Friday, January 12, 2018

Willow Grove Citizens Assoc. v. County Council of Prince George's County, Maryland (Ct. of Special Appeals)

FiledDecember 20, 2017

Opinion byStuart R. Berger

Holding:  A Maryland LLC’s participation in an administrative proceeding by filing for a zoning special exception was valid even though the LLC had forfeited its right to do business in Maryland.  A foreign unregistered corporation's participation in the proceedings as agent or co-applicant did not invalidate the application because the isolated action did not constitute doing business in Maryland.

Facts:  Appellee (“LLC”) in 2001 purchased a parcel in Bowie, Maryland with the intent to construct an assisted living facility.  The parcel being zoned "Rural Residential," prior owner had obtained a special exception for this same purpose but had never developed the land.

In 2012, LLC neglected its State Department of Assessments and Taxation ("SDAT") obligations and forfeited its right to use its name and do business in Maryland.  LLC's sole member was a corporation organized in the District of Columbia not registered to do business in Maryland.  LLC's rights remained forfeited in February 2014 when it applied for a special exception to operate an assisted living facility on the parcel.

The application was accepted, heard, and granted in October 2014 by the local planning commission ("Examiner").  People's Zoning Counsel, appointed by the County Council to protect the public interest and create a full and complete record, was the same attorney who had conducted the settlement and subsequent contract work around the sale of the parcel to LLC.  The record showed no objections made after his disclosure of prior involvement and no objection to his participation in the proceedings.  Examiner's decision was appealed to the County Council who remanded the matter for a determination of LLC's standing with SDAT.

In May 2015, LLC's rights were reinstated, and a month later the sole member became a qualified corporation in Maryland.  LLC provided certificates of good standing at the subsequent rehearing where the Examiner recommended approval.   Appellant, a civic association ("Citizens"), appealed to the County Council, who found LLC legally authorized to file an application for a special exception concerning real or personal property, that forfeiture had not impaired the validity of such a filing, and that the act of applying for a special exception did not constitute doing business.  The Circuit Court for Prince George's County affirmed.

Analysis:  Because Citizens accepted the factual record and objected only to the decision of the County Council on legal grounds, the only question before the court was whether the approval for special exception had been premised on legally erroneous conclusions of law.

Evaluating Citizens' claim that LLC's actions in pursuit of a special exception were a legal nullity, the court pointed to § 4A-911 of the Corporations & Associations Article (emphasis added):
The forfeiture of the right to do business in Maryland and the right to the use of the name of the limited liability company under this title does not impair the validity of a contract or act of the limited liability company entered into or done either before or after the forfeiture, or prevent the limited liability company from defending any action, suit or proceeding in a court of this State.
Irrespective of its forfeiture, LLC remained a legal entity with the power to enter binding contracts at any time.  What of the statute's proscription against bringing lawsuits?  Continuing on, the court found that because LLC had not filed its application "in a court of this State," the implicit prohibition against initiating suits was irrelevant.

"What about the sole member's initial status as an unregistered corporation?," pressed Citizens.  Applying a similar analysis, the court cited § 7-103 of the Corporations & Associations Article to find unregistered corporations to be entitled to engage in many in-state activities such as maintaining, defending, or settling actions, suits, claims, disputes, administrative or arbitration proceedings.  Citizens failed to meet their burden to prove the sufficiency of sole member's contacts or actions within the state to constitute "doing business,"  therefore, the sole member's status as co-applicant or agent in pursuing the special exception was also irrelevant. 

Finally, the court found that Citizens had not preserved for judicial review the question of People's Zoning Counsel's alleged conflict of interest because it failed to raise the issue at any stage of the administrative proceedings.

Accordingly, the court found the County Council's decision to approve the application for special exception to be correct as a matter of law.

The full opinion is available in PDF.

Monday, January 8, 2018

Gary W. Stisser v. SP Bancorp, Inc. (Ct. of Special Appeals)

Filed: November 29, 2017

Opinion by: Andrea M. Leahy

Holding: In a shareholder class action lawsuit for breach of directors’ fiduciary duties following a merger, Maryland did not have personal jurisdiction over directors of the company incorporated in Maryland, nor over the Texas-based merging company because under the jurisdictional analysis it is insufficient that the Texas-based merging company merely incorporated a subsidiary in Maryland to facilitate the merger but conduct no other business activity there, and mere directorship in a Maryland company is insufficient given the absence of factors such as: a director-consent statute, actual business activity in Maryland, and any merger-related activities directed toward Maryland.

