Thursday, October 15, 2020

Lee v. Lee (Ct. of Appeals)

Filed: January 23, 2020 

Opinion by: Judge Shirley M. Watts 

Holding: 

Docket entries not otherwise subject to shielding that are unclear, ambiguous, or unavailable to the public via the Judiciary’s online case search fail to satisfy the requirements of Maryland Rule 2-601(b)(3) and do not trigger the 8-202(a) thirty-day appeal period.

Recordation and indexing of a federal judgment creates a lien, not a new judgment.

Facts: 

In 2002, Petitioner (“Lender”) obtained a default judgment in the United States District Court for the District of Maryland against Respondent (“Borrower”), in the principal amount of approximately $140,000 plus attorney’s fees, court costs, and interest.

In June 2004, the Circuit Court for Howard County approved Lender’s Request to File Notice of Lien based on the federal judgment.  In July 2015, Lender sought and obtained a Notice of Renewed Judgment from the circuit court.

In March 2016, Borrower moved to vacate the renewed judgment and requested a hearing.  On June 2, 2016, the circuit court conducted the hearing, denied the motion, and issued a one-page order.  On June 3, 2016, the clerk stamped and mailed copies of the order and made a docket entry to the court’s case management system.  Due to a series of clerical errors, results of the Judiciary’s online case search (“Case Search”) made in the weeks following June 2 for the instant case produced unclear and confusing results, creating ambiguity as to what had been decided and when, with date fields containing entries as early as March 24 and as late as June 6.

On July 6, 2016, Borrower appealed.  The circuit court granted Lender’s motion to strike the appeal as untimely.  Borrower timely appealed.  After a remand to the circuit court to produce an accurate timeline of events, the Court of Special Appeals denied the motion to dismiss and held that the first appeal, while initially premature, had ripened.   The Court went on to reverse the denial of the motion to vacate and remand to the lower court to vacate the renewed judgment, explaining that there was nothing to renew because the lien created in 2004 became ineffective when the predicate federal judgment expired in 2014.

Lender subsequently sought and received a writ of certiorari.

Analysis: 

The main issue before the Court of Appeals was whether entry of a judgment must satisfy the requirements of both Maryland Rule 2-601(b)(2) and 2-601(b)(3) to start the thirty-day appeal period prescribed in 8-202(a).  Stated more plainly, was the date of entry of a judgment established by the act of a clerk keying it into the docketing system, or did it need to also be publicly available?

The Court began with de novo review of the trial court’s interpretation of the underlying Maryland Rules.  Because the date of an entry of a judgment is governed by 2-601(b), the Court examined that rule’s recent history and noted that the Standing Committee on Rules of Practice and Procedure in 2014 had proposed amendments to address the obsolescence of the then-current rule (requiring physical recordation on the file jacket) and lack of uniformity across the State in how clerks entered judgments.  By Rules Order of the Court of Appeals, amendments to 2-601 were adopted and became effective on January 1, 2016, notably providing that:

2-601(a)(4) A judgment is effective only when [set forth on a separate document] and when entered as provided in section (b) of this Rule.

* * * 

2-601(b)(2) Entry.  The clerk shall enter a judgment by making an entry of it on the docket of the electronic case management system used by that court along with such description of the judgment as the clerk deems appropriate. 

2-601(b)(3) Availability to the Public. Unless shielding is required by law or court order, the docket entry and the date of the entry shall be available to the public through the case search feature on the Judiciary website and in accordance with Rules 16-1002 and 16-1003.

* * * 

2-601(d) Date of Judgment.  On and after July 1, 2015, regardless of the date a judgment was signed, the date of the judgment is the date that the clerk enters the judgment on the electronic case management system docket in accordance with section (b) of this Rule. The date of a judgment entered prior to July 1, 2015 is computed in accordance with the Rules in effect when the judgment was entered.

Turning next to relevant caselaw, the court cited its prior discussion (in Hiob v. Progressive Am. Ins. Co., 440 Md. 466 (2014)) of 2-601’s separate document requirement.  The Hiob court had noted the importance of the date and form of entry of a judgment in creating precision (as to the time for filing an appeal), creating certainty (so as not to create a trap for inexperienced parties), and preserving appeal rights.  The Court here went on to highlight the need to provide the public, and not just the litigants, with an unambiguous and clear indication of the date and disposition of every civil claim brought in the State’s courts.  

Accordingly, the Court held that in order to constitute an effective judgment under 2-601 and begin the 8-202(a) thirty-day appeal period, the judgment must satisfy the plain language requirements of both 2-601(b)(2) and (b)(3).  Unless shielding is required, the docket entry and date of entry shall be available to the public through Case Search.  

Applying this framework to the instant case, the court found the June 2, 2016 Order to meet the separate document requirement of 2-601(a)(1).  However, the contemporaneous Case Search returns were unclear, ambiguous, confusing, and insufficient to establish whether a judgment had been entered as required by 2-601(b)(2) and, if so, the corresponding date of entry as required by 2-601(b)(3).  Case Search failed to provide adequate notice to the public of the date of entry of judgment and the thirty-day appeal period never triggered.

