Friday, December 28, 2018

Omni Direct v. Creative Direct Response (Cir. Ct. Mont. Co.)

Filed:  December 18, 2018

Opinion by: Judge Rubin

Holding:  Section 11-1207 of the Maryland Uniform Trade Secrets Act (MUTSA), which provides for both legal and equitable remedies in the event of a misappropriation of a trade secret, displaces common law claims that could be based on the same set of operative facts, even if “extra” facts are added to the other claims.

Facts:   Two direct mail marketing companies, Omni Direct (Omni) and Creative Direct Response (Creative), signed an NDA to pursue a business development collaboration for targeting the Hispanic community based on Omni’s expertise in this field.  Omni later sued Creative for allegedly using confidential information from Omni to start its own in-house Hispanic marketing program.

Analysis:  11-1207 of Maryland’s Commercial Law Article “displaces conflicting tort, restitutionary and other law…providing civil remedies for misappropriation of a trade secret.”  The purpose of this provision is to avoid pleading in the alternative if a Court decides during the trial that the information is not a trade secret.

This provision, adopted by other states from the Uniform Trade Secrets Act (USTA), has divided courts across the United States into three camps, although Maryland has not examined it in detail.  One, some courts throw out all duplicate common law claims, except contract-based remedies, even if the Court decides the information is not a trade secret.  Two, other courts allow a plaintiff to pursue other civil remedies in that lawsuit.  Three, a final group of courts take a middle of the road approach and displace other claims that are “based solely on the alleged misappropriation of a trade secret.”  Maryland courts have not had the opportunity to evaluate the displacement provision.

Here, the Circuit Court for Montgomery County dismissed Counts IV through VII because they were “grounded in the same core of operative facts” as Counts I through III which claimed a trade secret violation under MUTSA.  Adding “extra” facts and pleading in the alternative is exactly what the USTA sought to avoid with the displacement provision.

The full opinion is available PDF.

Thursday, December 27, 2018

Price v. Murdy (Ct. of Appeals)

Filed: December 18, 2018

Opinion by: Barbera, C.J.

The Maryland Consumer Loan Law (“MCLL”) is considered an “other specialty” under Md. Code Ann., Cts. & Jud. Proc. § 5-102(a)(6), so any MCLL claim has a twelve-year statute of limitations.

Two consumers financed the purchase of their vehicles through loans under $6,000.  The consumers brought a putative class action against a lender for violating the MCLL. The MCLL provides, among other matters, that a person may not engage in the business of making loans unless the person is licensed or meets certain exemptions.  The consumers alleged that the lender was unlicensed under the MCLL.  They further alleged that the lender failed to provide notice of repossession, as well as charged compound interest and inappropriate attorney fees.

The consumers brought this action after Maryland's blanket three-year statute of limitations, therefore the lender asserts that this claim should be barred.  However, the consumers argue that MCLL is an “other specialty” statute, allowing the claim to be brought within a twelve-year statute of limitations.

The United States District Court for the District of Maryland presented a certified question of law to the Maryland Court of Appeals: “Whether the MCLL § 12-302's licensing requirement is an "other specialty" subject to Maryland's twelve[-]year limitations period under [CJP] § 5-102(a)(6)?”

The general statute of limitations in Maryland is three years for civil actions.  CJP § 5-101.  There are exceptions, one of which is a twelve-year statute of limitations for any specialty statute.  CJP § 5-102(a)(6).

The Maryland Court of Appeals addressed a similar issue in Master Fin. Inc. v. Crowder, 409 Md. 51 (2009), when addressing whether the Maryland State Secondary Mortgage Loan Law was an “other specialty” and therefore subject to the twelve-year statute of limitations.

The Crowder Test lays out three elements that must be met for a statute be an “other specialty,” making the twelve-year statute of limitations apply:
(1) the duty, obligation, prohibition, or right sought to be enforced is created or imposed solely by the statute, or a related statute, and does not otherwise exist as a matter of common law;
(2) the remedy pursued in the action is authorized solely by the statute, or a related statute, and does not otherwise exist under the common law; and
(3) if the action is one for civil damages or recompense in the nature of civil damages, those damages are liquidated, fixed, or, by applying clear statutory criteria, are readily ascertainable.
Crowder, 409 Md. at 70.

