Sunday, July 13, 2014

In The Matter of the Petition of Calpine Corporation (Cir. Ct. Balt. City)

Filed: October 3, 2013
Opinion By: Judge Audrey J. S. Carrion

Held: The Circuit Court affirmed the Public Service Commission’s (“PSC”) actions with regards to certain regulated utilities in Maryland, where the PSC: (a) required that the utilities negotiate and enter into contracts with a new power generation facility for cost recovery, (b) conducted a hearing with notice to the utilities to investigate all options “to ensure an adequate and reliable supply of electricity to Maryland customers;” and (c) the PSC’s actions were supported by substantial evidence and were therefore not “illegal, unreasonable, arbitrary, or capricious.”

Facts: The PSC initiated a regulatory proceeding on September 29, 2009 “to investigate the long-term reliability and adequacy of [electrical] service in Maryland…”  On December 29, 2010, the PSC prepared a draft Request for Proposals for New Generation (“RFP”), which would be issued by the regulated utilities to solicit proposals from parties interested in building a power plant in the region.  On receipt of comments, the PSC modified the RFP and directed the utilities to issue the modified RFP.  The PSC also notified the utilities that a hearing would be held on January 31, 2012 on the need for new power generation.  The RFP sought bids for the construction of new, natural gas-fired power generation.  

Following the hearing, the PSC issued an order on April 12, 2012, finding that there was a long-term need for an additional 650 to 700 megawatts of electricity in Maryland by 2015, and accepting the bid of Competitive Power Ventures Holdings, LLC (“CPV”) to build a 661 megawatt natural gas-fired combined cycle facility in Charles County.  The commission also ordered the utilities to negotiate and enter into a “Contract for Differences” with CPV.  The contract would establish a fixed price for power generated by CPV, and would have the utilities guarantee payment of that fixed price, with the utilities making up the difference if sales were lower, and CPV paying any sales over the fixed price to the utilities. 

Analysis: A court’s review of the order of an administrative agency is generally deferential to the agency’s expertise, reviewing for “illegal, unreasonable, arbitrary, or capricious” decisions of the agency.  The court will also review whether the administrative agency made an error of law, though the court will be more deferential to the agency when the agency “is interpreting or applying the statute it itself administers…”

What’s at issue in this case is whether the PSC acted contrary to law in determining that additional power generation was necessary to ensure that demand can be met for “standard offer service” (“SOS”) in Maryland, ordering the regulated utilities in Maryland to issue an RFP for additional power generation facilities, and subsequently ordering those utilities to contract with CPV for a gas-fired combined cycle facility in Charles County.  Ultimately the circuit court concluded that the PSC acted within its authority and on substantial evidence in the record in support of its administrative orders.

The court began its analysis by looking at the authority granted to the PSC under the Public Utility Article.  The court found that sections 2-113, 5-101 and 7-510 give the PSC general powers to regulate utilities that operate in Maryland, and to ensure the availability of SOS.  However, the utilities had argued that the PSC had exceeded its statutory authority in ordering the utilities to enter into a contract with a third party, on the language of section 7-509(a) which states that the PSC, except for two situations not applicable to the case at bar, may not regulate “the generation, supply, and sale of electricity” as an electronic company service or function.  The court found, however, that interpreting this language to deprive the PSC of its otherwise general authority to regulate public utilities would result in an illogical conclusion of the intention of the legislature and would conflict with the overall statutory scheme, which empowers the PSC to ensure that SOS is available to Maryland customers into the future.  The court concluded that the PSC acted within its authority in directing the utilities to contract with CPV.

The utilities had also challenged the procedures used by the PSC in conducting its hearings concerning the need for additional power generation, and the PSC’s order requiring the utilities to contract with CPV.  The court concluded that the PSC had not violated the utilities’ due process rights because the utilities had notice of the proceedings, the PSC sought and received feedback on the RFP to which it issued amendments, heard testimony from fourteen witnesses concerning the issue, and the utilities had participated in the hearings.

