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Circuit Co urt for Baltim ore Cou nty Case No. 03-C-00-000667

IN THE COURT OF APPEALS OF MARYLAND No. 55 September Term, 2003

TOWSON UNIVERSITY v. MICHAEL CONTE

Bell, C.J. Raker Wilner Cathell Harrell Battaglia Eldridge, Jo hn C. (retired , specially assigned), JJ. Opinio n by Rak er, J. Bell, C.J. and Eldridge, J., dis sent.

Filed: November 17, 2004

In this case, we must decide whether or to what extent a jury may examine or review the factual bases of an employer's decision to terminate an employee in the absence of an express directive fro m the em ployment co ntract. That question has been answere d in this jurisdiction with regard to two different types of employees, the employee at-will and the employee subject to a satisfaction emplo yment contra ct. We dete rmine the a nswer w ith regard to a third type of employee, the employee who may be fired only for just cause.

I. The controversy surrounds an employment agreement between Michael Conte, the employee, and Tow son Un iversity (the University), the e mployer. In 19 96, the Un iversity hired Dr. Conte to become the director o f the Reg ional Eco nomic Studies Institute at Towson University (RE SI). T he U nive rsity and Dr. Conte executed an employment contract that enumerated Dr. Conte's duties as the new director of RESI, as well as his compensation, period of employment, and the causes for which he could be terminated. In 1998, several events came to the attention of the University and led to the decision to terminate Dr. Conte. Most of these events centered around RESI's relationship with the State Department of Human R esources (DHR), RESI's primary revenue source. As the owner of RE SI's co mpute r databa se and s oftwa re, unde r federa l regulat ions, D HR was entitled to compensation for any income generated by RES I's use of DH R equipmen t. Dr. Conte was responsible for developing an acceptable methodology for compensating DHR. In June 1998, DHR complained to Dr. Conte about RESI's accounting of that compensation,

which was, according to DHR, inconsistent and incomprehensible. Troubled by RES I's accounting procedures, DH R hired a p rivate accou nting firm to review the m and tried to resolve its issues with R ESI throu gh Dr. C onte. Non e of these a ttempts was succ essful, and the relationship b etween D HR an d Dr. Co nte deteriorated until the University Provost John Haeger was informed of the dispute and intervened . Although the Unive rsity eventually was able to save the c ontract and settle the dispu ted costs w ith DHR , it became e xtremely dissatisfied with the manner in which D r. Conte ha d handled the issues an d blamed him for the accelerated reduction in D HR's contract by $2,30 0,000.00 the follow ing fiscal year. Having lost confide nce in Dr. Conte, the University initiated an internal investigation into RESI's a ctivities and ac counting p rocedures . In Augu st of 1998 , the Univ ersity President Hoke Smith directed the Uni vers ity's auditor to ex amine R ESI's reco rds and to determine wheth er RE SI had proper ly accoun ted for i ts expe nditure s and co sts. A

preliminary report of the audit in November revealed that personnel costs were documented imprope rly, in violation of University and federal regulations. In addition, the audit showed that the timekeeping procedures used by RESI attributed to D HR pe rsonnel co sts which were unrelated to DHR 's contract. In November of 1998, President Smith convened a meeting to discuss RESI's status. The meeting included RESI's associate director, an assistant director, and a former assistant director who had raised concerns about Dr. Conte's management of RESI. Shortly after the meeting, President Smith asked the University's counsel to investigate whether the

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University had just cause to terminate D r. Conte. During the investigation, various other problems with RESI came to the University's attention, including irregularities in the services provided to other clients and Dr. Conte's alleged attempt to convert RESI into a private entity. After the meeting, Dr. Conte was informe d of the U niversity's intent to terminate him and its request for him to resign. Because Dr. Conte refused to resign, Provost Haeger sent him a detailed letter explaining the causes f or his termina tion. Alleging "incompetence" and "wilful neglect of duty"--two of the just causes for termination enumerated in Dr. Conte's employment contract--the University cited Dr. Con te's handling of the DH R contrac t, which resu lted in an approximate $2,300,000 revenue loss for the fiscal year 1999; RESI's estimated operating losses of $930,000 for the period between J uly and Decemb er 1998; RES I's failure to abide by federal, state, and University regulations in its record-keeping practices; the dissatisfaction of other clients with RESI's work product; the dissatisfaction of several RESI employees who complained about Dr. Conte's management style; as well as various other reasons for the termination. D r. Conte dis puted these allegations an d said that the y did not cons titute incompetence or wilful n eglect of duty as required by the contract. After a brief hearing before the University President with his counsel, Dr. Conte was formally termin ated from his position as director on January 26, 1999. Dr. Conte filed a co mplaint in the Circuit Co urt for Baltim ore Cou nty against the Uni vers ity, alleging , inter alia , that the University had wrongfully discharged him and

