This case concerns a company (“U.S. Home”) entering into a contract to purchase land from a limited liability company (“Purchase Agreement”) solely owned by two brothers (“Sellers”). On the same day of the purchase, U.S. Home executed a contract (“Development Contract”) with Bevard Development Company, which was to take steps in developing the land. Although not a party to either contract, Parkway—another limited liability company owned by the Sellers—classified itself as a “third-party beneficiary” of the Development Contract. Under the Development Contract, U.S. Home agreed to pay Parkway approximately $2.25 million “at the time of Settlement under the Purchase Agreement as reimbursement for Parkway’s acquisition of certain nearby properties for “right of way purposes” (“Reimbursement”). The Purchase Agreement defined “Settlement” as “[t]he consummation of the purchase and sale” of the land.

The original date of Settlement was to be in June 2006, or September 2006 at the latest. After an amendment in May 2007, the Settlement date was changed to December 2007, or March 2009 at the latest. In April 2008, the Sellers “called for settlement to occur” the next month. Instead of agreeing, U.S. Home filed a breach-of-contract lawsuit in Maryland federal court. The Sellers, their lender, and Bevard Development counterclaimed. Because the matter became ensnared in litigation, the purchase did not take place until 2017. Once the purchase was finalized, Parkway sought the reimbursement required by contract.  U.S. home did not pay, and Parkway filed this action. U.S. Home argues that Parkway’s lawsuit is untimely under Maryland’s three-year statute of limitations. The issues on appeal were whether the statute of limitations precludes Parkway’s claim, and if not, whether (and to what extent) Parkway may receive prejudgment interest and attorneys’ fees.

The Fourth Circuit agreed with the district court’s holding in that Parkway’s cause of action did not accrue until 2017, and thus, this lawsuit—filed that same year—is timely. However, the Fourth Circuit concluded that the district court erred in ordering U.S. Home to pay prejudgment interest dating from May 27, 2009 and attorneys’ fees. Accordingly, the Court reversed the award of attorneys’ fees and vacated and remanded with instructions to award prejudgment interest from April 21, 2017.

Takeaways

In Maryland, an action for breach of contract must be filed within three years from the date it accrues.¹ “A cause of action accrues under a borrowed statute of limitations” when the plaintiff has actual or constructive knowledge of his or her claim.² For a “claim” to exist for purposes of accrual, “all of [the] claim’s elements [must] have occurred.”³ In a Maryland breach of contract case, those elements are “contractual obligation, breach, and damages.”⁴ Thus, there was no contractual obligation, and no breach, until April 2017, when the purchase was finalized and U.S. home refused to pay their Reimbursement to Parkway. 

 In Maryland, there are “three basic rules governing the allowance of prejudgment interest.”⁵ They are as follows:

1. Prejudgment interest must be granted where “the obligation to pay and the amount due” were “certain, definite, and liquidated by a specific date prior to judgment.” Interest accrues from when “payment was due.”
2. Prejudgment interest may not be granted “in tort cases where the recovery is for bodily harm, emotional distress, or similar intangible elements of damage not easily susceptible of precise measurement.”
3. Prejudgment interest may be granted, but is not required, in the remaining “broad category of contract cases. In this catchall category, which is the default for contract cases, whether to order prejudgment interest “is within the discretion of the trier of fact. ”

In this case, the “the obligation to pay and the amount due” were “certain, definite, and liquidated by a specific date prior to judgment” so this case falls under the first category, and prejudgment interest in mandatory. Parkway is entitled to prejudgment interest as of right—but only from the date the Reimbursement came due, that is, the date of Settlement in 2017.

“Maryland follows the common law ‘American Rule,’ which states that, generally, a prevailing party is not awarded attorney’s fees ‘unless ... the parties to a contract have an agreement to that effect,’ ” or unless other exceptions not relevant here apply.⁶ The plain meaning of “party,” when interpreting a contract, is a signatory. See Signatory, Black’s Law Dictionary (11th ed. 2019) (defining “signatory” as “[a] person or entity that signs a document ... and thereby becomes a party to an agreement”).⁷

The Development Contract provides that “[i]n the event that any litigation arises between the parties regarding this Contract, the substantially prevailing party shall be entitled to recover its reasonable attorneys fees ... from the other party.”  The Court held that Parkway, a third-party beneficiary, was not  a party to the Development Contract relying on the following textual evidence  (1) Parkway was not required to receive notice regarding any litigation involving escrow ; (2) The Development Contract concludes by stating that “the parties have executed this Contract”—followed by signature lines only for U.S. Home and Bevard Development; (3) The amendment states that it is executed by “the parties,” again providing signature lines only for U.S. Home and Bevard Development ; and (4) the amendment binds Lennar Corporation, “the sole stockholder of U.S. Home,” to some provisions—and explicitly addresses attorneys’ fees in litigation between Lennar and Bevard Development.

1. Md. Code Ann., Cts. & Jud. Proc. § 5-101

2. Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 320 (4th Cir. 2006).

3. Mikels v. City of Durham,183 F.3d 323, 329 n.3 (4th Cir. 1999).

4. Kumar v. Dhanda, 198 Md.App. 337, 17 A.3d 744, 749 (2011), aff’d, 426 Md. 185, 43 A.3d 1029 (2012).

5. Harford Cty. v. Saks Fifth Ave. Distribution Co., 399 Md. 73, 923 A.2d 1, 13 (2007) (quoting Buxton v. Buxton, 363 Md. 634, 770 A.2d 152, 165 (2001)).

6. Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 952 A.2d 275, 281 (2008) (quoting Thomas Gladstone, 386 Md. 693, 874 A.2d 434, 437 (2005)).

7. See Dickerson v. Longoria, 414 Md. 419, 995 A.2d 721, 742 (2010) (noting that “a third-party beneficiary is not a party to the contract”).

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