Holland v. Psychological Assessment Resources, Inc.

Full title: JOHN L. HOLLAND v. PSYCHOLOGICAL ASSESSMENT RESOURCES, INC

Court: United States District Court, D. Maryland

Date published: Jun 16, 2004

Civil No. CCB-04-437 (D. Md. Jun. 16, 2004)

Opinion

Civil No. CCB-04-437.

June 16, 2004

MEMORANDUM

CATHERINE BLAKE, District Judge

Now pending before this court is a motion by the plaintiff, John Holland, to dismiss a counterclaim asserted by the defendant, Psychological Assessment Resources, Inc. The issues in this motion have been fully briefed and no hearing is necessary.See Local Rule 105.6. For the reasons stated below, the court will grant the motion to dismiss.

BACKGROUND

Plaintiff John L. Holland, Ph.D. ("Holland") is the author ofThe Self Directed Search, A Guide to Educational and Vocational Planning ("the SDS"), a career interest inventory and guide. The SDS is designed to sort individuals into six different personality types, and then direct them to occupations and work environments that match their personality types. The defendant Psychological Assessment Resources, Inc. ("PAR") publishes and sells testing instruments, psychological texts, computer software, and related materials.

Holland first published the SDS in 1971. In 1989 Holland and PAR entered into a publishing contract which is the subject of the parties' current dispute. This contract grants PAR "the exclusive right to print, publish, license, sell, and use [the SDS] in all forms and in all media in any language throughout the entire world." (Am. Compl. at Ex. 2, at 2.) In exchange, Holland receives royalties from all net sales by PAR. The contract states that PAR "will publish and print a revised edition of the Original Works¹ . . . as determined by mutual agreement between the Author and the Publisher." (Id.) A contemporaneous letter to Holland from R. Bob Smith, III, Ph.D., President of PAR, confirms that "publication and printing of any revisions of the Original Works will be determined by mutual agreement." (Id. at Ex. 3, at 2.)

1 The "Original Works" is defined in the 1989 contract to include the existing versions of the SDS in publication. (Am. Compl. at Ex. 2, at 2-3.)

The parties' dispute concerns an Internet version of the SDS, which was developed by PAR during 1997 and 1998 and first published online in August or September 1998. Holland alleges that the Internet version is a "revised edition" of the SDS under the 1989 contract, because it omits certain information, includes additional information, and changes the way an individual's responses are scored. (Id. at ¶ 22-27.) Holland states that he disapproves of the Internet version of the SDS, and that it was published without his prior approval. (Id. at ¶ 16, 18, 31-32.) According to Holland, this violates the provision in the 1989 contract stating that a "revised edition" of the SDS would be published "by mutual agreement." PAR responds that publication of the Internet version is governed by another provision in the 1989 contract, which only requires that PAR "submit all proofs of all test materials which incorporate the Original Works" to Holland and provide "a reasonable opportunity" for Holland to review and comment on these proofs prior to publication.² (Id. at Ex. 2, at 5.)

2 The contract specifies that Holland is not required to review and comment on any such materials which incorporate the Original Works, and that PAR has the right to develop and publish these materials irrespective of Holland's comments or lack of comments. (Am. Compl. at Ex. 2, at 5.) PAR notes that it has developed a number of new SDS products over the years, some of which Holland has reviewed and commented on, and some of which he has elected not to review. (Countercl. at ¶ 6.)

The parties provides differing allegations regarding their communications on the Internet version of the SDS. PAR states that it informed Holland of the development of the Internet version as early as November 1997, and asked him to review and comment on a trial version of the product in February 1998. (Countercl. at ¶ 19, 21.) Holland submitted substantive comments on the product during the spring of 1998, and PAR alleges that it spent time and money to incorporate a majority of these suggestions. (Id. at ¶ 22-23, 29.) During the summer of 1998 Holland reportedly requested that PAR devote more time to improving the Internet version, and PAR responded by investing even more time and money. (Id. at ¶ 28.) PAR alleges that Holland did not request that PAR stop publishing the Internet version until after the Maryland Court of Special Appeals issued an opinion in the parties' legal dispute on August 9, 2000.³ (Id. at ¶ 32.) Holland states that his counsel contacted PAR in April 1998 to request that PAR adhere to the contractual requirement of mutual agreement for any revised edition before publishing the Internet version. (Am. Compl. at ¶ 18.) Holland also states that his counsel advised PAR in October 1998 of Holland's position that the publication of the Internet version without his agreement on substantive content violated the 1989 contract. (Id. at ¶ 19.)

