Thursday, June 23, 2016

Plum House IV, Inc. v. Wells Fargo Merchant Services, LLC (Maryland U.S.D.C.)

Filed: January 29, 2016

Opinion by: Catherine Blake

Holding: Under Maryland’s "economic loss rule" courts have limited remedies if the loss is purely economic and the parties were engaged in arms-length commercial bargaining.

Facts: Plaintiff operated a restaurant that allowed customers to pay with American Express Credit Cards. Plaintiff alleged that Defendant, a merchant payment card processor, mixed up the customer identification number and this mistake resulted in $349,395.14 being routed incorrectly to John Doe/ ABC Co. Plaintiff sued Defendant, American Express, and John Doe/ABC Co. to recover payments made by customer’s credit cards.

Plaintiff sued Defendant for negligence and breach of contract. Defendant filed a motion to dismiss for failure to state a claim. Parties agreed, per the terms of the contract, to apply NY law for the breach claim. The Court applied the Erie doctrine, choice of law, and outcome determinative test. Maryland law controlled the negligence claim and NY law controlled the breach of contract claim.

Analysis: The Court relied on Jacques v. First Nat'l Bank of Md., to determine if a duty exists. The Jacques test balances the nature of the harm that is likely to result from a failure to exercise due care and the nature of the relationship between the parties. When the failure to exercise due care creates only a risk of economic loss courts generally require an intimate nexus between the parties to impose tort liability. Plaintiff argued that, like in Jacques, it had a special relationship with Defendant which trumps the economic loss rule.

A special relationship exists when: (i) the business is affected with the public interest; (ii) the plaintiff is an individual consumer who is particularly vulnerable and dependent upon the other parties' exercise of due care; (iii) there is a disparity in strength of bargaining position; (iv) and one party more sophisticated than the other.

The Court disagreed. Specifically, it distinguished this matter from Jacques in two ways. First, Defendant in this matter is a merchant payment card processor, not a bank. Second, and more importantly, Jacques centered upon the fiduciary relationship a bank has to the individual clients. The Defendant conducts a sophisticated commercial enterprise with the same bargaining power as the Plaintiff. The Court ruled that a credit card payment processor does not have the same fiduciary relationship to a vendor that a bank has to individual consumers.

The Court determined that the economic loss doctrine applies for the negligence claim and granted Defendant’s motion to dismiss the negligence claim.

The full opinion is available in PDF.

Thursday, June 2, 2016

O'Brien & Gere Engineers, Inc. v. City of Salisbury (Ct. of Appeals)

Filed: April 26, 2016

Opinion By: Adkins

Holding: The litigation privilege in Maryland extends to breach of a non-disparagement contract clause arising out of statements made by the party's counsel and witnesses in a judicial proceeding, and there is a rebuttal presumption that such privilege was not waived when a party enters into a contract that contains a non-disparagement clause.

Facts: The City of Salisbury entered into a contract for an $80 million upgrade of its wastewater sewage treatment plant with O'Brien & Gere Engineers, Inc. ("OBG") and Construction Dynamics Group ("CDG").  The City believed it had not received the benefit of its bargain and filed a lawsuit against OBG and CDG, which subsequently resulted in a settlement agreement among between OBG and the City.  The settlement included a non-disparagement clause where both parties promised to not making disparaging statements concerning the wastewater sewage treatment project.

The City subsequently pursued litigation (ultimately favorable to the City) against CDG concerning the wastewater sewage treatment project. During opening statements of the City, counsel for the City argued that CDG was liable to the City for failing to advise the City as to design failures of the project that were the result of errors by OBG.  In addition, the City put on witness testimony during the CDG trial concerning OBG's design failures for the project.  OBG then filed a lawsuit against the City for breach of the settlement agreement's non-disparagement clause, which was subsequently dismissed by the trial court for a failure to state a claim as a result of the litigation privilege, which was affirmed by the Court of Special Appeals and ultimately by the Court of Appeals.

Analysis: Maryland recognizes a litigation privilege for statements made during litigation.  Historically, this privilege was recognized as an absolute one as to defamation and other tort actions because of Maryland's strong public policy in favor of the unfettered administration of justice, which in part relies on witnesses speaking truthfully and counsel advocating zealously for their clients.  Adams v. Peck, 288 Md. 1 (1980).  The Court extends this same absolute privilege to a breach of contract claim involving a non-disparagement clause in a settlement agreement on the grounds that the same public policy considerations in a tort case - free expression in the court room by witnesses and counsel - apply with equal force in a breach of contract claim arising out of a non-disparagement clause.

However, the Court next addresses the question of whether the City waived this immunity by entering into a settlement agreement that contained a non-disparagement clause.  The Court was persuaded that it is possible for a party to waive this immunity, but as a matter of law, there is a rebuttal presumption in settlement agreements that such immunity is not waived.  The Court reasoned that this presumption properly balances the strong public policy in favor of parties and counsel speaking freely in litigation with the strong public policy in Maryland favoring settlement agreements.  The Court held that in this instance, the presumption of non-waiver was not rebutted by OBG, leaving open the possibility that such a waiver in a contract is possible in another case.

The Court arrived at this conclusion concerning the presumption by applying well-known contract interpretations principles, starting with the definition of waiver as the intentional relinquishment of a known right, and requiring the intent to waive a right by express word or act, or omission to speak out. Smith v. State, 394 Md. 184, 201 (2006); see Harrison v. State, 276 Md. 122, 137 (1975) (both Smith and Harrison involve waiver of the attorney-client privilege).

The Court then examined the plain language of the non-disparagement clause in the settlement agreement, and found that the City had not expressly waived its right to disparage OBG in the pending lawsuit against CDG.  Moreover, the settlement agreement itself was made while the City's lawsuit against CDG was pending, with OBG's express knowledge that its role would be a part of the City's litigation against CDG, yet OBG failed to include an express waiver of the City's immunity as a part of the settlement agreement's non-disparagement clause.  As a result, the Court concluded that the presumption the City had not waived its litigation immunity was not rebutted by the settlement agreement's plain language and context.

The full opinion is available in PDF.