Where did this leave Borrower’s “premature” notice of appeal?  The Court pointed to 8-602(f)’s instruction that a notice of appeal filed after the signing by the trial court of an order but before entry of the order on the docket shall be treated as filed on the same day as but after the entry on the docket.  Thus, although Borrower’s notice of appeal was premature when filed, it would be treated as filed immediately after entry of the judgment on the docket and appeal would proceed.

Accordingly, the Court addressed Borrower’s appeal on its merits, affirming the Court of Special Appeals.  Explaining that a money judgment establishes a debt, while a lien creates the mechanism to enforce it, the Court found Lender’s 2004 action to have created a lien against Borrower’s property in Howard County – not a new judgment.  Lender’s failure to renew the federal judgment prior to its twelve-year expiration date in 2014 extinguished the lien predicated on it.  Because nothing remained to renew, the circuit court had erred in entering a renewed judgment and in denying Borrower's motion to vacate.

The full opinion is available in PDF.


Sunday, October 11, 2020

Marcia Rankin, et al. v. Brinton Woods of Frankford, LLC, et al. (Ct. of Special Appeals)

Filed: June 27, 2019


Opinion by: J. Sharer


Holding: A contract was held to be procedurally and substantively unconscionable for failing to highlight arbitration, mediation and waiver of jury trial provisions through formatting; using misleading, contradictory, and undefined terms; and including an arbitration deposit requirement and loser-pay-all provision that could preclude recourse for parties lacking financial resources. 


Facts: Plaintiff filed a negligence suit for survival and wrongful death against the Defendant, a care center where the deceased allegedly developed serious health concerns. Defendant filed a motion to compel arbitration pursuant to the admission contract. The circuit court granted the motion as to the survival claims and stayed the wrongful death proceedings. On appeal, Plaintiff argued that the admission contract was unconscionable. 


Analysis: In order to decline to enforce an arbitration agreement, a court must find both procedural and substantive unconscionability. Doyle v. Fin. Am., LLC, 173 Md. App. 370, 383 (2007). The Court held that the contract was procedurally unconscionable because it was a standard-form contract, drafted entirely by Defendant. The first paragraph misleadingly stated that the contract contains financial obligations and residents’ rights. It failed to mention that the contract also contained a waiver of a constitutional right to a jury trial. Another section of the contract stated that it was impossible to cover all important matters in that document and that additional important documents were attached as exhibits. However, no attachments were included in the record, and there were no attachments regarding arbitration, mediation, and waiver. Additionally, the mediation and arbitration provisions were simply numbered paragraphs in the same format as the other paragraphs. They were not emphasized by bold, underlined or italicized font. The failure to highlight the arbitration, mediation and waiver provisions supported a finding of unconscionability. 


The Court held that the contract was substantively unconscionable because it did not provide criteria for the selection of mediators or scheduling and timing details for mediation. It did not address allocation of fees or costs of mediation. The arbitration provisions lacked clarity and were conflicting. The arbitration process would be consistent with the “American Arbitration Associate (sic)”. The terms “Arbitration Committee” and “subcommittee of three” were not defined; the latter was used only once. The word “binding” is used for the first and only time in section D of the clause. The last two paragraphs of section D present conflicting terms: the first paragraph states that the losing party can submit the matter to a state court. The next paragraph states that the “judgement” shall not be appealable; this is the first and only time the term “judgment” is used. Defendant is a sophisticated party, and these errors and ambiguities support a finding of unconscionability. Furthermore, there is no guidance on any estimated range of fees and costs, in addition to a loser-pays-all provision. A party who cannot pay the $1,000 arbitration deposit may have to forgo arbitration. These clauses could preclude recourse for a party lacking financial resources.


The circuit court had held that the admission contract was not unconscionable, but provided no factual support for its finding. See Henry v. Gateway, Inc., 187 Md. App. 647, 658 (unconscionability issues are often fact-intensive and the burden is on the party opposing arbitration). On appeal, Plaintiff also argued that the circuit erred in granting the motion based on its finding of apparent agency theory; the Court agreed. 


Full opinion available in PDF



D2L Ltd. v. Biggs (Maryland. U.S.D.C.)

 Filed: August 22, 2019


Opinion by: Blake, J.

Holding: Plaintiff’s lawsuit for breach of a noncompetition agreement in Maryland against out of state defendants was dismissed for lack of personal jurisdiction as the Defendant had little contact with Maryland, did not conduct but a small percentage of business with Maryland customers, and no evidence was offered that the Defendant had induced Plaintiff’s former employee to breach his obligations under the noncompetition agreement.

