Monday, March 30, 2015

Walton v. Network Solutions (Ct. of Special Appeals)

Filed: February 26, 2015

Opinion By: Michael W. Reed

Holding: Appellant, Jeffrey Walton, failed to allege facts sufficiently specific to substantiate his claims against Appellee, Network Solutions, for violating either the Maryland Commercial Electronic Mail Act (“MCEMA”) or the Maryland Consumer Protection Act (“MCPA”), and his claims were timed barred under the applicable three year statute of limitations.

Facts: Appellant was the recipient of certain unsolicited commercial email (“spam”) from Appellee starting in 2009.  Appellant complained twice to Appellee, but continued to receive spam, which he alleged in his complaint was false or misleading as to where the spam came from and the information provided in the subject line of each email message.

Analysis: The Court began with the language of MCEMA, which specifically bars sending commercial emails that contain unauthorized, false or misleading information under section 14-3002.  Md. Com. Law Code Ann. § 14-3002 (2014).  Section 14-3002(b)(2)(ii) specifically bars “sending a message that contains false or misleading information about the origin or the transmission path of the commercial electronic mail.”  Appellant had asserted that Appellee had violated this provision because when Appellant sent a message to the reply-to address of Appellee, the message was returned indicating that the destination mailbox was full.  The Court concluded that this was not prohibited conduct under the statute because the statute did not require the mailbox to accept messages, only that it be a misrepresentation of where the spam originated from.  Moreover, the Appellant was able to determine from the sending email address to contact Appellee

Section 14-3002(b)(2)(iii) prohibits sending a message that contains false or misleading information in the subject line of the message.  The Court examined the subject lines of the emails attached to Appellant’s complaint, and concluded that because the subject lines of each such message were related to Appellee’s business of selling domain names, the subject lines did not, as a matter of law, have “the capacity, tendency, or effect of deceiving” the Appellant.  Instead, the case before the Court was factually distinguishable from a California case, Hypertouch, Inc. v. ValueClick, Inc., 123 Cal. Rptr. 3d 8 (Ct. App. 2011), because the subject lines in Hypertouch offered free gifts without any limitation when the offer was actually far more limited.

Finally, the Court determined that Appellant’s claims under MCPA were time barred, holding that Appellant was aware on December 1, 2009 that Appellee had failed to remove him from Appellee’s email list, but failed to file a claim against Appellee until March 7, 2013 – more than three years from when he knew or should have known of the allegedly false or misleading conduct of Appellee.  Appellant’s claim here is premised on the statements of Appellee’s employees that Appellant was removed from the mailing list, but continued to receive spam after being told he was removed.  The Court concluded that such a claim had to be filed within three years, and that the continuing harm doctrine, which if applicable, might extend the limitations period for each new spam message received, was not applicable to the present matter.  The Court held that this argument was waived by not being raised and decided by the trial court at the hearing on the motion to dismiss, but that even if not waived, the continuing harm doctrine should not be applied to alleged violations of MCEMA.

The full opinion is available in PDF.

Thursday, March 26, 2015

Bank of Commerce v. Maryland Financial Bank (Maryland U.S.D.C.)

Filed: March 2, 2015

Opinion by: Ellen Lipton Hollander

Holdings:  The meaning of a contractual provision is not discerned by reading it in isolation, but by recognizing its relation to the other terms of the complete contractual relationship.

Extrinsic evidence indicating a party is entitled to proceeds of a foreclosure on a first out basis may only be considered if the underlying contract is ambiguous.

Facts:  Nearly two years after a loan was made, defendant purchased a 25% interest in the loan pursuant to a participation agreement.  The loan went into and remained in default despite various efforts to cure the default.  Plaintiff initiated a foreclosure proceeding.  The resulting foreclosure sale resulted in a loss on the loan. 

The parties disagreed as to how the foreclosure proceeds should be disbursed under the participation agreement.  Section 9(b) of the agreement provided that plaintiff “shall promptly remit to [defendant] its percentage interest first, as hereinabove specified, of all net proceeds received by [plaintiff] as a consequence of such foreclosure proceeding.”  The agreement did not define percentage interest.  Section 1 of the agreement provided that defendant’s “interest in the loan, expressed as a percentage, is 25.00%.”

