Moore v. Donegal (Ct. of Special Appeals)

Filed: September 30, 2020

Opinion by: J. Graeff

Holding: Whether a settlement offer was accepted within a reasonable period of time is a question of fact rather than law. 

Facts: In the course of litigating a negligence claim, the Appellee’s insurance adjuster offered to pay the Appellant a sum of $18,000. This offer was made prior to trial. During trial, Appellant made a $21,000 counter offer, which was declined and the original offer was reiterated. The trial continued and Appellant communicated acceptance of the $18,000 to opposing counsel during a recess. The Appellee’s insurance adjuster stated that the offer was no longer available. The jury trial ended and returned a verdict for the defendant. 

Appellant filed a suit for breach of a settlement agreement and a motion for summary judgement that it was undisputed that a contract had been formed. Appellee filed a motion for summary judgment that it was undisputed that a breach of contract did not occur. The circuit court denied Appellant’s motion and granted Appellee’s motion. The question before the Court was whether the circuit court had erred in doing so. 

Analysis:

The Court held that the circuit erred in granting Appellee’s motion based on its finding, as a matter of law, that the offer had lapsed. The circuit court had found that the offer lapsed after a reasonable amount of time, which not only considers the passing minutes or hours, but also the broader context. Here, the trial had advanced to a different procedural posture from the time of offer to the attempted acceptance. Thus, the offer had lapsed.

The Court held that this was a matter for the trier of fact to decide, as it is an issue of fact rather than an issue of law. The sole issue was whether the offer lapsed or whether Appellant accepted it within a reasonable amount of time. The Court relied on Barnes v. Euster, 240 Md. 603 (1965), which held that generally the reasonableness of delays in acceptance is a question of fact unless those facts and inferences are undisputed. In Barnes, two years after an offer for the purchase of real estate subject to an unfulfilled condition to obtain rezoning was terminated by the seller, the buyer stated it was willing to waive such condition. The Barnes court held that the delay in acceptance was unreasonable as a matter of law, given the seller’s notice of termination and the rapidly rising prices of real estate. 

Here, the delay was a matter of hours not years, and there is no case in Maryland standing for the proposition that settlement offers lapse, as a matter of law, when the procedural posture of a case changes. An offer made during trial would certainly end at the time of final judgement, but not necessarily when trial merely resumes. When an offer that does not specify a time for acceptance is pending while trial proceeds, the issue of whether the offer was accepted in a reasonable amount of time is generally an issue of fact. The Court cited persuasive authority from a Pennsylvania case regarding settlement of a negligence case that circumstances such as the nature of the contract, the relationship of the parties, their course of dealing and usages of the particular business are all relevant. 

The full opinion is available in PDF.

Marcia Rankin, et al. v. Brinton Woods of Frankford, LLC, et al. (Ct. of Special Appeals)

Filed: June 27, 2019

Opinion by: J. Sharer

Holding: A contract was held to be procedurally and substantively unconscionable for failing to highlight arbitration, mediation and waiver of jury trial provisions through formatting; using misleading, contradictory, and undefined terms; and including an arbitration deposit requirement and loser-pay-all provision that could preclude recourse for parties lacking financial resources. 

Facts: Plaintiff filed a negligence suit for survival and wrongful death against the Defendant, a care center where the deceased allegedly developed serious health concerns. Defendant filed a motion to compel arbitration pursuant to the admission contract. The circuit court granted the motion as to the survival claims and stayed the wrongful death proceedings. On appeal, Plaintiff argued that the admission contract was unconscionable. 

Analysis: In order to decline to enforce an arbitration agreement, a court must find both procedural and substantive unconscionability. Doyle v. Fin. Am., LLC, 173 Md. App. 370, 383 (2007). The Court held that the contract was procedurally unconscionable because it was a standard-form contract, drafted entirely by Defendant. The first paragraph misleadingly stated that the contract contains financial obligations and residents’ rights. It failed to mention that the contract also contained a waiver of a constitutional right to a jury trial. Another section of the contract stated that it was impossible to cover all important matters in that document and that additional important documents were attached as exhibits. However, no attachments were included in the record, and there were no attachments regarding arbitration, mediation, and waiver. Additionally, the mediation and arbitration provisions were simply numbered paragraphs in the same format as the other paragraphs. They were not emphasized by bold, underlined or italicized font. The failure to highlight the arbitration, mediation and waiver provisions supported a finding of unconscionability. 