Facts: Plaintiff is a “global cloud software company” incorporated in Maryland and headquarted in Canada. Kevin Biggs, a California resident and former employee, was sued by Plaintiff on the basis of Plaintiff’s allegations that Biggs had violated his non-solicitation agreement with Plaintiff. This agreement provided a consent to suit in Maryland provision. After leaving his employment with Plaintiff, Biggs began working for Defendant OneLogin, a Delaware corporation with its principal place of business in California, which also provides cloud-based services. Plaintiff advised OneLogin of the non-solicitation agreement, and subsequently alleged that OneLogin induced and materially benefited from Biggs' breach of the agreement.

 

Analysis: A state court may exercise personal jurisdiction under the 14th amendment on an out-of-state defendant if the defendant had “minimum contacts” with the forum sufficient to put the defendant on notice that he might be sued in the forum in the future. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). A court may exercise personal jurisdiction over a defendant based on general or specific jurisidiction.

 

The plaintiff has the burden to show that the court could exercise general jurisdiction over the defendant by demonstrating that the defendant’s contacts with the state are “continuous and systematic” making the defendant essentially at home in the forum state. Daimler AG v. Bauman, 571 U.S. 117, 127 (2014).

 

Three factors are considered to determine specific personal jurisdiction over a defendant (where the present lawsuit arises out of the defendant’s prior contacts with Maryland): “(1) the extent to which the defendant has purposefully availed itself of the privilege of conducting activities within the State; (2) whether the plaintiff’s claims [arose] out of those activities; and (3) whether the exercise of personal jurisdiction is constitutionally reasonable.” Universal Leather LLC v. Koro AR SA, 773 F.3d 553, 559 (4th Cir. 2014). 

 

The Court found that it lacked general jurisdiction over the Defendant. The Defendant was neither organized under the laws of Maryland, nor was its principal place of business in Maryland. 

 

As for specific jurisdiction, the Court found that the Defendant only conducted a nominal amount of business in Maryland – one percent of its revenue and one to two percent of its total solicitation was derived from Maryland. Moreover, the Court found that none of these contacts were specifically connected to the allegations of breach of contract or tortious interference made by the Plaintiff.

 

The alternative theory offered by the Plaintiff was that Defendant had “encouraged,” “actively and wrongfully induced,” and “accepted the benefits of Biggs’ breach” of the agreement at issue in the case. However, the Court found that these general allegations lacked sufficient specificity as to when the solicitation happened, which employees were solicited, and where those employees were located.

 

Moreover, the Court denied the Plaintiff’s motion for jurisdictional discovery, as the Court concluded that the information sought by the Plaintiff would not provide additional facts to establish personal jurisdiction over the Defendant.

 

As a result, the Court concluded it lacked jurisdiction over the Defendant and dismissed the Plaintiff’s action against the Defendant.

 

Full opinion available in PDF.

Friday, October 2, 2020

Pinner v. Pinner (Ct. of Appeals)

Filed: March 3, 2020

Opinion by: Booth, J.

Holding: Defendant’s filing of a single lawsuit in Maryland, without further connection to the forum, did not place Defendant on notice she might be sued in a separate, though related, action by Plaintiff, and therefore such litigation violated the 14th amendment due process clause.

Facts: Plaintiff is the son of the defendant. Both parties are residents of North Carolina. Defendant had filed a prior action in Maryland on behalf of her late husband against various Asbestos Entities for her late husband’s death due to exposure to asbestos while working in Maryland.  Plaintiff was not included in the proceedings until it his ability to intervene was barred by the statute of limitations, and Defendant received a settlement as a result of that litigation that was not deposited in her late husband’s Estate, nor was any portion of it paid to Plaintiff. 

 

Subsequently, Plaintiff filed a separate action in Maryland for his alleged share of the asbestos settlement, alleging that the Defendant was negligent and breached a fiduciary duty as personal representative of her late husband’s Estate. Defendant failed to file a responsive pleading, and Plaintiff sought and obtained a default judgment for $99,856. Defendant appealed on the grounds that the trial court lacked personal jurisdiction over her to enter a judgment.

 

Analysis: A state court may exercise personal jurisdiction under the 14th amendment on an out-of-state defendant if the defendant had “minimum contacts” with the forum sufficient to put the defendant on notice that the might be sued in the forum in the future. Beyond Systems, Inc. v. Realtime Gaming Holding Co., 388 Md. at 1, 22 (2005). Three factors are considered to determine specific personal jurisdiction over a defendant (where the present lawsuit arises out of the defendant’s prior contacts with Maryland): “(1) the extent to which the defendant has purposefully availed [herself] of the privilege of conducting activities within the State; (2) whether the plaintiff’s claims arise out of those activities directed at the State; and (3) 

whether the exercise of personal jurisdiction would be constitutionally reasonable.” Id. At 26.

 

The Court held that the Defendant’s prior asbestos litigation was the sole contact of the Defendant with Maryland. No evidence was offered that the Defendant had actively participated in hearings or depositions in Maryland, or that she had even traveled at all to Maryland during the six year period the case was litigated. Moreover, the Court found that the present dispute involved issues arising under North Carolina law, between North Carolina residents, where the injury to Plaintiff arose in North Carolina. As to the second factor, the Court found that a breach of a fiduciary duty under North Carolina law is tenuously connected to the original asbestos litigation. 