Applying the Crowder Test, the parties agree that only prong one and three were at issue.

Prong One: The Court of Appeals concluded that the MCLL’s licensing requirement is part of a statutory scheme that includes but is not limited to licensing, interest rates, and attorney fees.  Therefore, the licensing requirement is “created or imposed solely by the statute,” and prong one is fulfilled.

Prong Three: The Court held that “readily ascertainable” is not mutually exclusive from the requirement of fact-finding to determine the damages.  Readily ascertainable should not be confused with “relative ease of proof.”  The Court of Appeals held that the third element is satisfied as the documents and additional information provided by the lender and consumers would allow the damages to be “readily ascertainable.”

The full opinion is available in PDF.

Wednesday, November 7, 2018

URS Corp. v. Maryland-National Capital Park & Planning Commission (Ct. of Special Appeals, Unreported)

Filed: July 6, 2018

Opinion by: Judge Doug Nazarian

Holding: Separate indemnification provisions in multiple documents that form a single agreement between the parties are not in conflict with each other where one indemnification provision provides a duty to defend but the other is silent. 

Facts:  The Maryland-National Capital Park and Planning Commission (the "Commission"), as part of Montgomery County, and URS Corporation ("URS") entered into an agreement for URS to provide the Commission with engineering services for the construction of the Rock Creek Hiker-Biker Trail Bridge over Veirs Mill Road.  The agreement consisted of: (1) a basic ordering agreement between Montgomery County and URS for transportation and engineering services to facilitate the planning and design of various projects (the "BOA"); (2) a request for proposal, extending the basic ordering agreement to include the Commission as a party; (3) a task order issued by the Commission for the specific engineering services; (4) a proposal from URS in response to the task order; (5) a contract between the Commission and URS for the specific engineering services (the "Contract"); and (6) the Commission's procurement rules, regulations and laws.  The BOA contained an indemnification provision that, in addition to indemnification, obligated URS to defend Montgomery County (including the Commission) in any action or suit arising out of URS's "negligence, errors, acts or omissions" arising under the BOA.  The Contract contained an indemnification provision that did not expressly obligate URS to defend any such claims.  The Contract also provided that, in the event of a conflict among the documents comprising the agreement among the parties, the Contract had precedence over the BOA.

Fort Myer Construction Corporation (the "Subcontractor") was retained to assist in the construction of the bridge.  The Subcontractor filed suit against the Commission claiming damages and delays due to defects in URS's design.  The Commission sent a letter to URS invoking URS's duty-to-defend and indemnification obligations under the basic ordering agreement. URS denied the Commission's demand and refused to defend or indemnify the Commission.  The Commission filed suit against URS for breach of contract and sought indemnification and contribution and URS countersued the Commission for failure to pay URS for work performed under the Contract.

Analysis: After multiple hearings and procedural matters that are not relevant for purposes of this analysis, the Court of Special Appeals (in an unreported opinion) affirmed the lower court's finding that URS had a duty to defend the Commission in the lawsuit brought by the Subcontractor.  The court was not persuaded by URS's argument that the indemnification provisions of the BOA and the Contract were in conflict because "the duty to defend is distinct from, and broader than, the duty to indemnify"; therefore, the duty to defend in the BOA supplemented the indemnification obligations in the Contract.  The Contract's silence regarding any duty to defend did not negate the express language of the BOA.  

The court was also not persuaded by URS's argument that the BOA applied only to the pricing of goods and services because the Contract unambiguously and unqualifiedly stated that the BOA was incorporated into the Contract.  The court found URS breached its agreement with the Commission by refusing to defend the Commission in the lawsuit brought by the Subcontractor, even though the suit was ultimately dismissed for a procedural error committed by the Subcontractor, because the duty to defend was triggered by the Subcontractor filing suit against the Commission regardless of the validity of the Subcontractor's claim.

This is an unreported opinion.  See Md. Rule 1-104.

The full opinion is available in pdf.