The Court held that the contract was substantively unconscionable because it did not provide criteria for the selection of mediators or scheduling and timing details for mediation. It did not address allocation of fees or costs of mediation. The arbitration provisions lacked clarity and were conflicting. The arbitration process would be consistent with the “American Arbitration Associate (sic)”. The terms “Arbitration Committee” and “subcommittee of three” were not defined; the latter was used only once. The word “binding” is used for the first and only time in section D of the clause. The last two paragraphs of section D present conflicting terms: the first paragraph states that the losing party can submit the matter to a state court. The next paragraph states that the “judgement” shall not be appealable; this is the first and only time the term “judgment” is used. Defendant is a sophisticated party, and these errors and ambiguities support a finding of unconscionability. Furthermore, there is no guidance on any estimated range of fees and costs, in addition to a loser-pays-all provision. A party who cannot pay the $1,000 arbitration deposit may have to forgo arbitration. These clauses could preclude recourse for a party lacking financial resources.

The circuit court had held that the admission contract was not unconscionable, but provided no factual support for its finding. See Henry v. Gateway, Inc., 187 Md. App. 647, 658 (unconscionability issues are often fact-intensive and the burden is on the party opposing arbitration). On appeal, Plaintiff also argued that the circuit erred in granting the motion based on its finding of apparent agency theory; the Court agreed. 

Full opinion available in PDF. 

Maryland Financial Bank v. Congressional Bank (Cir. Ct. Mont. Cnty)

Filed: May 17, 2018

Opinion by: Judge Anne K. Albright

Holding:  Assignment of key obligations undertaken by a party to a contract containing an anti-assignment provision or other protective provision in favor of the non-assigning party is invalid and unenforceable if such assignment is made without the consent of the non-assigning party. 

Facts:  American Bank (“American”) originated a loan that was secured by a first lien against real property (the “Loan”).  American simultaneously entered into a participation agreement with Maryland Financial Bank (“MFB”) entitling MFB to an undivided 50% interest in everything arising from or out of the Loan and Loan documents.  The participation agreement provided that, among other things, American could not make material changes to the terms of the Loan without MFB’s consent or assign its obligations or duties as servicer of the Loan without MFB’s consent, but American could sell additional participations in the Loan (provided such action would not adversely affect the rights of MFB), control the course of action upon a Loan default after consulting MFB, and service the Loan.  MFB simultaneously sold a majority of its participation interest to National Bank of Cambridge, which later became 1800 Bank (“1800”).

American began to effect a plan of merger with Congressional Bank, during which time American declared a default on the Loan and, with the assistance of Congressional, assigned all of American’s right, title and interest in the Loan to Democracy Capital Corporation (“Democracy”). Congressional continued servicing the Loan after assignment to Democracy.  The assignment was made without MFB’s consent and, among other things, provided Democracy with a consent right before Congressional could take action upon an event of default and gave Democracy the right to terminate Congressional as the servicer.  MFB filed suit against Congressional and Democracy claiming that, by assigning the Loan to Democracy, Congressional had violated the participation agreement; 1800 was joined as a necessary party and all parties countered seeking a declaration as to their respective rights.  As part of a settlement agreement, Congressional transferred its servicing obligations to 1800 with MFB’s consent and over Democracy’s objections, and MFB, 1800 and Congressional dismissed their claims against each other; however, MFB, Democracy and 1880 were still seeking declaratory judgment as to 1880’s and Democracy’s rights and obligations relating to the Loan.  Democracy argued that 1800 did not have standing to seek a declaratory judgment as it was not a party or third-party beneficiary of the assignment between Democracy and American/Congressional.

Analysis:  As an initial matter, the Court held that, because 1800 was a party to the settlement agreement, it had standing to bring an action for declaratory judgment. Applying the “cardinal rule of contract interpretation” to “give effect to the parties’ intentions,” the court further held that the assignment to Democracy of certain of American’s key obligations related to the Loan violated the terms of the participation agreement.  Although the participation agreement gave American the right to sell participation interests in the Loan on terms different from those in participation agreement with MFB, American could not involve other participants in a manner that would adversely affect the rights and obligations of MFB.  After the assignment, not only did Democracy have the same right as MFB to prevent Congressional from assigning the servicing obligations, it could actually terminate Congressional as the servicer; Democracy also had final say as to the course of action upon a Loan default.

Democracy’s claim that the assignment of the servicing from Congressional to 1800 without Democracy’s failed because the court held that Democracy never had the right to consent to such assignment in the first place as the provisions of the assignment of the Loan to Democracy purporting to give Democracy the right to terminate Congressional as the servicer and withhold consent to any assignment by Congressional of its servicing obligations were invalid.  Therefore, 1800, as the sole servicer of the Loan pursuant to the settlement agreement, was the only party who had the right to foreclose on the real property that had been mortgaged as collateral for the Loan. 