Facts: Appellants are shareholders of a company incorporated in Maryland (the “Company”). Appellants filed a shareholder class action lawsuit for breach of fiduciary duties following the merger of the Company into a Maryland subsidiary (the “Maryland Subsidiary”) of a bank holding company incorporated under Texas law with its principal place of business in Texas (the “Holding Company”). The lawsuit named both the Company and its directors (the “Directors”), as well as the Holding Company and its Maryland Subsidiary, as the defendants. 

Appellants are not residents of Maryland. They owned shares in the Company. The Company was incorporated in Maryland, but its headquarters and principal place of business were located in Texas. The Company served as a holding company and parent of a Texas-chartered state bank. The Company did not have any offices in Maryland and did not employ any individuals in Maryland. The Directors did not reside in Maryland, nor were they employed there. The merger negotiations with the Holding Company took place in Texas. 

The Circuit Court for Baltimore City granted motions to dismiss by the defendants, finding in part that the Court lacked personal jurisdiction over the Directors and the Holding Company. The questions on appeal were whether the Holding Company subjected itself to personal jurisdiction in Maryland by forming the Maryland Subsidiary, and whether the Directors were subject to personal jurisdiction because they filed the Articles of Merger in Maryland.  

Analysis: Personal jurisdiction over out-of-state defendants must be established under Maryland’s long-arm statute and comport with the Due Process Clause of the Fourteenth Amendment. Appellants argued that Maryland had general jurisdiction over the Holding Company because it formed the Maryland Subsidiary as an instrumentality or alter ego, and exercised complete control over the Maryland Subsidiary until it was shuttered following the merger. Appellants did not argue the Holding Company was “at home” in Maryland under the traditional  general jurisdiction analysis. 

The Court held that the incorporation of and control over a subsidiary in Maryland is insufficient to establish general jurisdiction over the nonresident parent company, citing in support DaimlerChrysler AG v. Bauman, 134 S. Ct. 746 (2014). In Daimler, Argentine residents sued a U.S. subsidiary of a German parent company whose Argentine-based subsidiary allegedly collaborated in government war crimes. The Supreme Court rejected the establishment of personal jurisdiction over a parent company due merely to its control over a resident subsidiary. Thus, Appellants’ argument fails. 

Moreover, even if the Maryland Subsidiary were an alter ego of the Holding Company, the Holding Company would only be subject to personal jurisdiction upon a showing that it was “at home” in Maryland. Normally, this means the place of incorporation and principal place of business.  

The Court also rejected Appellants’ claim that the Holding Company’s actions of forming the Maryland Subsidiary and consummating the merger in Maryland subjected the Holding Company to specific jurisdiction.  The Court found that the Holding Company did not “transact business,” pursuant to Maryland’s long-arm statute, because the mere filing of the Articles of Incorporation of the Maryland Subsidiary are insufficient.  The Maryland Subsidiary was not intended to do business in Maryland and did not direct activities toward Maryland residents. The Holding Company did not have offices or solicit business in Maryland, nor did it appoint a registered agent there. Moreover, the filing of the Articles of Incorporation is only tangentially related to the underlying claims, and thus insufficient for specific jurisdiction. Additionally, the filing of the Articles of Merger is also insufficient because these were not filed by the Holding Company. 

The Court rejected the argument that by accepting directorship in the Company, the Directors are subject to personal jurisdiction in Maryland. The Maryland legislature never enacted a “director consent” statute which is necessary to provide prospective directors notice sufficient enough to satisfy the Due Process Clause in light of the Supreme Court’s ruling in Shaffer v. Heitner, 433 U.S. 186 (1977). The Court also held that the Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522 (4th. Cir. 1987) ruling — which held that a director-consent statute is not always necessary because Shaffer did not require any particular statutory “words of art” — did not apply here because the Pittsburgh Terminal corporation actually did business in the forum state, unlike the Company here. 

