In the Matter of the Application of Cedar P. Carlton (Maryland U.S.D.C.)

Filed: April 26, 2010
Opinion by Judges Deborah K. Chasanow, Peter J. Messitte, and Roger W. Titus

Held: If an attorney is a member in good standing of the highest court of a state (or the District of Columbia) and the attorney's firm has its principal physical location in that state, the attorney satisfies the requirements of Local Rule 701.1(a), even though the attorney personally resides in a distant state.

Analysis: Local Rule 701.1(a) provides that “in order for an attorney to be qualified for admission to the bar of this district, the attorney must be, and continuously remain, a member in good standing of the highest court of any state (or the District of Columbia) in which the attorney maintains his or her principal law office, or the Court of Appeals of Maryland.”

Ms. Carlton maintained her residence in Cambridge, Massachusetts. She was employed by a law firm that had its principal office in the District of Columbia, but spent most of her time working from home or from an office space in Boston. While physically living in Massachusetts she did not practice in Massachusetts, does not have any clients based in Massachusetts or with claims in Massachusetts, and while she utilized rented office space in downtown Boston during the first year, she only used that office to practice law in the District of Columbia, this Court, and before the United States Court of Federal Claims. As of July 15, 2008, her firm stopped renting the office and thereafter she worked only from her home office in Cambridge.

From her home in Cambridge, she accesses a computer in the Washington, D.C. office of the firm that is designated for her use. She is thus able to use the firm’s computer network and access all programs used by the firm’s attorneys, including the internal firm email and firm time-keeping program. Thus, even though she is physically located in Cambridge, Massachusetts, she works off of a computer and server located in Washington, D.C., and, just as when she physically worked in Washington, D.C., all of her correspondence is sent to the Washington, D.C. address and forwarded to her by the firm’s office staff. Clients communicate with her by calling the firm’s Washington, D.C. phone number which forwards those calls to her in Cambridge in the same manner as would be the case at an extension in the District of Columbia office. All of her outgoing client correspondence is sent from the D.C. office, and all court pleadings are also prepared for filing and filed from the District of Columbia office, unless she is filing a pleading electronically which she can do from Cambridge. Finally, she only meets with clients when she is in Washington, D.C., and she has traveled there several times over the past year to complete large projects and meet with clients.

The Court reviewed the six (6) non-exclusive factors enumerated in the Local Rule for making a determination of the principal law office of an attorney. The Court noted that:

In recent years, the concept of a “principal law office” has evolved somewhat as a result of significant advances in technology which provide an attorney with the flexibility to carry out a variety of activities at different locations and under varying circumstances. The term does not necessarily mean continuous physical presence but, at a minimum, it requires some physical presence sufficient to assure accountability of the attorney to clients and the court. Under the circumstances described by Ms. Carlton, there can be no question that for purposes of malpractice insurance coverage, tax obligations and client security trust fund obligations, her office is the office of her employer. In addition, the address utilized in pleadings, correspondence with clients, letterhead and other matters is also the address of her employer, which maintains a substantial physical presence in Washington, D.C. When meetings with clients are required, Ms. Carlton does meet with them in Washington, D.C. Her client files, accounting records and other business records, library and communication facilities such as telephone and fax service are all located in Washington, D.C. although, by virtue of advances in technology, she is able to access them remotely from Cambridge, Massachusetts.

Finally, the Court concluded that:

Taking into consideration all of the circumstances described above, the Disciplinary and Admissions Committee has concluded that Ms. Carlton meets the requirements of Rule 701.1(a) and that her principal law office is in Washington, D.C. in accordance with the letter and spirit of Rule 701.1(e).

The full opinion is available in PDF. The opinion has been approved for publication.

Alcoa Concrete & Masonry, Inc. v. Stalker Brothers, Inc. (Ct. of Special Appeals)

Filed: March 31, 2010

Opinion by Judge Lawrence F. Rodowsky

Holding: An unlicensed contractor is entitled to be paid under a home improvement agreement with a contractor, regardless of the requirement that contractors must be licensed under the Maryland Home Improvement Law. The statute was intended to protect the public under contractor-owner contracts, not contractors who enter into arms-length agreements with knowledge of the subcontractor’s professional qualifications.