Analysis:  Instead of receiving 25% of the foreclosure proceeds, defendant argued it was entitled to “its full 25% interest in the loan first, before the remaining foreclosure proceeds are distributed” because the terms pro rata and ratable were absent from Section 9(b).  The Court viewed defendant’s interpretation as being at odds with the allocation of losses section of the agreement, which required ratable allocation of any losses on the loan.  The Court also noted that defendant, in selecting an option for priority of payments, chose “pro rata” rather than “first out” or “100%.”  Citing Atlantic Contracting & Material Co. Inc. v. Ulico Cas. Co., the Court stated “the meaning of a provision is not discerned by reading it in isolation, but by recognizing its relation to the other terms of complete contractual relationship.” 

Defendant also argued that the use of the word “first” in section 9(b) shifted a greater risk to plaintiff in the event of a default and subsequent foreclosure sale.  Plaintiff argued the word first refers to defendant receiving its 25% ratable interest, not defendant being remitted its entire investment.  The Court agreed and stated that contractual terms must be read by recognizing their relation to the other contractual terms.

The Court also stated that defendant’s interpretation would effectively convert defendant’s participating investment into a loan, which is generally inconsistent with a participation agreement.  The Court then reviewed several cases and factors to determine whether a transaction involves a participation interest or a loan. 

The Court declined to introduce extrinsic evidence, in the form of a letter attached to an e-mail, indicating defendant was entitled to proceeds on a first out basis.  The Court held that extrinsic evidence may only be considered if a contract is ambiguous and such ambiguity does not exist “simply because, in litigation, the parties offer different meanings to the language.”

The opinion is available in PDF.

Monday, March 23, 2015

Karen R. Goozh v. Howard Richmond (Cir. Ct. Mont. Cnty.)

Filed: July 8, 2014

Opinion by: Ronald B. Rubin

Holding: A stockholders’ agreement that expired upon the “dissolution” of the company was terminated when the company was administratively dissolved for failure to file a regular report, despite having its charter later reinstated when the failure was cured.

Facts: Stockholders in a Washington, D.C., company entered into a stockholders’ agreement that included a provision whereby the agreement would terminate upon the “liquidation or dissolution of the Company.” The company’s charter was then revoked twice after it failed to file a required biennial report with the District of Columbia Department of Consumer and Regulatory Affairs. In each instance, the revocation was eventually annulled, but the Plaintiffs argued that the stockholder’ agreement remained terminated after the first revocation despite such reinstatement.

Analysis: The court noted that a different District of Columbia statute applied to each administrative dissolution of the company. In the second instance, the law stated that when a company’s charter was revoked and later restored, the restoration would “relate back” to the date of the administrative dissolution. In other words, the gap in the company’s continuity would effectively be erased.

The court found two D.C. cases instructive: In Accurate Construction Co. v. Washington, a contract entered into while a company’s charter was revoked was held to be unenforceable, and in T.K., Inc. v. National Community Reinvestment Coalition, Inc., the tenant under a commercial lease was found to have remained a valid party to the lease despite the revocation and subsequent reinstatement of its charter during the lease term.

Finding neither case dispositive, the court said that because the stockholders’ agreement failed to define the term dissolution, the plain meaning of the word should apply. The court acknowledged that the drafters may not have intended a “technical” or “administrative” dissolution of the company to terminate the agreement. Nevertheless, it held that a reasonable person would understand the word dissolution to include such events.

Although the case hinges on D.C. law, the court occasionally draws comparisons with Maryland law and cites Maryland law when discussing the effects of revival.

Full opinion is available in PDF.

Saturday, March 21, 2015

Tucker v. Specialized Loan Servicing, LLC (Maryland U.S.D.C.)

Filed: February 3, 2015

Opinion by: Paul W. Grimm

Holding: A creditor waives an express condition precedent to a loan modification when it signs and accepts payments under that modification without satisfaction of the condition precedent.  

