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Hanover Investments, Inc. v. Volkman

Court of Appeals of Maryland

July 31, 2017

Hanover Investments, Inc. et al.
Susan J. Volkman

          Argued: September 7, 2016

         Circuit Court for Montgomery County Case No. 335496V

          Barbera, C.J., Greene, Adkins, McDonald, Watts, Getty, Harrell, Jr., Glenn Judge, Specially Assigned) JJ.


          McDonald, J.

         The declaratory judgment action has been lauded as a "simple judicial device for speedy adjudication of legal differences" that serves "the important social function of deciding controversies at their inception."[1] The fact that there may be other causes of action available to resolve the same issues in a particular case does not preclude a party from pursuing declaratory relief. However, this Court has consistently held that a trial court should not entertain a declaratory judgment action when there is already pending another action between the same parties concerning substantially the same issues unless there are "unusual and compelling circumstances."

         Respondent Susan J. Volkman was a managerial employee of Petitioner One Call Concepts, Inc. ("OCC"), and, as a result of that employment, a shareholder of OCC's parent, Petitioner Hanover Investments, Inc. ("Hanover"). Both OCC and Hanover are controlled by Petitioner R. Thomas Hoff, the founder of the two companies. When Mr. Hoff decided that it was necessary to terminate Ms. Volkman's employment with OCC and to redeem her shares of Hanover, litigation ensued on several fronts. This case is a declaratory judgment action brought by Hanover, Mr. Hoff, and others against Ms. Volkman in the Circuit Court for Montgomery County to vindicate the procedures it followed to redeem her stock. However, at the time it was filed, there was already pending, in a Minnesota state court, a breach of contract action by Ms. Volkman against Hanover concerning the same issue.

         The Circuit Court declined to dismiss or stay this action in deference to the pending Minnesota action, proceeded to trial, and issued a declaratory judgment in favor of Hanover. Ms. Volkman appealed. In a thorough and scholarly opinion, the Court of Special Appeals concluded that there were not "unusual and compelling" circumstances that justified the issuance of a declaratory judgment by the Circuit Court to resolve the same question at issue in the pending litigation in Minnesota. We agree.



         A. Facts

         We recount some of the underlying facts to provide context for the legal issue before us. While the Circuit Court did not make detailed factfindings in its oral opinion and written order in this case, the basic facts are largely undisputed.[2]


         OCC, a Maryland corporation known locally by its trade name "Miss Utility, " was founded by Mr. Hoff, a Maryland resident. OCC operates call centers that function as one-call clearinghouses for excavators for information on the location of underground utility lines. It has operations in many states, including Maryland and Minnesota.

         Employment of Susan Volkman

         In 1984, OCC hired Ms. Volkman, who had previously worked for a similar one-call notification center in Wisconsin. Ms. Volkman worked her way up through the ranks of the company, relocated to Minnesota, and by early 2010 was serving as the manager of several locations, including OCC's Minnesota one-call center. She reported directly to Mr. Hoff.

         Ms. Volkman eventually entered into an employment agreement with OCC dated January 1, 1993 ("Employment Agreement"). Under that agreement, OCC retained the option to terminate Ms. Volkman's employment with or without "good cause." In particular, she could be terminated immediately for "good cause"; otherwise, OCC was required to provide Ms. Volkman 15 days' notice, during which time she would continue to be paid. The Employment Agreement listed several examples of what might constitute good cause (including use of illegal drugs, certain felony convictions, and neglect of duties), but stated that these examples were not exhaustive. The Employment Agreement provided that it was to be construed in accordance with the law of Maryland and included a forum selection clause requiring any action to enforce the agreement to be filed "in a courthouse located in Montgomery County, Maryland."

