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Court of Appeals of Maryland Holds That Party May Recover Incurred Litigation Expenses Pursuant to Maryland Rule 1-341 Regardless of Entity that Actually Pays Expenses.

Michael C. Worsham v. Robert Greenfield and Romualda Greenfield
Court of Appeals of Maryland, No. 139, September Term 2009, (Md. October 23, 2013)
by Jhanelle Graham, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Michael C. Worsham v. Robert Greenfield and Romualda Greenfield, the Court of Appeals of Maryland decided whether a party “incurs” litigation costs within the meaning of Maryland Rule 1-341 when those costs are paid, not by that party, but by an insurance company on the party’s behalf. Writing for the appellate court, former Chief Judge Robert M. Bell affirmed the judgment of the Court of Special Appeals and held that, regardless of who pays the attorney fees or whether the fees are covered and paid pursuant to an insurance policy, attorney fees and litigation expenses are “incurred” within the meaning of Rule 1-341 when the party becomes subject to, or liable for, the services and expenses rendered.

The case arose out of a dispute between neighbors in February 2000: Robert Greenfield (“Mr. Greenfield”) filed criminal charges against Michael Worsham (“Mr. Worsham”), alleging second degree assault and malicious destruction of property. A jury acquitted Mr. Worsham of malicious destruction of property, but the jury was unable to reach a verdict as to the assault count. Mr. Worsham subsequently filed a six-(6)-count complaint in the Circuit Court for Harford County against Mr. Greenfield, his wife Romulda Greenfield (“Mrs. Greenfield”), and three (3) other parties (collectively, “the neighbors”), alleging, inter alia, defamation, false light/invasion of privacy, civil conspiracy, and aiding and abetting. Mr. Worsham also alleged malicious prosecution against Mr. Greenfield only.

Prior to trial, the Greenfields and the neighbors moved for summary judgment, which the circuit court granted with regard to all claims except the count for malicious prosecution. The circuit court granted summary judgment as to that count at the close of Mr. Worsham’s case against Mr. Greenfield. Mr. Worsham noted an appeal of the judgment to the Court of Special Appeals of Maryland, which affirmed the judgment of the trial court. the Court of Appeals of Maryland denied Mr. Worsham’s petition for a writ of certiorari. Worsham v. Greenfield, 411 Md. 599, 984 A.2d 244 (2006).

Following the appellate court’s denial of certiorari, the Greenfields filed a “Motion for Award of Attorney’s Fees and Costs,” pursuant to Maryland Rule 1-341, seeking recovery of the attorneys’ fees, expenses, and costs associated with the litigation initiated by Mr. Worsham. They alleged that their insurance carrier, Erie Insurance Exchange (“Erie Insurance”), had expended $38,693.00 in attorney’s fees and $1,571.48 in related costs, in defending Mr. and Mrs. Greenfield. As such, the Greenfields candidly acknowledged that their attorney’s fees, expenses, and other costs had been paid by Erie Insurance. The circuit court denied the Greenfields’ motion with respect to Mr. Greenfield, but granted it with regard to Mrs. Greenfield, finding that she had been joined in the action without “substantial justification.” The court noted that, between the time that the suit was filed and the date when judgment was granted in favor of Mrs. Greenfield, there were sixty-two (62) docket entries, manifesting “what can only be characterized as a form of ‘scorched earth’ litigation primarily by Mr. Worsham.” The court added that it found “no evidence” suggesting “any involvement by Mrs. Greenfield in any of the events” relevant to Mr. Worsham’s complaint. Thus, the court awarded Mrs. Greenfield $3,613.13 for the costs attributable to her defense. It found that Mrs. Greenfield had “incurred” the costs of her defense within the meaning of Rule 1-341, notwithstanding the fact that Erie Insurance had paid all of the costs of litigation on her behalf.

The Court of Special Appeals affirmed the trial court’s award, and stated that “the purpose of Rule 1-341 compels [the court] to conclude that fees, costs, and expenses incurred by a party opposing a proceeding that was maintained in bad faith or without substantial justification are awardable even though paid by the party’s insurer. The Rule clearly applies to “any proceeding” and clearly applies to parties who maintain or defend such a proceeding.” On appeal, Mr. Worsham urged the appellate court to reverse the judgment of the Court of Special Appeals, primarily arguing that Mrs. Greenfield did not “incur” costs under Rule 1-341, because those costs were covered and paid by Erie Insurance. Further, Mr. Worsham contended that permitting an insurance company to recover pursuant to Rule 1-341 would conflict with the rule’s purpose by conferring a benefit upon a nonparty to the suit.

The appellate court began its analysis by explaining the word “incur.” As defined by the Merriam-Webster Dictionary, “incur” means “to become liable or subject to.” According to the court, therefore, a party becomes “liable” for, “subject to,” “suffer[s]” or “bring[s] on oneself” the costs of litigation, including reasonable attorney’s fees, when that party acts in response to a claim brought against him or her by marshaling financial and human resources. A litigant becomes “liable,” and thus expenses are “incurred” at the moment that the necessity for the expense has been realized and its amount becomes fixed or ascertainable. Having insurance to pay those expenses is merely one (1) way of discharging the litigant’s obligation or liability, and a way of financing the costs. Paying those costs directly is another issue altogether.

Citing Dutta v. State Farm Insurance Company, 363 Md. 540, 769 A.2d 948 (2001), the Court of Appeals discussed Section 19-505 (b)(2)(i) of the Maryland Insurance Article, which requires personal injury protection (PIP) coverage to include “payment of all reasonable and necessary expenses that arise from a motor vehicle accident and that are incurred within 3 years after the accident.” In Dutta, the appellate court held that “when [plaintiff] was admitted to [the] [h]ospital, received medical treatment and signed an agreement to pay expenses, an expense was incurred on his behalf upon which the granting of PIP [Personal Injury Protection] benefits was both appropriate and mandatory,” given the language of §19-505. Id. at 563, 769 A.2d at 961. After a thorough explanation of case law from Maryland and its sister circuits, as well as the legislative history of Rule 1-341, the appellate court stated that Rule 1-341 was intended to function primarily as a deterrent. According to the court, a requirement that an aggrieved party pay its litigation costs directly in order to recover under the Rule would contravene, and undermine, this purpose.

In sum, the appellate court considered it irrelevant, in the context of Rule 1-341, whether the cost to a party of defending itself against litigation was covered by a third party or nonparty to the litigation. Accordingly, the Court of Appeals held that a party compelled to defend itself against litigation may recover the costs associated with that litigation under Rule 1-341, regardless of whether those costs were paid by that party, by an insurance company, or by another third person on the party’s behalf.