The Court also rejected the Appellants’ argument that the Directors are subject to personal jurisdiction because the Directors caused the merger in Maryland and filed the Articles of Merger in Maryland. Appellants did not allege that the Directors directed any contact toward Maryland with respect to the merger. The Directors were non-residents who never entered Maryland in connection with Company business. The filing of the Articles of Merger was the only act that occurred in Maryland. The filing cannot be imputed to the Directors for jurisdictional purposes because the Directors did not file the Articles of Merger personally and did nothing more than participate in the merger decision.

The opinion is available in PDF here.

Wednesday, December 13, 2017

Farm Fresh Direct by a Cut Above, LLC v. Downey (Maryland U.S.D.C.)

Filed: October 26, 2017

Opinion by: Judge Ellen Lipton Hollander

Holding:

Under Maryland law, the liability protections afforded to limited liability company (“LLC”) members with respect to obligations of an LLC did not support dismissal of claims that an individual engaged in unfair competition and deceptive trade practices by forming and participating in an LLC, where the plaintiff alleged conduct supporting direct claims against the individual.

Facts:

A Maryland LLC, Farm Fresh Direct by a Cut Above LLC (“Plaintiff”), brought suit against multiple defendants, including another Maryland LLC, Farm Fresh Direct Home Food Services, LLC (“Defendant LLC”), and an individual who allegedly filed Defendant LLC’s Articles of Organization with the Maryland State Department of Assessments and Taxation (“Defendant Individual” and together with Defendant LLC, the “Defendants”), alleging that the Defendants engaged in unfair competition in violation of both Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), and Maryland common law, by establishing and engaging in a competing business under a name which was confusingly similar to the name of the Plaintiff.  The Defendant Individual moved, pro se, to dismiss the action.  Despite construing the motion liberally in favor of the Defendant Individual, the district court denied the motion, holding that the Plaintiff had alleged sufficient facts to satisfy the pleading requirements of Fed. R. Civ. P. 8(a).    

Analysis: 

The district court analyzed as a threshold issue whether the Defendant Individual was subject to suit in light of the Defendant LLC’s status as a Maryland LLC.  The district court’s analysis begins with a review of Maryland and Fourth Circuit law regarding the corporate shield and the corresponding LLC shield.  The court then notes that, notwithstanding the LLC shield, which generally protects LLC members from personal liability for obligations of the LLC, the LLC shield does not protect LLC members from direct liability for that member’s own actions.  Because Plaintiff alleged that the Defendant Individual formed the Defendant LLC and acted as its resident agent, the district court held that Plaintiff had alleged sufficient facts to plead direct claims against the Defendant Individual.  Further, because Plaintiff alleged that the name of the Defendant LLC was confusingly similar to the name of the Plaintiff and that the Defendant LLC engaged in substantially the same business as the Plaintiff, the district court held that Plaintiff alleged sufficient facts to plead claims of unfair competition and deceptive trade practices under Maryland and Federal law.  Accordingly, the district court denied Defendant Individual’s motion to dismiss.

The full opinion is available in PDF.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

Tuesday, December 12, 2017

White Oak Power Constructors v. Alstom Power, Inc. (Maryland U.S.D.C.)

Filed: November 7, 2017

Opinion by: Catherine C. Blake, United States District Judge

Holding: Tort claims based on conduct prior to the execution of a contract are not outside the scope of the agreed to forum selection clauses and that enforcing said clauses, which refer to “any legal action” related to the agreement.

Facts: In 2013, Defendant, Old Dominion Electric Cooperative (“Old Dominion”) entered into an Equipment Purchase Agreement (“Alstom Agreement”) with Defendant Alstrom Power, Inc. (“Alstrom”) for three generators for use in the Wildcat Point Generation Facility under development in Rising Sun, Maryland (“the Plant”). In 2014, Old Dominion entered into an Engineer, Procure and Construct Contract (“White Oak Agreement”) with Plaintiff, White Oak Power Constructors (“White Oak”) to construct the Plant and prepare it for operation. All three parties also signed an Assignment, Assumption, and Consent Agreement (“Assignment Agreement”) assigning certain of Old Dominion’s rights and responsibilities from the Alstrom Agreement to White Oak.

The Alstrom Agreement forum selection clause states:

 “Any legal action with respect to this Agreement shall exclusively be brought in the state courts of Virginia located in Henrico County, Virginia or in the United States District Court for the Easter District of Virginia located in Richmond, Virginia…each of the parties irrevocably waives any objection…further irrevocably waives and agrees not to plead or claim in any such court that any action or proceeding brought in any such court has been brought in an inconvenient forum.”       

