The vast majority of states, including Maryland, follow what is known as the “American Rule” on the allocation of the costs of litigation — that is, each party bears its own costs, including attorneys’ fees, regardless of the outcome.
The American Rule is subject to numerous exceptions, most notably when the Legislature has authorized the award of attorneys’ fees by statute.
This Court has previously stated that, in light of the purpose of the Wage Payment and Collection Law, a trial court “should exercise [its] discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that ease.”
We hold that the purposes and operation of the two statutory schemes, and their respective fee-shifting provisions, are sufficiently dissimilar that the analysis under ERISA should not be imported into the Wage Payment and Collection Law.
Background
Maryland Wage Payment and Collection Law
The Wage Payment and Collection Law sets certain standards for the frequency and methods of compensation, permissible deductions from pay, and notification of employees about the details of pay and changes in the amount or method of payment. LE § 3-502 through § 3-505. “Wage” is defined to include “all compensation that is due to an employee for employment,” including bonuses, commissions, overtime, fringe benefits, and other forms of compensation. LE § 3-501(c).
The statute provides for enforcement by the State Commissioner of Labor and Industry
Pertinent to this case, the statute creates a private right of action for an employee to recover wages that have been wrongfully withheld. LE § 3-507.2. Under that provision, an employee may bring an action to recover unpaid wages if the employer has failed to make payment in accordance with the statute and if two weeks have elapsed since the wages should have been paid. LE § 3-507.2(a). The statute also provides for a successful plaintiff to recover attorneys’ fees and costs in certain circumstances:
(b) If, in an action under subsection (a) of this section, a court finds that an employer withheld the wage of an employee in violation of this subtitle and not as a result of a bona fide dispute, the court may award the employee an amount not exceeding 3 times the wage, and reasonable counsel fees and other costs.
LE § 3-507.2(b).
The Chamber of Commerce Hires Mr. Barufaldi
Petitioner Ocean City, Maryland Chamber of Commerce, Inc. (the “Chamber”), is a private, nonprofit organization that draws its members from various businesses and professional organizations. It was founded in 1953 to promote local tourism and commerce and derives its income from membership dues, donations, and advertising revenue generated by a subsidiary corporation, Ocean City Guide, Inc., through its publication “The Guide.” The Chamber states that it has not earned or reported a “net profit” in recent years.
In the fall of 2005, the Chamber hired Respondent Daniel Barufaldi as its executive director. His compensation was outlined in a written, back-dated employment agreement executed two months after he had actually begun work. The agreement provided that, during the three-year term of the agreement, he was to receive an annual base salary of $52,000 supplemented by incentive compensation. The incentive compensation was to be computed as a percentage of the Chamber’s net revenue — as calculated each quarter — above a baseline figure to be set by the parties within the two months after execution of the agreement. However, the parties did not agree to a baseline amount within that time period or after-wards.
On October 31, 2006, the Chamber proposed to Mr. Barufaldi a new employment agreement that did not include incentive-based compensation and that provided that he could be fired without cause on 30 days notice. At the trial of this case, the Chamber asserted that Mr. Barufaldi asked for this contract and was agreeable to its terms. Mr. Barufaldi contended that the Chamber had no intention of paying him the incentive-based compensation contained in the original agreement and attempted to force him to accept the new contract without that element of compensation. In any event, it is undisputed that Mr. Barufaldi never executed the second contract.
Resignation, Lawsuit, and Trial
On January 23, 2007, Mr. Barufaldi resigned as executive director of the Chamber and took a position with another chamber of commerce in Charles County. On
A jury trial was held on April 15 to 17, 2009. At the outset, Mr. Barufaldi voluntarily dismissed his negligent misrepresentation claim and his claims against four of the individual board members; at the close of his case, the court dismissed his claims against the two remaining board members. At the close of the entire case, the Chamber’s counterclaim was also dismissed by the court.
