Thursday, May 27, 2010

Corona Fruits & Veggies, Inc. v. Class Produce Group, LLC (Maryland U.S.D.C.)

Filed: May 25, 2010

Opinion by Judge Richard D. Bennett

Held: On an appeal from the Secretary of the US Department of Agriculture (“USDA”), the United States District Court for the District of Maryland denied Petitioner’s request to remand the case to a California State court for a number of reasons (including, but not limited to, res judicata and lack of authority) and granted Respondent’s motion for summary judgment because there was no genuine issue of material fact since the Petitioner made the same arguments in the USDA hearing.

Facts: This case is about strawberries, trucking, pulp temperatures and rejected produce. Petitioner is an owner of strawberry farm in California and entered into a contract with the Respondent, who is a distributor, for the sale of flats of strawberries. The Petitioner packaged the strawberries and loaded them on a truck operated by a third party carrier at its place of business in California for shipment Free-on-Board, and informed the carrier that the strawberries must be kept in an environment cooled to a temperature of 32 degrees Fahrenheit. The Respondent initially routed the carrier to a large third party retailer in Virginia who rejected the strawberries upon arrival.

The shipment was then re-routed to Respondent’s location in Jessup Maryland. Upon arrival, a USDA inspection was performed on the strawberries while they were on the truck and the inspection found 24% of the strawberries were in a defective condition. Based on these results, the Respondent rejected the strawberries. The Petitioner, however, upon learning of the rejection, notified the Respondent that the strawberries were hot and that the Respondent had a claim against the carrier rather than the Petitioner.

After its rejection, the Respondent routed the shipment to a retailer located in Philadelphia, which accepted the shipment at a reduced price. The Respondent never paid for any of the strawberries, nor did it receive any of the sale proceeds collected by retailer in Philadelphia.

Subsequently, the carrier sued the Petitioner in California state court for failure to pay the transportation costs; and the Petitioner filed an informal complaint with the USDA seeking reparations for the rejected strawberries. The Petitioner also filed a cross-complaint against the Respondent in the California state court for its failure to pay for the strawberries.

The USDA Secretary ruled that the Respondent was not liable to the Petitioner because the Petitioner failed to ship strawberries in suitable shipping condition. The Petitioner appealed the USDA Secretary’s ruling in the US District Court for MD and the California state court action was stayed pending a final ruling.

Analysis: With respect to Petitioner’s request to remand the case to the California state court where its cross claim was filed against Respondent, the Court denied the Petitioner’s motion. The Petitioner argued that the Court should remand the case to the California state court because it was within the Court’s “inherent prudential authority and the “the abstention doctrine” to remand the case so it could be consolidated with the California state case, and argued, that if the remand was denied, that the Court should adopt the discovery conducted and certain evidentiary sanctions that were imposed on the Respondent in the state court case.

In denying the Petitioner’s request, the Court determined that: (i) since the California court did not originate the case, the Court could not remand the case to the California court, (ii) there were no exceptional circumstances in the case that would compel the Court to decline to exercise its jurisdiction pursuant to any abstention doctrine, and (iii) there were no convincing reason for the Court to adopt the discovery rulings issued in the separate state court action. After making such determinations, the Court determined that the matter was properly before the Court and that the Petitioner had chosen to pursue redress through the USDA process rather than the completion of the state court proceeding, and that the resolution of the matter through the USDA process will result in res judicata as to the California state court action.

With respect to the Respondent’s motion for summary judgment, the Court granted the motion because the Petitioner failed to demonstrate a material issue of fact regarding the cause of the strawberries’ defective condition. Petitioner argued that it satisfied contractual obligations by ensuring that the strawberries were in suitable shipping condition at the time they were loaded in the truck, and maintained that the carrier should be responsible for their condition. Respondent alleges that the strawberries were in poor condition prior to being loaded onto the truck because they were overripe or otherwise damaged during the harvesting.

In the USDA hearing, the USDA ruled that the Petitioner bore the burden of showing both that the strawberries were in a suitable shipping condition at the time they were loaded and that the transportation conditions were abnormal. The USDA held that the strawberries were defective before loading even though the temperatures in the truck fluctuated during transport.

