Friday, January 12, 2018

Willow Grove Citizens Assoc. v. County Council of Prince George's County, Maryland (Ct. of Special Appeals)

FiledDecember 20, 2017

Opinion byStuart R. Berger

Holding:  A Maryland LLC’s participation in an administrative proceeding by filing for a zoning special exception was valid even though the LLC had forfeited its right to do business in Maryland.  A foreign unregistered corporation's participation in the proceedings as agent or co-applicant did not invalidate the application because the isolated action did not constitute doing business in Maryland.

Facts:  Appellee (“LLC”) in 2001 purchased a parcel in Bowie, Maryland with the intent to construct an assisted living facility.  The parcel being zoned "Rural Residential," prior owner had obtained a special exception for this same purpose but had never developed the land.

In 2012, LLC neglected its State Department of Assessments and Taxation ("SDAT") obligations and forfeited its right to use its name and do business in Maryland.  LLC's sole member was a corporation organized in the District of Columbia not registered to do business in Maryland.  LLC's rights remained forfeited in February 2014 when it applied for a special exception to operate an assisted living facility on the parcel.

The application was accepted, heard, and granted in October 2014 by the local planning commission ("Examiner").  People's Zoning Counsel, appointed by the County Council to protect the public interest and create a full and complete record, was the same attorney who had conducted the settlement and subsequent contract work around the sale of the parcel to LLC.  The record showed no objections made after his disclosure of prior involvement and no objection to his participation in the proceedings.  Examiner's decision was appealed to the County Council who remanded the matter for a determination of LLC's standing with SDAT.

In May 2015, LLC's rights were reinstated, and a month later the sole member became a qualified corporation in Maryland.  LLC provided certificates of good standing at the subsequent rehearing where the Examiner recommended approval.   Appellant, a civic association ("Citizens"), appealed to the County Council, who found LLC legally authorized to file an application for a special exception concerning real or personal property, that forfeiture had not impaired the validity of such a filing, and that the act of applying for a special exception did not constitute doing business.  The Circuit Court for Prince George's County affirmed.

Analysis:  Because Citizens accepted the factual record and objected only to the decision of the County Council on legal grounds, the only question before the court was whether the approval for special exception had been premised on legally erroneous conclusions of law.

Evaluating Citizens' claim that LLC's actions in pursuit of a special exception were a legal nullity, the court pointed to § 4A-911 of the Corporations & Associations Article (emphasis added):
The forfeiture of the right to do business in Maryland and the right to the use of the name of the limited liability company under this title does not impair the validity of a contract or act of the limited liability company entered into or done either before or after the forfeiture, or prevent the limited liability company from defending any action, suit or proceeding in a court of this State.
Irrespective of its forfeiture, LLC remained a legal entity with the power to enter binding contracts at any time.  What of the statute's proscription against bringing lawsuits?  Continuing on, the court found that because LLC had not filed its application "in a court of this State," the implicit prohibition against initiating suits was irrelevant.

"What about the sole member's initial status as an unregistered corporation?," pressed Citizens.  Applying a similar analysis, the court cited § 7-103 of the Corporations & Associations Article to find unregistered corporations to be entitled to engage in many in-state activities such as maintaining, defending, or settling actions, suits, claims, disputes, administrative or arbitration proceedings.  Citizens failed to meet their burden to prove the sufficiency of sole member's contacts or actions within the state to constitute "doing business,"  therefore, the sole member's status as co-applicant or agent in pursuing the special exception was also irrelevant. 

Finally, the court found that Citizens had not preserved for judicial review the question of People's Zoning Counsel's alleged conflict of interest because it failed to raise the issue at any stage of the administrative proceedings.

Accordingly, the court found the County Council's decision to approve the application for special exception to be correct as a matter of law.

The full opinion is available in PDF.

Monday, January 8, 2018

Gary W. Stisser v. SP Bancorp, Inc. (Ct. of Special Appeals)

Filed: November 29, 2017

Opinion by: Andrea M. Leahy

Holding: In a shareholder class action lawsuit for breach of directors’ fiduciary duties following a merger, Maryland did not have personal jurisdiction over directors of the company incorporated in Maryland, nor over the Texas-based merging company because under the jurisdictional analysis it is insufficient that the Texas-based merging company merely incorporated a subsidiary in Maryland to facilitate the merger but conduct no other business activity there, and mere directorship in a Maryland company is insufficient given the absence of factors such as: a director-consent statute, actual business activity in Maryland, and any merger-related activities directed toward Maryland.

