Court Opinion

ID: 9784927
Source: CourtListenerOpinion
Date Created: 2023-08-30 20:57:45.431129+00
Date Added: 2024-06-11T07:36:01.193859
License: Public Domain

ADKINS, J.,
dissenting.
I cannot endorse the majority’s conclusion that an employee who violates the “fundamental” duty of loyalty can still benefit from the employment contract that she so egregiously breached. The majority perceives two procedural impediments to Weichert’s claim that Faust is not entitled to attorney’s fees: (1) that the issue of the materiality of Faust’s breach was not preserved for review; and (2) that as the party that recog*332nized the continued validity of the contract, Weichert cannot now disavow its obligations under it. For the reasons stated below, I believe this analysis is flawed and incongruent with hornbook contract law.
A. Relevant Facts
The facts surrounding Faust’s resignation from Weichert are critical to understanding the core jury finding that Faust breached her duty of loyalty. Long & Foster began recruiting Faust approximately nine months before her resignation from Weichert.1 Although an employee is not precluded from making arrangements for future employment, see Maryland Metals v. Metzner, 282 Md. 31, 89, 382 A.2d 564, 569 (1978), the jury found here that Faust’s actions went beyond what is permissible. Specifically, prior to leaving Weichert, Faust took steps to ensure that many Weichert agents would follow her to Long & Foster.2 For instance, Faust craftily scheduled her “resignation meeting” on a day that Weichert’s Regional Vice Presidents, including Faust’s immediate supervisor, would be at their monthly meeting at the Weichert corporate headquarters in New Jersey.3 To further catch her employer unawares, Faust faxed her resignation letter to her supervisor on her way into the meeting, thus depriving Weichert of advanced notice of her resignation. Her intention was that *333Weichert management would not be present to protect the company’s interests:
Q. And you planned that meeting so that you could go in and tell your agents without the presence of anyone from Weichert management to handle any questions from the agents as to what was going to happen with the office, is that correct?
[Faust]. That’s true.
Q. You didn’t give Weichert any advance notice so that they could be prepared to retain those agents, did you?
* -1‘ *
[Faust]. No.
As part of her departure strategy, Faust used the facade of a regular sales meeting so, in her words, she “would be able to say goodbye to as many people as [she] could.” To ensure that as many agents as possible attended, Faust sent a voicemail to all office personnel labeling the event as an “important meeting.” At the meeting, Faust told the agents that she was leaving Weichert for Long & Foster, and that her new office would be on the eighth floor. She did this knowing that many of the Weichert agents would follow her and that Long & Foster personnel were on the eighth floor to receive those agents immediately after the meeting. Indeed, in anticipation of Faust’s departure, Long & Foster prepared to assist up to 70 agents in transferring their licenses to Long & Foster:
[Counsel]: Can you identify [Exhibit 67]?
[Peter Rucci, Long & Foster Regional Vice President]: This is a memo to Kathy McFadden from Melanie Nielson ... asking Kathy to cut 70 checks in the amount of $10, written out to the Maryland Real Estate Commission.
[Counsel]: ... [N]ow this was in preparation for the opening of the Long and Foster Bethesda Avenue office— [PR]: That’s correct.
*334[The Court]: Why would you cut 70?
[PR]: ... [W]e hoped we were going to get a lot of people. [Counsel]: You picked those checks so that you would be ready on the day that [Faust] announced her resignation to the Weichert agents, didn’t you?
[PR]: Correct.
[Counsel]: And the checks were so that Weichert agents who joined could have their license transferred to the Maryland Real Estate Commission, correct?
[PR]: [Y]es.
Over the next two weeks, 55 agents on Faust’s team left Weichert to begin work in Long & Foster’s office on the eighth floor. Within months, 67 of the 82 agents that Faust managed at Weichert left to join her at Long & Foster, prompting Weichert to initiate litigation.
We should infer from the jury’s award of damages to Weichert for the breach of loyalty that it found that Faust and Long & Foster artfully choreographed Faust’s resignation and the announcement of her departure so as to circumvent the express provisions of Weichert’s employment contract and extract as many Weichert agents as possible. The jury could reasonably infer that Faust timed her announcement to occur before her employment ended, so that she would not violate her non-solicitation agreement, which prohibited solicitation “[d]uring the period of one year from the date of termination[.]” (emphasis added). The scheduling of her announcement, timed to occur while she was still an employee of Weichert4 and on a day that the Regional Vice Presidents would over 100 miles away from the office, was likely viewed by the jury as too convenient to be a mere coincidence.
