Tuesday, July 18, 2017

Agreement Created Fee Shift

An opinion of the Maryland Court of Appeals is summarized in the court's headnote

Maryland follows the common law American Rule, which states that, generally, a prevailing party is not awarded attorney’s fees. Maryland law draws a distinction between the recovery of attorney’s fees incurred in defending against a third-party claim and those expended in prosecuting a claim against the indemnitor.

There are four exceptions to the American Rule where a prevailing party may be awarded attorney’s fees, including that the parties have an agreement to that effect. The scope of
indemnification is a matter of contract interpretation, where a court looks to the terms of the contract to decide whether the parties agreed expressly that attorney’s fees would be  recoverable in a first-party action.

The contract between the parties in this case, specifically Article 19, provides expressly for the payment of “attorney’s fees;” and it ties payment of those fees expressly to an action for “breach” of the contract. Therefore, the Easement Agreement contains sufficient language to authorize first-party fee shifting, and subsequently White Flint is entitled to recover attorney’s fees.

The dispute involves a construction project in the heart of downtown Bethesda. White Flint - which leased to a restaurant and children's dance studio - sought and secured indemnification for damage caused in building over their properties.

Bainbridge, an entity formed by the Bainbridge Companies to manage the construction and operation of a new 17-story high rise apartment building in Bethesda, owns the property immediately adjacent to 4904 and 4909 Fairmont Avenue (“the Fairmont Properties”). Located on the Fairmont Properties were two one-story concrete buildings owned by White Flint that were leased to a restaurant and a children’s dance studio. Bainbridge engaged sub-contractor Turner to build the 17-story apartment building on its property for an estimated cost of $45,000,000. The construction project required excavation of a 50-foot-deep hole on the property, to be held open by steel cables protruding under and onto White Flint’s property to prevent soil and sub-surface structures from moving toward or into the excavation area. Bainbridge sought an easement from White Flint for access to the space “under, over, across and on the Fairmont Properties.” Bainbridge also wanted additional easements to swing a crane and extend scaffolding above the Fairmont properties.

During the Project’s excavation stage, White Flint’s experts detected damage to White Flint’s Property, alerted Bainbridge to the damage, and asked for assurances that the damage would be remedied. White Flint claimed that Bainbridge and its contractors did not drill the holes properly for the steel beams, resulting in soil loss beneath the Fairmont Properties, and that pile-drivers were used instead of drills to install the steel beams, in contravention of the express language of the Agreement. White Flint complained that the use of the pile-driver caused the buildings to shake, causing additional damage and soil movement underneath the buildings. By February 2012, the owner of the children’s dance studio on White Flint’s property reported seeing numerous cracks in the walls, that she feared a roof collapse on her students, and that many parents would not bring their children to class until she received assurances by Montgomery County that the building was safe. 

As you might imagine, litigation ensued.

Holding

The Agreement here is closer to the surety contract in Atlantic than the truck rental lease in Nova Research. Bainbridge and White Flint designed the agreement to ensure that Bainbridge, and not White Flint, carried all of the risk from the construction work; otherwise, White Flint had no incentive to support Bainbridge’s plans. Thus, the parties designed Article 19 to ensure that White Flint would be made whole if Bainbridge breached the agreement, which supports first-party fee shifting...

We hold that the Agreement contains express provisions that authorized first-party fee shifting, and subsequently White Flint is entitled to attorney’s fees.

Judge Raker authored the opinion. (Mike Frisch)

 

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