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A Maryland appellate court has evaluated whether a managing broker improperly attempted to alter partnership agreement between parties.
In 2001, Aaron Hargrove (“Hargrove”) and Jerry Mathis (“Managing Partner”) of Prudential REALTORS® and Mathis Realty, Inc. (collectively, “Brokerage”) entered into an independent contractor agreement (“Agreement”). Under the terms of the Agreement, Hargrove agreed to pay the Brokerage a set fee per month. In return, Hargrove retained 100 percent of his commissions and also was allowed to have four licensees working under him. Hargrove would not incur any extra costs for having these licensees work under him, except that these extra licensees would pay a set fee to the Brokerage for each transaction, owing the fee for up to four transactions per month.
Hargrove and the Managing Broker orally modified the Agreement in 2002. Although there was a dispute over the terms of this modification, the basic agreement was that Hargrove would open a branch office, would split all operating expenses with the Managing Broker, and also would split 50/50 any future profits with the Managing Broker. Hargrove would manage the branch office. The Managing Broker also claimed that Hargrove had agreed to pay him $2,000/month for his partnership interest in the business. There was also conflicting testimony about how the parties had agreed to divide start-up costs for the new branch office and also the rental commission. Hargrove made both payments, which totaled around $55,000.
Eventually, Hargrove terminated his relationship with the Brokerage. Hargrove testified that he terminated the relationship because the Managing Broker had told him that he was dissatisfied with his production and also with his management of the branch office. The Managing Broker had also told Hargrove that he would no longer manage the branch office; he would now receive less than the 50/50 profit split; and he could work out of any office except the Managing Broker’s office in the future. Hargrove testified that he found these arrangements unacceptable, and so he tendered his resignation.
Following his resignation, Hargrove filed a lawsuit against the Brokerage and the Managing Broker. Hargrove alleged breach of contract, breach of fiduciary duty, and also sought damages for the Brokerage’s allegedly retaining furniture in the branch office that belonged to Hargrove. A jury returned a verdict in favor of Hargrove on all counts, and awarded him damages of almost $100,000. In addition, the jury awarded him punitive damages of $35,000. The Managing Broker and the Brokerage appealed.
The Court of Special Appeals of Maryland affirmed the trial court. The court considered whether Hargrove was entitled to recover punitive damages. Hargrove had alleged that the Managing Broker had committed fraud by withholding Hargrove’s share of commission checks made out to the Brokerage. Hargrove had turned these checks over to the Brokerage expecting to receive commission payments, allegedly based on promises made to him by the Managing Broker. Based on this alleged fraud, the jury had awarded Hargrove part of the punitive damages. The Managing Broker argued that Hargrove had failed to show that the Managing Broker knew the falsity of these statements when he made them to Hargrove, as punitive damages require a showing of “actual malice” by the other party. The court found that the evidence could support the jury’s inference of actual malice, and there was no requirement that the party must produce an actual statement from the other party demonstrating the other party’s malice. Thus, the court upheld the punitive damage award.
Next, the court considered the Brokerage’s argument that the oral modifications to the Agreement were never accepted by Hargrove. Because the modifications were never accepted, the Brokerage argued that it could not have breached these provisions. The court rejected this argument, as both parties had testified about the central terms of their partnership agreement. Both parties had also testified that the Managing Broker had attempted to alter the terms of this agreement, and the jury had concluded that this conduct breached the parties’ agreement. The court concluded that the evidence supported the jury’s determination, and so affirmed the award to Hargrove.
Mathis v. Hargrove, 888 A.2d 377 (Md. Ct. Spec. App. 2005).