Wednesday, October 31, 2018

Thomas v. Cameron Mericle, P.A. (Cir. Ct. Mont. Cnty)

Filed: October 4, 2018

Opinion by: Anne K. Albright

Facts: The following facts are as alleged by the plaintiffs in their complaint and recited in the Circuit Court’s decision.  Two homeowners’ associations (HOAs), through two law firms, separately sought to recover HOA dues from two individuals.  With respect to one individual, suit had been filed in a District Court of Maryland to recover the dues.  The law firm in that action threatened to move forward with trial unless the individual signed a confessed judgment promissory note to settle the matter.  The individual signed the note and made all the payments due under the note; however, the law firm confessed judgment against the individual and filed a complaint for judgment by confession in the District Court.  With respect to the other individual, the law firm threatened to file suit unless the individual signed a confessed judgment promissory note to settle the matter.  The individual signed the note and began making the payments due under the note; however, the law firm confessed judgment against the individual and filed a complaint for judgment by confession in the District Court of Maryland.  In both instances, the confessed judgment note included a clause that appointed an attorney on behalf of the individual, who had authority, without any prior notice to or approval from the individual, to file for entry of a confessed judgment against the individual, in a way that waived the individual’s right to assert a legal defense to any action.  The law firms knew or had reason to know that the HOA dues arose from a consumer transaction or debt.

Based on the facts set forth above, the two individuals filed suit against the law firms, asserting the following six claims: (1) violations of the Maryland Consumer Debt Collection Act (“MCDCA”); (2) negligent misrepresentation; (3) breach of contract; (4) fraud; (5) money had and received; and (6) declaratory judgment.  The plaintiffs subsequently abandoned the breach of contract claim.  The law firms moved to dismiss the five remaining claims for failure to state a claim upon which relief can be granted.  The law firms sought to have all of the claims dismissed with prejudice on the basis of res judicata, arguing that the individuals could have raised defenses to the confessed judgments with the filing of a timely motion in the District Court, and having failed to do so, the individuals were barred from bringing those claims in the Circuit Court action.  Alternatively, the law firms sought to have the claims dismissed on the basis of the facts plead and the merits of the claims.

Analysis/Holding:  The Circuit Court rejected the law firms’ res judicata argument, holding that, because the individuals’ claims were not mandatory counterclaims in the underlying confessed judgment proceedings before the District Court and were not litigated in those proceedings, the individuals were not precluded from asserting the claims in the Circuit Court.  The Court also noted that, even if they had wanted to, the individuals could not have asserted their claims in the confessed judgment proceedings because the claims were either equitable in nature or the amount in controversy exceeded $30,000, such that the claims fell outside the jurisdiction of the District Court.  

Next, the Court discussed the MCDCA claim (Count 1).  The Court noted that “[t]o prove an MCDCA violation, a plaintiff must prove that 1) defendant is a debt collector; 2) defendant’s conduct in attempting to collect a debt was prohibited by the MCDCA [(e.g., to claim, attempt, or threaten to enforce a right with knowledge that the right does not exist)]; and 3) the underlying debt is ‘consumer’ in nature.”  In seeking dismissal of the MCDCA claim, the law firms focused on the first and third elements listed above, arguing that because the debts arose out of confessed judgment promissory notes, which are settlements separate from the underlying consumer transaction, the law firms were not “debt collectors” seeking to collect “consumer” debt.  The Court rejected that argument, holding that “the Law Firms used Confessed Judgment Promissory Notes and then sought confessed judgments.  Because use of those notes and pursuit of those judgments are additional steps the Law Firms allegedly took in order to collect HOA dues, both steps are subject to the MCDCA.”  The Court ultimately dismissed the MCDCA claim on the basis that the plaintiffs failed to allege that the law firms had any actual or constructive knowledge of wrongful conduct, as required under the second element of the claim.  However, the dismissal was without prejudice and with leave to amend the complaint, with the Court noting that a viable MCDCA claim might be asserted if the law firms charged inappropriate “add-on” fees and costs, such as late charges, attorneys’ fees or default interest, with knowledge or reckless disregard of the fact that such add-on fees and costs were not properly chargeable.