Facts: Plaintiff purchased a home through a mortgage loan and deed of trust, which she jointly executed with her husband (“Husband,” collectively “Plaintiffs”).  The deed of trust provided that Plaintiff could modify the terms of the mortgage loan without Husband’s approval.  Plaintiff later applied to her mortgage servicer for a permanent loan modification.  The servicer returned a signed copy of the modification agreement (the “Modification”), which stated that the modification was effective as of February 1, 2010.  Despite language in the Modification requiring signatures from both mortgagors, Husband never signed.  Plaintiff made payments under the Modification, which the were accepted.  The servicer later assigned the loan to Defendants.  Plaintiff continued to make payments pursuant to the Modification, which Defendants rejected, insisting that the Modification was ineffective.  Defendants reported to credit agencies that Plaintiffs were in default and appointed trustees to foreclose on the home.

Plaintiffs filed an action alleging, inter alia, violations of the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act, defamation, injurious falsehood, and breach of contract.  Defendants moved to dismiss.

Analysis: The Court found that all of Plaintiff’s claims hinged on the validity of the Modification. Defendants contended that the Modification was ineffective because the servicer never waived, in writing, the stated requirement of both signatures. The Court rejected this argument, reasoning that statements or actions may constitute waiver of a condition precedent in a contract. Although the Modification expressly required both signatures, the servicer waived this requirement through its actions of returning the signed Modification and accepting payments without Husband’s signature. After rejecting Defendants' statute of limitations arguments, the Court denied the motion to dismiss.

The opinion is available in PDF.

Wednesday, March 18, 2015

Knight v. Manufacturers & Traders Trust Co. (Maryland U.S.D.C.)

Filed: February 4, 2015

Opinion by: James K. Bredar

Holding: Under the Maryland Credit Agreement Act, Cts. & Jud. Proc., § 5-408, a borrower may not introduce extrinsic evidence to interpret ambiguities in a credit agreement where a claim for breach of contract is asserted as a means to directly defeat or attain modification of the credit agreement.

Facts: Plaintiffs obtained several loans from a bank secured by real property owned by plaintiffs. Within two years, the real property serving as collateral (the “property”) significantly declined in value and plaintiffs and the bank renegotiated the terms of the existing loans in a letter agreement. The letter agreement provided, among other things, that it was in the mutual interest of plaintiffs and the bank to have the property “engineered to obtain the highest and best use” and thus the bank agreed to pay for a market feasibility study and fifty-percent of reasonable costs for such engineering. Subsequently, the bank was placed into receivership and defendant purchased the bank’s assets, including the loans to plaintiffs. Neither the market feasibility study nor the re-engineering ever occurred and plaintiffs defaulted on the loans.

Plaintiffs alleged, among other things, that defendant breached the letter agreement because, during negotiations leading up to the letter agreement, the bank agreed to obtain the market feasibility study, not just pay for it. Plaintiffs did not allege, however, that the bank’s obligation had been reduced to writing. Defendant filed a motion to dismiss the claim.

Analysis: Applying an objective standard of contract interpretation, the Court found the letter agreement ambiguous as to which party was responsible for obtaining the market feasibility study. Further, the letter agreement was subject to the Maryland Credit Agreement Act, under which extrinsic evidence is barred in a dispute about a credit agreement if the borrower asserts a claim as a means to directly defeat or attain modification of the agreement. The court noted that extrinsic evidence nevertheless may be considered by a court if the borrower asserts a claim “notwithstanding the implicitly conceded enforceability” of the agreement, such as any claims that would serve as a set-off against any judgment. The Court found that plaintiffs’ allegations of the verbal agreement between them and the bank would modify the terms of the letter agreement and thus the Maryland Credit Agreement Act barred the Court from considering such evidence.

Although the letter agreement implied that when it was drafted, all parties expected a market feasibility study to take place, the Court found no evidence that either plaintiffs, the bank or defendant made an undertaking to obtain such study. This silence defeated plaintiffs’ allegations that defendant breached a contractual obligation and therefore the Court dismissed plaintiffs’ breach of contract claim against defendant.

In a footnote, the Court points out that if plaintiffs had alleged the bank promised to obtain the market feasibility study in writing, the court would face a “radically different” question, and such evidence would likely be considered in resolving the ambiguity in the letter agreement.

The full opinion is available in PDF.