 

As to the third factor, the Court noted that numerous specific considerations come into play with constitutional reasonableness such as: “the burden on the defendant; the interests of the forum State; the plaintiff’s interest in obtaining relief; the interstate judicial system’s interest in obtaining the most efficient resolution of controversy; and the shared interest of the several states in furthering fundamental substantive social policies.” Examining these considerations, the Court found that overall there was no efficiency in litigating North Carolina-based claims between North Carolina residents in a Maryland court, and that the Maryland court system had no interest in adjudicating such claims.

 

As a result, the Court concluded that the Maryland trial court lacked jurisdiction over the Defendant.

 

Full opinion available in PDF.

Monday, May 11, 2020

Muffoletto v. Towers (Ct. of Special Appeals)

Muffoletto v. Towers (Ct. of Special Appeals)

Filed: January 30, 2020

Opinion by: James A. Kenney, III

Holdings: (1) An action seeking a declaration concerning the location of a common boundary line between adjacent boat slips was barred by the applicable statute of limitations. (2) Substantive and substantial discovery violations warranted the imposition of sanctions.

Facts: In the early 1980’s, a residential condominium was established in Dorchester County, Maryland.  Appurtenant to each condominium unit was a license to use a boat slip.  According to the 1982 site plan for the condominium, two adjacent boat slips were to be established as fourteen-feet-seven-inches wide each, separated by mooring piles.  However, according to an aerial photograph of the subject boat slips, taken in 1984, one slip was nineteen feet wide, and the adjacent slip was thirteen feet wide.

In 2004, the plaintiff purchased the condominium unit and corresponding slip license related to the thirteen-foot-wide boat slip.  Shortly thereafter, the plaintiff noticed the disparate sizes of the adjacent boat slips when he attempted to berth his boat.  In 2010, the plaintiff became a member of the condominium’s council of unit owners (the “council”), at which time he allegedly learned of a policy enacted by the council in 1999 requiring a unit owner who had made changes to the location of any mooring piles to return the piles to their original location when the appurtenant condominium unit is sold.  Title to each of the condominium units corresponding to the subject boat slips (and the related boat slip licenses) had been transferred multiple times before being transferred to the parties to this lawsuit.

In 2016, the plaintiff filed suit in the Circuit Court for Dorchester County, seeking (i) a declaration that the adjacent boat slips were intended and initially constructed to be of equal width and (ii) specific performance and injunctive relief, requiring that the mooring piles be moved to establish the adjacent boat slips as being equal in width.  During discovery, the defendants served the plaintiff with interrogatories.  Despite multiple court orders directing the plaintiff to respond to the interrogatories, the plaintiff failed to properly respond.

The Circuit Court entered sanctions against the plaintiff for failing to provide discovery responses as ordered, finding that the defendants had been prejudiced as a result.  Thereafter, the Circuit Court entered summary judgment in favor of the defendants, finding that the possible movement of the mooring piles was not a disputed material fact because they were placed in their current location no later than 1984 (when the aerial photograph was taken), and any legal action related to their present location was thus barred by the applicable three-year limitations period.  The plaintiff timely appealed the rulings to the Court of Special Appeals.

Analysis:  The Court of Special Appeals first addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the statute of limitations.  The plaintiff argued that the statute of limitations had been tolled by virtue of the “continuing harm” doctrine, which provides that claims in the nature of a continuous tort may toll the running of limitations based on new occurrences over time.  The court discussed Maryland case law applying the doctrine, and found that “courts have consistently held that the continuing harm doctrine rests on a new affirmative act” and does not apply to a “continuing ill effect” of a prior act.  The court then concluded that the continuing harm doctrine did not apply under the circumstances of this case because the act causing the harm was the alleged moving of the mooring piles, which occurred sometime before the photograph taken in 1984, and that “leaving them in place is a continuing effect of that act.”  Ultimately, the court held that the plaintiff’s claims were barred by the statute of limitations, noting that the action was filed six years after the plaintiff allegedly became aware that the piles may have been moved, twelve years after the plaintiff attempted to berth his boat in the slip, and more than twelve years after he bought the condominium unit (and corresponding boat slip license).

The Court of Special Appeals next addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of laches.  The court noted that laches is an equitable doctrine intended to ensure fairness, and that it is “based upon grounds of sound public policy by discouraging fusty demands for the peace of society.”  The court also noted that, generally, “an action for declaratory judgment will be barred to the same extent that the applicable statute of limitations bars an underlying action in law or equity.”  The court concluded that the plaintiff’s claims were barred by the doctrine of laches because the mooring piles had been in place for thirty-five years and the only people who would have had definitive knowledge regarding when and if the piles had been moved (the developer and the person who initially bought the nineteen-foot-wide slip in 1983) had died before the suit was filed.