The Court then dismissed the negligent misrepresentation claim (Count 2), with prejudice, holding that the plaintiffs failed to allege, and that the Court could not identify, a duty of care owed by the law firms to the individuals.  The Court next dismissed the fraud claim (Count 4) and the money had and received claim (Count 5) because the individuals failed to allege actual facts, rather than general allegations, in support of requisite elements of those claims.  Finally, the Court, having dismissed all of the other claims, held that there was no current actual controversy between the plaintiffs and the law firms, and dismissed the declaratory judgment claim (Count 6).

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.

Tuesday, October 2, 2018

IES Commercial v. Manhattan Torcon A Joint Venture (Maryland U.S.D.C.)

Filed: September 26, 2018

Opinion by: Judge Bennett

Holding:  Subcontractor’s breach of contract claim fails under the “cardinal change” theory because the parties amended the contract and therefore Subcontractor was not “ordered” to perform additional work outside the scope of the original contract.

Facts:  The U.S. Government hired General Contractor to build a biological research facility for the Army at Fort Detrick.  General Contractor hired Subcontractor for the electrical work.  A fire destroyed the building after Subcontractor had performed 92.5% of the work.
General Contractor and Subcontractor agreed to a Fire Rider that amended the original contract.  The rider set forth new, additional terms and conditions.  The Subcontractor then performed fire mediation work pursuant to the rider.  However, because the General Contractor was not required under the Fire Rider to pay the Subcontractor until the insurer paid the General Contractor, the General Contractor refused to pay the Subcontractor for a portion of the additional work.  The Subcontractor sued for breach of contract under a cardinal change/quantum meruit and other theories. 

Analysis:  A “cardinal change” occurs in the context of a government contract “when the government demands a contractual alteration ‘so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.’”  Hancock Electronics Corp. v. WMATA (4th Cir. 1996).  This theory developed when the government began issuing unilateral contract modifications without seeking the consent from subcontractors and without being in breach of contract.  Crown Coat Front Co. v. US (USSC 1967).  If the unilateral modification exceeds the scope of the contract’s changes clause, then a cardinal change has occurred.  AT&T Comms. v. Wiltel (Fed. Cir. 1993).  Accordingly, a change is cardinal when it cannot be said to have been within the contemplation of the parties when they entered into the contract.  When the government orders a modification that constitutes a cardinal change, the result is a material breach of the contract, which “has the effect of freeing the contractor of its obligations under the contract, including its obligations under the disputes clause.” JJK Grp. v. VW Int’l (D. Md. March 27, 2015).

Here, the Subcontractor asserted that the fire “changed the nature of the Project from new construction to a disaster recovery, restoration, and reconstruction Project,” fundamentally altering the work Subcontractor had contracted to perform for General Contractor under the Subcontract.  However, the parties amended the contract via the Fire Rider, so the government never took unilateral action in altering the contract.  Similarly, the fire itself cannot be considered a cardinal change, nor can the altered work be either.

The full opinion is available PDF.

Sunday, September 30, 2018

Blackstone v. Sharma (Ct. of Appeals)

Filed August 2, 2018

Opinion by Joseph M. Getty

Holding:  The Maryland Collection Agency Licensing Act does not require foreign statutory trusts to obtain a collection agency license before pursuing foreclosure actions against Maryland homeowners. 

The instant action includes two cases consolidated before the Court of Special Appeals and two additional actions appealed directly from circuit court foreclosure proceedings.  While not identical, the four cases are substantially similar and amalgamated below. 

Petitioners are a group of foreign statutory trusts ("Trusts") and their substitute trustees (“Substitutes”)Trusts became beneficiaries in deeds of trust as part of securitized pools of defaulted mortgage loans and designated Substitutes to initiate foreclosure actions.  Respondents (“Homeowners”) are Maryland homeowners who defaulted on home loans made between 2006 and 2007.   

In each of the four cases, Homeowner obtained a loan on a Maryland home and within a few years missed a payment, defaulting on the note.  Sometime later, Trust acquired the debt obligation as part of a securitized pool and appointed Substitute to enforce the security interest.  Substitute initiated foreclosure proceedings sometime between 2014 and 2016. 

