E-Alert Case Updates

United States District Court Finds That Expectation Damages For Breach of Services Contract Limited to Compensation to be Paid for Duration of Clearly Delineated Notice Period

Thompson v. Naval Academy Athletic Assoc.
No. 12-2676 (D. Md. Dec. 19, 2014)
by Wayne C. Heavener, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdd.uscourts.gov/Opinions/Opinions/Thompson%20v.%20
Naval%20MEMO%20AND%20ORDER.pdf

In Thompson v. Naval Academy Athletic Association, the United States District Court for the District of Maryland held that the appropriate amount of expectation damages for the breach of an agreement providing services for a set term, which allowed either party to terminate with 180 days notice, was limited to the compensation owed during the notice period. Writing for the Court, Judge Richard D. Bennett rejected the proposition that offeror/service-provider be compensated for the entire term of the contract. The Court rested its decision upon the plain language of the services contract; namely, that the termination-at-will and notification provisions destroyed any expectation that the agreement would be carried out for its full term.

Robert Thompson (“Plaintiff”) entered in a letter agreement (the “Agreement”) with the Naval Academy Athletic Association (“Defendant”), under which Plaintiff was to provide marketing services for a term of three (3) years in exchange for the payment of a monthly retainer. The Letter Agreement stated that either party could terminate the arrangement upon 180 days written notice to the other party. Defendant ultimately determined that it no longer wanted to retain Plaintiff’s services, and on May 20, 2011, sent Plaintiff a letter stating that Defendant would be terminating the Letter Agreement. Defendant paid Plaintiff a pro-rated sum for the month of May only. Despite sending the May 20, 2011, letter, Defendant’s Deputy of Finance unsuccessfully attempted to obtain authorization to reinstate Plaintiff. Plaintiff ultimately filed an action alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation of the Maryland Wage Payment and Collection Law. Plaintiff sought to recover the compensation for entirety of the Agreement’s three-year term, stating that Defendant’s May 20, 2011, failed to terminate the Agreement because Defendant’s Deputy of Finance continued to pursue reinstatement. Following discovery, Defendant filed for summary judgment, and argued that Plaintiff was entitled to, at most, sums not paid for the Agreement’s 180-day notice period only.

The Court granted Defendant’s Motion for Summary Judgment. The Court noted that Defendant conceded that it breached the Agreement, and that, if Defendant’s motion were granted, Plaintiff was entitled to unpaid sums for the 180-day notice period. The Court held that Defendant’s May 20, 2011, letter effectively terminated the parties’ contract, taking note that the Agreement expressly granted each party the right to terminate the contract for any reason. The Court relied on Plaintiff’s own deposition testimony, in which Plaintiff acknowledged that his own subjective understanding was that the Navy intended to terminate the parties’ arrangement for marketing services in Defendant’s May 20, 2011, letter. Even though Defendant effectively terminated the Agreement, the Court held that Maryland law required Defendant to compensate Plaintiff for the 180-day notice period originally set forth in the Agreement. The Court rejected Plaintiff’s argument that Defendant was required to compensate Plaintiff for the entire three-year duration of the Letter Agreement. The Court reasoned that, because the Agreement permitted either party to terminate the agreement at will, Plaintiff could not have reasonably expected compensation for the three-year term. Therefore, the Court held that compensation for the Letter Agreement’s 180-day notice period was the entirety of Plaintiff’s expectation damages in this case.