         Creation of Hanover, Distribution of Shares, and the Shareholders' Agreement

         In 2007, as Mr. Hoff contemplated retirement, he decided to sell OCC to several of its longtime employees, including Ms. Volkman. For that purpose, he created Hanover, a Maryland corporation, whose sole purpose is to hold stock in OCC. Mr. Hoff sold OCC to Hanover, and allowed selected employees, including Ms. Volkman, to purchase shares in Hanover for a nominal price. The shares purchased by Ms. Volkman amounted to 19% of Hanover's stock.[3] Under a financing arrangement, Mr. Hoff would receive the purchase price for OCC - $26 million - over time, out of OCC's income. In the meantime, the new shareholders of Hanover agreed to assign the voting rights of their stock to a voting trust, for which Mr. Hoff's counsel was trustee. At all relevant times, Mr. Hoff has remained a board member and CEO of Hanover.

         As part of the arrangement, the new Hanover shareholders were also required to enter into a Shareholders' Agreement. Under that agreement, Hanover had the right to repurchase an employee/shareholder's shares if and when that individual stopped working for Hanover's subsidiary, OCC. The price to be paid for the shares in that repurchase transaction would depend on the circumstances of the employee/shareholder's departure from OCC. The most pertinent provisions, for purposes of this case, deal with a share repurchase when an employee/shareholder has been involuntarily terminated from OCC. If OCC were to terminate the employment of an employee/shareholder without good cause - and Hanover's board of directors agreed that the termination was without good cause - Hanover was obligated to redeem the shares for their full "Fair Market Value."[4] If OCC were to terminate the employment of an employee/shareholder with good cause - and Hanover's board of directors agreed that the termination was with good cause - Hanover would pay only 10% of the "Fair Market Value" of the shareholder's shares. The Shareholders' Agreement defined "good cause" in terms similar to Ms. Volkman's Employment Agreement.

         Like the Employment Agreement, the Shareholders' Agreement provided that it was to be construed according to Maryland law. However, unlike the Employment Agreement, the Shareholders' Agreement did not include a forum selection clause. The Shareholders' Agreement provided for arbitration of disputes concerning "the value of, or payment for, Common Stock, " but not for any other dispute.

         Ms. Volkman's Dismissal from OCC and Hanover's Redemption of Her Stock

         The genesis of this lawsuit (and, as will be discussed below, several other lawsuits as well) was Ms. Volkman's termination by OCC.

         In early January 2010, Mr. Hoff called Ms. Volkman and told her she was not to return to work. According to Ms. Volkman, Mr. Hoff gave her no reason for her termination. In February 2010, an attorney for Mr. Hoff, OCC, and Hanover sent her counsel a letter formally notifying Ms. Volkman that OCC had terminated her for good cause, which would result in the redemption of her Hanover shares. OCC eventually gave several reasons for dismissing Ms. Volkman that it contended were good cause under the Employment Agreement. It blamed her for the very difficult relationship it had with a Minnesota client, Gopher State One Call, a relationship that had been under Ms. Volkman's purview as manager of Minnesota operations. It noted complaints about her leadership received from employees under her supervision. And it noted that the Minnesota call center had lost call recordings that OCC was contractually and legally required to retain. For her part, Ms. Volkman contends that she was terminated not due to her own job performance, but as a result of a vendetta against her by the general counsel of one of OCC's Minnesota clients.

         For purposes of this appeal, we need not resolve whether or not OCC had "good cause" to terminate Ms. Volkman. However, it is significant for understanding some of the later court proceedings that OCC continued to pay Ms. Volkman's salary for 15 days after she received written notice of her termination, although this was not required by the Employment Agreement if she had in fact been terminated for good cause.

         As set forth in the Shareholders' Agreement, Hanover redeemed Ms. Volkman's stock and, on February 3, 2010, sent her a "purchase note" for $1, 900 with a maturity date seven years later on January 31, 2017. The cover letter explained that Hanover's board of directors had set its Fair Market Value at $100, 000, that Ms. Volkman's 19% interest was therefore valued at $19, 000, and that the payment was discounted 90% to $1, 900 under the provision of the Shareholders' Agreement relating to terminations for good cause.

