E-Alert Case Updates
Circuit Court Abused Its Discretion in Issuing a Declaratory Judgment When the Same Parties Were Litigating the Same Issues in another Forum
Susan Volkman v. Hanover Investments, Inc., et al.
Available at: http://www.mdcourts.gov/opinions/cosa/2015/1595s14.pdf
In a recent reported opinion by Judge Berger, the Court of Special Appeals of Maryland addressed the circumstances under which it is appropriate for a Maryland court to issue a declaratory judgment when the same parties to the declaratory judgment action are litigating the same issues in another forum.
The original Plaintiff, Susan Volkman, worked for One Call Concepts, Inc. (“OCC”). In 1993, Plaintiff was promoted to the position of vice president at OCC’s offices in Minnesota, and signed an employment agreement that provided she could only be terminated for “good cause” or upon fifteen (15) days’ notice. In 2007, OCC’s owner, Thomas Hoff, decided to retire. Consequently, he created a Hanover Investments, Inc. (“Hanover”) to serve as a holding company for the sole purpose of owning shares of OCC. Hoff subsequently sold shares of Hanover – which, due to the fact that Hanover owned OCC, amounted to selling shares of OCC – to Plaintiff and other employees of OCC. Hanover’s shareholders’ agreement provided that, if a shareholder’s employment with OCC was terminated for good cause, Hanover would redeem the shareholder’s stock.
In 2010, Plaintiff’s employment with OCC was terminated. Plaintiff and OCC disagreed as to whether she was terminated for good cause. Nonetheless, subsequent to her discharge, Hanover sent notice to Plaintiff that it was redeeming her stock. The parties, however, disagreed as to the valuation of Hanover and to whether Hanover was permitted to redeem Plaintiff’s stock at a 90% discount pursuant to the shareholders’ agreement. The parties submitted their dispute to arbitration, at which Hanover was apparently successful.
On January 16, 2013, Plaintiff filed a breach of contract action in Minnesota, alleging that Hanover violated the shareholders’ agreement by redeeming her stock at a 90% discount and seeking specific performance of the shareholders’ agreement. Hanover moved to dismiss, and the Minnesota court denied its motion on April 25, 2013. Hanover noted an interlocutory appeal. On March 3, 2014, the Minnesota appellate court upheld the trial court’s denial of Hanover’s motion to dismiss and remanded the case.
On June 26, 2013, while Hanover’s appeal in Minnesota was pending, Hanover filed a declaratory judgment action in the Circuit Court for Montgomery County Maryland seeking a declaration that it complied with the shareholders’ agreement. On June 16 and 17, 2014, the Circuit Court held a trial on the merits of the action. On August 18, 2014, after Hanover’s appeal in Minnesota had been decided but before the Minnesota trial court had heard the case on remand, the Circuit Court issued a declaration in Hanover’s favor. Plaintiff appealed.
On appeal, although Plaintiff raised three issues, the Court of Special Appeals ultimately only considered the first: whether the Circuit Court properly issued a declaratory judgment while an action involving the same parties and issues was pending in Minnesota. The Court began its discussion by noting that it reviews the decision to grant or deny a declaratory judgment under the deferential abuse of discretion standard. Nonetheless, where an action is ripe for a declaratory judgment, the Circuit Court is normally obligated to issue a declaration in some form. As such, it is rarely permissible for the Court to simply dismiss a declaratory judgment case. The issue presented to the Court in this case, however, was whether this was one of the rare occasions in which dismissal was appropriate even though the case was ripe for a declaration.
The Court concluded that the issuance of a declaratory judgment was inappropriate here because the same issues at stake in the declaratory judgment action were pending before another court. The Court traced the history of the declaratory judgment rule back to its origins and noted that declaratory judgments are appropriate where they will serve a “useful purposes” and “afford relief from uncertainty.” Thus, where another action involving the same issues and parties is pending elsewhere, Maryland courts have held that a declaratory judgment is not appropriate “absent very unusual and compelling circumstances.”
As to whether this case presented adequate “unusual and compelling circumstances,” the Court analyzed Maryland precedent and determined that three considerations in particular were important in its inquiry. First, whether the interests of judicial economy would be served by issuing a declaration. Second, whether considerations of comity would compel a Maryland court to defer to the court in another jurisdiction. Third, whether issuing a declaratory judgment would grant undue control over the litigation to one party. All three considerations should be weighed together to determine whether “unusual and compelling circumstances” exist.
In this case, as to judicial economy, the declaratory judgment action needlessly burdened Maryland courts, as the issues would be resolved in the Minnesota action. As to the interest of comity, Minnesota was a more convenient forum and had already expended significant time and effort in adjudicating the issues at stake. Consequently, Minnesota had a greater stake in the litigation. Finally, as to the control factor, issuing a declaratory judgment action here would allow Hanover to wrest control of the forum of the litigation from Ms. Volkman, who was the original Plaintiff. A declaratory judgment in this case would thus violate the strong policy favoring Plaintiff’s choice of forum. Under these facts, there were not sufficiently unusual and compelling circumstances present to allow a Maryland court to issue a declaratory judgment. Despite the deferential standard of review, the Court of Special Appeals concluded that the Circuit Court abused its discretion in issuing a declaration. As a result, the Court remanded the case with instructions for the Circuit Court to vacate its declaratory judgment.
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