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breached his employment contract. He sought damages for his alleged wrongful termination as director of R ESI, the U niversity's refusa l to pay him additional compensation as defined by his employm ent agreem ent, 1 and the U niversity's failure to appoint him to the faculty after his termination as director as required by the agreement. The University responded to the complaint with several defenses, including the defense that the University had just cause under the contract to terminate Dr. Conte. In September 2001, trial commenced before a jury in the Circuit Court for B altimore Cou nty. At the close of the evidence and testimony of several witnesses, the trial judge instructed the ju ry that the "University has the burden to prove by a preponderance of the evidence that one or more of the [causes in Dr. Con te's] contract existed for the plaintiff's termination" (emphasis added ). The trial judge refused the U niversity's request to instruct the jury that, in the event they find just cause to b e required u nder the co ntract, the U niversity was nevertheless permitted to terminate Dr. Conte for "common law cause" or cause that goes to the "e ssence of the c ontract." The jury returned with a verdict in Dr. C onte's favor, finding that the University did not prove by a preponderance of the evidence that just cause existed under the contract to fire Dr. Conte, and awarding him $926,822.00 in damages. The University noted a timely appeal to the C ourt of Special Appeals, arguing that the trial court had erred when it instructed the jury that the U niversity was re quired to show just

While discovery was proceeding, the Circuit Court dismissed, on limitation grounds, Dr. Conte's claim for additional compensation for fiscal years 1997 and 1998. -4-

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cause for the termination and when it refused to instruct the jury on common law cause. The Court of Specia l Appeals , in an unreported opinion, agreed with the Circuit Court and affirmed the judgm ent. The University filed a petition for writ of certiorari in this Court to consider two questions.2 376 Md. 543, 831 A.2d 3 (2003). Slightly rephrased, the principal question raised in the petition is whether or to what extent a jury may examine or review the factual bases of an em ployer's decisio n to terminate an employee. The second question is whether Dr. Conte's employment contract was exclusive in its enumeration of the just causes for which Dr. Con te could be terminated, thereby prohibiting termination based upon any other cause, such as common law cause.3 II. From petitioner's perspective, a jury's role in disputes involving just cause employees is not to determine whether just cause in fact existed, but to determine whether the employer acted in go od faith, and not a rbitrarily o r cap ricio usly, when it decided the re was just cause to fire the employee. Put another way, provided the University genuinely believed that Dr. Conte was incompetent or wilfully neglectful of his duties as director, whether Dr. Conte was

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We denied Dr. Con te's cross-petition for certiorari. 376 Md. 543, 831 A.2d 3 (2003 ).

Petitioner argues that the burden of proving just cause or the absenc e thereof lies with Dr. Conte, and that the trial court erred w hen it assign ed the burd en to the Unive rsity. While this issue was raised and argu ed before the trial and inte rmediate appellate courts, the issue is not contained in the petition for certiora ri, and w e will no t consid er it. See Ma ryland Sta te Police v. Zeigler, 330 Md. 540, 562-63, 625 A.2d 914, 925 (1993) -5-

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actually incompetent or wilfully n eglectf ul is irrele vant to th e jury's inq uiry. Accord ing to petitioner, then, the jury's inquiry must center on the employer's motive and state of mind, not on the actions of the employee and whether they constitute just cause for termination. Underlying petitioner's position is the strong judicial policy against interfering with the business judgment of priv ate bus iness en tities. See Sadler v. Dimensions, 378 Md. 509, 526-27, 836 A.2d 65 5, 665 (2003). To th at end, petitioner relies heavil y on a Court of Special Appe als case , Elliott v. Board of Trustees, 104 Md.App. 93, 655 A .2d 46 (1995). Writing for the panel, Judge Cathell, now on this Court, noted that courts and juries should refrain from becoming involved in an employer's personnel decisions, lest they become "super personnel officers," second-guessing an employer about its own business needs. The Elliott court gleaned from Maryland precedent that "absent evidence of bad faith on the part of an employer, courts shou ld be reluctant to overturn an e mployer's decision to discharge an employee when the employer has complied with its own procedures for resolving matters such as this." Id. at 108-109, 655 A.2d at 53. Petitioner argues that this rule is app licable to the University's decision to terminate Dr. Conte. Supplementing the argument, petitioner also asserts that Dr. Conte's employment contract expressly reserved to the University, not to a trial court or jury, the right to determine whether just cause existed , i.e., the fact-finding prerogative. Petitioner reasons that because Paragraph 6.2 of the employment contract establishes a procedure for appeal from the employer's decision to te rminate, that p rocedure n ecessarily implies that the University had