         As explained below, the redemption of Ms. Volkman's shares of Hanover, as well as the underlying termination of her employment by OCC, set off a series of legal encounters between Hanover, its other shareholders, and OCC, on the one hand, and Ms. Volkman on the other.

         B. Legal Proceedings

         The Employment Agreement Action

         More than two years after her termination, on April 17, 2012, Ms. Volkman filed a lawsuit against OCC and Mr. Hoff based on the Employment Agreement (the "Employment Agreement Action"). As required by the forum selection clause in that agreement, she filed her complaint in the Circuit Court for Montgomery County. As later amended, the complaint included a breach of contract claim against OCC based on the Employment Agreement, along with various tort claims against OCC and Mr. Hoff concerning her termination, some of which referenced the interaction of the Employment Agreement with the Shareholders' Agreement. The complaint alleged that OCC had violated the Employment Agreement by purporting to terminate her for good cause (1) when there was no factual basis to support a good cause termination and (2) when OCC knew of the "substantial ramifications" such a termination would have on her ownership of Hanover stock.[5]

         On August 31, 2012, OCC and Mr. Hoff moved to dismiss the amended complaint. In that motion they argued, among other things, that Ms. Volkman would not be able to prove any damages under the Employment Agreement because OCC had paid Ms. Volkman "everything to which she was entitled under the Employment Agreement, "[6] and that any "damages" stemming from the alleged breach of the Employment Agreement would relate to the redemption of her Hanover stock under the provisions of the Shareholders' Agreement - an agreement to which OCC was not a party.

         Two months later, the Circuit Court held a hearing on this motion on November 2, 2012, and - on the same day - issued an order dismissing the tort claims. With respect to the breach of contract claim against OCC, the court ruled that Ms. Volkman would be permitted "to prove a defective 'for cause' termination and nominal damages, if any." The order did not elaborate the reasons for the court's rulings. Hanover maintains that the court's decision to limit any award to nominal damages was based on the fact that, even if Ms. Volkman's termination was without cause, the Employment Agreement entitled her to only 15 days' pay from the date of termination - which she had, in fact, already received.

         On March 22, 2013, Ms. Volkman voluntarily dismissed the Employment Agreement Action with prejudice by stipulation of counsel pursuant to Maryland Rule 2-506(a).

         The Arbitration Proceeding

         On October 10, 2012, while the Employment Agreement Action was pending, Hanover invoked the arbitration provision in the Shareholders' Agreement to determine what it was required to pay Ms. Volkman when it redeemed her stock under the Shareholders' Agreement.[7] The arbitrator, as designated in the Shareholders' Agreement, was the Voting Trustee under the voting trust, an attorney who had worked for Mr. Hoff and his companies since the 1980s and who was a member of the Hanover board of directors.[8]

         In a written decision dated October 17, 2013, the arbitrator specifically noted that he was not deciding any issues related to OCC's termination of Ms. Volkman (i.e., whether or not there was "good cause"). He calculated the amount Hanover would owe for termination with good cause ($1, 900) and without good cause ($19, 000). However, he concluded that, regardless of whether there was good cause or not, Hanover in fact owed her only $10 for her Hanover shares. He reached that conclusion on the basis of his additional finding that Ms. Volkman had violated a separate Restriction Agreement by revealing the relationship of OCC to Hanover when she filed her complaint in the Employment Agreement Action. The arbitrator also awarded the costs of the arbitration proceeding to Hanover and against Ms. Volkman, which he computed to be $12, 740, after subtracting the $10 awarded to Ms. Volkman for her stock. The arbitrator acknowledged in a footnote that Ms. Volkman had disputed the authority of the arbitrator and had not participated in the proceeding.

         On August 1, 2014, Hanover successfully obtained a default judgment in the Circuit Court for Montgomery County confirming the award. Ms. Volkman did not appeal that judgment.