3 PAR admits that the parties exchanged correspondence during the spring and summer of 1998 regarding the correct royalty payments for the Internet version. (Countercl. at ¶ 9-10.) By January 20, 1999, when Holland filed his first complaint in state court against PAR, it was clear that Holland disputed both the royalty payments and the publication of the Internet version of the SDS without his approval. (Id. at ¶ 11-12.)

Holland originally filed this suit in the Circuit Court for Baltimore City, Maryland on January 20, 1999, seeking a declaratory judgment that PAR's publication of the Internet version of the SDS without his prior approval or agreement constituted a material breach of the 1989 contract, and that PAR had miscalculated the royalties owed to Holland from the Internet sales of the SDS. The suit proceeded through motions to dismiss and for summary judgment in state court, which narrowed the issues to whether the publication of the Internet version of the SDS without Holland's prior approval or agreement breached the 1989 contract.

On February 2, 2004, Holland filed an amended complaint in the Circuit Court for Baltimore City which asserts breach of the 1989 contract and breach of the duty of good faith and fair dealing in the contract, and seeks a declaratory judgment regarding the parties' contractual rights.⁴ The complaint also asserts that by publicly representing that Holland approves of this version of the SDS, PAR is liable for invasion of privacy — false light, and violation of the Maryland Unfair or Deceptive Trade Practices Act, Md. Code Ann., Com. Law § 13-301, et seq., and the federal Lanham Act, 15 U.S.C. § 1525. On February 19, PAR removed this suit to federal court, based on the presence of a federal question under the Lanham Act.

4 Holland states that PAR violated its duty of good faith and fair dealing by failing to obtain his approval for the Internet version, promoting it in a way that suggests his approval, and making subsequent changes to the Internet version without notifying him. (Am. Compl. at ¶ 38.)

In response to Holland's complaint, PAR asserts a counterclaim alleging claims for promissory estoppel and breach of the duty of good faith and fair dealing under the 1989 contract. The crux of PAR's counterclaim is that Holland knew that PAR was developing the Internet version of the SDS, and yet he did nothing to discourage the product's development until PAR already had expended substantial time and money. (Countercl. at ¶ 27-30.) PAR states that if Holland succeeds through this lawsuit in preventing PAR from publishing the Internet version, then PAR will have lost all of the time and money that it expended on the product, resulting in great injustice to PAR. (Id. at ¶ 35.) PAR seeks a judgment in excess of $80,000 for the money that PAR spent in developing and publishing the Internet version of the SDS.

ANALYSIS

"The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint; importantly, a Rule 12(b)(6) motion does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (internal quotation marks and alterations omitted). When ruling on such a motion, the court must "accept the well-pled allegations of the complaint as true," and "construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). Consequently, a motion to dismiss under Rule 12(b)(6) may be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957);see also Edwards, 178 F.3d at 244. In addition, because the court is testing the legal sufficiency of the claims, the court is not bound by the plaintiff's legal conclusions. See, e.g., Young v. City of Mount Ranier, 238 F.3d 567, 577 (4th Cir. 2001) (noting that the "presence . . . of a few conclusory legal terms does not insulate a complaint from dismissal under Rule 12(b)(6)" when the facts alleged do not support the legal conclusions); Labram v. Havel, 43 F.3d 918, 921 (4th Cir. 1995) (affirming Rule 12(b)(6) dismissal with prejudice because the plaintiff's alleged facts failed to support her conclusion that the defendant owed her a fiduciary duty at common law).

I.