The Court reasoned that Petitioner’s declarations submitted by the Petitioner’s principles following the USDA hearing regarding the shipping of strawberries in general did not establish a genuine dispute regarding the condition of the strawberries during shipment. The Court found no material factual disputes from the Secretary’s original finding of fact, which is prima-facie evidence of the same on appeal, that the temperature conditions in transit did not adversely impact the strawberries. The Court also held that the Petitioner did not provide any evidence that the strawberries were properly handled prior to loading, and consequently, ruled in favor of the summary judgment motion since there was no genuine issue of fact existed as to the condition of the strawberries.

The full opinion is available in PDF.

Tuesday, May 25, 2010

Dickerson v. Longoria, et al. (Ct. of Appeals)

Filed: May 24, 2010

Opinion by Judge Clayton Green, Jr.

Held: Under general agency principles, agent did not have the requisite authority to bind principal to arbitration agreement. Trial court reversed.

Facts: Estate filed medical malpractice claim against nursing home. The nursing home sought to compel the estate to arbitrate the medical malpractice claim based on an arbitration agreement that was signed by the decedent’s agent when the decedent was admitted to the facility. The estate argued that it was not bound by the arbitration agreement. The circuit court found that the decedent not only knew that his agent acted on his behalf, but more importantly, he expected the agent to act for him and acquiesced to the agent’s decisions. Accordingly, the circuit court held that the agent signed the arbitration agreement while acting as decedent’s agent and the estate was therefore bound by the arbitration agreement.

Analysis: The Court held that Decedent’s agent did not have actual or apparent authority to bind the estate to the arbitration agreement. The agent was given authority to make healthcare and financial decisions on the decedent’s behalf. The decision to sign the arbitration agreement was not such a decision; instead, it was primarily a decision to waive the decedent’s right of access to the courts and his right to a trial by jury. The decision to sign a free-standing arbitration agreement is not a health care decision if the patient may receive health care without signing the arbitration agreement. In such a case, as here, the decision primarily concerns the legal rights of the patient with respect to resolving legal claims. The arbitration agreement explicitly stated that “the execution of this arbitration agreement is not a precondition to the furnishing of services to the Resident of the facility.” Accordingly, the agent’s decision to sign the arbitration agreement was not a health care decision and was therefore outside the scope of her actual authority. Further, there was no evidence of apparent authority conferred upon the agent as the decedent was not aware of the arbitration agreement when he was admitted to the facility.

In addition to general agency principles, the estate was not bound by the arbitration agreement as a third-party beneficiary, nor under the theories of equitable estoppel and unclean hands.

The estate could not be a third-party beneficiary to the arbitration agreement because, for the reasons cited above, the agreement was never actually formed. And, even if there was an enforceable arbitration agreement, a third-party beneficiary is bound only to the extent that it seeks to enforce the agreement. Here, the estate was suing for medical malpractice, which was separate and apart from any rights that would have been granted by the arbitration agreement.

The theories of equitable estoppel and unclean hands are equally inapplicable. The nursing home could not articulate any way in which it changed its position for the worse based upon the agent’s assertion that she was acting on the decedent’s behalf when she signed the arbitration agreement. Further, the nursing home did not assert any improper conduct by the agent.

The full opinion is available in PDF.

Custom Direct, LLC v. Wynwyn, Inc. (Maryland U.S.D.C.)

Filed: May 4, 2010.

Opinion by: Judge Richard D. Bennett.

Held: Reaffirming that a plaintiff who is a business competitor of a defendant is not a "consumer" with standing to bring a claim under the Maryland Deceptive Trade Practices Act, Md. Code Ann., Comm. Law § 13-301, et seq. ("MDTPA") and holding that the maintenance of a passive Internet website that merely makes information available to viewers located in Maryland who may be interested in it is insufficient to establish personal jurisdiction over a non-resident defendant.


Plaintiff is one of the top manufacturers and suppliers of business and personal checks in the United States. After Defendant’s contract to perform Internet marketing for Plaintiff expired, Plaintiff alleges, Defendant continued to use Plaintiff’s trademarks to attract customers to Plaintiff’s competitors. Accordingly, Plaintiff sued Defendant for trademark and copyright infringement under the Lanham Act and the Maryland Deceptive Trade Practices Act and for unfair competition under common law.