B. The Materiality Of The Duty Of Loyalty
Unquestionably, the duty of loyalty is at the core of any employment relationship: “It is well settled that the employ*335ment relationship is one of confidence and trust and places upon the employee a duty to use his best efforts on behalf of his employer.” C-E-I-R, Inc. v. Computer Dynamics Corp., 229 Md. 357, 366, 183 A.2d 374, 379 (1962). Indeed, this Court has reiterated the “elementary principle that [one of the] fundamental duties of an agent [is] loyalty to the interest of his principal....” Insurance Co. of N. America v. Miller, 362 Md. 361, 380, 765 A.2d 587, 597 (2001) (quoting C-E-I-R, Inc. v. Computer Dynamics Corp., 229 Md. 357, 366, 183 A.2d 374, 379 (1962) (quoting Maryland Credit v. Hagerty, 216 Md. 83, 90, 139 A.2d 230, 233 (1958))). See also Maj. op. at 318, 19 A.3d at 400. This duty “imposes on the employee ... the negative duty of refraining from deception and from entering into relations giving him an interest inconsistent with that of the employer.” Hagerty, 216 Md. at 90, 139 A.2d at 233 (quoting 4 Williston on Contracts, § 1022 (Rev. Ed.)). So intrinsic is the duty of loyalty to the employer/employee relationship that it is “read into every contract of employment[.]” Maj. op. at 318, 19 A.3d at 400 (quoting Maryland Metals, 282 Md. at 38, 382 A.2d at 568 (1978)). Accordingly, an “employee who violates [this] fundamental dut[y] of loyalty cannot recover even for the services he has rendered.” Hagerty, 216 Md. at 91, 139 A.2d at 233 (quoting 4 Williston on Contracts, § 1022 (Rev. Ed.)) (emphasis added).
The majority would have us sever this “fundamental” duty from the employment contract itself by holding that the breach of it is not necessarily a material breach of the contract. See Maj. op. at 316, 19 A.3d at 399 n. 1 (“Weichert waived its right to argue that the breach of the duty of loyalty was material to the contract because it did not submit the issue to the jury.”). As support, it cites two cases that are inapposite here because neither held that the employee breached his duty of loyalty.
First, the majority relies on Regal Savings Bank v. Sachs, 352 Md. 356, 722 A.2d 377 (1999). In Regal, a bank forced its consultant (and former president and CEO) to resign after the consultant permitted certain customers to incur numerous overdrafts without charging them overdraft fees or interest, in contravention to a bank policy. Id. at 359, 361, 722 A.2d at 378-79. In the consultant’s wrongful termination action, we *336reversed the trial court’s grant of summary judgment in favor of the bank, holding that there were remaining questions of fact as to whether the consultant’s violation of this policy constituted a material breach of his employment contract. Id. at 364-65, 722 A.2d at 381.5
The majority cites Regal for the proposition that “not every breach of a duty by an employee extinguishes the employer’s contractual obligations.” Maj. op. at 316, 19 A.3d at 399. I would agree that some breaches of duty are not necessarily material so as to release the employer from its contractual promise, as in the Regal employee’s breach of the employer bank’s explicit policy prohibiting overdrafts. Here, however, we are not concerned with just any duty; Faust breached the “fundamental” duty of loyalty by utilizing her status as sales manager to schedule and hold “important” sales meetings as the means to orchestrate a mass exodus of Weichert employees. The two are not comparable.
Neither does Shipley v. Meadowbrook, 211 Md. 142, 126 A.2d 288 (1956), support the majority’s holding. The majority cites that case as holding that an employee did not relinquish his compensation even though “the employee breached his duty of loyalty in misappropriating materials!)]” Maj. op. at 320, 19 A.3d at 402.6 This is incorrect; rather, this Court held that the employee’s use of company property for personal benefit (conversion) “[did not] amount to disloyalty” because the employee did not conceal his actions and the “evidence show[ed] that the irregularities were waived or condoned” by the employer. Shipley, 211 Md. at 149, 126 A.2d at 291 (emphasis added). Here, by contrast, not only did Faust *337blatantly abuse her authority at Weiehert, she did so with the intent to decimate its workforce. Moreover, in this case, the jury found that Faust had breached her duty of loyalty.7 Compare Maj. op. at 314-15,19 A.3d at 398 (trial court finding of disloyalty) with Shipley, 211 Md. at 149, 126 A.2d at 291 (“The question of disloyalty was not mentioned in the [trial] court’s opinion, although the point was raised in a memorandum submitted by counsel, but presumably it was passed on adversely to the [employer’s] contention.”).
