Friday, December 28, 2012

Minnesota Lawyers Mut. Ins. Co. v. Baylor & Johnson, PLLC (Maryland U.S.D.C)

Filed: April 3, 2012
Opinion by Judge James K. Bredar

Held: In a declaratory action, the Court held that the Plaintiff was not liable to the Defendants under a professional liability insurance policy for defense and indemnification in a legal malpractice case.

Facts: The Plaintiff insurance company brought this declaratory action to determine its liability to the Defendant law firm in a legal malpractice case. In the underlying case, the Defendant failed to submit any affidavits, testimony or other sworn evidence in support of its Client’s opposition to summary judgment. The Client received a judgment against him, which was affirmed by the Maryland Court of Special Appeals on July 8, 2009. As soon as the Defendant read the Court of Special Appeals’ opinion, it contacted the Plaintiff to give notice that there may be a possible legal malpractice claim. The Client brought a legal malpractice claim against Defendant on August 11, 2009. The Plaintiff defended the Defendant until October 1, 2010, when it informed the Defendant that it would cease representation because the Defendant did not properly report the claim during the time when the firm “first became aware of the facts which could have reasonably supported the claim asserted against it by [Client].” The Defendant settled the case with the Client.

Analysis: The Court first construed the insurance policy language in light of the facts in this case. The insurance policy is a claims-made policy that covers all claims made during the policy period. The pertinent part of the policy states that “[a] CLAIM is deemed made when . . . (3) an act, error or omission by any INSURED occurs which has not resulted in a demand for DAMAGES but which an INSURED knows or reasonably should know, would support such a demand.” Under Maryland law, the Court uses an objective standard to determine if an insured has reasonable knowledge of the claim. Here, the Court found that that the malpractice claim happened when the Defendant submitted a faulty opposition to summary judgment motion and the Defendant should have known of the possible claim at this time because a reasonably lawyer barred in Maryland should know the standard for summary judgment motions. The Defendant had to inform the Plaintiff during the 2006 policy term, in order to be covered by the policy and it did not.

Second, the Court determined whether Md. Code Ann., Ins. § 19-110 (LexisNexis 2011) applies to this policy. This statute requires the insurance company to prove that it was actually prejudiced by the insured’s failure to give notice. Maryland Courts have interpreted § 19-110 to apply to insurance policies when the notice requirement is a covenant but not a condition precedent. See Sherwood Brands, Inc. v. Great Am. Ins. Co., 13 A.3d 1268 (Md. 2011) (interpreting the notice requirement as a covenant); T.H.E. Ins. Co. v. P.T.P. Inc., 628 A.2d 223 (Md. 1993) (interpreting the notice requirement as a condition precedent). If the notice requirement is a condition precedent, then a contract does not exist if the notice was not given and the insurance company has no obligation to the insured. The courts focus on the specific language of the policy to determine whether § 19-110 applies. Here, the Court found that the notice was a condition precedent and § 19-110 did not apply.

The full opinion is available in PDF.

Monday, December 17, 2012

CR-RSC Tower I, LLC v. RSC Tower I, LLC (Ct. of Appeals)

Filed: November 27, 2012
Opinion by Judge Sally D. Adkins

Held: Where two parties enter into a contract for the lease and development of real estate and one party subsequently breaches that contract, evidence of post-breach market conditions is not admissible to prove lost profits if the parties did not contemplate the market conditions when they contracted.

Facts: Landlord entered into two 90-year ground leases with Tenant, a "successful real estate company," related to a tract of land in Maryland, consisting of two adjoining properties. Under the ground leases, Tenant agreed to construct two apartment buildings that it would sell after construction and initial rental. After temporary modifications, the parties reverted to their original plan to build two apartments and arranged financing for the first building. However, as construction began, Landlord failed to provide estoppel certificates and, as a result, financing fell through. In November 2006, Tenant sued for breach of contract, seeking recovery of lost profits. 

Tenant based its claim on market projections as of December 2006, the time of the initial breach. Landlord contended that, because in 2006 the apartments weren't projected to be fully leased until 2010 and 2012, the actual market conditions in 2010 and 2012 were relevant. Landlord sought to show that under the conditions of the current market, Tenant would not have profited regardless of whether there was a breach. Landlord offered expert testimony about the real estate market crisis in 2008–2010, a time when “the world . . . changed” and “the cataclysmic events of 2008 in the economy” took place. 