In response, Homeowner filed a counter complaint alleging Trust and Substitute had acted as a collection agency as defined under the Maryland Collection Agency Licensing Act (“MCALA”) when it purchased the defaulted loan, collected mortgage payments, and initiated foreclosure, but violated MCALA and the Maryland Consumer Debt Collection Act (“MCDCA”) by failing to acquire the required MCALA license.  Under the theory that any judgment obtained by an unlicensed entity acting as a collection agency would be void, Homeowner requested that the court dismiss or enjoin the foreclosure sale. 

Trust and Substitute argued in response that (1) they did not conduct business in Maryland, (2) they did not conduct business as a collection agency subject to MCALA, (3) MCALA did not apply to in rem proceedings, (4) foreign statutory trusts were exempted from MCALA, and (5) Homeowner had failed to specify a relevant defense under Maryland foreclosure law. 

The circuit court found Trust to have failed to provide convincing evidence that they constituted a trust company, a type of entity specifically exempted from relevant MCALA sections, and was therefore subject to MCALA’s licensing requirements.  Accordingly, the circuit court concluded Trust had no right to bring the foreclosure action and dismissed the case without prejudice. 

Trust and Substitute thereafter appealed to the Court of Special Appeals who consolidated the two cases and held that a foreign statutory trust must meet the MCALA licensing requirements unless some other MCALA exception applies.  The Court of Special Appeals held Trust and Substitute to be barred from bringing foreclosure action, affirming the judgment below. 

Trust and Substitute filed petition for writ of certiorari to the Court of Appeals.  The Court of Appeals granted certiorari in 2017 and consolidated the cases with two similar cases pending appeal in the Maryland court system. 

In addressing each of the underlying cases, the court found six questions for review which ultimately hinged on the answer to one fundamental question: did the Maryland General Assembly intend to require foreign statutory trusts to obtain a collection agency license pursuant to MCALA before pursuing an in rem foreclosure proceeding? 

Such an inquiry required the court to undertake statutory construction analysis, beginning with the plain language of the statute, reviewing the legislative history to confirm or negate alleged latent intent, and finally considering external relationships to both subsequent and related legislation that fairly bore on the issue of legislative purpose. 

Turning first to the plain language of the statute, the court found MCALA to generally require a person to have a license whenever he does business as a collection agency in the State, which MCALA defined in BR § 7-101(d):

(d) “Collection agency” means a person who engages directly or indirectly in the business of:   
(icollecting for, or soliciting from another, a consumer claim; or  
(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it;
(2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim;   
(3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or  
(4) employing the services of an individual or business to solicit or sell a collection system to be used for collection of a consumer claim. 
While MCALA BR § 7-102(b) specifically exempted a list of entities including a trust company, it failed to define any of the entities.  And although the commonly understood meaning of collection agencies as entities sending letters, making calls, and filing collection suits for consumer debt aligned with a majority of the relevant § 7-101(d), the court found it not to comport with § 7-101(d)(1)(ii) which was added in 2007 departmental bill, raising a question about whether the General Assembly intended to move away from the ordinary meaning it ascribed when MCALA was originally passed in 1977.

The court also identified the ambiguity in § 7-101(d)’s phrase “engages directly or indirectly in the business of.”  Because foreign statutory trusts act solely through trustees and substitute trustees and have no employees, offices, or identified pursuit in the State, the court found it difficult to conclude foreign statutory trusts engage either directly or indirectly in the business of a collection agency where it was difficult to reach a determination of whether they conduct business at all.

Homeowners pointed to a lack of ambiguity in the § 7-101 definition of consumer claim as “arising from a transaction in which the resident sought or got real property.”  But the court found this to be only incidental to whether the General Assembly intended to license certain actors in the mortgage industry as opposed to merely those actors in the collection agency industry.