I believe that a more instructive case is Maryland Credit Finance v. Hagerty, 216 Md. 83, 139 A.2d 230 (1958), in which this Court treated an employee’s loyalty as a material duty by allowing an employer to prevail on its material breach claim, even though the “materiality” of the breach was not discussed until the case was on appeal. There, a manager of an automobile sales financing company8 sued his employer for a payment of a bonus that, under the terms of his employment, was due him at the end of the year. See id. at 85, 139 A.2d at 230. The employer withheld the manager’s bonus after it discovered that he had entered into a partnership with a dealer from whom the employer purchased sales contracts, which led to an “abnormal” increase in the number of contracts purchased from that dealer. See id. at 88, 139 A.2d at 232. In the Circuit Court, the employer alleged that the manager “had been indulging in unethical practices and wilfully and knowingly had been violating company rules with respect to the relationship between company employees and company cus*338tomers[.]” Court of Appeals, No. 162, September Term, 1957, Record Extract at 4. The trial judge disagreed, however, finding instead that “[e]ven if the acts of alleged misconduct were improper, they certainly were not of such magnitude as to constitute acts of disloyalist.]” Record Extract at 12.
In a strikingly similar procedural turn of events, the employer in Hagerty did not argue at trial that the “disloyalty” was material, but assumed that the breach was material when framing its “question presented” for this Court.9 Contrary to the majority’s approach here, the Hagerty Court was not deterred from holding that a breach of the duty of loyalty was material, even without an explicit factual finding of materiality.10 The Court agreed with the employer that “[the manager’s] dealings with [his partner] created a conflict of interest that constituted wilful, material and deliberate *339breaches of his duty of loyalty[.].” Hagerty, 216 Md. at 89, 139 A.2d at 233. The Court reasoned that
[ejxperience has taught us that no man can serve two masters, and for this reason it has long been an established rule of law that an agent cannot recover from his principal in any transaction in which the agent’s interest was antagonistic to that of the principal, unless such interest was fully and fairly disclosed to the principal. * * * In accordance with this rule it has been held that, without full disclosure, an agent ... cannot represent two principals having antagonistic interests[.]
Id. (quoting De Crette v. Mohler, 147 Md. 108, 115, 127 A. 639, 642 (1925)). Accordingly, this Court held that the manager “forfeit[ed] his right to the ... bonus he otherwise would have been entitled to receive.” Id. at 93, 139 A.2d at 235.
Although, generally, the “materiality of a breach of contract is a factual inquiry[,]” Maj. op. at 316, 19 A.3d at 399 n. 1, Hagerty shows us that in the employment context, the question of materiality is subsumed within the question of loyalty, so no separate finding of materiality need be made.11 For, *340unlike the narrow, specific duty in Regal, employee loyalty is a “fundamental” duty, so that the breach of it is inherently material. See Williston on Contracts, § 68:3 (4th Ed.2002) (“for a breach of contract to be material, it must ... be one which touches the fundamental purpose of the contract[.]”) (quotation marks omitted) (emphasis added). Here, because the jury found that Faust had breached her fundamental duty of loyalty, we should presume that she has materially breached her employment contract, and excuse Weichert from its contractual obligation to pay her attorney’s fees. In my view, by requiring Weichert to have submitted to the jury the issue of materiality, in addition to its proof of Faust’s breach of loyalty, the majority imposes an unfair and redundant burden that Weichert could not have anticipated.
C. Rescission vs. Breach of Contract