Finally, the utilities had challenged the evidence upon which the PSC relied in concluding that a gas-fired combined facility constructed by CPV was necessary.  The court found that there was substantial and uncontested evidence in the record supporting the PSC’s decision, including: (a) coal-fired plants in Maryland may be forced into premature retirement because of new environmental regulations, (b) the need for more investment in power generation in the region and the failure of the current pricing model to attract such investment, (c) geographic limitations in the region that increase power generation costs, and (d) the downward trend in the reserve margin for power generation capacity over the last several years.  The utilities had argued that the PSC failed to consider transmission system upgrades, and Calpine had argued that its exclusion from consideration because of its location outside of Maryland was arbitrary and capricious.  However, the court was unconvinced of these arguments, in part because of its deferential review standard for agency decisions.  As a result, the court affirmed the orders of the PSC.

The full opinion is available in PDF.

Wednesday, April 9, 2014

Mathews v. Cassidy Turley Maryland, Inc. (Ct. of Appeals)

Filed: November 26, 2013

Opinion by Judge Robert N. McDonald

Held: (1) Under the Maryland Securities Act (the “Act”), the offer and sale of a tenant-in-common (“TIC”) interest in commercial real estate under terms requiring a mandatory management contract with an affiliate of the seller and granting the purchasers only a limited opportunity to change management involves a “security.” (2) The statute of limitations periods for claims brought under the Act for sale of an unregistered security and for transacting business as an unregistered broker-dealer or agent are not tolled by the judicially created discovery rule of Poffenberger v. Risser, 290 Md. 631 (1981), or under the fraudulent concealment provision of Md. Code, Courts & Judicial Proceedings §5-203 (“CJ §5-203”). (3) The statute of limitations periods for claims brought under the Act for fraud in the offer or sale of a security and for transacting business as an unregistered investment advisor and for material misrepresentations made in that capacity are not tolled by the discovery rule of Poffenberger but may be tolled under the fraudulent concealment provision of CJ §5-203.

Facts: In 2003, petitioner, who had owned and managed rental properties for over forty years, sold eleven different properties through the respondent real estate brokerage for approximately $4 million. For favorable tax treatment petitioner sought to re-invest the proceeds in other real estate and based on the respondent’s advice, petitioner used much of the proceeds to purchase five fractional interests or TICs in various commercial buildings.

The TICs were all created by DBSI, Inc. of Idaho, or an affiliate. Purchasers of the TICs were required to retain DBSI or its affiliate as the property manager and in return the purchasers would receive a set annual rate of return on their purchase monies. The property manager could only be removed by majority vote of all TIC owners of a specific property and a new property manager could only be appointed by the unanimous consent of all the TIC owners. The TIC owners had no direct control over the property.

In 2008, after petitioner learned that DSBI would be suspending payments on certain properties, DBSI filed a voluntary petition for bankruptcy under Chapter 11 of the bankruptcy code. The properties subject to petitioner’s TICs were foreclosed. The bankruptcy court ultimately found DSBI’s transactions to have been constructively or actually fraudulent. The Securities Division of the Maryland Attorney General’s Office contacted petitioner in 2009 in the course of investigating the offer and sale of the TICs in Maryland. On March 23, 2010, the petitioner filed suit in Circuit Court against the respondent for violation of the Act, breach of contract and common law tort claims of fraud, negligent misrepresentation, negligence and constructive fraud. The Circuit Court granted summary judgment for the respondent on all counts finding in pertinent part that the TICs were not a security under the Act and, even if they were deemed a security, the petitioner’s claims were time barred. Following petitioner’s timely appeal the Court of Appeals granted certiorari to determine, inter alia, whether (1) the TICs are securities under the Act; and (2) whether the petitioner’s claims under the Act are time barred.

Analysis:  The Court of Appeals first analyzed the Act to determine if the TICs were securities. The Act broadly defines a “security” to include an “investment contract” but the meaning of the term “investment contract” was a matter of first impression for the Court.  The Court noted that when interpreting the Act, it may consider the federal Securities Act because the Act states that it is to be coordinated with the related federal law. Reviewing pertinent federal precedent, particularly SEC v. Howey, 328 U.S. 293 (1946), the Court determined that an “investment contract” was an investment of money in a common enterprise with an expectation of profits derived from the significant efforts of others.