         The Shareholders' Agreement Action

         As described above, on November 2, 2012, the Circuit Court had ruled in the Employment Agreement Action that Ms. Volkman would be entitled, at most, to nominal damages for her breach of contract claim against OCC and Mr. Hoff. A little more than a month after that ruling (but before she voluntarily dismissed that action), on December 17, 2012, Ms. Volkman served Hanover with a complaint that she filed in a state trial court in Minnesota. That complaint named Hanover as the lone defendant and alleged that it had violated its contract with her - i.e., the Shareholders' Agreement ("the Shareholders' Agreement Action").[9] She alleged that Hanover did so by "declaring the existence of Good Cause to terminate [her] employment . . . when in fact there was no factual basis upon which either OCC or Hanover, in the exercise of good faith, could find Good Cause as that term is defined in either the Employment Agreement or the Hanover Shareholders' Agreement." She sought specific performance - the return of her Hanover stock - a remedy explicitly provided for in the Shareholders' Agreement.

         Hanover moved to dismiss the complaint, asserting that the Minnesota court lacked in personam jurisdiction of Hanover. The Minnesota trial court denied that motion in April 2013. Hanover appealed that decision to the Minnesota Court of Appeals, which affirmed the trial court decision on March 3, 2014. Volkman v. Hanover Investments, Inc., 843 N.W.2d 789 (Minn.Ct.App. 2014).

         However, as recounted in the next section of this opinion, by the time the case returned to the Minnesota trial court, Hanover had filed a declaratory judgment action in Maryland involving the same issues, Hanover had prevailed in the Circuit Court, and Ms. Volkman had appealed that disposition. As a result, on January 19, 2015, the Minnesota trial court dismissed the Shareholders' Agreement Action, but explicitly reserved jurisdiction to reopen the case depending on the resolution of the Maryland appeal.

         The Declaratory Judgment Action

         On June 26, 2013 - two months after the Minnesota trial court denied Hanover's motion to dismiss, and while that decision was on appeal - Hanover filed a declaratory judgment action against Ms. Volkman in the Circuit Court for Montgomery County ("Declaratory Judgment Action"). The complaint was brought not only on behalf of Hanover, but also listed other Hanover shareholders and OCC as plaintiffs. Hanover sought a declaration concerning the rights of the parties under the Shareholders' Agreement and, more specifically, that it had complied with its obligations under that agreement in connection with the redemption of Ms. Volkman's stock as a result of her termination from employment with OCC. On the civil cover sheet submitted with the complaint, Hanover checked a box "yes" for "related case pending?" and entered the number of the Employment Agreement Action that had been dismissed some months earlier. The case was assigned to the same judge who had earlier been assigned to the Employment Agreement Action.

         Shortly thereafter, Ms. Volkman filed an answer to the complaint in which, in addition to admitting or denying factual allegations and asserting affirmative defenses, she noted the pendency of "an identical case" - the Shareholders' Agreement Action - in Minnesota and asked the Circuit Court to either decline jurisdiction or stay the proceedings in the Declaratory Judgment Action pending a final judgment in the Shareholders' Agreement Action.

         In late March 2014, the parties filed cross-motions for summary judgment. Repeating the defense asserted in her answer to the complaint, Ms. Volkman asked the Circuit Court to dismiss or stay the proceedings because of the pending Shareholders' Agreement Action in Minnesota. In its summary judgment motion, Hanover argued that (1) the Shareholders' Agreement imposed no duty to complete an independent investigation into OCC's termination of Ms. Volkman, and (2) the dismissal of the Employment Agreement Action with prejudice entitled Hanover to judgment as a matter of law. In April and May 2014, the Circuit Court denied the parties' respective motions without a hearing, and did not elaborate on the reasons for that ruling.

         A bench trial on the merits was held on June 16 and 17, 2014. At the close of the plaintiffs' evidence, Ms. Volkman renewed her motion to dismiss the action in light of the pending Shareholders' Agreement Action. The Circuit Court declined to do so, citing Marriott Corp. v. Village Realty & Inv. Corp., 58 Md.App. 145 (1984), for the proposition that a declaratory judgment action could be filed ...

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