Oliver v. Crump (Maryland U.S.D.C.)

Filed: September 15, 2011

Opinion by: Judge Ellen Lipton Hollander

Held: In a suit alleging breach of fiduciary obligations of directors of a corporation, a Maryland court may exercise personal jurisdiction over out-of-state directors of a Maryland corporation that conducts its business operations in Maryland.

Facts: Defendants were directors, officers and employees of a Maryland corporation. Plaintiff alleged defendants acted in a course of misconduct. All of the defendants reside in Delaware.

Analysis: A court exercising personal jurisdiction over non-resident defendants does not violate the due process clause of the U.S. Constitution when the defendants have "minimum contacts" in the state and "the exercise of jurisdiction based on those contacts is constitutionally reasonable." The Court applied the logic of Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522 (4th Cir. 1987), which involved a West Virginia corporation and directors who lived in the State of Virginia.

In Pittsburgh Terminal, the Fourth Circuit held "the acceptance of a directorship constitutes minimum contacts in a derivative suit." The Court also found minimum contacts because, among other reasons, (a) Maryland law, like West Virginia law, provides the business and affairs of the corporation shall be managed under the direction of a board of directors, (b) directors participate in business decisions that have a primary effect in the forum state and (c) by becoming directors, the defendants purposefully availed themselves of the privilege of doing business in that state.

Turning to the constitutional reasonableness portion of the due process test, the Court cited Pittsburgh Terminal, which noted the factors of the case made the "assertion of jurisdiction more reasonable." The Court agreed. As in Pittsburgh Terminal, the defendants live in a neighboring state. Maryland has a strong interest in providing a forum to hear a claim alleging wrongful acts by the directors of one of its domestic corporations. And, according to the Court, while defendants receive many benefits of the legal fiction of a corporation, requiring "them in turn to shoulder one of the few burdens of such fiction" did not seem unfair.

The opinion is available in pdf.

Hospitality Partners, LLC v. Brewmasters Hotel, LLC (Mont. Co. Cir. Ct.)

Filed: September 12, 2011
Opinion by Judge Ronald B. Rubin

Held: A defendant cannot attempt to terminate a contract for cause under one termination provision and, upon failing to justify the termination and losing a jury trial, invoke a different termination provision (that it did not comply with) to argue that the plaintiff's "expectation interest" in the contract, and thus its claim for damages, must be limited.

Facts: A hotel management contract had multiple clauses providing for termination, including termination for "no cause" whereby the terminating party would owe only 6 month's notice. The defendant terminated the contract for cause, on the ground that the plaintiff was grossly negligent in performing. The plaintiff sued and won a $2.8 million damages verdict from a jury. The defendant moved for a new trial on the ground that, had it terminated the contract for no cause, it would have owed only six month's notice. The defendant argued that, because it could have terminated for no cause upon six month's notice, the plaintiff's expectation interest in the contract was limited to six month's worth of damages.

Analysis: The court held that the defendant was not entitled to invoke the "no cause" termination clause after attempting, and failing, to terminate the contract pursuant to a different clause. The court distinguished the case from other Maryland cases where a plaintiff's expectation interest was deemed limited to the amount of notice it was entitled to receive before termination of a contract: Cottman v. Maryland Dep't of Natural Res., 51 Md. App. 380 (1982) and Storetrax.com, Inc. v. Gurland, 168 Md. App. 50 (2006).

The court pointed out that the defendant had not invoked or attempted to comply with the requirements of the "no cause" provision. The contract was a complex set of interlocking promises and promised benefits. The parties clearly had the expectation that, absent good faith compliance with the express terms of the available termination provisions, the contract would last ten years. The defendant could have availed itself of the "easy out" of terminating for no cause if it had given notice and paid a small fee. Instead, the defendant chose another path and refused to give notice or pay the fee. After failing to justify its termination, the defendant was not entitled to invoke a different termination provision in order to cap its exposure to damages proven at trial.

The full opinion is available in .pdf.