         All three parties appealed those rulings. The timing of the appeals of URS and the Commission, and its effect on appellate jurisdiction, became the dispositive issue for those appeals. The Court of Special Appeals initially dismissed the appeals by URS and the Commission for being too late and then, after reconsidering the matter, decided that their appeals were, in fact, too early. On the other hand, the intermediate appellate court determined that Fort Myer's appeal of the sanctions awards was just right - both temporally and substantively - and reversed the Circuit Court's sanctions awards.

         URS and the Commission ask us to reverse the decision of the Court of Special Appeals on the sanctions awards, proposing both procedural and substantive grounds for doing so.

         The procedural issue turns on the requirement of Maryland Rule 2-601 that a final judgment - ordinarily necessary to trigger appellate jurisdiction - be incorporated in a "separate document." In its revised opinion, the intermediate appellate court explained that the appeals by URS and the Commission were too early because the Circuit Court had not incorporated its judgment in favor of the Commission against URS in a separate document. Adopting that reasoning, URS and the Commission argue that Fort Myer's appeal of the sanctions awards was no more ripe for decision than their own appeals and, accordingly, the Court of Special Appeals should not have decided it.

         The substantive issue turns on the merits of the Circuit Court's conclusion that Fort Myer had prosecuted its complaint "without substantial justification." The Court of Special Appeals found that conclusion to be unsupported by the factors cited by the Circuit Court and therefore clearly erroneous - which rendered the Circuit Court's award of sanctions an abuse of discretion. URS and the Commission argue that, even if there was appellate jurisdiction of Fort Myer's appeal, the Court of Special Appeals should be reversed because the Circuit Court acted within its discretion in awarding sanctions.

         We hold that the Court of Special Appeals properly exercised jurisdiction to decide the appeal of Fort Myer (and in fact had jurisdiction to decide those of URS and the Commission). Because the separate document requirement is intended to clarify the deadline for filing an appeal - not to create delay for its own sake - the separate document requirement may be waived when waiver does not prejudice appeal rights. Such is the case in this appeal. As for the sanctions awards against Fort Myer, we agree with the Court of Special Appeals that the Circuit Court's explanation of its reasoning did not support a finding that Fort Myer's pursuit of its claim was "without substantial justification."



         A. Proceedings in the Circuit Court

         A Bridge Contract Beset by Delays

         In 2008, Fort Myer contracted with the Commission to build a pedestrian bridge over Veirs Mill Road in Montgomery County. The contract required Fort Myer to construct the bridge according to design documents that had been prepared for the Commission by URS under a separate, earlier contract between the Commission and URS. Several problems arose during construction, and completion of the bridge was delayed by more than four months.

         Fort Myer Sues the Commission

         Alleging that the construction issues and delay resulted from problems with the design documents, Fort Myer sued the Commission on October 12, 2012, in the Circuit Court for Montgomery County. In Count I of the complaint, Fort Myer asserted breach of contract and sought $876, 822.03 in damages related to Fort Myer's increased costs and lost profits. In Count II, Fort Myer asked for a declaratory judgment requiring the Commission to pay Fort Myer $315, 000 in contractual payments that the Commission was withholding as liquidated damages for the delays.

         The Commission Impleads URS; URS Counterclaims

         Some months later, on March 27, 2013, the Commission filed a third-party complaint against URS pursuant to Maryland Rule 2-332, seeking indemnification and contribution for any amount for which the Commission might be found liable to Fort Myer. The Commission also alleged that, under the design contract, URS had a duty to defend the Commission against Fort Myer's claims, and that URS had refused to do so.

         URS answered the third-party complaint, asserting various defenses to the claims of both the Commission and Fort Myer.[1] URS also asserted a counterclaim against the Commission, alleging that the Commission owed URS $103, 420, which was due for services URS had provided to the Commission, but which the Commission had withheld in light of the impending claim by Fort Myer.

         Thereafter, the parties engaged in pretrial discovery. Various discovery disputes arose, which resulted in requests for sanctions. The Circuit Court referred some of those disputes to a special master, and ultimately adopted the recommendations of the master, which did not include sanctions.

         Dismissal of Fort Myer's Complaint without Prejudice

         On February 26, 2014, after more than a year of litigation, URS moved to dismiss Fort Myer's complaint, or, in the alternative, for summary judgment. URS argued that Fort Myer's complaint was deficient under a State statute because Fort Myer had not filed a certificate of a qualified expert ("CQE") in conjunction with its complaint. See Maryland Code, Courts and Judicial Proceedings Article ("CJ"), §3-2C-01 et seq. That statute requires a plaintiff to file a CQE within 90 days of filing a malpractice claim against a licensed professional engineer.[2] If a plaintiff fails to file a timely CQE, the statute provides for dismissal of the complaint without prejudice. See CJ §3-2C-02(a).

         Fort Myer initially opposed the URS motion. In its response, it noted that, given the statutory definition of "claim, " the CQE requirement applies only when a claim is "filed ... against a licensed professional [engineer] or the employer, partnership, or other entity through which the licensed professional [engineer] performed professional services ... [and] based on the licensed professional's alleged negligent act or omission in rendering professional services...." CJ §3-2C-01(b) (emphasis added). Fort Myer argued that this requirement did not pertain to its complaint because its claims were asserted against the Commission, and not URS (which presumably employed the licensed professional engineers who created the design documents at issue).

