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U.S. District Court for the District of Maryland Refuses to Dismiss Plaintiff but Determines Plaintiff’s Demand for Five Times Attorney’s Fees Constituted a Penalty
White Marlin Open, Inc. et al. v. Phillip G. Heasley
Available at: http://www.mdd.uscourts.gov/recent-opinions
Plaintiff White Marlin Open, Inc. (“WMO”) operates yearly the world’s largest billfish tournament in Ocean City, Maryland. In 2016, the prize for the first place marlin was $2,818,662. Defendant Heasley caught the only qualifying white marlin, which entitled him to the first place prize money. Because there is no policing of the tournament rules on the open ocean, WMO reserves the right to polygraph test any angler winning $50,000 or more, which is listed in their tournament rules. Defendant Heasley and his shipmates underwent two polygraph examinations, which the test administrator determined they failed. WMO subsequently refused to issue the award money, and instituted this interpleader action in the Circuit Court of Worchester County to ask a court’s determination of the rights and liabilities of the parties. Heasley, a resident of Florida, removed the case to the federal district court on diversity jurisdiction.
Heasley filed a motion asking to dismiss WMO pursuant to Rules 12 and 21 of the Federal Rules of Civil Procedure, and asking to dismiss WMO’s demand for reimbursement of fives times its attorney’s fees. Heasley claimed that because WMO had already deposited the prize money into the Court’s registry, and because WMO was a disinterested party, dismissal was proper. Leaving WMO actively in the case would only allow it to collect even greater attorney’s fees.
The Court first looked to whether WMO’s dismissal was proper. Rule 22 permits a party to withdraw after deposit of the stake in the court’s registry, and while under Rule 21, the court may add or drop a party, neither of these rules provides authority for a mandatory withdraw of a party who remains interested in the interpleader action. The Court believed WMO unequivocally remained an interested party: “…there can be little doubt that WMO retains a significant interest in the subject matter of the Interpleader action. As Heasley’s entitlement to the prize money is based on WMO’s purported failure to follow the Tournament Rules, and as the integrity of these rules and the Tournament itself are very much in dispute in this case, WMO retains a significant interest in the outcome…” Therefore, the Court refused to dismiss WMO as a party.
Yet, in leaving WMO as a party in the case, the Court did not ignore Heasley’s concerns regarding the potential for the exorbitant amount of fees as a result. The Tournament Rules provided that WMO “shall be entitled to reimbursement for 5 times its costs and fees, including attorneys fees, which result from the determination and resolution of the validity of unjustified protests.” The rules described this reimbursement provision as “liquidates damages.”
The Court acknowledged that Maryland Courts will enforce contractual liquidated damages provisions, but when the fees go so far as to constitute a penalty, the provisions are not given the same effect. To determine whether the provision is truly for liquidated damages, the Court must determine whether “the amount so agreed upon and inserted in the agreement be grossly excessive and out of all proportion to the damages that might reasonably have been expected to result from such a breach of the contract.” Barrie Sch. v. Patch, 401 Md. 497, 508 (2007). Additionally, in order to force a claim for liquidated damages, three essential elements must be met: (1) the clause must provide in clear and unambiguous terms for a certain sum, (2) the liquidated damages must reasonably be compensation for the damages anticipated by the breach, and (3) the clause must not be of a nature that it could not be altered to correspond to actual damages determined after the fact. Id. at 509.
Even viewing the facts in a light most favorable to WMO, the Court believed that asking for five (5) times the attorney’s fees was a penalty provision, instead of an enforceable liquidated damages clause. Not just did the court believe that this amount was “grossly excessive and disproportionate” in light of the $2.8 million at stake in the case, but the five (5) time multiplier itself violated the requirement for a “certain sum.” While the Court stated that WMO may eventually petition for recovery of actual attorney’s fees, it would not allow enforcement of this provision.
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