The jury returned a verdict in Mr. Barufaldi’s favor on both his breach of contract claim and claim under the Wage Payment and Collection Law. It found that the Chamber owed him $60,000 in damages, but declined to award treble damages. The jury also found that there was no “bona fide dispute” regarding the unpaid compensation. The trial court entered a judgment for $60,000 against the Chamber on April 20, 2009.
Motion for an Award of Attorneys’ Fees under the Statute
Mr. Barufaldi then filed a motion for an award of attorneys’ fees and costs under the Wage Payment and Collection Law. He sought $141,523.50 in attorneys’ fees and $18,752.47 in costs. The Chamber opposed the request, arguing that the jury’s finding of “no bona fide dispute” was erroneous and that the court was not bound by it in determining whether to award attorneys’ fees and costs. The Circuit Court denied Mr. Barufaldi’s motion without elaborating on the basis for its decision. Both parties noted an appeal. In order to stay the enforcement of the judgment pending the appeal, the Chamber borrowed $60,000 from a financial institution and paid it into the court registry.
First Appeal
The Court of Special Appeals affirmed the judgment, but vacated the denial of the motion for attorneys’ fees and costs.
Decision on Remand
Mr. Barufaldi then filed in the Circuit Court a supplemental motion for fees and costs, seeking an additional $41,770.50 in fees and $11,125.86 in costs incurred in litigating the appeal and preparing the new motion. As part of its opposition, the Chamber urged the court to adopt the analysis applied by federal courts in deciding whether to award attorneys’ fees in actions under ERISA. As outlined by the federal courts, those factors are:
(1) the degree of the parties’ culpability or bad faith;
(2) the ability of the parties to satisfy a fee award;
(3) whether an award of attorneys’ fees would deter other persons acting under similar circumstances;
(4) whether the party requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and
(5) the relative merits of the parties’ positions.
Quesinberry v. Life Ins. Co. Of N.Am.
On March 25, 2011, the trial court denied, for the second time, Mr. Barufaldi’s request for fees. In explaining its decision, the Circuit Court applied the fee-shifting analysis from ERISA cases. The Circuit Court ruled that a fee award was inappropriate because the Chamber had not acted in bad faith; the Chamber would be rendered insolvent by paying the fees; an award would not have any appreciable deterrent effect and might jeopardize the existence of the Chamber; the lawsuit was not of general applicability to other employees but dealt only with Mr. Barufaldi; and the dispute was, on the merits, a “close case.”
Second Appeal
Mr. Barufaldi appealed the second denial of his motion for a fee award and, in another reported opinion on the subject, the Court of Special Appeals once more reversed the denial of his motion.
In its opinion, the Court of Special Appeals did not attempt to identify all of the factors that a trial court might consider in deciding whether to make a fee award under the statute. In a footnote, it suggested that potentially appropriate reasons to deny a fee award would be a “claimant’s misconduct” or a claimant’s rejection of a settlement offer more favorable than the judgment ultimately obtained.
The Chamber filed a petition for writ of certiorari, which we granted to decide whether the ERISA fee-shifting factors may be employed to evaluate a plaintiffs request for attorneys’ fees and costs under the Wage Payment and Collection Law.
Discussion
Standard of Review
Under the Wage Payment and Collection Law, if the employer is found to have withheld wages in the absence of a bona fide dispute, a trial court “may award the employee ... reasonable counsel fees and other costs.” LE § 3-507.2 (emphasis added). Therefore, “the decision whether to allow any fee is discretionary.” Friolo v. Frankel,
There is a difference, however, between how a trial court makes its decision and what decision it makes. The standard that a trial court applies in evaluating whether to award attorneys’ fees and costs is a legal decision; the conclusion that the court arrives at after applying that standard to the facts of the particular case is an exercise of discretion. Wilson-X v. Dep’t of Human Res.,
Whether the Circuit Court properly employed the ERISA fee-shifting factors to decide whether to award attorneys’
A Comparison of ERISA and the Wage Payment and Collection Law
Both the Wage Payment and Collection Law and ERISA are related to employment, are designed to protect the interests of employees, and contain fee-shifting provisions. Despite these similarities, the two statutes have distinct purposes and histories and their fee-shifting provisions operate somewhat differently.