The Court of Special Appeals also addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of adverse possession or prescription.  The court noted that whether or not the doctrine applies to riparian rights is unsettled in Maryland.  Ultimately, the court, without concluding that the doctrine applied to the boat slip licenses at issue, held that the requisite period of adverse possession (i.e., twenty years) had not run.

Finally, the Court of Special Appeals addressed the Circuit Court’s imposition of sanctions against the plaintiff for discovery violations.  The court first noted that circuit courts have very broad discretion to determine whether sanctions should be imposed.  The court then outlined the factors that circuit courts should consider when deciding whether to impose sanctions (noting that the factors need not be analyzed on a compartmentalized basis), which factors include (1) whether the sanctioned violations were “persistent and deliberate”; (2) whether the discovery violation was technical or substantial; (3) the timing of disclosures made; (4) any reason for the violation; (5) the degree of evidentiary prejudice resulting from the violation; and (6) whether the resulting prejudice might be cured by postponement and the desirability of a continuance.  Applying these factors, the court affirmed the Circuit Court’s imposition of sanctions.

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.

Thursday, April 16, 2020

Clear Channel Outdoor, Inc. v. Director, Department of Finance of Baltimore City (Ct. of Special Appeals, Reported)


Filed: January 29, 2020

Opinion By:  Stuart R. Berger

Holding:  A Baltimore City ordinance that imposes an excise tax on outdoor advertising displays does not violate the right to freedom of speech guaranteed by the First Amendment of the Constitution or Article 40 of the Maryland Constitution.

Facts:  Clear Channel Outdoor, Inc. (“Clear Channel”) owns billboards in Baltimore City that it rents out to third parties.  The third parties pay Clear Channel fees to use the billboards to advertise.  In 2013, Baltimore City signed Ordinance 13-139 (the “Ordinance”) into law, which imposes an excise tax on advertising hosts who (1) own or control a billboard in Baltimore City and (2) charge fees for the billboard’s use as an outdoor advertising display.  The amount of tax (the “Tax”) levied on such advertising hosts depends on the size of the display and whether it is an electronic display.  Baltimore City enacted the Ordinance purely as a revenue-raising measure to lower property tax rates, increase infrastructure investment, and better manage Baltimore City’s pension and retiree healthcare liabilities. 

For the 2014 and 2015 fiscal years, Clear Channel paid the Tax for each year, but in February 2016, demanded a refund of its Tax payments.  When Baltimore City refused to issue a refund, Clear Channel appealed the denial in the Maryland Tax Court, alleging that outdoor advertising is a “constitutionally protected medium of speech under the First and Fourteenth Amendment and Article 40 of the Maryland Declaration of Rights” and that the Tax unconstitutionally restricts that speech.  Clear Channel also argued that heightened scrutiny applied to the Ordinance because the Tax “targeted a small group of speakers on the basis of their participation in such speech.”  Baltimore City argued that the Tax is an excise tax that does not implicate the First Amendment or Article 40 because it is “simply a tax on the privilege to charge fees.”  The Tax Court agreed with Baltimore City and affirmed Baltimore City’s denial of Clear Channel’s refund requests.  The Circuit Court for Baltimore City affirmed the Tax Court’s decision. 

Analysis:  The Court of Special Appeals of Maryland first determined that the Ordinance does not implicate the right to free speech because it is an excise tax that lacks sufficient communicative elements to invoke First Amendment protection.  Classified by the Baltimore City Council as an excise tax, the Tax is imposed on the billboard owners’ ability, or privilege, to charge third parties fees to use the billboards to display the third parties’ messages.  The Tax is only triggered when the billboard owner charges third parties a fee to host the advertisement; it is not triggered by the actual content of the advertisement. 

Because the First Amendment and Article 40 protect speech, including symbolic or expressive conduct, and not the privilege to receive financial compensation for displaying such symbolic or expressive conduct, the Court held that the Ordinance does not violate the First Amendment or Article 40.  Thus, the Court did not apply a heightened scrutiny to the Ordinance and instead analyzed it under a rational basis review.  The Court found that Baltimore City has a legitimate governmental interest in raising revenue, and the Ordinance is rationally related to such interest as the Ordinance does raise revenue for Baltimore City.  The Court accordingly affirmed the circuit court’s judgment and denied Clear Channel’s request for refunds.

The opinion is available in PDF.

Tuesday, March 31, 2020

Bayou Place Limited Partnership v. Alleppo’s Grill, Inc. (Maryland U.S.D.C.)


Filed: March 13, 2020

Opinion By:  Richard D. Bennett

Holding:  Under Texas law, while Hurricane Harvey has been recognized as an Act of God, Hurricane Harvey is not a legal excuse for failure to perform under a contract when the terms of the contract do not contain a force majeure clause.   

Facts:  Landlord, a Maryland limited partnership, brought suit against tenant, a Texas corporation, alleging continuing violations of a commercial lease agreement governing a property in Houston, Texas.  Tenant began to miss rent payments due under the lease beginning July 2017.  Hurricane Harvey made landfall in Houston in August 2017.  Harvey caused substantial damage to the property and the nearby theater district. 

