Hanover Investments, Inc. v. Volkman
165 A.3d 497
| Md. | 2017Background
- Susan Volkman was a managerial employee of One Call Concepts, Inc. (OCC) and owned 19% of Hanover Investments, Inc. (Hanover) pursuant to a shareholders’ arrangement tied to her employment. Both OCC and Hanover are controlled by R. Thomas Hoff.
- Employment and shareholders’ agreements (both governed by Maryland law) provided that if an employee-shareholder was terminated for "good cause," Hanover would repurchase shares at 10% of fair market value; if terminated without good cause, full fair market value would be paid.
- OCC terminated Volkman in Jan. 2010; Hanover redeemed her shares at the reduced (good-cause) valuation and issued a purchase note. Volkman disputed the termination and the redemption.
- Procedural history: Volkman filed an Employment Agreement action in Maryland (later dismissed with prejudice). She then sued Hanover in Minnesota alleging breach of the Shareholders’ Agreement (seeking return of shares). While that Minnesota action was pending on appeal, Hanover filed a declaratory-judgment action in Maryland asking the Maryland court to declare Hanover had complied with the Shareholders’ Agreement.
- The Maryland Circuit Court heard Hanover’s declaratory action, ruled for Hanover, and issued a declaratory judgment. The Maryland Court of Special Appeals reversed, holding the Circuit Court should not have adjudicated the declaratory action while the Minnesota action was pending. The Maryland Supreme Court affirmed the Court of Special Appeals.
Issues
| Issue | Plaintiff's Argument (Hanover) | Defendant's Argument (Volkman) | Held |
|---|---|---|---|
| Whether a Maryland court may entertain a declaratory-judgment action when a pending action in another state involves the same parties and substantially the same issues | Declaratory relief was proper because Maryland courts had prior involvement (Employment Action), the contracts are governed by Maryland law, and unusual/compelling circumstances (forum-shopping by Volkman, judicial economy, need for Maryland interpretation) justified proceeding | The Minnesota Shareholders’ Agreement action was filed first and would adequately adjudicate the same issue; Maryland court should abstain or stay under Maryland precedent to avoid duplicative litigation | Court held declaratory action was improper while the Minnesota action was pending; no unusual and compelling circumstances justified exception; Circuit Court abused its discretion |
| Whether the parties and issues in the two actions are "the same" or "identical" for purposes of barring duplicative declaratory relief | Argued differences in parties (additional plaintiffs in Maryland) and relief sought justified separate Maryland action | Argued added nominal plaintiffs did not change the core dispute and both actions raised the same question regarding compliance with the Shareholders’ Agreement | Held parties and issues were effectively the same: additional plaintiffs were coextensive with Hanover’s interests and the central contractual question could be adjudicated in Minnesota |
| Whether prior Maryland proceedings (dismissal with prejudice of Employment Action; arbitration confirmation) created unusual and compelling circumstances permitting Maryland declaratory relief | Claimed dismissal and arbitration confirmation made Maryland the natural forum and supported exception to the usual rule | Argued those events do not negate the fact that the Minnesota action was pending and the exception requires truly unusual/compelling circumstances | Held those facts did not amount to unusual and compelling circumstances to override the rule against duplicative declaratory actions |
| Whether comity and forum-considerations allow Maryland courts to decide a Maryland-law contract despite pending foreign litigation | Hanover urged deference to Maryland forum and concern about forum-shopping by Volkman | Volkman argued comity favors deference to the first-filed Minnesota action and Minnesota courts can apply Maryland law | Held comity and forum-shopping concerns did not justify allowing Maryland declaratory judgment while Minnesota action was pending |
Key Cases Cited
- Sprenger v. Public Service Comm’n, 400 Md. 1 (Md. 2007) (pending similar action is fatal to declaratory judgment)
- A.S. Abell Co. v. Sweeney, 274 Md. 715 (Md. 1975) (declaring that duplication of pending actions bars declaratory relief absent very unusual and compelling circumstances)
- Waicker v. Colbert, 347 Md. 108 (Md. 1997) (same principle; presence of additional parties does not automatically permit duplicative declaratory action)
- Haynie v. Gold Bond Building Products, 306 Md. 644 (Md. 1986) (court must dismiss a declaratory action that duplicates an earlier pending action)
- Brohawn v. Transamerica, 276 Md. 396 (Md. 1976) (guidance against duplicative declaratory proceedings)
- Christ v. Department of Natural Resources, 385 Md. 427 (Md. 2005) (dismissal of declaratory judgment actions is rarely appropriate, but limited by other precedents)
- Post v. Bregman, 349 Md. 142 (Md. 1998) (courts should declare rights when action is properly susceptible to declaratory judgment)