Legislative History and Purpose
-Wage Payment and Collection Law
This Court has previously examined in detail the development of the Wage Payment and Collection Law and its fee-shifting provision. Friolo I,
In 1991, budget cuts resulted in the elimination of the unit of the Division of Labor and Industry that enforced the statute.
Senate Bill 274, as originally proposed, would have provided a private right of action to recover unpaid wages, but without any provision for recovering attorneys’ fees and costs. Proponents of a private right of action urged the addition of a fee-shifting provision to establish a stronger deterrent for employers to comply with the law and — given the relatively small amounts typically at issue — a stronger incentive for private attorneys to undertake representation in wage cases. See Letter from Constance Belfiore, Executive Director, The Law Foundation of Prince George’s County, Inc., to Senator Thomas P. O’Reilly, Chairman, Senate Finance Committee (February 12, 1993); Letter from Winifred C. Borden, Executive Director, Maryland Volunteer Lawyers Service, to Senator Thomas P. O’Reilly (February 9,1993).
In contrast, House Bill 1006, as originally filed, would have provided for the automatic award of attorneys’ fees and treble damages to a successful plaintiff, regardless of whether there was a “bona fide dispute” about the employee’s entitlement to the wages. Opponents argued that the
A compromise was ultimately reached. The final version of the legislation allowed (rather than mandated) an award of attorneys’ fees as well as treble damages to a successful plaintiff, contingent upon a finding that the withholding of the wages was not part of a “bona fide dispute.” See Chapter 578, Laws of Maryland 1993.
The private right of action under the statute was thus designed as “a vehicle for employees to collect, and an incentive for employers to pay, back wages.” Medex v. McCabe,
In light of the purposes of the fee-shifting provision of the statute, this Court has stated that when the factfinder concludes that there was no “bona fide dispute” as to the employer’s liability, “courts should exercise their discretion liberally in favor of awarding a reasonable fee, unless the circumstances of the particular case indicate some good reason why a fee award is inappropriate in that case.” Friolo I,
-ERISA
ERISA sets uniform federal standards for employer-sponsored benefit plans, including health and retirement plans. It
ERISA allows federal courts to award attorneys’ fees and other costs.
Operation of Fee-Shifting Provisions
The different purposes of the two statutes are reflected in their fee-shifting provisions. Notably, the ERISA fee-shifting scheme allows fees to be awarded “to either party,” 29 U.S.C. § 1182(g)(1), while the private right of action under the Wage Payment and Collection Law only authorizes a fee award to “the employee,” LE § 3-507.2. The State statute therefore establishes, as a matter of public policy, that an employer is not to be awarded attorneys’ fees against a claimant even if the employer prevails in the action. In contrast, ERISA’s two-way shifting is intended to protect both benefit plans and their beneficiaries.
ERISA’s two-way shifting recognizes that a plan’s fiduciary may be obliged, under the statute, to take action against other fiduciaries when there is a breach of fiduciary duty, see 29 U.S.C. § 1105(a)(3), as well as against a beneficiary to recoup
This is in contrast to the private right of action under the Wage Payment and Collection Law, which involves only litigation between an employee and an employer over the payment of wages. The five-factor ERISA fee-shifting test, developed from the principles of trust law, contemplates a broader range of circumstances and allows for awards to both plaintiffs and defendants.
It is thus necessary to consider the relevance of each of the ERISA factors on its own merits in the context of the Wage Payment and Collection Law.