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the sole author ity to determine whether just cause existed. Relatedly, petitioner argues that absent any express provision assigning the fact-finding prerogative to a third-party or jury, the trial court should not have permitted the jury to determine de novo whether just cause had been proved by a preponderance of the evidence. Petitioner urges this Court to "confirm, as have a number of decisions from other states, that an emplo yer reserves the right to termin ate an employee for cause unless the employment agreeme nt expressly co ntracts awa y its factfinding prerog ative." In short, petitioner proposes a legal presumption that, in the

interpretation of emplo yment contracts, an employer retains all fact-finding prerogatives, absent an express provision stating otherwise. In response to petitioner's arguments, responde nt asserts that p etitioner essen tially wants to transform an express, just cause employment contract into an at-will employment contract. The cases relied upon by petitioner are almost all in the context of "implied" employment contracts, as in contracts implied from employee handbooks, or "satisfaction" contracts, in which the employer expressly reserves the right to terminate if it deems the employee's performan ce unsatisfa ctory. None o f the cases d eal with an express co ntract sans a satisfaction clause, like the one agreed to by both parties to this litigation. Furthermore, responde nt states that pe titioner's reading of the con tract distorts its plain meaning , which ind icates the inten tion by both the University an d Dr. Co nte to permit termination only for just cause. Pa ragraph 6 .2 of the co ntract mere ly promises a perfun ctory hearing before the President, ba sically a "rubber- stamp" of the decision to terminate after it

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unquestio nably had been dete rmin ed al read y. Respondent argues that under Maryland law, one party is not permitted to retain the ultimate fact-finding prerogative with respect to a breaching event, unless the contrac t expressly grants the fact-finding prerogative to one of the parties. Respondent cites Foster-Porter Ent'prises v. De Mare , 198 Md. 20, 81 A.2d 325 (1951), for the proposition that the party asserting a breach of contract must prove the breach actually occurred, n ot that it was re asonable to believe it occurred. Respondent would have us adopt a rule permitting the jury to second-guess the University's factual determination that it had cause to fire Dr. Conte. Notably, neither party po ints to Ma ryland case law that deals squarely with the jury's role in deciding wrongful termination cases. Both parties rely mainly on cases from other jurisdictions that have considered this issue and balanced the judicial policy of noninterference with business judgment with that of enforcing contracts meant to ensure job secu rity. In this issue of first impressio n, we sha ll consider external authorities, but also our own case precedent, which provides a pathway for our decision.

III. A. Our analysis begins, as it should, with the language of the employment contract at issue. The interpretation of a co ntract, including the determination o f whether a contract is ambiguous, is a question of law, subject to de novo review . Sy-lene v. Starwood, 376 Md.

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157, 163, 829 A.2d 540, 544 (200 3); Calomiris v. Woods, 353 Md. 425, 434-35, 727 A.2d 358, 362-63 (1999). Maryland courts follow the law of objective interpretation of contracts, Atlantic v. Ulico 380 Md. 28 5, 301, 844 A.2d 46 0, 469 (20 04); Sy-lene, 376 Md. at 166, 829 A.2d at 546, giving effect to the clear terms of the contract regardless of what the parties to the contract may have believed those terms to mean: "[A court is to] determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of w hat is meant is not what the parties to the contract intended it to mean, bu t what a reasonable person in the position of the parties would have thought it mea nt. Con sequ ently, the clear and unambiguous language of an agreement will not give away to what the parties thought that the agreem ent me ant or in tended it to mea n." Calomiris, 353 Md. at 436, 727 A.2d at 363 (quoting Genera l Motors A cceptanc e v. Danie ls, 303 Md. 25 4, 261, 492 A.2d 1306, 1310 (19 85)). Paragraph 6 of the employment contract between Dr. Conte and the University governs termination of employment and provides, in pertinent part, as follows: 6. Termination: 6.1 The University may terminate this appointment for cause which shall include: (a) the intentional violation of University of Maryland System Regulations or University regulations (b) wilful n eglect of d uty (c) insubordination (d) incompetence -9-

(e) misconduct (f) criminal conduct (g) long-term physical or mental condition which renders Dr. Conte unable to perform the duties essential to the Director's position 6.2 In the event the Un iversity terminates this Appoin tment, for the above reasons, it shall notify the Director, in writing, of the cause for which term ination is sought and the right of the Director to request a hearin g by the Un iversity President or the Presid ent's designee. The hearing must be requested within 30 days of the D irector's receipt of the written termination notice. In the event no such hearing is requested, the termination shall become immediately effective. Two legal conse quences relevant to o ur discussio n can be d rawn fro m the lang uage of th e contract. First, Paragraph 6.1 of the contract makes clear th at Dr. Con te was no t an "at-will" employee. The Un iversity could not fire Dr. Conte on a whim, nor could it avail itself of the various legal protections afforded employers who terminate at-will employees. Although employment in Maryland is presump tively at-will, see Porter field v. Mascari , 374 Md. 402, 421-22, 823 A.2 d 590, 60 1-02 (200 3); see also S. Mazarof f & T . Horn , Maryland Employment Law ,

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