Because of the substantial ambiguity, the court next turned to the General Assembly’s legislative history regarding consumer debt collection laws.  Looking at the State’s first collection agency licensing statute from 1977, the court found the statutory language at that time to intend only to require licensure for third party collection agencies that collected or solicited debt of others.  Moreover, the legislature at that time grouped together a subsection of exempted actors within the mortgage industry: banks, trust companies, savings & loan associations, building & loan associations, and mortgage bankers.  Further analysis indicated that the legislature anticipated a specific set of 110 collection agencies would be required to apply for a license, signifying an intent to specifically regulate these actors to prevent abusive practices in collection of retail and medical accounts.

In 2007, the Maryland Department of Labor, Licensing, and Regulation (“DLLR”) requested a bill which in relevant part changed the definition of collection agency to that described above in § 7-101(d).  Examining the bill request, the court found a narrowly tailored request to regulate actors in the collection industry employing a loophole to evade the licensing requirement by purchasing consumer debt in a goods & services contract.  The court therefore found the intent not to regulate actors outside the collection agency industry but to ensure all actors within that industry were in compliance with the MCALA licensing requirement and subject to its complaint resolution and regulatory oversight.

Further, DLLR’s fiscal estimate projected only 40 additional debt purchasers to be subject to the new 2007 definition and licensing requirement with an expected growth of only 2 additional licensees per year, a far cry from the projected effect on regulating an entirely new industry.

The court found this interpretation to be confirmed by the bill’s purpose paragraph, Fiscal and Policy Note, Floor Report, and written testimony by DLLR proponents and other supporters of the bill.  Moreover, the bill file lacked any written testimony in opposition from any representatives of the mortgage industry, who were vocal and active in their response to foreclosure reform bills in 2009.

Aggregating all of the components of the legislative history, the court was persuaded that the General Assembly did not intend to regulate or license mortgage industry actors such as foreign statutory trusts as collection agencies.

The court finally turned to subsequent and related legislation to confirm its interpretation.  A State Task Force had been created in 2007 to respond to rising foreclosure rates and recommend changes to laws and regulations in the mortgage industry.  The Task Force summarized the state of the mortgage industry at that time as comprising a primary and secondary market; the primary market originating loans to homeowners and the secondary market selling those loans as portfolios to reduce risk and recharge the assets of primary lenders.  In the Task Force’s explanation, this model only worked if business entities like statutory trusts could exist as mere repositories for the loans.  Trustees and substitute trustees would then be the actors who manage and control the trust’s assets, while the servicer would collect payments and interact with borrowers.

As it developed and delivered its recommendations, at no time did the Task Force invoke or mention MCALA or collection agency licensing requirements.  Further, the Task Force identified over 6,000 mortgage licensees under the State’s Mortgage Lender law and more than 10,000 originators, a stark contrast to the total 1,304 MCALA licenses at that time.

The General Assembly did take the Task Force’s eventual recommendations and enact proposals during its 2008, 2009, and 2010 sessions to create a comprehensive scheme for regulating the mortgage industry and foreclosure process to protect Maryland homeowners.  In short, the court found the General Assembly to have consciously separated the consumer debt industry under MCALA from the mortgage industry and did not intend MCALA to regulate mortgage industry actors involved in foreclosure proceedings.

Placing the final truss in the bridge, the court pointed to the General Assembly’s enactment of the Maryland Statutory Trust Act in 2010, which required foreign statutory trusts to register with the State Department of Assessments and Taxation (“SDAT”) prior to conducting business, and stating in relevant part: “the following activities of a foreign statutory trust do not constitute doing business in this State: … (5) foreclosing mortgages and deed of trust on property in this State[.]”

When viewing MCALA, foreclosure reform legislation, and the Maryland Statutory Trust Act together, the court found a clear General Assembly intent to regulate and license a separate collection agency industry through MCALA, to regulate the mortgage industry actors and process of in rem foreclosure proceedings through its foreclosure reform measures, and a specific effort to exempt trusts from having to obtain an SDAT registration when simply seeking a foreclosure.

Accordingly, the court held (1) that the General Assembly did not intend for foreign statutory trusts to be required to obtain a collection agency license under MCALA prior to filing foreclosure actions in circuit court, and (2) foreign statutory trusts to be outside the scope of the collection industry regulated and licensed under MCALA.

The full opinion is available in PDF.