Analysis: In deciding a dispute to determine whether a home improvement general contractor is contractually obligated to pay a subcontractor who was not licensed under the Maryland Home Improvement Law (the “Act”) at the time of entering into the subcontract, but who was licensed when the suit was brought, the Court found that it is not a reasonable construction of the statute to allow a contractor to withhold payment on the grounds that a subcontractor previously was unlicensed (but is licensed at the time payment is due). Section 8-315(a) of the Act, which prohibits payment by contractor to subcontractor “unless the person to be compensated is licensed” does not bar payment to a subcontractor licensed at time of suit.

Applying the “revenue/regulation rule,” the Court distinguished between the owner-unlicensed contractor home improvement contract (the contractual relationship covered by the Act) and the contractor-unlicensed subcontractor contract, and found that the purpose of the requirement that contractors and subcontractors be licensed is to protect the public. As such, the Act was not intended to be a shield for contractors to escape liability for the unpaid balance due to a subcontractor by asserting the illegality of the subcontract.

The full opinion is available in PDF.

Allen v. Dackman (Ct. of Appeals)

Filed: March 22, 2010
Opinion by Judge Clayton Greene, Jr.

Held: An individual member of an LLC may be exposed to personal liability if he commits, inspires or participates in a tort. In addition, under the Baltimore Housing Code, an individual member of an LLC that owns a residential property may be subject to personal liability for violations of the Code as an "owner", as the term is defined, if he has "control" over the title, notwithstanding the liability shield of the LLC.

Facts: An LLC acquired a property in Baltimore City in order to sell it and turn a profit. At the time of purchase, the LLC was unaware that prior renters remained on the property. The LLC later became aware of the prior renters and requested that they vacate the premises. The prior renters did not comply and eventually had to be forcibly removed from the premises.

Two young children lived with the prior renters. They suffered elevated blood-lead levels, allegedly caused by lead paint on the premises, both before and after the LLC acquired the property. The plaintiffs filed a complaint against both the LLC and an individual that was a member of the LLC (the “Individual”), alleging a negligence action based on violations of the Baltimore City Housing Code.

The Individual filed a motion for summary judgment, arguing that he could not be held personally liable as a matter of law because his only involvement with the property was through the LLC. The trial court granted the motion, and the plaintiffs appealed to the Court of Special Appeals. The court affirmed the judgment of the trial court, and the plaintiffs appealed to the Court of Appeals.

Analysis: In a 5-2 decision, the Court of Appeals reversed, holding that a jury could have found the Individual personally liable. While an LLC member is generally not liable for torts committed by the LLC, the court stated that such a member could be liable if it committed, inspired or participated in the tort. The court held that because the Individual managed the LLC’s day-to-day affairs, a jury could have found that the Individual personally participated in the LLC’s decisions regarding the alleged negligent maintenance of the property. According to the court, such participation would permit personal liability for the Individual.

An additional issue on appeal was whether the Individual could be considered an "owner" under the Housing Code. Compliance with the Housing Code is only the responsibility of owners. The court ultimately held that a jury could have found that the Individual was an owner and so summary judgment was inappropriate. In so holding, the court stated the definition of owner under the Housing Code includes those who "control" title to a dwelling and it was a question for the jury whether the Individual had control, notwithstanding that the LLC owned the title.

The full opinion is available in PDF.

JLB Realty, LLC v. Capital Development, LLC (Maryland U.S.D.C.)

Filed: March 3, 2010
Opinion by Judge Benson Everett Legg

Holding: Purchaser was not equitably estopped from terminating contract for the purchase of real estate and receiving return of earnest money deposit, nor did it breach the contract’s implied covenant of good faith and fair dealing, when it gave termination notice to the Seller in accordance with the parties' agreement and expenses incurred by the Seller were not incurred until after the Purchaser had already delivered to the Seller its termination notice.

Facts: The parties entered into a contract for the purchase of real estate in Baltimore, Maryland, which afforded the Purchaser a right to terminate the contract and secure the return of its earnest money if the purchaser discovered a blemish on the title during the review period.