In this case, the sole issue was whether the purchasers of TICs had an expectation of profits derived from the significant efforts of the property manager. The Court concluded that the Howey test was met because the profits were generated by the property manager’s actions. Even though the investors, acting collectively, had the authority to remove the property manager, the efforts by the property manager were no less dominant and essential to the success of the enterprise than are the efforts of the management of a corporation. The TIC investment was, therefore, held to be a “security” under the Act.

The Court then considered whether the petitioner’s claims under the Act were time barred. The petitioner’s private causes of action under the Act included allegations of respondent’s (1) offer and sale of an unregistered security, (2) transacting business as an unregistered broker-dealer or agent, (3) misrepresentations or omissions of material fact in the offer and sale of a security, and (4) violations of the investment advisor requirements of the Act (i.e., both lack of registration as an investment advisor and misrepresentations made in that capacity). The statutes of limitations under the Act for each of these various claims had lapsed.

The Court analyzed whether petitioner’s claims could be tolled by either (1) the Poffenberger discovery rule, which delays the accrual of the statute of limitations until when the wrong is discovered or when the wrong should have been discovered through reasonable diligence; or (2) CJ §5-203, which delays the accrual of the cause of action when the plaintiff remains ignorant of the cause of action due to the defendant’s fraudulent concealment.

Analyzing the private causes of actions under the Act, the Court found that Poffenberger discovery rule did not toll the relevant statutes of limitations. The Court compared the limitations provisions for the causes of actions involving lack of registration (of the security or as a broker-dealer) with the limitations provisions for causes of action involving misrepresentations and fraud. Citing Md. Code Corp. & Assn’s, §11-703(f)(1)&(2)(i), the Court noted that for the sale of an unregistered security or acting as an unregistered broker-dealer, a cause of action must be brought “after the earlier to occur” of (1) three years after the contract of sale or purchase; or (2) one year after the violation. On the other hand, citing Md. Code Corp. & Assn’s, §11-703(f)(1)&(2)(ii), the Court noted that for a violation of the anti-fraud provisions, a cause of action may not be brought “after the earlier to occur” of (1) three years after the contract of sale or purchase or (2) one year after “discovery of the untrue statement or omission, or after discovery should have been made by the exercise of reasonable diligence.” The limitations provision applicable to the investment advisor requirements likewise requires such a claim to be brought no later than the earlier of (1) three years “after the date of the advisory contract or the rendering of investment advice” or (2) two years after “the discovery of the facts constituting the violation.” Md. Code Corp. & Assn’s, §11-703(f)(3). The Court concluded that because the limitations provisions applicable to anti-fraud and investment advisor violations under the Act includes their own discovery rule, the legislature did not intend for the Poffenberger discovery rule to apply to those violations. Further, the legislature did not intend for the Poffenberger discovery rule to apply to registration violations because it did not include a discovery rule in the limitation for those violations, as it did for the anti-fraud violations. Thus, the Court held the Poffenberger discovery rule to not apply to these private causes of action under the Act.

The Court analyzed next whether CJ §5-203 applied to the private causes of action under the Act. It found that CJ §5-203 did not apply to the violations of the registration provisions because a reasonably prudent buyer could have discovered those violations from publicly available information at the time of sale of the unregistered security or sale by an unregistered broker-dealer. However, CJ §5-203 could toll the anti-fraud violations because the tolling arises from the affirmative misconduct of the defendant and has been held applicable to limitations as to both statutory and common law claims. Finding no indication that the legislature did not intend for CJ §5-203 to apply to claims of fraud under the Act if plaintiff’s acquisition of knowledge of the violation is hindered by defendant’s fraudulent concealment, the Court held that CJ §5-203 could apply to anti-fraud claims under the Act. Because the issue of fraudulent concealment is fact-intensive and the Circuit Court did not explicitly consider whether the undisputed facts negated tolling under CJ §5-203, the Court reversed the Circuit Court’s grant of summary judgment for the  respondent to the extent the counts under the Act asserted claims for fraud.

The judgment of the Circuit Court was affirmed in part and reversed in part and the case remanded back to the Circuit Court.

The full opinion is available in PDF.

Thursday, February 13, 2014

Gregg Lapointe v. SIGMA TAU Pharmaceuticals, Inc.

