• Merger of a Contract into a Judgment Precludes Collection of Contract Based Attorney's Fees
  • November 6, 2009 | Authors: Kevin Cox; Paul N. Farquharson
  • Law Firm: Semmes, Bowen & Semmes, A Professional Corporation - Baltimore Office
  • Monarc Constr., Inc. v. Aris Corp., No. 1584 (Md. App. October 5, 2009)

    In an attempt to resolve disputes stemming from Appellees' failure to perform construction work under a subcontract, the parties in this case dismissed their lawsuits and entered into a Settlement Agreement. The Settlement Agreement provided that "In the event that any party is required to enforce the terms or conditions of this Agreement in court, the prevailing party shall recover all costs and expenses incurred in or arising from such action, including reasonable attorney's fees." Appellant later sued Appellees on June 28, 2006 for breach of the Settlement Agreement and obtained a default judgment in the amount of $184,574.70. The default judgment made no distinction between compensatory damages and attorney's fees. To enforce its judgment, Appellant recorded the judgment in the Circuit Court for Fairfax County, Virginia.

    Appellees successfully vacated attorney's fees awarded to Appellant in the Fairfax County Court on the bases that: (1) Appellant had failed to provide notice in its complaint that it would seek attorney's fees; and (2) that the June 28, 2006 judgment did not provide for attorney's fees, and Appellees, on February 21, 2008, paid the judgments against them in the amount of $211,739.11, an amount which reflected the principal due on the judgment, plus accrued interest, court costs and fees. Appellant then sued in the Circuit Court for Montgomery County, Maryland to recover attorney's fees and related costs incurred by it after the date of the original June 28, 2006 default judgment. The Circuit Court for Montgomery County concluded that, as a matter of law, the Settlement Agreement merged into the prior judgment; therefore, Appellant could not recover attorney's fees incurred after the June 28, 2006 judgment.

    Appellant appealed to the Court of Special Appeals of Maryland, raising a multi-pronged challenge to the circuit court's judgment. The court held that the attorney's fees incurred in Appellant's efforts to enforce the judgment, in addition to the fees provided by the subcontract between the parties, were not allowed by law for three reasons.

    First, Appellant contended that the trial court prematurely and impermissibly dismissed its complaint because the circuit court failed to assume the truth of the facts pled. Appellant further argued that contractual attorney's fees provisions are enforceable in Maryland. Thus, according to Appellant, the trial court was required to assume that the Settlement Agreement was valid and enforceable. The Court of Special Appeals in Maryland found these contentions unpersuasive.

    Second, appellant argued that the trial court erred when it prematurely dismissed its complaint on the grounds that it was attempting to re-litigate an issue previously adjudicated. After reviewing the doctrines of res judicata and collateral estoppel, as the doctrines pertain to the Virginia judgment, the Court of Special Appeals found that neither doctrine was to be accorded the weight that Appellant assigned to them in its challenge to the trial court's judgment. Rather, the central issue was the availability of a legally cognizable basis by which Appellant could seek attorney's fees for its attempt to enforce the judgment obtained on June 28, 2006, against appellees in the Circuit Court for Montgomery County, in the amount of $184,574.70, for breach of the Settlement Agreement. The Court of Special Appeals concluded that appellant's claim for attorney's fees was not legally cognizable in light of the merger of the Settlement Agreement into the judgment issued by the Circuit Court for Montgomery County on June 28, 2006.

    Third, the Court of Special Appeals examined the award of attorney's fees. Unlike cases involving the recovery of attorney's fees based upon statutes or rules, contractually-based attorney's fees form part of the damages claims when the claim to attorney's fees is collateral to or independent from the merits of the action. Thus, the critical issue, for purposes of the appeal, was the effect of the doctrine of merger upon appellant's ability to assert a portion of the Settlement Agreement for attorney's fees in any post-judgment attempt to collect attorney's fees.

    The court noted that it was unaware of any Maryland case addressing the effect of the rule of merger on a party's attempt to pursue contractually-based attorney's fees subsequent to the entry of judgment on the merits of a breach of contract claim. Nonetheless, it is true, in Maryland, that under the rule of merger, a contract is merged into a judgment and that all its powers to sustain rights and enforce liabilities terminate in the judgment. The court then looked at sister jurisdictions that hold that the merger of a contract into a judgment on the merits of a breach of contract claim precludes any subsequent, post-merger attempt to collect attorney's fees that were awardable solely based upon provisions of the merged contract. The Court of Special Appeals of Maryland then found that the provision for attorney's fees in the Settlement Agreement did not survive the merger into the June 28, 2006 Order.

    For the foregoing reasons, the Court of Special Appeals of Maryland held that the trial court did not err by granting appellees' Motion to Dismiss on the grounds that the Settlement Agreement, the sole basis upon which appellant based its claim to attorney's fees, merged into the prior judgment. Since there was no exception to the "American rule," Appellant had no legal basis for asserting its claim to attorney's fees.