The claim for promissory estoppel against Holland fails because of the undisputed existence of an express, enforceable contract between the parties governing the same subject matter. Promissory estoppel is "a quasi-contractual claim, which is an equitable remedy that permits recovery where, in fact, there is no contract, but where circumstances are such that justice warrants a recovery." Odyssey Travel Ctr., Inc. v. RO Cruises, Inc., 262 F. Supp.2d 618, 626 (D. Md. 2003) (internal quotation omitted);see also Edell Assocs., P.C. v. Law Offices of Peter G. Angelos, 264 F.3d 424, 440 (4th Cir. 2001) (describing promissory estoppel as a remedy to enforce a promise for which there is no consideration); Pavel Enters., Inc. v. A.S. Johnson Co., Inc., 674 A.2d 521, 531-32 (Md. 1996) (describing promissory estoppel as a remedy for when a contract claim otherwise would fail, e.g., for lack of consideration or violation of the statute of frauds). A party cannot maintain a quasi-contractual claim, such as one for promissory estoppel, when it is undisputed that an express, enforceable contract exists between the parties concerning the same subject matter.See Ver Brycke v. Ver Brycke, 843 A.2d 758, 772 n. 9 (Md. 2004) (noting that the plaintiff's promissory estoppel claim, a quasi-contractual claim, would have been untenable if the plaintiff had argued that a contract existed between the parties); cf. County Comm'rs v. J. Roland Dashiell Sons, Inc., 747 A.2d 600, 609-10 (Md. 2000) (holding that the existence of a valid and enforceable express contract between the parties barred any quasi-contractual claim for unjust enrichment on the same subject matter).

Neither Holland nor PAR disputes the existence of a valid and enforceable express contract between the parties. Although the specific provisions are ambiguous and disputed, the 1989 contract between Holland and PAR addresses Holland's approval rights for future publications of the SDS, which also is the subject of PAR's promissory estoppel claim. The 1989 contract between Holland and PAR is comprehensive and "defined the entire relationship of the parties with respect to its general subject matter." J. Roland Dashiell Sons, 747 A.2d at 610. Maryland law does not permit PAR to unilaterally amend the parties' express contract by pursuing additional quasi-contractual relief.See id.

Moreover, PAR has failed to state a claim for promissory estoppel under Maryland law, because it has not pointed to any clear and definite promise by Holland Under Maryland law, the elements of a claim for promissory estoppel are (1) a clear and definite promise by the defendant, (2) a reasonable expectation by the defendant that the promise will induce action or forbearance by the plaintiff, (3) the promise does induce actual and reasonable action or forbearance by the plaintiff, and (4) a resulting detriment to the plaintiff that can only be avoided by enforcement of the promise. See Pavel Enters., 674 A.2d at 532; Mogavero v. Silverstein, 790 A.2d 43, 51 (Md. Ct. Spec. App. 2002). PAR suggests that Holland's failure to say or do anything to discourage the development of the Internet version of the SDS and his own participation in and encouragement of the product's development amounted to a promise not to oppose its ultimate publication, whether or not he approved of it. In support of this theory, PAR alleges that Holland (1) said nothing to discourage PAR from developing the Internet version, (2) requested that PAR devote more time to improving the product, (3) suggested a number of specific changes to the product, and (4) did not request that PAR stop publishing the product until two years after its initial publication. (Countercl. at ¶ 27-29, 32.) This alleged conduct was not sufficient to create any "clear and definite promise" by Holland Cf. Mogavero, 790 A.2d at 51 (holding that the plaintiff failed to establish a clear and definite promise by the defendant, where the agreement between the parties was too vague and indefinite for the court to determine if either party had breached); cf. also Dunnaville v. McCormick Co., Inc., 21 F. Supp.2d 527, 534-35 (D. Md. 1998); Konover Prop. Trust, Inc. v. WHE Assocs., Inc., 790 A.2d 720, 725-26 (Md. Ct. Spec. App. 2002).

For the reasons stated, count I of PAR's counterclaim fails to state a claim upon which relief can be granted under Maryland law, and accordingly must be dismissed.

II.