Filed: September 11, 2013 

Opinion by Michael D. Mason 

Holdings:  (1) A parent corporation is allowed to interfere with the subsidiary's contracts without liability under the "unity of interest" doctrine.  This privilege is not absolute, however.  It does not exist if the parent acts contrary to the interests of the subsidiary or interferes with a contract with a third party by use of wrongful means.  The burden of establishing a privilege lies with the complaining party. 

(2) If a privilege is found, it would extend to a shareholder with a controlling interest in the parent corporation. 

Facts:  Plaintiffs, former employees of corporate defendant's wholly owned subsidiary, alleged that the corporate defendant and its largest shareholder (also an individually named defendant) tortuously interfered with plaintiffs' long-benefit plan causing a refusal to pay benefits to which plaintiffs were entitled.  

Defendants filed motion to dismiss arguing that even assuming wrongful interference, no liability exists when a parent interferes in a contract between its wholly owned subsidiary and a third party because there is a "unity of interest" between the parent and its subsidiary.  The largest shareholder of the parent also claimed benefit to this doctrine.

Analysis:  Although Maryland courts have discussed the issue of whether the unity of interest doctrine applies to tortious interference claims involving a parent corporation and its wholly owned subsidiary, they have not adopted it.  In Copperweld Corp. v. Independence Tube Corp., the U.S. Supreme Court held that a parent corporation could not be prosecuted for an antitrust violation involving its subsidiary because a parent and its wholly owned subsidiary have a complete unity of interest. 

However, as the principle relates to a parent corporation’s liability for tortious interference with the contractual agreement of its subsidiaries, most courts that have adopted the doctrine have done so with limitations.  In Waste Conversion Sys., Inc. v. Greenstone Indus., Inc., 33 S.W.3d 779, 781 (Tenn. 2000), the Supreme Court of Tennessee held that a parent could lose its privilege if (1) acting contrary to its wholly-owned subsidiary’s economic interests the parent can be considered a third party to its subsidiary's contractual relationship and can be held for tortuously interfering with that relationship; and (2) it employs wrongful means even if the parent does not act contrary to the subsidiary's best interest.  Wrongful means is defined to include misrepresentation of facts, fraud, threats, intimidation, as well as a number of other acts, including any other wrongful act recognized by statute or common law.  The burden of proof lies with the plaintiff.

The full opinion is available in PDF.

Monday, January 27, 2014

MHD-Rockland Inc. v. Aerospace Distributions Inc. (Maryland U.S.D.C.)

Filed:  January 3, 2014

Opinion by Catherine C. Blake

Holdings:  (1) In a transaction between merchants, an acceptance that contains the words “subject to” along with additional terms does not render the acceptance “expressly made conditional on assent to the additional terms” for purposes of Section 2-207(1) of the Commercial Law Article.

(2) In a transaction between merchants, objection to the condition of goods and the return of such goods is not a timely objection of additional terms in an acceptance for purposes of Section 2-207(2) of the Commercial Law Article. 
Facts:  Plaintiff, through use of a purchase order, ordered four airplane wheel assemblies in “overhauled” condition from defendant.  Defendant sent the assemblies and an acknowledgment form representing that the assemblies were in overhauled condition.  The acknowledgment form further stated it was “subject to” the Conditions of Sale printed on the reverse side of the form, which purported to limit liability for consequential damages and disclaim any express or implied warranties.  Plaintiff returned two assemblies allegedly not in overhauled condition, which were therefore defective.  Disagreements arose whether the two returned assemblies were defective. 

Plaintiff alleged, among other claims, breach of contract.  Defendant argued plaintiff should not be allowed to seek lost profits because the contract expressly foreclosed any warranty, including liability for consequential damages.  Plaintiff claimed it rejected the conditions upon return of the assemblies. 
Analysis:  The Court applied Section 2-207 of the Commercial Law Article as the case involved a sale of goods between merchants.  Section 2-207 provides an acceptance containing additional terms is still an acceptance that forms a contract unless the “acceptance is expressly made conditional on assent to the additional or different terms.”  The Court noted that Maryland courts have not decided whether an acceptance “subject to” additional terms amounts to an acceptance “expressly made conditional.”  The Court agreed with cited precedent that concluded the “subject to” language does not make the acceptance expressly conditional on the buyer’s assent to the additional terms.  Accordingly, the Court held that defendant’s acceptance of the purchase order was not expressly made conditional on plaintiff’s assent to the additional terms in the Conditions of Sale.