The Purchaser discovered a blemish on the title within the discovery period – a Land Disposition Agreement (LDA) with the City of Baltimore, which limited development of the real estate to not more than 30 dwelling units per acre. The Purchaser and Seller agreed that the LDA was cause for the Purchaser to terminate the contract, but further agreed that the Seller would have 45 days to negotiate a release of the LDS with the City and that the Purchase had the right to terminate the Contract by written notice to the Seller at any time before a release of the LDA was executed and recorded.

The Seller was unable to negotiate a release of the LDS and the Purchaser determined that it would either exercise the 45 day termination right or, if the parties could agree, proceed under a revised agreement that included substantial modifications to the initial transaction. The parties acknowledged from that point forward that the original agreement was defunct.

The parties were unable to negotiate any further agreements and the Purchaser provided the Seller with written notice of termination.

The Seller refused to return the earnest money and Purchaser sued and filed a Motion for Summary Judgment. The Seller opposed.

Analysis: No reasonable jury could conclude that the Seller considered the original deal to be in full force and effect, or that the Purchaser intended to pursue the deal as laid out in the initial contract. Further, the Seller’s alleged detriment - $400,000 paid to the City to release the LDA – was not incurred until after the Purchaser terminated the contract.

Moreover, no breach of the implied duty of good faith and fair dealing can occur where the matter is covered by an express contract clause. It was undisputed that the First Amendment to the contract gave the Purchaser the right to terminate the contract if the LDA had not been released within 45 days. It was clearly understood and acknowledged by the parties that the original agreement was defunct. At no time after the expiration of the 45 day period did the Purchaser ever represent that it intended to waive its right to terminate and proceed with the original deal.

For the full opinion PDF.

Tri-County Unlimited, Inc. v. Kids First Swim School, Inc. (Ct. of Special Appeals)

Filed: March 31, 2010.
Opinion by Judge Alexander Wright, Jr.

Held: A complaint filed by a forfeited corporation is a nullity, even if the corporation’s charter is subsequently revived.

Facts: A forfeited corporation filed a complaint. The defendant brought a motion to dismiss, asserting that the corporation lacked capacity to bring suit because its charter had been forfeited. The trial court granted the motion to dismiss even though the charter had been revived prior to the filing of the motion.

Analysis: The Court of Special Appeals affirmed, holding that the revival of the charter did not restore the lawsuit. In so holding, the court noted that other Maryland decisions have made clear that a complaint filed by a forfeited corporation is a legal nullity. The fact that a corporation’s right to sue is restored when a charter is revived does not imply that prior invalid lawsuits are somehow restored as well.

The full opinion is available in PDF.

Antonio v. Security Services of America, LLC (Maryland U.S.D.C.)

Filed: March 31, 2010
Opinion by Judge Alexander Williams, Jr.

Held: (1) Parent of a company is not a proper party to suit against its subsidiary in Maryland under the corporate veil piercing doctrine due to the absence of a showing of fraud or a necessity to enforce a paramount equity; (2) Predecessor of a company is not a proper party to suit against its successor where there is no causality between the acts of the predecessor and the individual defendants; (3) Summary judgment granted to Corporate Defendants on breach of contract claim brought against them because Plaintiffs were not third party beneficiaries of the contract between security company and community developer; (4) Corporate Defendants held not liable for the acts of employee who took part in committing crime; (5) Summary judgment granted to Corporate Defendants on Fair Housing Act claim, claim for violation of 42 USC §1982(3), tortious interference with contract claim, and claim for intentional infliction of emotional distress ("IIED").

Facts: The case arises out of an arson incident on December 6, 2004 where five men conspired to burn mainly minority-owned homes in Hunters Brooke, a neighborhood in Charles County, Maryland. The thirty-two Plaintiffs in this case are individuals who owned or had contracted to purchase homes in Hunters Brooke. The Plaintiffs sued the individual defendants (who have all already been found guilty or pled guilty to felony criminal charges arising from their participation in the arson), and corporate defendants SSA Security, Inc. ("SSA, Inc."), the security guard company, its parent ("ABM"), and its predecessor ("SSA, LLC") (collectively, the "Corporate Defendants") on allegations of violations of the Fair Housing Act, Maryland Fair Housing Law, 42 USC §1982, 42 USC §1985(3), and claims of tortious inference with contract and IIED. Additionally, the Plaintiffs sued the Corporate Defendants for negligence in hiring, training, and supervision, negligence, violations of the Maryland Business Occupations and Professions Code, and breach of contract. The additional counts against the Corporate Defendants arise out of the hiring and employment by SSA, Inc. of two of the individual defendants as security guards to work at Hunters Brooke during the time of the arson.