Landlord provided notices of default from late 2017 through February 2018 and filed its complaint on September 14, 2018.  Tenant admitted receiving notice and failure to pay the entirety of its rent, while asserting several affirmative defenses and requesting declaratory judgement that “they be excused from certain obligations to pay rent due to Acts of God.”  Tenant argued that Hurricane Harvey was an Act of God that caused substantial damage and interference to the property and should excuse Tenant’s performance under the lease.  The Landlord moved for summary judgment. 

Analysis:

The Court applied Texas law to govern the breach of contract claim pursuant to the lease’s choice of law provision.  “An occurrence is caused by an act of God if it is caused directly and exclusively by the violence of nature, without human intervention or cause, and could not have been prevented with reasonable foresight.”  The Court recognized that Texas courts have found Hurricane Harvey to be an Act of God. 

The Court then discussed the interplay between an Act of God and a contract. “[A]n [A]ct of God does not relieve the parties of their [contractual] obligations unless the parties expressly provide otherwise.”  Further, “the scope and applicability of a force majeure clause depend on the terms provided in the contract.” 

“In other words, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.”  The Court summarized, “[i]f the contract does not contain a force majeure clause, ‘Act of God is not a legal excuse for failure to perform.’”  Because the lease did not include a force majeure clause, the Court found that Hurricane Harvey is not a legal excuse for Tenant’s failure to perform the contract.  Further, Tenant began to miss payments prior to Harvey. 

The Court also reviewed the following additional affirmative defenses raised by Tenant:  offset of payments, unconscionability of late fees and frustration of purpose. 

The opinion is available in PDF.

Connaughton v. Day (Cir. Ct. Mont. Co.)


Filed: December 9, 2019

Opinion by: Judge Anne K. Albright

Holding: Plaintiffs alleging securities fraud were denied class certification because, despite demonstrating commonality of questions of law and fact, they failed to show that joinder of approximately 35 putative claimants was impracticable or that their claims were typical or their representation adequate, given the variety in the source, nature of and reliance on information received by the plaintiffs and putative class members.

Facts: The four Original Defendants were individuals and entities accused of procuring investors for a Ponzi scheme run by three non-parties, the MLJ Group. The second amended complaint named 14 New Defendants and additional related claims.

Plaintiff’s Amended Motion for Class Certification requested certification of a class of all persons who invested in securities, in the form of promissory notes, by lending money to borrowers of the MLJ Group. The requested class excluded individuals who profited off the Ponzi scheme and those affiliated with any Defendant.

The Amended Motion was served via counsel on the Original Defendants, but there were no Affidavits of Service for the New Defendants. The Original Defendants responded to the Amended Motion and participated in prior discovery; the New Defendants did not do either.

Analysis: The Court held that the Amended Motion did not meet the threshold requirements of Maryland Rule 2-231(b). As to the first numerosity requirement, the Court accepted an Original Defendant’s estimate that the putative class would be made up of 35 members, and the Plaintiffs provided only conclusory arguments for why joinder would be impracticable. As to second requirement of commonality, the Court was satisfied that Plaintiffs identified seven common questions of law and fact.  

As for the third typicality requirement, some Plaintiffs were contacted regarding the transaction by a non-party accountant rather than a Defendant. Other putative class members contacted by the Defendants themselves did not receive scripted, uniform information. The variety in the sources of information, the information received, and the reliance on the information makes the Plaintiffs’ claims less typical.

As for the fourth adequacy requirement, because the Plaintiffs may have relied on statements of the non-party accountant rather than a Defendant, the named Plaintiffs cannot adequately represent the putative class. Additionally, the accountant is both a potential target of claims and putative class member. Thus, only one of the four threshold requirements of Maryland Rule 231(b) was met.

The Plaintiffs also failed to meet the requirements of Maryland Rule 2-231(c)(3). As for the predominance requirement, fraud claims are not normally susceptible to class treatment because there could be too much variety regarding the degree of reliance placed on representations. This appears to be case here given the role of the non-party accountant and the receipt of unscripted information, as discussed above. As for the superiority of class action requirement, considering the pre-set trial schedule, the fact that the New Defendants were not given a chance to address these questions, and that more time would not cure the other failings of the Amended Motion, Plaintiff’s argument fails.

Thus, Plaintiffs’ Amended Motion for Class Certification was denied.

The full opinion is available in PDF.

Sunday, March 29, 2020

Transamerica Premier Life Ins. Co. v. Selman & Co., LLC (Maryland U.S.D.C.)


Filed: July 9, 2019

Opinion by: Ellen L. Hollander

Holding:

The United States District Court for the District of Maryland denied a motion for failure to state a claim for (1) breach of contract, in light of ambiguous extrinsic evidence of intent to create a novation, and (2) unjust enrichment, where the existence of a contract governing the subject matter was in dispute.