         In the meantime, URS and the Commission filed several summary judgment motions, seeking to dispose of the case on various legal grounds.[3]

         On March 11, 2014, a few days after the summary judgment motions were filed and shortly before the scheduled trial, Fort Myer withdrew its opposition to URS's motion to dismiss, implicitly agreed that the CQE requirement applied to its complaint, and consented to dismissal of its complaint without prejudice. In a subsequent filing and at two pretrial hearings, counsel for Fort Myer explicitly agreed that the CQE statute applied and stated that the court was required to dismiss its complaint without prejudice. Unsurprisingly, URS and the Commission agreed that the complaint should be dismissed, but argued that the dismissal should be with prejudice. (The Commission took the position that the CQE statute did not apply to Fort Myer's claim, but that its complaint should be dismissed with prejudice for other reasons set out in its summary judgment motion).

         At a motions hearing on March 31, 2014, the Circuit Court decided to dismiss Fort Myer's complaint without prejudice. The third-party claim of the Commission against URS and URS's counterclaim against the Commission survived the dismissal of Fort Myer's complaint and remained pending, however.

         Sanctions Awards against Fort Myer

         URS and the Commission pursued an award of sanctions against Fort Myer with respect to the ill-fated complaint that had been dismissed without prejudice. Their respective motions were brought under Maryland Rule 1-341(a), which authorizes a court to require a party or the party's attorney to pay the costs of a proceeding and reasonable expenses, including attorney's fees, incurred by an adverse party when the court finds that a party acted "in bad faith or without substantial justification" in maintaining or defending a proceeding.[4]

         In its motion, the Commission alleged, among other things, that Fort Myer had failed to retain expert witnesses despite representing that it had done so; that Fort Myer's witnesses failed to appear for properly-noticed depositions; and that Fort Myer proceeded with depositions of Commission witnesses despite "full knowledge that its complaint was fatally flawed" because of the failure to file a CQE. The Commission sought recovery of the costs and attorney's fees incurred in defending against Fort Myer's complaint, which it computed to be $376, 597.68. URS joined in the Commission's motion and sought recovery of its attorney's fees and costs incurred in the amount of $248, 638.31. Fort Myer opposed the motions, arguing that its claims were made neither in bad faith nor without substantial justification.

         The Circuit Court held a hearing on the motions for sanctions on April 28, 2014. Ruling from the bench at the hearing, the Circuit Court granted the motions of the Commission and URS. The court stated that its decision was not based on Fort Myer's failure to file a CQE, but rather on the "the posture of the entire case." The court then expressed its frustration with what it referred to as "blatant violations of the discovery rules" that had caused it to take the unique step, in its experience, of referring the discovery disputes to a special master.

         In explaining its reasoning, the court stated that it was "not a question of whether [Fort Myer] had a right to pursue [its] case, " but rather whether it had "a legal obligation to do it without fatal flaws." The court reiterated that it believed that the failure to file a CQE by itself would not merit sanctions, but that the failure to do so, when coupled with the discovery violations, the dismissal of the complaint on the eve of trial, and Fort Myer's subsequent motion seeking sanctions against the Commission, had led the court to conclude that a sanctions award against Fort Myer was appropriate. The court summarized that "there has been a [Rule] 1-341 violation taking place in its entirety, discovery violations, conduct of counsel, lacking substantial justification." While the court stated that there was "lack of substantial justification, " it conceded that Fort Myer's underlying claim "may be a cause of action in some other court, some other day, for some other judge to decide." The court explicitly declined to find that Fort Myer had acted in bad faith.

         At the hearing the court awarded $376, 597.68 to the Commission and $248, 638.31 to URS - the total amounts requested by each. The court incorporated its oral ruling in a written order dated May 29, 2014, which included a finding that the "conduct of Fort Myer in maintaining [its] case was without substantial justification." The court clerk entered two separate written documents, each entitled Notice of Judgment, on June 2, 2014 - one memorializing the award in favor of URS and the other the award in favor of the Commission.

         Trial of Claims Between the Commission and URS

         In the meantime, the Commission and URS had continued to litigate their claims against one another. The Circuit Court held a bench trial on those claims on April 7 and 8, 2014. In an Order and Opinion issued on May 5, 2014, the Circuit Court decided in URS's favor on its counterclaim against the Commission and found that the Commission owed URS $103, 420 with respect to the contract payments that the Commission had withheld from URS. The clerk entered a separate document in the record entitled Notice of Judgment in that amount.

         In the same opinion, the Circuit Court also decided in the Commission's favor on its third-party claim against URS concerning the URS's contractual duty to defend the Commission against Fort Myer's claims. The court did not compute the amount of damages at that time or enter a separate document incorporating its judgment.[5]

         Some months later, on December 18, 2014, the Circuit Court held a hearing on the amount of damages owed by URS to the Commission on the duty-to-defend claim.[6] At that hearing, the Circuit Court ruled from the bench that URS owed the Commission $352, 355.68 on that claim. That judgment was entered on the court's docket that same day in the following words: "Court enters judgment in favor of the defendant Maryland-National Capital Park and Planning Commission against the defendant URS Corporation-Maryland in the amount of three hundred fifty-two thousand, three hundred fifty-five dollars and sixty ...

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