Plaintiff also brought claims against a co-defendant, who is a full-time college student, living in Minnesota, who is not an employee of Defendant, and who has never resided in Maryland. This Co-Defendant after the contract expired maintained a website that offers products that compete with Plaintiff. While under contract with Plaintiff, Co-Defendant directed from his website potential customers navigating on the web (including those residing in Maryland) to the Plaintiff’s website and he received referral fees for any successful transactions between Plaintiff and a referred internet user. The Co-Defendant did not sell anything to Maryland residents.


Initially, the Court determined that Plaintiff was not entitled to recover statutory copyright damages, enhanced or punitive damages and attorneys’ fees under the Copyright Act because Plaintiff’s copyright registration did not predate the date of first infringement.

Next, the Court held that Plaintiff lacked standing to bring a claim under the MDTPA. In particular, the Court reaffirmed the holding in Penn-Plax, Inc. v. Schultz, Inc., 988 F. Supp. 906 (D. Md. 1997), which rejected the argument made by the Plaintiff that the MDTPA’s definition of “person” gives corporate plaintiffs standing to sue under the MDTPA. Because the statute expressly limits standing to consumers, the MDTPA claim was dismissed.

The Court also dismissed all claims against the Co-Defendant for lack of personal jurisdiction. The Court held to exercise personal jurisdiction over a non-resident: two conditions had to be satisfied: (1) jurisdiction must be authorized under the State’s long-arm statute, and (2) the exercise of jurisdiction must comport with due process. In order to comport with due process, a non-resident Defendant must have sufficient “minimum contacts” with the forum state so that it “does not offend traditional notions of fair play and substantial justice” before a MD has personal jurisdiction over a non-resident.

To support jurisdiction, Plaintiff had to show that the Co-Defendant: “'(1) direct[ed] electronic activity into the State, (2) with the manifested intent of engaging in business or other interactions within the State, and (3) that activity create[d], in a person within the State, a potential cause of action cognizable in the State's courts.'” (quoting ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 714 (4th Cir. 2002)). Passive internet activity, which does little more than make information available to those who are interested in it, does not satisfy the first or second elements of the ALS Scan test.

Applying this rule, the Court found no evidence that the Co-Defendant’s website targeted customers in Maryland, or that it was anything but passive in nature. Because any commissions the Co-defendant made arose from a consumer purchasing goods from the Plaintiff after linking from the Defendant’s site to Plaintiff’s, the Defendant was doing nothing more than making information available to persons interested in it. The Co-Defendant had no active or direct relationships with any of Plaintiff's purchasers and had even signed an agreement with the Plaintiff that prohibited the Co-Defendant from engaging in any active relationship or exchanging information with visitors to the Co-defendant site. As a result, the Co-Defendant’s electronic "contacts" with Md residents were insufficient to support personal jurisdiction over the Co-Defendant in Maryland.

The full opinion is available in PDF.

Thursday, May 20, 2010

Shoregood Water Company, Inc. v. U.S. Bottling Company (Maryland U.S.D.C.)

Filed: May 11, 2010

Opinion by Judge Richard D. Bennett

Held: Under Maryland law and Federal Rule of Civil Procedure 23.1, when a shareholder seeks to pursue a derivative action on behalf of a corporation in receivership, the shareholder must allege with particularity any efforts to have the receiver institute suit or why such efforts would be futile.

Facts: Shareholders of companies in receivership, which also were also defendants in litigation, alleged derivative counterclaims on behalf of the companies. The shareholders alleged that the companies lacked the resources to prosecute the claims. The shareholders did not explain whether the companies exhausted their legal proceedings, nor did they describe the circumstances surrounding the companies' actions in seeking redress. The shareholders also failed to allege with particularity any effort to make the receiver institute suit or why such efforts would be futile. Accordingly, the Court dismissed the shareholder derivative actions under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.

The full opinion is available in PDF.

Thursday, May 13, 2010

Lark v. Montgomery Hospice, Inc. (Ct. of Appeals)

Filed: May 13, 2010.

Opinion by Judge Joseph F. Murphy, Jr.