Facts:

Plaintiff (“Insurer”) underwrote insurance products brokered and administrated by Defendant (“Agent”). Agent and Insurer’s business relationship eventually came to include products called TRICARE Supplements: voluntary plans offered to members of the military and their families that covered the various out-of-pocket costs not covered by the government-provided TRICARE health insurance program.

As Insurer and Agent transacted their insurance business together, three relevant sets of contracts came into being: one from 2002 (the “Original”), two acquired by assignment in 2014 (the “Acquired”), and a 2016 amendment to the 2002 agreement (the “Amendment”).

Under the 2002 Original agreement, Agent would administer and manage certain life and health insurance products, but the Original agreement’s language did not contemplate TRICARE supplement policies and lacked an exclusivity clause.

Pursuant to the 2014 Acquired agreement, Agent began to market, sell, and administer TRICARE Supplement policies in consideration of a portion of the premiums collected on those policies. In order to help Agent meet its contractual obligations, Insurer provided significant confidential and proprietary information (such as customer leads, records, risk analysis, performance results, and other non-public data). Agent and Insurer agreed to a confidentiality clause in order to protect this information, and to a narrow exclusivity clause with regard to the TRICARE Supplement policies marketed toward employers. An at-will termination clause allowed either party to terminate the Acquired agreement with 180 days' notice.

The 2016 Amendment reaffirmed the Original agreement but replaced the original fee schedule with a revised one that included the TRICARE accounts Agent had taken on since 2014. Two years passed.

In a November 2018 meeting, an Agent executive informed an Insurer executive about Agent's intent to move its TRICARE Supplement policies to one of Insurer’s competitors on January 1, 2019. Agent’s executive acknowledged the existence and enforceability of the exclusivity clause but implied that the provision only served to limit Insurer’s rights to underwrite coverage – not to limit Agent’s rights to move its business elsewhere.

Insurer promptly requested Agent cease and desist taking actions to transfer the policies, but Agent failed to comply. Insurer brought suit, alleging breach of contract (of the exclusivity and confidentiality clauses), anticipatory breach of contract (for failure to adhere to the 180-day notice requirement), and unjust enrichment (for taking Insurer’s data, services, and commission payments without consideration).

Agent moved to dismiss for failure to state a claim.

Analysis:

The court began by noting that in order to survive a Rule 12(b)(6) motion, the complaint must contain facts sufficient to state a claim to relief that is plausible at face value. Sufficiency required more than bald accusation or mere speculation, but less than detailed factual allegations: enough to suggest a cause of action even if the actual proof was improbable or recovery was unlikely. Accordingly, the court indicated the authenticity and import of the contract documents at issue and noted it would consider them at the 12(b)(6) complaint stage.

The court next evaluated whether the 2016 Amendment constituted a novation. If so, it would supersede the terms of the earlier Original and Acquired agreements, eliminating any language about exclusivity or confidentiality and mooting Insurer’s claims for breach of contract.

A novation forms a new contractual relationship and requires four elements: (1) a previous valid obligation, (2) agreement of the parties to the new contract, (3) validity of the new contract, and (4) the extinguishment of the old contract by substitution.

The court was ultimately unpersuaded that the parties had intended a novation because the contract text failed to clearly establish the parties’ intent to extinguish the 2002 Original and 2014 Acquired documents with the 2016 Amendment. The court considered the parties’ conflicting and ambiguous extrinsic evidence about their motivations for the 2016 Amendment to indicate lack of the requisite clear intent. In a light most favorable to Agent, the extrinsic evidence suggested an intent to keep separate and in force certain terms. Due to the conflicting extrinsic evidence, the court considered it premature (at the 12(b)(6) stage) to conclude that a novation could have occurred. Because the court declined to find a novation at this stage, Insurer had clearly stated a viable claim for breach of contract. The court separately noted that although Insurer had established sufficiency for its anticipatory breach claim, it would construe the count as one for breach of contract because the “anticipatory” relationship to January 1, 2019 had expired.

Finally, the court evaluated the unjust enrichment claim, explaining the general rule that no quasi-contractual claim for relief could arise where an actual contract existed. But a plaintiff is not barred from pleading such a theory in the alternative where existence of a contract was in dispute. At the 12(b)(6) stage, the court found it premature to conclude that one or the other or no contract language might govern the claim at issue. Accordingly, Insurer had met its burden of sufficiency for a claim of unjust enrichment.

The court denied Agent’s motion to dismiss in its entirety.

The full opinion is available in PDF.

Friday, January 10, 2020

Credible Behavioral Health, Inc. v. Johnson (Ct. of Appeals)



Filed: November 20, 2019

Opinion by: Judge Clayton Greene Jr.

Holding: On appeal, the circuit court must review the district court’s factual determinations for clear error and legal conclusions de novo.  Pursuant to a valid promissory note, an obligation to repay an employer-provided tuition loan exists whether the employee is fired or quits.