Section 2-207 further provides that if there is an acceptance, the additional terms become part of the contract between merchants unless: “(a) [t]he offer limits acceptance to the terms of the offer; (b) [t]hey materially alter it; or (c) [n]otification of objection to them has already been given or is given within a reasonable time after notice of them is received.”  The Court noted that the plaintiff did not allege how and when it rejected the additional terms.  The Court stated that plaintiff’s objection to the condition of the assemblies does not amount to a timely objection to the additional terms in the defendant’s acceptance.  The Court dismissed the claim for lost profits from the alleged breach of contract. 
In a lengthy footnote, the Court also discussed an argument that the terms should be excluded from the contract because they materially alter the agreement.  The Court stated that such argument, if raised, would have failed under the applicable Maryland test. 

The full opinion is available in PDF.

Thursday, January 23, 2014

Lomax v. Weinstock, Friedman & Friedman, P.A. (Maryland U.S.D.C.)

Filed January 15, 2013

Opinion by Judge Catherine C. Blake

Holding: Under the doctrine of equitable estoppel, a party to a contract containing a mandatory arbitration provision cannot avoid arbitration of a claim against a nonsignatory to the subject contract when the basis for the claim is that contract.
Facts: Plaintiff Lomax financed the purchase of a car with a loan obtained through a retail installment contract (the “RISC”) with Credit Acceptance Corporation (“CAC”).  After CAC repossessed and sold the car it retained Weinstock to obtain a deficiency judgment against Lomax.  Lomax filed suit against Weinstock alleging the firm violated the Fair Debt Collection Practices Act, the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act. Weinstock filed a motion to dismiss or, in the alternative, to stay the action and compel arbitration based on the RISC’s mandatory arbitration provision.
Analysis: It is settled that parties must submit claims to arbitration where they have a valid arbitration agreement and it covers the issues in dispute.  Lomax did not dispute the validity of the RISC or the arbitration agreement within it, but argued that Weinstock, as a nonsignatory to the RISC, could not invoke the arbitration clause.  The Court held, however, that when each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory is equitably estopped from refusing to submit such claims to arbitration if the arbitration provision is sufficiently broad to encompass the claims.  Because Lomax relied on the RISC as the basis for her attempt to collect damages from Weinstock and the arbitration provision in the RISC was broadly worded so as to include claims against the seller’s attorneys, Lomax was estopped from disclaiming the mandatory arbitration provision contained in the RISC.
The Court granted the motion to dismiss.

The opinion is available in PDF

Wednesday, January 22, 2014

Doris Mitchell v. WSG Bay Hills IV, LLC (Maryland U.S.D.C.)

Filed December 11, 2013
Opinion by Judge Richard D. Bennett

Holding: A business operator does not have implied duty to protect the public from lawful actions of third parties partaking in the business’ activities.

Facts: Plaintiff was struck in the leg by a golf ball while living in a condominium adjacent to a golf course owned by the Defendant. Prior to this incident, occupants of the condominium complained to the Defendant after errant shots damaged the building. The Defendant elected not to alter the course because of costs. The Defendant moved for summary judgment arguing  it did not have a duty to protect the condominium residents.

Analysis: A business is not required to control the actions of third-parties lawfully partaking in business, unless a “special relationship” exists between the business and the injured party. In most instances a special relationship is created by either statute or contract. However, the Court acknowledged that a special relationship may be implied by either “(1) the inherent nature of the relationship between the parties; or (2) by one party undertaking to protect or assist the other party, and thus often inducing reliance upon the conduct of the acting party.” The Defendant did not have a direct relationship with the Plaintiff and the Defendants never offered to protect the condominium residents.

The Court granted the motion for summary judgment.
The full opinion is available in PDF.

Friday, January 17, 2014

Bhari Information Technology System Private Limited v. Sriram (Maryland U.S.D.C.)

Filed December 2, 2013
Opinion by Judge Paul W. Grimm

Holding:  A court should grant a motion to dismiss on arbitration agreement grounds only if the terms of the agreement are free from ambiguity. 