Consideration of ERISA Factors in the Context of the Wage Payment and Collection Law
Reference to some of the ERISA factors in a wage act case can lead to redundant or contradictory findings by the trial court, as is illustrated to some extent by this case. Other factors considered under ERISA were “baked into” the fee-shifting provision of the Wage Payment and Collection Law when it was created by the Legislature.
Bad Faith
Under ERISA, a court is to consider the degree of each party’s culpability or bad faith. But in a wage payment action, the factfinder — in this case, a jury — must find that there was “no bona fide dispute” justifying the employer’s withholding of wages as a prerequisite to any consideration of an award of attorneys’ fees. A finding of no “bona fide dispute” is essentially a finding that the defendant acted in bad faith.
Ability to Pay an Award
The second factor considered under ERISA is “the ability of opposing parties to satisfy an award ...” Quesinberry,
In some contexts, a defendant’s ability to pay is an important factor in a court’s review of a jury’s decision to award punitive damages. See, e.g., Bowden v. Caldor,
Deterrent Effect
In ERISA cases, federal courts consider “whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances.” Quesinberry,
Application Beyond Individual Case
A fourth ERISA factor is “whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself.” Quesinberry,
In any event, the Legislature has already made a judgment that a fee award for a successful plaintiff in a wage payment case in which there was “no bona fide dispute” as to the plaintiffs entitlement to the withheld wages benefits the public by discouraging such conduct in the future by other employers. This is consistent with the general principle that fee-shifting provisions accompany statutory causes of action “addressed to an area of public interest or concern[.]” Montgomery v. E. Corr. Inst., 377 Md. 615, 637, 835 A.2d 169 (2003).
Relative Merits
The fifth factor considered by courts in awarding fees under ERISA is the “relative merits of the parties’ positions.” Quesinberry,
Potentially “Good Reasons” Not to Make a Fee Award
In an effort to illustrate what might be a proper reason to forgo a fee award — though not necessarily one that would apply to this case — the Court of Special Appeals identified in a footnote two reasons why a trial court might exercise its discretion to deny an award in a particular case: “the claimant’s misconduct or rejection of a settlement offer more favorable than the judgment obtained.”
As noted above, the legislation that enacted LE § 3-507.2 was the result of a compromise. Opponents were concerned that, given an assurance that a losing defendant would pay legal fees and costs, “unscrupulous” attorneys would pursue litigation even where the expected recovery “was the same amount that was offered by the employer and rejected by the employee.” In response, the bill was modified to make the award of fees discretionary rather than mandatory. It is thus evident that the General Assembly intended to provide a trial court with the discretion to deny a fee award when a defendant promptly made a good faith settlement offer to pay withheld wages, but a plaintiff continued the litigation to obtain additional fees and costs beyond those incurred to the time of the settlement offer.
Conclusion
Despite some similarities, ERISA and the Wage Payment and Collection Law serve distinct purposes, and their fee-shifting provisions are based on different principles. Accordingly, a trial court should not employ the five-factor ERISA fee-shifting test in deciding whether to award attorneys’ fees and costs under the State statute. Because the trial court’s denial of an award of attorneys’ fees and costs was based on factors inappropriate to this case, this case will be remanded to the Circuit Court for further consideration of Mr. Barufaldi’s motion.
Judgment of the Court of Special Appeals Affirmed. Costs to be Paid by Petitioner. .
Notes
. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y,
. Hughes & Snyder, Litigation and Settlement Under the English and American Rules: Theory And Evidence, 38 J.L. & Econ. 225 (1995). The English Rule originally allowed only a successful plaintiff to recover litigation costs from a defendant. This benefit was extended to both parties at some point during the reign of Henry VIII and was established by statute in 1607. See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y,
. Attorneys’ fees may also be awarded when a contract so specifies, or when the wrongful conduct of the defendant forces the plaintiff into litigation with a third party. See Empire Realty Co.,
. Friolo v. Frankel,
. In the current organization of State agencies, the Commissioner heads the Division of Labor and Industry within the Department of Labor, Licensing, and Regulation. LE § 2-101 et seq.