The majority further justifies its decision to uphold Faust’s attorney’s fees award by holding that Weichert’s decision to pursue a breach of contract action reinstated its remaining contractual responsibilities, even though, under settled contract law, Weichert was relieved of them by her breach. In so holding, the majority conflates a breach of contract action with the right to rescind. See Maj. op. at 316, 19 A.3d at 399 n. 1.12 These are distinct and alternative courses of action available to an aggrieved party:
When a contracting party is displeased with the other’s performance he may follow either of two alternative courses of action ...: (1) he can reaffirm the existence of the contract and seek specific performance when appropriate or claim damages for its breach, or (2) he can repudiate the contract altogether and request rescission.
*341Lazorcak v. Feuerstein, 273 Md. 69, 74-75, 327 A.2d 477, 480 (1974).
The interrelationship between these remedies often renders them confusing, but they remain distinct:
Without doubt a considerable amount of injustice has been done by reason of variation and confusion in the use of the term “rescission.” When one party ... commits a very material breach, this fact may in itself discharge the other party from further duty under the contract. This is not a “rescission” or even an offer of a rescission; yet it is often said that such a breach privileges the other party to ‘rescind’ the contract. This usage has caused serious difficulty[.]
A mere expression by the injured party of recognition of the fact that a vital breach has occurred and an assertion of his own discharge thereby is no part of an ‘agreement to rescind’; it is not an offer to rescind, nor is it the acceptance of such an offer. Furthermore, it is not an ‘election’ between remedies, the very existence and character of which he cannot know until advised by a competent lawyer.
Glen Alden v. Duvall, 240 Md. 405, 429-30, 215 A.2d 155, 172 (1965) (quoting 5A Corbin, Contracts, § 1237) (emphasis added).
Here, Weichert did not seek to rescind Faust’s employment contract. Rather, it pursued a breach of contract action, alleging violations of the terms of the non-solicitation agreement and the implicit duty of loyalty, and prevailing on the latter. Thus, as the wronged party to a materially breached contract, Weichert is relieved from any further performance under that contract, including the payment of Faust’s attorney’s fees: “[T]he other party is discharged from further performance, and is entitled to substantial damages only when there is a material breach.” Williston on Contracts, § 63:3 (4th Ed.2002). See also Restatement (Second) of Contracts, § 237 cmt. a (1981) (“[A] material failure of performance ... *342discharges [the other party’s remaining duties of performance] if it has not been cured during the time in which performance can occur.”).13
Conjointly, Faust, as the party who materially breached the contract, cannot recover under any of the contractual provisions: “[A] party who fails to substantially perform may not recover at all under the contract.” Williston on Contracts, § 63:8 (4th Ed.2002) (emphasis added). “This is based on the rationale that a contracting party cannot benefit from its own breach.” Id. In other words, because of her material breach, Faust does not have a valid right to the contractual benefit of attorney’s fees.
Therefore, contrary to the majority’s assertion, Weiehert’s pursuit of damages under the contract and its disavowal of the attorney’s fees obligation are not mutually exclusive. See Williston on Contracts, § 63:31 (4th Ed.2002) (“[W]here the contract has merely been breached, in other words, where one party has failed or refused to perform some obligation under it, ... the wronged party may be excused from further performance and recover for loss occasioned to him.”) (emphasis added).
D. Conclusion
In this case, an employee engaged in a sophisticated scheme to deprive her employer of a large portion of its work force, dealing a stunning blow to the employer’s business. In doing so, she violated the “fundamental” duty of loyalty and materially breached her employment contract. Accordingly, as the injured party, Weichert is excused from any remaining contractual obligations, and Faust, as the materially breaching party, is not entitled to the contractual benefit of attorney’s *343fees. The jury’s finding that she did not breach her non-solicitation clause does not mitigate her disloyal scheme to decimate her employer’s workforce. Indeed, Faust had no need to solicit after she left Weichert, as she had already filched the other employees while still on the payroll herself. For these reasons, I cannot accede to the majority’s decision to reward Faust’s underhanded actions, and I respectfully dissent.
Judge MURPHY authorizes me to state that he joins the views expressed in this Dissent.