Facts:  Defendant was the sole stockholder of a consulting company, incorporated in Maryland, which he sold to Plaintiff, a Dubai corporation.  Defendant moved to dismiss on several grounds, one of which included to dismiss the proceedings pending arbitration, pursuant to an arbitration clause in the contract for sale of the consulting company. The arbitration clause provided, in its entirety: "Arbitration.  Any arbitration shall be in accordance with ICC rules."

Analysis:  "In determining whether parties have agreed to arbitrate the dispute in question, the Court should consider (1) whether a valid agreement to arbitrate between the parties exists and (2) whether the dispute in question falls within the scope of that arbitration agreement."  The Court further noted that if the terms are free from ambiguity the Court should grant the motion to dismiss on arbitration agreement grounds.  The Court found the agreement to be ambiguous and not appropriate for resolution on a motion to dismiss.  

The Court granted the motion to dismiss on other grounds.  Please note that it is not clear from the case whether the contract was governed by Maryland law.

The full opinion is available in PDF

Wednesday, January 15, 2014

Kimberly Pinsky v. Pikesville Recreation Council (Ct. of Special Appeals)

Filed: October 30, 2013
Opinion by Judge Robert A. Zarnoch


Directors and officers of an unincorporated nonprofit association may be held liable for contracts entered into by the association if they authorized, assented to or ratified the contract in question.


Defendant, an unincorporated nonprofit association, hired plaintiffs to work in a pre-school. Before the end of their respective contract terms, defendant terminated plaintiffs pursuant to letters of termination. Plaintiffs sued defendant and its individual officers and directors to recover payments still owed to them, plus treble damages, attorney's fees, and costs. After a three-day bench trial, the circuit court entered judgment for plaintiffs, but rejected the claims against the individual directors and officers. The court also declined to grant appellants' motions for sanctions and for attorney's fees and costs. Plaintiffs appealed  the adverse judgment with respect to the individual directors and officers and the court's rulings on sanctions, attorney's fees, and costs.


The Court of Special Appeals noted that as an unincorporated association, defendant had at least some formal organization, as it operated under a constitution, bylaws and policy manual. Citing Littleton v. Wells & McComas Council, 98 Md. 453, 455 (1904) and Restatement (Second) of Judgements Sec. 61 cmt. a (1982) the Court found that unincorporated associations had the right to sue and be sued and that a judgement against the association alone does not reach the assets of its members.  Further, although no law explicitly permits unincorporated associations to enter into contracts, the Court indicated that this is a long-recognized and uncontroversial power (see Miller v. Loyal Order of Moose Lodge No. 358, 179 Md. 350, 356).

At common law, officers of an unincorporated association were personally liable for the debts of the association. Since the Court of Appeals= decision in Littleton, 98 Md. at 456, and the Legislature's subsequent enactment of the legislative predecessors to CJP  Sec. 11-105, a judgment rendered solely against an association does not, on its own, expose the association's officers to liability. Yet CJP Sec. 11-105 does not address whether the officers, if named personally, can be held liable in actions also brought against the association. The Court quoted Littleton, which observed that "[t]he statute does not take away the right existing at common law to sue the members of an unincorporated association, but the creditor has the option to sue either the association or the members; and, when the suit is against the former, a judgment obtained can only affect its joint property." The Court noted that it does not read Littleton as positing an either/or system of recovery.

Officers and other agents of associations, such as the defendant, are statutorily protected from personal liability for damages in any suit if the association maintains insurance coverage. CJP Sec. 5-406(b). The Court noted that, absent such insurance coverage, personal liability could attach.  The Court then turned to the case law of other states for a better understanding of when officers are personally liable, and since the majority of states have not enacted comprehensive statutes on unincorporated associations, the common law still generally covers the principles of liability.  The Court found a distinction in the case law between for-profit and nonprofit associations.  Individual liability of a for-profit organization is analyzed under partnership principles; individual liability of a nonprofit association is analyzed under agency principles. Therefore, in nonprofit associations, "a member is personally responsible for a contract entered into by the nonprofit association only - if viewing him as though he were a principal and the association were his agent - that member authorized, assented to, or ratified the contract in question." (See Karl Rove & Co. v. Thornburgh, 39 F. 3d 1273, 1284).  The Court went on to discuss ratification, authorization and assent to a contract.

The full opinion is available in PDF.