Farm Fresh Direct by a Cut Above, LLC v. Downey (Maryland U.S.D.C.)

Filed: October 26, 2017

Opinion by: Judge Ellen Lipton Hollander

Holding:

Under Maryland law, the liability protections afforded to limited liability company (“LLC”) members with respect to obligations of an LLC did not support dismissal of claims that an individual engaged in unfair competition and deceptive trade practices by forming and participating in an LLC, where the plaintiff alleged conduct supporting direct claims against the individual.

Facts:

A Maryland LLC, Farm Fresh Direct by a Cut Above LLC (“Plaintiff”), brought suit against multiple defendants, including another Maryland LLC, Farm Fresh Direct Home Food Services, LLC (“Defendant LLC”), and an individual who allegedly filed Defendant LLC’s Articles of Organization with the Maryland State Department of Assessments and Taxation (“Defendant Individual” and together with Defendant LLC, the “Defendants”), alleging that the Defendants engaged in unfair competition in violation of both Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), and Maryland common law, by establishing and engaging in a competing business under a name which was confusingly similar to the name of the Plaintiff.  The Defendant Individual moved, pro se, to dismiss the action.  Despite construing the motion liberally in favor of the Defendant Individual, the district court denied the motion, holding that the Plaintiff had alleged sufficient facts to satisfy the pleading requirements of Fed. R. Civ. P. 8(a).    

Analysis: 

The district court analyzed as a threshold issue whether the Defendant Individual was subject to suit in light of the Defendant LLC’s status as a Maryland LLC.  The district court’s analysis begins with a review of Maryland and Fourth Circuit law regarding the corporate shield and the corresponding LLC shield.  The court then notes that, notwithstanding the LLC shield, which generally protects LLC members from personal liability for obligations of the LLC, the LLC shield does not protect LLC members from direct liability for that member’s own actions.  Because Plaintiff alleged that the Defendant Individual formed the Defendant LLC and acted as its resident agent, the district court held that Plaintiff had alleged sufficient facts to plead direct claims against the Defendant Individual.  Further, because Plaintiff alleged that the name of the Defendant LLC was confusingly similar to the name of the Plaintiff and that the Defendant LLC engaged in substantially the same business as the Plaintiff, the district court held that Plaintiff alleged sufficient facts to plead claims of unfair competition and deceptive trade practices under Maryland and Federal law.  Accordingly, the district court denied Defendant Individual’s motion to dismiss.

The full opinion is available in PDF.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

White Oak Power Constructors v. Alstom Power, Inc. (Maryland U.S.D.C.)

Filed: November 7, 2017

Opinion by: Catherine C. Blake, United States District Judge

Holding: Tort claims based on conduct prior to the execution of a contract are not outside the scope of the agreed to forum selection clauses and that enforcing said clauses, which refer to “any legal action” related to the agreement.

Facts: In 2013, Defendant, Old Dominion Electric Cooperative (“Old Dominion”) entered into an Equipment Purchase Agreement (“Alstom Agreement”) with Defendant Alstrom Power, Inc. (“Alstrom”) for three generators for use in the Wildcat Point Generation Facility under development in Rising Sun, Maryland (“the Plant”). In 2014, Old Dominion entered into an Engineer, Procure and Construct Contract (“White Oak Agreement”) with Plaintiff, White Oak Power Constructors (“White Oak”) to construct the Plant and prepare it for operation. All three parties also signed an Assignment, Assumption, and Consent Agreement (“Assignment Agreement”) assigning certain of Old Dominion’s rights and responsibilities from the Alstrom Agreement to White Oak.

The Alstrom Agreement forum selection clause states:

 “Any legal action with respect to this Agreement shall exclusively be brought in the state courts of Virginia located in Henrico County, Virginia or in the United States District Court for the Easter District of Virginia located in Richmond, Virginia…each of the parties irrevocably waives any objection…further irrevocably waives and agrees not to plead or claim in any such court that any action or proceeding brought in any such court has been brought in an inconvenient forum.”       

The Assignment Agreement contains a substantively identical forum-selection provision. In addition, the White Oak Agreement forum selection clause states:

“Both parties hereto agree…to submit to the exclusive jurisdiction of the United States District Court for the Eastern District of Virginia located in Richmond, Virginia, in any litigation between the parties or, if the federal court lacks jurisdiction, the state courts of the Commonwealth of Virginia located in Henrico County, Virginia…contractor hereby waives any objection that it may now or hereafter to the venue of any such suit or any such court or that such suit is brought in an inconvenient forum.”

