Prevailing parties in Maryland breach of contract lawsuits may be awarded compensation for time spent supporting litigation efforts, if the contract provides for reimbursement of business losses.
As a general rule in American jurisprudence, each party to a lawsuit pays its own attorneys’ fees and costs of litigation, regardless of which party prevails. A well-established exception to this rule provides that parties to a contract may agree that the prevailing party in any lawsuit arising out of the contract is to be awarded its attorneys’ fees and court costs as part of the judgment, to the extent the court finds such fees and costs to have been reasonable. In the recent case of Under Armour, Inc. v. Ziger/Snead, LLP, however, Maryland’s intermediate appellate court interpreted a contract between two parties to also permit reimbursement of business costs incurred due to litigation, beyond attorneys’ fees and typical court costs. This potentially expands the exposure of losing parties to paying substantial additional amounts to prevailing parties.
The contract, in this case, was between a property owner and an architecture firm. The contract provided that, if the architecture firm employed attorneys to gain enforcement of the agreement, the property owner would have to reimburse the architecture firm for its attorneys’ fees, costs, and expenses arising in litigation. That portion of the contract was typical of a fee-shifting provision, but the contract went on to also provide for reimbursement of “losses” incurred by the prevailing party.
At trial, the jury awarded $58,940 in compensatory damages to the architecture firm, and after post-trial motions, the court also awarded the architecture firm $182,735 in attorneys’ fees, $155 in court costs, $42,830 in litigation expenses, and another $62,190 to compensate it for business “losses.” These recovered losses were the value of time expended by one of the principals in the architecture firm, and several employees of the firm, on the investigation of the dispute and in performing litigation-related tasks at the request of its attorneys. To prove the amount of its losses, the firm presented evidence of the number of hours spent by its principal and other employees on litigation matters, multiplied by their hourly billing rates typically charged to firm clients – on a theory that the time expended on litigation matters was time they otherwise would have been billing to clients for their usual services. The court decided to compensate the firm for 79 ½ hours of employee time spent evaluating the case and preparing for and attending mediation, 154 ½ hours investigating the facts, dealing with discovery, and preparing for and attending depositions, and 69 ½ hours preparing for and attending the trial.
The award of business losses, in this case, will be a surprise to many attorneys, because there has been a well-established practice of limiting the scope of most fee-shifting contract provisions to reasonable attorneys’ and court costs. Opening the door to compensating a prevailing party for the value of its employees’ time preparing for and participating in litigation will cause careful contract drafters to include “losses” among the items that can be awarded to a prevailing party, should a dispute arise under the contract. The result could be substantially larger awards in contract actions. This outcome probably feels fair to the prevailing party and may be considered outrageous by the losing party, but the practical result will be that contract litigation may now become even more financially risky. In this case, the amount of compensatory damages was $58,940, but additional fees and costs that were awarded totaled about $230,000, of which $62,190 were to compensate for “losses.” Litigating parties will face pressure to negotiate a settlement prior to trial, in light of increased financial exposure in the event of a loss a trial. Placing increased financial pressure on all parties effective benefits the party having greater financial resources, since that party can better withstand a negative result at trial.
Federal contractors now must provide training to their employees on protection of Personally Identifiable Information
New requirements were placed on Federal contractors this year, to train their employees on the protection of personally identifiable information (known as “PII”). Under a new rule that went into effect in January 2017, all federal contractors that handle or have access to the personally identifiable information of others must provide training to their employees. The rule applies not only to large government contractors, but also to contractors “at or below the simplified acquisition threshold (SAT), and to contracts and subcontracts for commercial items, including contracts and subcontracts for commercially available off-the-shelf (COTS) items.” The rule requires prime contractors to flow down these privacy training requirements to their subcontractors. Personal identifiable information (“PPI”) is any type of information that may be used to trace or distinguish an individual’s identity.7
Government contractors and subcontractors must ensure that their employees complete an initial privacy training course, and thereafter undergo annual refresher training. An employee must receive training if they:
- Have access to any system of records
- Design, maintain, develop, or operate the contractor’s system of records
- Store, collect, create, use, maintain, or dispose of personal identifiable information on behalf of the contractor.
The training is to include:
- Explanation of the authorized and official use of personal identifiable information, and of records containing such information
- How to appropriately safeguard and handle private information
- Applicable restrictions of the use, collection, access, disclosure, and disposal of personal identifiable information
- Procedures to be followed during a suspected or confirmed breach of security for personal identifiable information
Contractors are required to customize their privacy training to fit particular employee’s duties, and the training must include foundational levels of privacy training, as well as advanced privacy training where appropriate. Employees must be tested to ensure they have the level of knowledge necessary to keep personal identifiable information private. Contractors are required to keep records of training to show what type of training particular employees received, and these records are subject to audit by the government.
Federal contractors and subcontractors need to consider which of their employees (if any) handle or have access to the personally identifiable information of others, and prime contractors need to ensure that their subcontractors comply with these new training requirements. In addition to providing the required training, contractors and subcontractors also must comply with the record-keeping requirements in the new rule.
The Maryland Court of Special Appeals, in a published opinion issued on December 20, 2012, upheld a jury verdict that was entered by the Circuit Court for Howard County in June 2011 in favor of our firm’s client, Interactive Digital Solutions.