The 1989 contract expressly imposed a duty on both parties to "deal with one another fairly and in good faith" (Am. Compl. at Ex. 2, at 9), a duty that is implied under Maryland law in all negotiated contracts. See Eastern Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 182 (4th Cir. 2000); Parker v. Columbia Bank, 604 A.2d 521, 531 (Md.Ct.Spec.App. 1992).⁵ The duty of good faith and fair dealing "simply prohibits one party to a contract from acting in such a manner as to prevent the other party from performing his obligations under the contract." Id.; see also Edell Assocs., 264 F.3d at 444; 7-Eleven, Inc. v. McEvoy, 300 F. Supp.2d 352, 360 (D. Md 2004). The duty cannot be used to require a party to a contract "to take affirmative actions that [he] is clearly not required to take under [the contract]." Parker, 604 A.2d at 531.

5 The fact that the parties made the duty of good faith and fair dealing express in their contract does not affect the interpretation of this clause under Maryland law. A general reference to the duty of good faith and fair dealing should be interpreted consistent with Maryland common law interpreting such a duty when implied, unless the parties' contract expressly provides otherwise. Cf. Julian v. Christopher, 575 A.2d 735, 739-40 (Md. 1990) (noting that "contracts are drafted based on what the law is" and "should be interpreted based on the law as it existed when they were entered into").

On the other hand, the duty can be relied on to interpret otherwise ambiguous contractual obligations. See 7-Eleven, 300 F. Supp.2d at 360. Where a contract grants one party "discretion to make decisions without an express standard to guide its use," the court may rely on the duty of good faith and fair dealing to infer that the party's discretion must "be used reasonably as opposed to arbitrarily and capriciously." Id. at 361; see also, e.g., Eastern Shore Mkts., 213 F.3d at 184 (citing Maryland cases applying the implied duty of good faith and fair dealing to require a party to exercise "reasonable diligence," "best efforts," or "good judgment" in carrying out an express contractual promise); Julian v. Christopher, 575 A.2d 735, 739 (Md. 1990) (relying in part on the implied duty of good faith and fair dealing to hold that a lease requiring a tenant to obtain the landlord's consent implies a reasonableness standard for withholding consent).⁶ Stated another way, the duty of good faith and fair dealing may require a party to a contract "to refrain from doing anything that will have the effect of injuring or frustrating the right of the other party to receive the fruits of the contract between them." Eastern Shore Mkts., 213 F.3d at 184.

6 The duty of good faith and fair dealing cannot be relied on to alter the terms of a contract. See, e.g., Mikeron, Inc. v. Exxon Co., USA, 264 F. Supp.2d 268, 272-73 (D. Md. 2003) (holding that a franchisor did not breach its duty of good faith and fair dealing by refusing to approve a franchisee's transfer of service stations, where the franchise agreement explicitly prohibited the franchisee from transferring or assigning the stations).

The 1989 contract arguably granted Holland "discretion to make decisions without an express standard to guide its use,"7-Eleven, 300 F. Supp.2d at 361, by providing that publication of revised editions of the SDS would be determined by "mutual agreement" between the parties. (Am. Compl. at Ex. 2, at 2.) Assuming this provision applies to the Internet version of the SDS — which PAR disputes — the duty of good faith and fair dealing could be invoked to interpret this otherwise ambiguous contractual obligation. See 7-Eleven, 300 F. Supp.2d at 360. PAR could argue that, in light of the duty of good faith and fair dealing, the 1989 contract requires Holland to make "reasonable efforts" to reach a mutual agreement with PAR regarding the publication of the Internet version of the SDS.⁷ To state a claim for breach of this duty on these facts, however, PAR would need to allege that Holland acted unreasonably, arbitrarily, or capriciously in failing to reach a mutual agreement with PAR.Cf. Eastern Shore Mkts., 213 F.3d at 185 (holding that a lessee stated a claim for breach of the implied duty of good faith and fair dealing by alleging that the lessor willfully introduced destructive competition which undermined the lessee's profitability and threatened its viability); 7-Eleven, 300 F. Supp.2d at 361 (denying summary judgment against a claim for breach of the duty, based on evidence that a franchisor unreasonably failed to satisfy his contractual obligation to renovate and repair the franchisee's stores); Md. Nat'l Bank v. Traenkle, 933 F. Supp. 1280, 1288-89 (D. Md. 1986) (denying summary judgment against a claim for breach of the duty, based on evidence that a bank's inappropriate use of repossessed collateral pending its sale resulted in loss of value); Food Fair Stores, Inc. v. Blumberg, 200 A.2d 166, 174 (Md. 1964) (sustaining dismissal of lessors' claim that lessee breached duty of good faith and fair dealing by permitting direct competition with the lessors' store, where there were no allegations that the lessee wilfully diverted sales or abandoned its business).