The Assignment Agreement contains a substantively identical forum-selection provision. In addition, the White Oak Agreement forum selection clause states:

“Both parties hereto agree…to submit to the exclusive jurisdiction of the United States District Court for the Eastern District of Virginia located in Richmond, Virginia, in any litigation between the parties or, if the federal court lacks jurisdiction, the state courts of the Commonwealth of Virginia located in Henrico County, Virginia…contractor hereby waives any objection that it may now or hereafter to the venue of any such suit or any such court or that such suit is brought in an inconvenient forum.”

Plaintiff argued that its tort claims were outside the scope of the forum selection clauses and, even if the tort claims are within the scope of the forum selection clauses, enforcing the clauses would be unreasonable. The court denied all of Plaintiff’s arguments.

Analysis: The court first acknowledged the Supreme Court’s holding that: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied.” Plaintiff made the following arguments against enforcement of the forum selection clauses, and for the following reasons, the court denied each argument in turn:

(1)  Plaintiff’s tort claims were outside the scope of the forum selection clauses.

The court relied on the language of the Agreements to dismiss this claim, citing, “the Alstrom Agreement referred to ‘any legal action or proceeding with respect to this agreement’ and ‘actions of proceedings arising out of or in connection with this agreement.’ Both of these clauses therefore encompass pre-execution conduct of the parties related to the bidding on and negotiation of the agreements, including the alleged fraud in the inducement.”

(2)  Enforcing the clauses would be unreasonable.

The court cited the fourth circuit, explaining, “a forum selection clause may be found unreasonable if: (i) its formation was induced by fraud or overreaching; (ii) the complaining party will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (iii) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (iv) its enforcement would contravene a strong public policy of the forum state.”
The court found none of the above circumstances present, explaining, “[Plaintiff] has not advanced any facts to show that the forum selection clause specifically was obtained by fraud or overreaching…[and Plaintiff] offered no evidence that it will be gravely inconvenient or that it would be unfair to litigate this case in the forum state to which it agreed.” Similarly, there was no discussion of contravening a strong public policy by enforcing the clause. The court concluded, “allowing [Plaintiff] to escape its obligations under the forum selection clause…would be permitting forum shopping.”

(3)  Plaintiff did not bargain for the forum selection clause in the Alstrom Application.

The court quickly dismissed this final argument, explaining, “[Plaintiff] knew it would be subject to assignment of the Alstrom Agreement when it entered in the White Oak Agreement and the Assignment Agreement…[Plaintiff] could have bargained for a different forum selection clause. Instead, it agreed to inclusion of an identical clause in the Assignment Agreement. Further, the forum selection clause in the White Oak Agreement is even broader than that in the Alstrom Agreement.”


The opinion is available in PDF.

Monday, December 4, 2017

Schuster v. SLM Corporation (Maryland U.S.D.C.)

Opinion by Judge Catherine C. Blake

Filed:  October 23, 2017

Holding:  A company does not owe a duty to a non-customer, who it has no direct relationship with, absent special circumstances.

Facts: Plaintiff brought suit against SLM Corporation (hereinafter referred to as company) alleging that the company negligently allowed his daughter to use him as a co-signer on several student loan agreements without his consent. Previously, plaintiff had willingly co-signed for loans for daughter through the same company using a different email address and phone number.  The plaintiff contended that the company should’ve been aware of the fact that he did not consent to being a co-signer on a separate set of loans because there was a new phone number and email address listed on the applications for the new loan. Plaintiff also asserted that the company owed a duty to protect him from the possibility of being fraudulently listed as co-signer. Defendant company submitted a Motion to Dismiss on the basis that it did not owe Plaintiff a duty to protect him from fraud.

Analysis:
Under Maryland law a negligence claim must demonstrate that there is a relationship between the parties, that one require one party to owe a duty to the other. Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 451 Md. 600, 610 (2017). There must be an “intimate nexus.” Id. at 614. The “intimate nexus” only exists where there is contractual privity or its equivalent. Id. at 620.  “[B]anks do not typically owe a duty to their customers beyond whatever contractual relationship might bind them.” 