. More specifically, an affidavit filed by the Chamber’s current executive director states that the Chamber itself “has not earned or reported any net profit for well over a decade,” that its subsidiary’s net revenues subsidize the Chamber's operating losses, and that the subsidiary has “not reported any net taxable income for well over a decade.”
. Previous amendments had added a civil penalty provision — at first 10 percent, and later 20 percent, of the wages due. Chapter 142, Laws of Maryland 1974; Chapter 242, Laws of Maryland 1976. That provision was eliminated when the treble damages provision was added. The 1974 amendment also added a misdemeanor criminal penalty, which currently is codified at LE § 3-508.
. That unit, at times called the "Employment Standards Service” as well as the “Employment Standards Division,” “Wage and Hour Section," and "Wage and Hour Division" was reestablished in 1994, defunded again in 2006, then restored in 2007. See Eleanor M. Carey et ah, Report on the Department of Labor, Licensing and Regulation: Maryland Transition (2007), available at http://www.governor. maryland.gov/documents/transition/labor.pdf.
. The private right of action was originally codified as LE § 3-507.1. It was later recodified in its current location as LE § 3-507.2. Chapter 151, § 1, Laws of Maryland 2010.
. The parties and amici have debated at some length whether Friolo I established that there is a "presumption” that attorneys' fees should be awarded to a successful plaintiff in a case under the Wage Payment and Collection Law. (In its second opinion in this case, the Court of Special Appeals stated that there is no presumption in favor of an award.
No term has been more frequently or more variously defined. We read of presumptions of law, and presumptions of fact, mixed presumptions, accumulative, violent, mild, conclusive, conflicting, strong, and weak presumptions, until the whole subject seems an entanglement of definition and explanation, which leaves the mind in a hopeless state of bewilderment.
John J. McKelvey, A Handbook of the Law of Evidence § 53, at 114-15 (5th ed.1944). In our view, the use of the label “presumption” in this context is ultimately unhelpful and we decline to engage in a semantical exercise that can confuse rather than clarify. The statutory language— "may award the employee”- — already indicates that trial courts have discretion to award fees when the statutory contingency (no "bona fide dispute”) is satisfied. The plainly worded statement in Friolo I accurately captures the legislative purpose that favors exercising that discretion to award fees to a prevailing employee.
. The ERISA fee-shifting provision reads as follows:
In any action under this subchapter ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.
29U.S.C. § 1132(g)(1).
. See, e.g., Dardovitch v. Haltzman,
. In some circumstances, fees could potentially even be awarded in favor of a losing party. See, e.g., Antolik v. Saks, Inc.,
. The Latin phrase bona fide translates as "good faith.” By definition, the absence of a “good faith” means that the wages were withheld without an innocent intent, although it does not necessarily equate to fraud or deceit. See Admiral Mortgage, Inc. v. Cooper,
. Some courts hold that a defendant's ability to pay must be considered in determining whether to award attorneys’ fees to a successful plaintiff. See Baker v. Alderman,
. "General deterrence” is to be contrasted with "specific deterrence” (or “special deterrence”). The former is targeted “at society more generally, or at those similarly situated as the defendant who might engage in similar conduct if not deterred by the penalty imposed on the defendant” while the latter is “targeted at the defendant alone.” 1 Stein on Personal Injury Damages § 4.4 (3d ed.).
. Similarly, in fee-shifting under 42 U.S.C. § 1988, it is improper to deny an award on the basis that only the plaintiff was personally benefitted rather than the public at large. Herrington v. Cnty. of Sonoma,
. In this regard, a trial court might well distinguish between an employer that realizes early on that it has no good faith basis to withhold wages and attempts to settle, as opposed to an employer that resists payment and only offers a settlement on the eve of trial.
. If the Circuit Court finds that there is no good reason to deny an award, it should proceed to determine an appropriate award, using the lodestar analysis. Friolo I,