Facts:

Petitioner (“Employer”) offered a tuition loan program to its employees in an effort to both cultivate professional development and incentivize employee retention. Under this program, Employer agreed to provide tuition payments toward undergraduate, graduate, or post-graduate programs in the form of a loan to the participating employee. Upon completing their study, the employee might have to repay Employer the full cost, some percentage, or enjoy loan forgiveness depending on how long they remained at the company.

Respondent (“Borrower”) was in the service of Employer in 2016 and entered into its tuition loan program that year. Borrower signed an unsecured promissory note which stated in relevant part:
1. Principal Repayment: (a) The principal balance of the Loan plus all accrued interest thereon shall be due and payable in accordance with the following schedule:
(i) If you terminate employment with the Company within 12 months following achievement of the degree, 100% of the loan;
(ii) If you terminate employment with the Company after the 12 month anniversary but on or before the 24 month anniversary following achievement of the degree, 75% of the Loan;
(iii) If you terminate employment with the Company after the 24 month anniversary but on or before the 36 month anniversary following achievement of the degree, 50% of the Loan;
(iv) If you terminate employment with the Company after the 36 month anniversary following achievement of the degree, 0% of the Loan;
The appropriate percentage of the Loan… shall be due and payable 90 calendar days after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever…
Employer loaned Borrower $12,529 under the tuition loan program, but terminated him in December 2017. At that time, Borrower had not yet acquired his degree. Employer and Borrower entered into a repayment plan under which Borrower made one payment in February 2018 and no further payments.

Employer’s attorneys issued a demand letter in April 2018 for full payment of the loan balance by May 2018. Receiving no subsequent payments, in June 2018 Employer sued Borrower in the District Court of Maryland sitting in Montgomery County.

The court found in Borrower’s favor, reasoning that the amounts under the repayment plan only became due if Borrower quit because the provisions within 1(a) were inconsistent: subsections 1(a)(i)-(iv) applied where an employee quit while the paragraph following applied where an employee was terminated. Without a basis to determine how much Borrower owed, the trial judge found the inconsistency should go against the party who drafted the contract.

On appeal, the Circuit Court for Montgomery County found the lower court not clearly erroneous in its interpretation and affirmed the judgment.

Employer subsequently sought and received a writ of certiorari.

Analysis:

Three questions lay before the court: (1) whether the appellate court correctly applied Md. Rule 7-113(f) when it reviewed the trial court’s contract construction for clear error rather than de novo, and (2) whether the plain terms of the contract entitled Employer to a judgment against Borrower, and (3) whether Maryland law required the appellate court to choose one of two possible readings of the contract consistent with the parties’ intent.

The court began by referencing both statute (Md. Rule 8-131(c)) and case law (Friendly Finance v. Orbit, 378 Md. 337, 342-43 (2003)) to delineate the standards of review under Md. Rule 7-113(f): judgments of a bench trial court on the evidence should not be set aside unless clearly erroneous, but the trial court’s conclusion, interpretation, or application of law must be reviewed de novo.

Contract interpretation is a clear example of a legal determination and therefore subject to de novo review. Therefore the appellate court improperly applied Md. Rule 7-113(f) in failing to review the trial court’s promissory note interpretation anew.

Accordingly, the court began a de novo review. The basic dispute centered about whether an obligation to repay existed depending on whether an employee was fired or had quit. The court found the language of 1(a) to have two contrary interpretations: an obligation to repay in both situations (fired or quits), or an obligation to repay only where the employee quits.

Examining the promissory note’s text, the court inquired into the intent of the parties by determining from the language of the agreement what a reasonable person would have meant at the time. The promissory note’s preamble communicated that “…[Borrower] unconditionally promises to pay…the aggregate principal…with all accrued and unpaid interest thereon.” The paragraph following 1(a) also clearly constituted an obligation to repay the loan: “The appropriate percentage of the Loan set forth above, plus all accrued interest thereon shall be due and payable (i) ninety (90) calendar days after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever…” The subsections 1(a)(i-iv) merely determined the amount owed based on the employee’s tenure after attaining his degree.

Finding the conditions of 1(a) meaningful although awkwardly worded, the court could see no substantive indication that the amount owed should become due only where an employee unilaterally ended his employment. Because both parties had stipulated to the promissory note’s clarity (lack of ambiguity), the court declined to construe its terms against the drafter.

Finally, the court reminded that Maryland courts consistently strive to interpret contracts in accordance with common sense, and that the lower courts’ interpretation ran contrary to common sense because of the resulting disparate treatment of employees based on whether they were fired or voluntarily quit. In the nonsensical construction, a fired employee received loan forgiveness while the employee who quit kept his obligation. If this construction controlled, an employee who wanted to leave Employer and shirk his promissory note obligation could simply act in a manner that would compel the company to fire him.

Reversing the appellate court’s decision, the court determined its interpretation – that the parties intended the tuition loan to be repaid regardless of whether the employee quit or was fired – to be reasonable, in accord with a common sense approach, and with an effect of harmonizing the substance of the various sections of the promissory note.

The full opinion is available in PDF.