The court considered plaintiff to be a “non-customer” of the company as it pertained to the claims regarding the separate set of loans. For “non-customers”, a bank owes no duty with whom it has no direct relationship, absent special circumstances.  The court disregarded plaintiffs’ argument that the use of new contact information created a special circumstance because plaintiff failed to raise the argument in his complaint. The court instead considered that argument to demonstrate the scope of its’ analysis detailing the duty a company owes a non-customer.  It stated that the company owes a duty to a customer “limited to the terms of the agreement it arises”. Spaulding v. Wells Fargo Bank, N.A., 714 F. 3d 769, 778-79 (4th Cir. 2013). The court went on to state that the new contact information was not indicative of fraud as “new contact information is not facially suspect”. And, there is no indication that plaintiff relied on the company or that the company knew or should have known of such reliance. Since plaintiff failed to demonstrate an intimate nexus between himself and the company in this new contract, the court granted the Motion to Dismiss submitted by company.

The opinion is available in PDF.  


Saturday, November 4, 2017

Thomas v. Progressive Leasing (Maryland U.S.D.C.)

Filed: October 25, 2017

Opinion by: Judge Richard D. Bennett

Holding: A non-signatory to a contract containing an arbitration clause can be compelled to arbitrate when it receives a direct benefit from the contract, and/or when the claims arise from the contract containing the clause.

Facts:

From September 2015 to February 2017, Plaintiff applied for financing from Defendant. Plaintiff applied a total of six times, and each time, Defendant denied the applications. In November 2015, Plaintiff's wife successfully applied for and entered into a lease with Defendant. The lease contained both an arbitration provision and express permission allowing Defendant to call Plaintiff's wife at any number provided.

In December 2015, Defendant called Plaintiff's wife in an attempt to collect a payment that had not gone through. Plaintiff's wife allowed her husband to speak with the Defendant; Plaintiff then informed Defendant to defer to him for debt collection, provided his phone number, and instructed the Defendant to remove her information and transfer the account over to his own.

Afterwards, Plaintiff received calls from Defendant in an attempt to collect the account balance owed under the lease. Plaintiff alleged that Defendant made the calls using a telephone dialing system. In addition, Plaintiff claimed that he requested Defendant stop calling, yet despite this, the calls continued for multiple times a day. Plaintiff then filed suit under the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227. Defendant filed a Motion to Compel Arbitration and to Dismiss or Stay the Litigation based on the lease's arbitration agreement between Defendant and Plaintiff's wife.

Analysis:

Plaintiff did not dispute the validity of the arbitration agreement but rather argued that because he was neither a signatory nor a beneficiary to the lease, the arbitration agreement was not enforceable against him. Defendant countered by asserting the theory of equitable estoppel. In an arbitration context, the theory of equitable estoppel recognizes that under some circumstances, a party may agree to submit to arbitration by means other than personally signing a contract containing an arbitration clause. When the signatory to an arbitration agreement seeks to compel a non-signatory to arbitrate, the Fourth Circuit has applied the "direct benefit" test. This test prevents a non-signatory from refusing to comply with an arbitration clause when it receives a direct benefit from a contract containing an arbitration clause, and/or when the claims arise from the the contract containing the clause. 

The Court turned to the following facts: the lease giving Defendant the right to call any telephone number provided to it, and Plaintiff voluntarily giving his phone number to Defendant with the intention of his information being associated with his wife's account. By doing so, the Court determined that Defendant had the right to call him. Plaintiff's TCPA claim, stemming from Defendant's actions, were a result of Plaintiff giving Defendant that right. The Court held that Plaintiff's allegations arose from and were directly related to the duties imposed within the lease, and arbitration should be compelled.

The Court also pointed to Plaintiff's instructions informing Defendant to transfer his wife's account to his own, voluntarily assuming the obligation of payment under the lease.  The Court concluded that by doing so, Plaintiff derived a benefit from the lease. The Court then determined that it would be inequitable to allow Plaintiff to pursue his TCPA claim against Defendant for calls it made to Plaintiff to collect on the lease, and yet permit him to avoid the arbitration provision in that same lease. The Plaintiff objected to enforcing the arbitration agreement against him as a whole, yet he did not contend that if the agreement applies, his claim against Defendant is beyond the scope of the lease. Furthermore, the Court has previously held that TCPA claims may be properly subjected to arbitration.

The Court granted Defendant's motions and dismissed the case.

The full opinion is available in PDF.