7 The application of the duty of good faith and fair dealing to interpret an ambiguous contractual provision would distinguish this case from decisions cited by Holland holding that a plaintiff cannot state an independent claim for breach of the duty of good faith and fair dealing. See, e.g., Swedish Civil Aviation Admin. v. Project Mgmt. Enters., Inc., 190 F. Supp.2d 785, 794 (D. Md. 2002) (noting that the duty of good faith and fair dealing "is merely part of an action for breach of contract"); Adams v. NVR Homes, Inc., 135 F. Supp.2d 675, 699 (D. Md. 2001); Abt Assocs., Inc. v. JHPIEGO Corp., 104 F. Supp.2d 523, 534 (D. Md 2000).

PAR has failed to make such allegations, and there is no evidence in the record that Holland acted unreasonably, arbitrarily, or capriciously. PAR alleges that Holland reviewed and made comments on the proposed Internet version of the SDS, but admits that PAR did not incorporate all of Holland's suggested changes. (Countercl. at ¶ 22-23, 29.) PAR has not pled any further facts regarding any attempts by the parties to reach a "mutual agreement" on the publication of the Internet version. This is not surprising, since PAR's position has been that it was not required to obtain Holland's agreement before publishing the Internet version. Accepting the allegations of the counterclaim as true, and construing the facts alleged in the light most favorable to PAR, the counterclaim fails to state a claim for breach of Holland's duty of good faith and fair dealing under the 1989 contract. For the reasons stated, count II of PAR's counterclaim also must be dismissed.

III.

In its pleadings, PAR labeled the above claims against Holland as a "counterclaim or set-off." Pointing to this language, PAR now suggests that it has stated a separate claim for relief based on its "right to set-off/recoupment" arising from the same alleged conduct by Holland (Def.'s Opp. Mem. at 7-8.) Although PAR initially used the term "set-off," any claim by PAR to recover damages arising from Holland's conduct under the 1989 contract would be a claim for recoupment.⁸ Under Maryland law, recoupment is pled as a defense rather than an affirmative counterclaim. See Smith v. Smith, 558 A.2d 798, 801 n. 2 (Md. Ct. Spec. App. 1989).

8 "`[R]ecoupment' means a diminution or a complete counterbalancing of the adversary's claim based upon circumstances arising out of the same transaction on which the adversary's claim is based; `setoff' means a diminution or a complete counterbalancing of the adversary's claim based upon circumstances arising out of a transaction other than that on which the adversary's claim is based." Imbesi v. Carpenter Realty Corp., 744 A.2d 549, 552 (Md. 2000).

Assuming that PAR's claim for recoupment has been properly raised before this court, PAR has failed to allege facts supporting this defense. In an action for breach of contract in which the defendant alleges that the plaintiff also has breached the contract, the defendant is entitled to claim recoupment for any damages "which were the certain result" of the plaintiff's breach. Smith, 558 A.2d at 805 (quoting Hammaker v. Schleigh, 147 A. 790, 797 (1929)). PAR is not entitled to recoupment unless Holland "has not complied with some cross obligation of the contract . . . or has violated some legal duty in the making or performance of that contract." 20 Am.Jur.2d Counterclaim, Recoupment Setoff § 5. The only facts asserted by PAR in its counterclaim fail to state a claim upon which relief can be granted against Holland, and thus fail to provide any basis for a defense of recoupment.

A separate order follows.

ORDER

For the reasons stated in the accompanying Memorandum, it is hereby Ordered that:

1. the plaintiff's motion to dismiss defendant's amended counterclaim or set-off (docket no. 10) is GRANTED; and

2. copies of this Order and the accompanying Memorandum shall be sent to counsel of record.