Tuesday, March 17, 2015

Schlossberg v. Bell Builders Remodeling, Inc. (Ct. of Appeals)

Filed:  February 20, 2015

Opinion by: Clayton Greene, Jr.

Holding:  A court may disregard the corporate formality to prevent a paramount inequity and fraud is not required.  

Analysis:  This ruling comes from a certified question sought by the Bankruptcy Court. The Court relied on Hildreth v. Tidewater Equip. Co. Inc., which sets forth that piercing the corporate veil is proper for fraud or to prevent a paramount inequity. The Court determined that preventing a paramount inequity is sufficient grounds to disregard the corporate formality.

The full opinion is available in PDF.

Saturday, March 14, 2015

Federal Deposit Insurance Corporation as received for Bradford Bank v. Arthur (Maryland U.S.D.C.)

Filed: March 2, 2015

Opinion by: Richard D. Bennett

Holding:  In a claim against officers and directors of a Maryland corporation, a plaintiff may only overcome the business judgment rule with a showing of gross negligence. 

Facts: Plaintiff was appointed receiver for a Bank and brought suit against four former officers of the Bank.  Plaintiff alleged Defendants were negligent, grossly negligent and breached fiduciary duties to the Bank by ignoring the Bank’s loan policy and failing to exercise due care in approving seven loan transactions. 

Analysis:  The Court first enforced a Tolling Agreement that was executed by and between the Plaintiff and each of the Defendants (and extended five times) to suspend operation of the statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  The Court noted that a defendant who enters into a contract while believing the contract is enforceable cannot be said to be acting in good faith. 

The Court then addressed the correct standard of liability for director and officer conduct under the FIRREA and Maryland law.  The Court stated that the FIRREA provides that a director or officer of an insured depository institution may be held personally liable for monetary damages for gross negligence, as such term is defined under applicable state law. 

Plaintiff argued that negligence applied to the conduct of corporate officers and directors under Maryland law due to the codification of the business judgment rule.  The Court disagreed and cited Parish v. Maryland & Virginia Milk Producers Ass’n and Billman v. State of Md. Deposit Ins. Fund Corp. as precedent from the Court of Appeals and the Court of Special Appeals, prior to and after codification of the business judgment rule, that applied a gross negligence standard.  

The opinion is available in PDF.

Thursday, March 12, 2015

Elite Construction Team, Inc. v. Wal-Mart Stores, Inc. (Maryland U.S.D.C.)

Filed:  March 2, 2015

Opinion by: James K. Bredar

Holding:  An unpaid subcontractor that has no privity with an owner may not prevail against such owner in a claim that the owner is unjustly enriched. 

Facts:  Defendant entered into contracts with a contractor to construct three stores.  Contractor entered into a subcontract with Plaintiff to perform certain site development services.  Plaintiff furnished labor, materials and extra work at the direction of Contractor.  Contractor failed to pay Plaintiff.  Plaintiff alleged Defendant withheld monies from Contractor in an amount equal to the amount Plaintiff claims it is owed.  Plaintiff asserted claims under a theory of breach of implied contract or quantum meruit. 

Analysis:  The Court relied on the Court of Appeals decision of Bennett Heating & Air Conditioning, Inc. v. NationsBank of Maryland, which recognized that claims in quantum meruit and implied contract are all aimed at achieving restitution.  Restitution is a restoration required to prevent unjust enrichment.  The Bennett court provided that an owner’s enrichment is not unjust when the owner gets no more than what was contracted for.  Instead, a subcontractor not in privity with the owner may obtain a judgment against the general contractor and seek through garnishment or subrogation the monies owed by the owner to the general contractor.  Because Plaintiff was not in privity of contract with Defendant, its claims failed.

The Court disagreed with Plaintiff’s argument that it was an intended beneficiary of the contracts between Defendant and the general contractor and, therefore, a constructive trust was created in Plaintiff’s favor.  The Court noted precedent that a constructive trust is a remedy for unjust enrichment, but found Bennett to “unequivocally establish” that Defendant is not unjustly enriched. The Court also noted that the contracts between the Defendant and the general contractor expressly disavow any interpretation that would “confer any rights upon any person who is not a party to the” contracts. 

The full opinion is available in PDF.