. During these discussions with Long & Foster, Faust learned that Long & Foster, Weichert’s direct competitor, was purchasing the building and taking over the floor that housed Weichert’s Bethesda office, yet she did not alert Weichert.

. Faust and Long & Foster evidently anticipated this litigation. Faust’s new employment contract contained an unqualified indemnification clause that provided that Long & Foster would indemnify her "for any costs, losses, and fees, including any attorney fees, from any claims that might be brought against [Faust] by Weichert based upon [Faust’s] contacts with or employment by Long & Foster.”

. This monthly meeting was known among office personnel. As explained by one Weichert assistant, “[o]nce a month, usually on the second Tuesday of each month, the [Regional Vice Presidents] from all jurisdictions ... go to the central location in New Jersey for a joint [ ] meeting.” Indeed, Faust had been invited to speak at these meetings on two separate occasions.

. She characterized her resignation letter to Weichert as giving "two weeks notice.”

. Specifically, there remained a question as to whether the bank knew of and condoned the consultant's behavior up until the time it decided to terminate him. Regal Savings Bank v. Sachs, 352 Md. 356, 365, 722 A.2d 377, 381 (1999).

. Among other things, the employee used a company workman to help re-model the employee’s residence and cut grass. Shipley v. Meadowbrook, 211 Md. 142, 148, 126 A.2d 288, 290-91 (1956). The employee also used the company’s plumbing tools and admitted he owed the company $189 for pipe and $5 worth of grass seed. Id.

. In its opinion, our intermediate appellate court stated that the “jury specifically found that Faust did not breach her employment contract[.]” Weiehert Co. of Maryland, Inc. v. Faust, 191 Md.App. 1, 9, 989 A.2d 1227, 1231 (2010) (emphasis in original). This is incorrect; the jury explicitly found that Faust breached her contractual duty of loyalty. Examining the Court's statement in context, I think the Court meant the jury found that Faust did not breach the non-solicitation agreement in her employment contract.

. The employer financed automobile sales, whereby it purchased conditional sales contracts between automobile dealers and their customers, becoming an assignee of the subject vehicle's title. Maryland Credit Finance v. Hagerty, 216 Md. 83, 85, 139 A.2d 230, 230-31 (1958).

. This was revealed by an examination of the employer's brief and the record extract filed in Hagerty. The question posed was: "When an automobile finance company branch manager, representing his employer’s interest in transactions with automobile dealers, secretly becomes a profit-sharing partner of such a dealer ... is there such a material breach of his duty of loyalty as to preclude his recovering compensation!?]” Court of Appeals, No. 162, September Term, 1957, Brief for Appellant at 4-5 (emphasis added).

. Although the employer was the defendant in Hagerty, it raised, as an affirmative defense, the breach of the duty of loyalty. Thus, it had the burden to prove that material breach, just as Weichert has the burden here. See Williston on Contracts, § 63:13 (4th Ed.2002) ("[The] party alleging the breach has the burden of proof on all of its breach of contract claims.”). I rely on Hagerty because the employer there, like Weichert, failed to put a discrete issue of materiality before the trier of fact. In responding, the majority implies that the Hagerty employer argued materiality at the trial level. This is not so. An examination of the pleas and trial court submissions reveals no mention of materiality, only loyalty; see Court of Appeals, No. 162, September Term, 1957, Record Extract; and nothing in the Court of Appeals opinion suggests otherwise. Despite this omission, the Court of Appeals held that Hagerty’s breach was material, treating materiality as subsumed within the jury's finding of breach of loyalty. The majority has yet to reconcile its holding that "Weichert waived its right to argue that the breach of the duty of loyalty was material to the contract because it did not submit the issue to the jury," with the holding in Hagerty, which treated a breach of loyalty as inherently material.

. Indeed, a finding that an employee has breached the duty of loyalty must be supported by evidence of extreme conduct. As made apparent by the jury instructions given in this case, an employee is afforded wide latitude when preparing to leave her employer and compete:
[T]he law recognizes that employees have the right prior to the termination of employment to secretly purchase a rival business; to plan to manage a rival business for a competitor; to take steps to establish a competing business; to make arrangements on behalf of a new employer to begin competitive operations following termination of employment; to purchase equipment; to prepare a location that will directly compete with the former employer in the hopes that the customers and employees of the former employer will join the employee after termination (so long as there is no wrongful conduct); and to advise customers and fellow workers with whom that have been in contact of their resignation. An employee may also discuss job offers with her circle of friends in the workplace, including coworkers and colleagues, and the group may debate whether to leave together without disclosing it to the employer.
Here, notwithstanding this wide latitude given the employee, the jury found that Faust had breached her duty of loyalty. This meant that it believed she had engaged in "fraudulent, unfair, or wrongful conduct *340that [amounted] to actively competing with her employer during the tenure of her employment.”

. The majority cites Lazorcak v. Feuerstein, 273 Md. 69, 75, 327 A.2d 477, 481 (1974) ("[I]f a party who knows the facts which would justify rescission, does any act which recognizes the continued validity of the contract or indicates that he still feels bound under it, he will be held to have waived his right to rescind.”).

. The jury’s awarding of damages to Faust under the Maryland Wage Payment and Collection Law does not detract from this rule. It was the judge, and not the jury, that determined that Weichert violated the MWPL, doing so on Faust’s summary judgment motion. We are not called upon to decide whether this was error. The judge then submitted the issue of damages to the jury, instructing them that the court had found in Faust's favor. Essentially, the jury's hands were tied.