Plaintiff argued that its tort claims were outside the scope of the forum selection clauses and, even if the tort claims are within the scope of the forum selection clauses, enforcing the clauses would be unreasonable. The court denied all of Plaintiff’s arguments.

Analysis: The court first acknowledged the Supreme Court’s holding that: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied.” Plaintiff made the following arguments against enforcement of the forum selection clauses, and for the following reasons, the court denied each argument in turn:

(1)  Plaintiff’s tort claims were outside the scope of the forum selection clauses.

The court relied on the language of the Agreements to dismiss this claim, citing, “the Alstrom Agreement referred to ‘any legal action or proceeding with respect to this agreement’ and ‘actions of proceedings arising out of or in connection with this agreement.’ Both of these clauses therefore encompass pre-execution conduct of the parties related to the bidding on and negotiation of the agreements, including the alleged fraud in the inducement.”

(2)  Enforcing the clauses would be unreasonable.

The court cited the fourth circuit, explaining, “a forum selection clause may be found unreasonable if: (i) its formation was induced by fraud or overreaching; (ii) the complaining party will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (iii) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (iv) its enforcement would contravene a strong public policy of the forum state.”

The court found none of the above circumstances present, explaining, “[Plaintiff] has not advanced any facts to show that the forum selection clause specifically was obtained by fraud or overreaching…[and Plaintiff] offered no evidence that it will be gravely inconvenient or that it would be unfair to litigate this case in the forum state to which it agreed.” Similarly, there was no discussion of contravening a strong public policy by enforcing the clause. The court concluded, “allowing [Plaintiff] to escape its obligations under the forum selection clause…would be permitting forum shopping.”

(3)  Plaintiff did not bargain for the forum selection clause in the Alstrom Application.

The court quickly dismissed this final argument, explaining, “[Plaintiff] knew it would be subject to assignment of the Alstrom Agreement when it entered in the White Oak Agreement and the Assignment Agreement…[Plaintiff] could have bargained for a different forum selection clause. Instead, it agreed to inclusion of an identical clause in the Assignment Agreement. Further, the forum selection clause in the White Oak Agreement is even broader than that in the Alstrom Agreement.”

The opinion is available in PDF.

Schuster v. SLM Corporation (Maryland U.S.D.C.)

Opinion by Judge Catherine C. Blake

Filed:  October 23, 2017

Holding:  A company does not owe a duty to a non-customer, who it has no direct relationship with, absent special circumstances.

Facts: Plaintiff brought suit against SLM Corporation (hereinafter referred to as company) alleging that the company negligently allowed his daughter to use him as a co-signer on several student loan agreements without his consent. Previously, plaintiff had willingly co-signed for loans for daughter through the same company using a different email address and phone number.  The plaintiff contended that the company should’ve been aware of the fact that he did not consent to being a co-signer on a separate set of loans because there was a new phone number and email address listed on the applications for the new loan. Plaintiff also asserted that the company owed a duty to protect him from the possibility of being fraudulently listed as co-signer. Defendant company submitted a Motion to Dismiss on the basis that it did not owe Plaintiff a duty to protect him from fraud.

Analysis:

Under Maryland law a negligence claim must demonstrate that there is a relationship between the parties, that one require one party to owe a duty to the other. Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 451 Md. 600, 610 (2017). There must be an “intimate nexus.” Id. at 614. The “intimate nexus” only exists where there is contractual privity or its equivalent. Id. at 620.  “[B]anks do not typically owe a duty to their customers beyond whatever contractual relationship might bind them.” 

The court considered plaintiff to be a “non-customer” of the company as it pertained to the claims regarding the separate set of loans. For “non-customers”, a bank owes no duty with whom it has no direct relationship, absent special circumstances.  The court disregarded plaintiffs’ argument that the use of new contact information created a special circumstance because plaintiff failed to raise the argument in his complaint. The court instead considered that argument to demonstrate the scope of its’ analysis detailing the duty a company owes a non-customer.  It stated that the company owes a duty to a customer “limited to the terms of the agreement it arises”. Spaulding v. Wells Fargo Bank, N.A., 714 F. 3d 769, 778-79 (4^th Cir. 2013). The court went on to state that the new contact information was not indicative of fraud as “new contact information is not facially suspect”. And, there is no indication that plaintiff relied on the company or that the company knew or should have known of such reliance. Since plaintiff failed to demonstrate an intimate nexus between himself and the company in this new contract, the court granted the Motion to Dismiss submitted by company.

The opinion is available in PDF.