Facts: Appellants are shareholders of a company incorporated in Maryland (the “Company”). Appellants filed a shareholder class action lawsuit for breach of fiduciary duties following the merger of the Company into a Maryland subsidiary (the “Maryland Subsidiary”) of a bank holding company incorporated under Texas law with its principal place of business in Texas (the “Holding Company”). The lawsuit named both the Company and its directors (the “Directors”), as well as the Holding Company and its Maryland Subsidiary, as the defendants. 

Appellants are not residents of Maryland. They owned shares in the Company. The Company was incorporated in Maryland, but its headquarters and principal place of business were located in Texas. The Company served as a holding company and parent of a Texas-chartered state bank. The Company did not have any offices in Maryland and did not employ any individuals in Maryland. The Directors did not reside in Maryland, nor were they employed there. The merger negotiations with the Holding Company took place in Texas. 

The Circuit Court for Baltimore City granted motions to dismiss by the defendants, finding in part that the Court lacked personal jurisdiction over the Directors and the Holding Company. The questions on appeal were whether the Holding Company subjected itself to personal jurisdiction in Maryland by forming the Maryland Subsidiary, and whether the Directors were subject to personal jurisdiction because they filed the Articles of Merger in Maryland.  

Analysis: Personal jurisdiction over out-of-state defendants must be established under Maryland’s long-arm statute and comport with the Due Process Clause of the Fourteenth Amendment. Appellants argued that Maryland had general jurisdiction over the Holding Company because it formed the Maryland Subsidiary as an instrumentality or alter ego, and exercised complete control over the Maryland Subsidiary until it was shuttered following the merger. Appellants did not argue the Holding Company was “at home” in Maryland under the traditional  general jurisdiction analysis. 

The Court held that the incorporation of and control over a subsidiary in Maryland is insufficient to establish general jurisdiction over the nonresident parent company, citing in support DaimlerChrysler AG v. Bauman, 134 S. Ct. 746 (2014). In Daimler, Argentine residents sued a U.S. subsidiary of a German parent company whose Argentine-based subsidiary allegedly collaborated in government war crimes. The Supreme Court rejected the establishment of personal jurisdiction over a parent company due merely to its control over a resident subsidiary. Thus, Appellants’ argument fails. 

Moreover, even if the Maryland Subsidiary were an alter ego of the Holding Company, the Holding Company would only be subject to personal jurisdiction upon a showing that it was “at home” in Maryland. Normally, this means the place of incorporation and principal place of business.  

The Court also rejected Appellants’ claim that the Holding Company’s actions of forming the Maryland Subsidiary and consummating the merger in Maryland subjected the Holding Company to specific jurisdiction.  The Court found that the Holding Company did not “transact business,” pursuant to Maryland’s long-arm statute, because the mere filing of the Articles of Incorporation of the Maryland Subsidiary are insufficient.  The Maryland Subsidiary was not intended to do business in Maryland and did not direct activities toward Maryland residents. The Holding Company did not have offices or solicit business in Maryland, nor did it appoint a registered agent there. Moreover, the filing of the Articles of Incorporation is only tangentially related to the underlying claims, and thus insufficient for specific jurisdiction. Additionally, the filing of the Articles of Merger is also insufficient because these were not filed by the Holding Company. 

The Court rejected the argument that by accepting directorship in the Company, the Directors are subject to personal jurisdiction in Maryland. The Maryland legislature never enacted a “director consent” statute which is necessary to provide prospective directors notice sufficient enough to satisfy the Due Process Clause in light of the Supreme Court’s ruling in Shaffer v. Heitner, 433 U.S. 186 (1977). The Court also held that the Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522 (4th. Cir. 1987) ruling — which held that a director-consent statute is not always necessary because Shaffer did not require any particular statutory “words of art” — did not apply here because the Pittsburgh Terminal corporation actually did business in the forum state, unlike the Company here. 

The Court also rejected the Appellants’ argument that the Directors are subject to personal jurisdiction because the Directors caused the merger in Maryland and filed the Articles of Merger in Maryland. Appellants did not allege that the Directors directed any contact toward Maryland with respect to the merger. The Directors were non-residents who never entered Maryland in connection with Company business. The filing of the Articles of Merger was the only act that occurred in Maryland. The filing cannot be imputed to the Directors for jurisdictional purposes because the Directors did not file the Articles of Merger personally and did nothing more than participate in the merger decision.

The opinion is available in PDF here.