Analysis: The Court began with a corporate veil piercing analysis to determine whether ABM, the parent corporation of SSA, Inc., was a proper party in the case. Unlike other states where showing a high level of control by the parent over the subsidiary is sufficient, Maryland is more restrictive; the corporate entity will only be disregarded when it is "necessary to prevent fraud or to enforce a paramount equity." In Maryland, the application of a control or instrumentality exception does not apply. The Plaintiffs were successful in showing ABM's control over the operations of SSA, Inc. considering the following: (1) ABM owned 100% of the voting securities in SSA, Inc., (2) SSA, Inc. does not hold annual board meetings, keep corporate minutes, or conduct its own audits, and (3) all but one of SSA, Inc.'s officers are ABM's officers. Therefore, if the case had arisen under another state's laws that accepts the control or instrumentality exception to the corporate veil doctrine, the level of control would be sufficient to justify piercing the corporate veil.

In Maryland, however, liability cannot be attached absent a showing of fraud or necessity to enforce a paramount equity, which does not exist in this case. Plaintiffs argued that ABM is directly liable and therefore there is no need to pierce the corporate veil considering ABM involved itself in the daily operations of its subsidiary, including contracting, training, and rehiring employees. The Court disagreed, and applied the veil piercing doctrine to hold that ABM was not a proper party to the suit because Plaintiffs failed to show or plead fraud or a similar inequity.

The Court also agreed with the Corporate Defendants that SSA, LLC, the predecessor to SSA, Inc. was not a party to the case because it cannot be held directly liable for its hiring and training of the two individual defendants who committed the crimes. SSA, LLC originally hired the two defendants, but the defendants were terminated and forced to reapply for positions with SSA, Inc. The Court held that the facts do not indicate that SSA, LLC was involved with the Hunters Brooke property at the time of the incident and that all potential issues of vicarious liability should be directed at SSA, Inc. In Maryland, a successor may be liable for allegations of misconduct against its predecessor that ripen into findings of liability because a successor is on notice that these allegations exist. However, no such notice could exist for a predecessor to be aware of future bad acts by a successor. The rehiring of the individual defendants by SSA, Inc. breaks any possible chain of causality for SSA, Inc. and it is therefore not a proper party to the suit.

The Court also granted the Corporate Defendants summary judgment on the breach of contract claim. The contract in question is the oral or implied one between the developer of the neighborhood and SSA, Inc. (there was no written contract in place). Plaintiffs argue that they are third parties beneficiaries of that contract. In Maryland, to recover for breach of contract as a third party beneficiary, a person must first demonstrate that the contract was intended for his benefit and it must clearly appear that the parties intended to recognize him as a primary party in interest and as privy to the promise. Without clarity that the contract was intended for the benefit of that person, the person is only an incidental beneficiary who cannot recovery for breach of contract. In this case, the Court held that the primary purpose of the contract was to protect the Hunters Brooke construction site at night from intruders. Even though the Plaintiffs have a vested ownership interest in the homes and therefore had some benefit from that protection, this benefit is not enough considering the developer was the primary beneficiary of the contract between SSA, Inc. and the developer.

The Court further granted partial summary judgment to the Corporate Defendants for alleged violation of Maryland Business Occupations and Professions Code Section 19-501 (licensing of security guard agencies) claim. After reviewing the legislative history and other considerations related to the statute, the Court held that the statute holds employer security guard agencies liable for acts of employees consistent with common law principles of vicarious liability, rather than strict liability for any acts committed by their employees while on duty. To determine whether the Corporate Defendants are liable under the statute, the Court will assess common law rules of vicarious liability by looking to see whether the employees acted within the scope of their employment or that SSA, Inc. ratified their actions.