Held: A claim under the Health Care Worker Whistleblower Protection Act is cognizable even if the plaintiff did not report an alleged violation to an external board and even if the employees committing such violation did not have authority to set company policy.

Facts: The plaintiff worked for Montgomery Hospice, Inc. (“Montgomery”), a health care institution. She provided reports to supervisors about conduct at Montgomery that threatened the health of patients. She did not disclose her concerns outside of Montgomery. During the plaintiff’s annual evaluation, she received notice that her employment would be terminated.

The plaintiff filed an action against Montgomery for, among other things, violation of the Maryland Health Care Worker Whistleblower Protection Act, Md. Code Ann., Health Occ. §§ 1-501 et seq. (the “Act”). The trial court granted summary judgment in favor of Montgomery, and the plaintiff appealed.

Analysis: The Court of Appeals addressed two issues of statutory interpretation. The first issue was whether a claim under the Act is cognizable if the plaintiff did not provide a report to an external board. Section 1-502 of the Act protects an employee that “discloses or threatens to disclose to a supervisor or board an activity, policy, or practice of the employer that is in violation of a law, rule, or regulation.” Holding that disclosure to an external board is not a necessary condition for a claim, the court noted that the Act protects even those who merely threaten to disclose. It also discussed a number of cases from other jurisdictions that emphasized the strong public policy reasons for protecting employees that lodge internal complaints.

The second issue was whether a claim under the Act is cognizable if employees committing the asserted bad conduct do not have authority to set company policy. The court addressed the issue briefly, but we can infer that when an employer does not remedy certain violations of employees, the violations become, in effect, the act of the employer.

The full opinion is available in PDF.

Wednesday, May 12, 2010

RRC Northeast, LLC v. BAA Maryland, Inc. (Ct. of Appeals)

Filed: May 10, 2010

Opinion by Judge Glenn T. Harrell.

Held: A commercial lease may contain an implied covenant against destructive competition by the lessor, inferred from the duty of good faith and fair dealing, but the lease and the circumstances surrounding formation of the lease must demonstrate the parties intended to limit competition.

Facts: The defendant, party to a Master Lease with the Maryland Aviation Administration, leased, developed and managed the food, service and merchandise concessions at BWI. The plaintiff operated several stores at BWI under subleases with the defendant.

After additional competing gift stores were opened at BWI, the plaintiff alleged the defendant caused it economic damage due to, among other theories, (1) breach of express and implied covenants of good faith and fair dealing and (2) breach of sublease. The Circuit Court granted the defendant's motion to dismiss on grounds that the complaint failed to identify contract terms that the defendant breached. The plaintiff filed an amended complaint, which "essentially reasserted the facts as alleged in the" first complaint. The Circuit Court granted the defendant's motion to dismiss, with prejudice.

The Circuit Court then denied plaintiff's motion to alter or amend the judgment of dismissal. The plaintiff alleged in the motion, for the first time, that the sublease incorporated the Master Lease. The plaintiff also had attached to the motion, for the first time, copies of several documents, including the Master Lease and subleases. The Court of Special Appeals affirmed the Circuit Court's denial.

Analysis: A breach of contract complaint must "allege with certainty and definiteness facts showing a contractual obligation owed by the defendant to the plaintiff and a breach of that obligation by defendant." In considering the sufficiency of a complaint alleging breach of contract, "any ambiguity or uncertainty in the allegations is to be construed against the pleader." The Court of Appeals affirmed the dismissal of the breach of contract claim because the complaint failed to allege the defendant promised the plaintiff it would restrict competing gift stores to four stores.

Analyzing the claim for breach of express and implied covenants, the Court of Appeals stated "an implied covenant to refrain from destructive competition may be inferred from a percentage lease, based on the duty of good faith and fair dealing, where the intentions of the parties, as indicated by the terms of the lease and the circumstances surrounding the formation of the lease, suggest that such an inference is appropriate, namely, by limiting competition to a particular level with, or granting exclusivity to, the plaintiff, either in the contract or an incorporated pre-lease document." As the second complaint failed to alleged that the plaintiff and defendant contracted to limit competition, the Court of Appeals affirmed the dismissal.

The full opinion is available in PDF.