The trial court ruled against Landlord on several motions, including, among other things, that Landlord could not introduce evidence of the 2008 crash in the real estate market to show that Tenant would not have made profits.

The jury found for Tenant, awarding it over 36 million dollars in collateral damages. Landlord appealed, alleging that the trial court erred in not admitting evidence of “post-breach market conditions.” It argued that such evidence is a necessary part of any lost profits claim and that, without it, a plaintiff cannot meet the requirement that lost profits be proved with “reasonable certainty.” 

The Court of Special Appeals affirmed the trial court’s decision, citing the “general principle” that contract damages are measured at the time of breach.

Analysis: The Court engaged in a lengthy discussion of measuring lost profits and reliance  damages. The Court determined that “consequential lost profits are calculated with reference to what the parties can reasonably be said to have anticipated when they entered into the contract.” The Court explained that, for this reason, “circumstances that cannot be said to have been ‘known to the parties’ when they contracted—such as a post-breach boom or bust in the market—should not affect the measure of consequential damages that would ‘ordinarily arise’ according to the ‘intrinsic nature of the contract.’” 

The Court explained, although many contracts are made with the possibility of future market downturns and, accordingly, allocate such risk between the parties, the contract in this case did not. Under this contract, the success of both parties depended on a relatively stable market and it could not be said that a subsequent, unforeseen, “cataclysmic”  market crash was within the parties’ contemplation.  Thus, the Court held that the trial court did not err in excluding evidence of post-breach market conditions.

The Court went on to discuss separate issues raised by Landlord regarding waiver of the attorney client privilege and joint and several liability.

The full opinion is available in PDF.

Monday, December 10, 2012

Dakrish, LLC T/A Vineyards Elite v. Ran Raich (Ct. of Special Appeals)

Filed: November 30, 2012.
Opinion by Judge Kathryn Grill Graeff.

Held: A party to a liquor board decision in circuit court has standing to appeal that court's decision to the Court of Special Appeals.  The review of a liquor board's decision by the Court of Special Appeals is limited to determining whether substantial evidence in the record as a whole supports the board's findings.  
Facts: The Baltimore County Liquor Board  ("Board") denied Applicant’s liquor license application. The Board reached their decison after hearing from several experts that presented conflicting testimony on the demand for the store, it's geographic location, proximity to other stores, and other factors.  The Applicant petitioned the Circuit Court for review, which reversed the Board's denial. The Circuit Court found “the Board’s decision was flawed because it failed to balance appropriate factors to be considered by the Board pursuant to Maryland Code (2011 Repl. Vol.) Art. 2B § 10-202(a)(2)(i), and gave undue weight to the potential for impact on existing licensees”  and remanded the case to the Board with instructions to issue a liquor license. 
Appellant, appearing at the Board hearing through one of its licensees in opposition to Applicant’s petition for a license, appealed to the Court of Special Appeals ("Court").  The Court addressed whether appellant had standing to bring suit and whether the Board had to consider all of the factors enumerated in the liquor licensing statute in reaching a decision to deny an application.

Analysis:  Applicant first argued Appellant lacked standing to seek judicial review of the Board’s decision as it was not an aggrieved party. The Court agreed that a person appealing to the circuit court must be aggrieved but found that appellant had the right to appeal pursuant to Md. Ann. Code art. 2B, § 16-101(f) as it was a party of record to the Circuit Court case.

The Court then addressed whether the Board was required to consider each of the enumerated factors of the liquor licensing statute.  Using United Steelworkers of America v. Bethlehem Steel Corporation, 298 Md. 665 (1984), Applicant contended that the Board here did not make adequate findings on the record with respect to each of the applicable factors to support its denial of the license application.  The Court noted the liquor licensing statute does not require that the Board set forth specific findings of fact and conclusions of law.  Instead, the Court stated its role is limited to "determining whether there is substantial evidence in the record as a whole to support the Board's conclusion."  The Court found such evidence to exist and supported the Board’s decision.

The full opinion is available in PDF.