Lastly, the Court granted summary judgment to the Corporate Defendants for claims under the Fair Housing Act and other civil rights statutes dealing with anti-discrimination (for failure to present evidence that the Corporate Defendants should be held directly or vicariously liable for violating these civil rights statutes), claim for IIED (for failure to find intentional or reckless conduct), and tortious interference with contract (for failure to establish intentional conduct).

The full opinion is available in PDF.

The Gabelli Global Multimedia Trust Inc. v. Western Investmnet LLC, et al. (Maryland U.S.D.C.)

Filed: April 1, 2010.

Opinion by Judge Richard D. Bennett.

Held: A closed-end fund registered under the Investment Company Act does not have standing to assert a private cause of action under sections 12(d)(1)(A) and 48(a) of the Investment Company Act of 1940.

Facts: Plaintiff, a closed-end fund, sued Defendants, alleged arbitrageurs, contending the Defendants breached the anti-pyramiding provision of the Investment Company Act of 1940 by illegally acquiring Plaintiff's voting stock and threatening to use the voting power in a proxy contest at Plaintiff's next shareholders' meeting. The anti-pyramiding provision is designed "to prevent a registered investment company from controlling other investment companies and creating complicated pyramid structures."

Defendants moved to dismiss. Both parties argued whether Plaintiff had standing to assert private causes of action under sections 12(d)(1)(A)(i) and 48(a) of the Act.

Analysis: In order to find the Plaintiff had standing, the Court must determine whether the statute displayed an intent to create both a private right and a private remedy. First, the statutory language must contain "rights-creating" language. Second, if such language is present, the Court must then interpret "whether the statute's remedial scheme entrust[s] government agencies or private parties with primary responsibility for statutory enforcement." See Alexander v. Sandoval, 532 U.S. 275 (2001).

Plaintiff argued that since the language of 12(d)(1)(A) focuses on the company whose shares are being targeted for purchase, the Plaintiff falls within the protected class and therefore has standing. The Court disagreed, finding the Act to protect individuals who invest in investment companies rather than the investment companies themselves. The Court found Plaintiff's argument to assume that an investment company would always resist another company's attempt to acquire an interest in the investment company. Yet, 12(d)(1)(A) prevents all inter-fund investments beyond certain levels, not merely hostile acquisitions.

The Court also addressed whether an individual investor has a right to bring a private cause of action under the provisions. The Court noted that while there is an initial focus on the individual, the remainder of the language imposes regulations upon investment companies. Also, following the second part of the analysis, the enforcement scheme is designed for the SEC alone.

The Court noted the distinction between relying on cases pre- and post-Sandoval when analyzing whether standing to assert a private cause of action is present.

The opinion is available in pdf.

In Re Microsoft Corp. Antitrust Litigation, Novell, Inc. v. Microsoft Corp. (Maryland U.S.D.C.)

Filed: March 30, 2010.

Opinion by Judge J. Frederick Motz.

Held: Disposing of the remaining claims in multi-district litigation against Microsoft, the Court held that the plaintiff was not entitled to assert the claims because it had transferred them: a contractual clause that assigns claims "associated directly or indirectly" with operating systems encompasses claims based on alleged harm to related software applications.

Facts: Two claims remained in plaintiff's assertion that defendant violated the Sherman Act. The Court found two questions to answer upon cross-motions for summary judgment, (1) did plaintiff own the claims it was asserting, or had they been transferred to another party under an asset purchase agreement and (2) if plaintiff still owned the claims, are the claims viable under the Sherman Act.

The Court previously ruled that plaintiff did not assign the claims because those claims focused on harm suffered by the "software applications, not upon harm suffered by the operating systems."

Analysis: The Court looked to the asset purchase agreement to determine whether the claims were transferred. Applying Utah law, per the agreement, the Court overruled its prior ruling because the agreement did not mention harm. Instead, the agreement used the term "associat[ion]." As there was no ambiguity in the language of the agreement, the Court found all claims "associated directly or indirectly" with the operating system, including the claims involving the software applications, transferred. Thus, the second issue was rendered moot.

Alluding to the procedural length of the litigation, the possibility of both an appeal and an appellate court disagreeing with the Court's conclusion, the Court analyzed the second issue. The Court found the claims would have been viable under the Sherman Act had they not been assigned.

The opinion is available in pdf.