Full text of opinion available here.

Rullan v. Goden (U.S.D.C.)

Filed: March 24, 2016

Opinion by: Catherine C. Blake, District Judge

Holdings:  (1) Personal jurisdiction over an out-of-state entity can be shown when a related entity transacts business in Maryland and the out-of-state entity does not maintain separate books and records, accounting procedures and directors’ meetings from the related entity.  

(2) Maryland may be considered an out-of-state entity’s principal place of business if that entity lists a Maryland address on its tax forms and stores business records primarily at its Maryland location.

(3) When the sole shareholders and directors of business entities sign an agreement that addressed the ownership of those entities, the entities are bound by that agreement.

(4) An oral employment contract that lasts for one year is not enforceable under Florida law if it is not reduced to writing and signed by the party against whom it is sought to be enforced.  When a contract contemplates a one-year employment relationship, performance is not deemed complete when a superseding agreement is formed within that one-year period. 

(5) A contract is not void as contrary to public policy unless its illegality is clear and certain.

(6) Under West Virginia law, a contract may be enforceable when the language of an agreement indicates that the parties fully intend to be bound, but they contemplate a more elaborate formalization of the agreement.  The formalization of the agreement is not a condition precedent to the agreement unless the parties expressly indicate as much.

(7) Judicial dissolution may be proper when there is illegal, oppressive or fraudulent action by majority shareholders with respect to minority shareholders.  Under Maryland law, conduct is oppressive when it substantially defeats the reasonable expectations held by minority shareholders in committing their capital to the enterprise. 

(8) Financial accounting is an available remedy when shareholder oppression is present. 

Facts:  Daughter and Father were each 50% owners of Company 1, based in West Virginia, and Company 2, based in Maryland, which owned and managed a West Virginia summer camp (the “Camp”).  As Father contemplated leaving the summer camp business, he and Daughter wanted to add a European partner to help Daughter run the Camp.  Father and Daughter believed that Plaintiff, a Spanish national, could help with the Camp’s revenue by recruiting European children from wealthy families.  Plaintiff had attended the Camp as a camper and a counselor for about 20 years.

On December 7, 2010, Father, Daughter and Plaintiff met in Florida to discuss Plaintiff’s possible involvement with the camp.  They discussed the Camp’s debt, liabilities and size, but Father and Daughter did not correct Plaintiff when he presented inaccurate figures.  According to Plaintiff, the parties agreed that Plaintiff would work for $72,000 annually to recruit European campers, and if this worked out well, Father would sell Plaintiff his 50% share of the Camp.  Daughter could also make Plaintiff her full partner at any time during this first year.  Father, on the other hand, insists that he told Plaintiff that he would need to work successfully with Daughter for one year before he would sell his interest to Plaintiff.  The meeting minutes indicated that Plaintiff would work as an employee for at least one year, after which there would be an evaluation and an opportunity for Plaintiff to obtain shares of the company “if everything goes well.”  However, in the course of working with the Camp, Daughter soon began referring to Plaintiff as her “partner.”  In January 2011, Plaintiff and Daughter formed a new business entity, Company 3, to recruit more campers from Europe.

In January 2011, Father executed a promissory note naming him and Company 2 as jointly responsible for a $350,000 loan that had apparently been made to him in 2009 and which he had not disclosed to Plaintiff.  Plaintiff was also unaware of other issues, such as lawsuits against the Camp, Father and Daughter’s commingling of personal and Camp funds, and the true acreage of the Camp.

   

To secure a visa for Plaintiff to work in the United States, Plaintiff and Daughter were each advised to contribute $55,000 to Company 3.  Plaintiff invested $55,000 of his personal funds in Company 3, but Daughter contributed nothing.  Still, Plaintiff and Daughter each received half Company 3's stock shares.  Daughter also transferred the $55,000 Plaintiff had invested in Company 3 to Company 2, explaining to Plaintiff that the money was being borrowed for Camp expenses.  Daughter told Plaintiff that the $55,000 would be credited toward Plaintiff’s eventual purchase of the Camp from Father.

During the summer of 2011, Plaintiff worked at the Camp.  Father and Daughter were displeased with Plaintiff’s work.  Plaintiff also learned for the first time that two different companies, Company 1 and Company 2 owned the Camp, and that the Camp struggled to pay its bills on time.

Plaintiff, Father and Daughter met in June 2011 to discuss committing the partnership agreement between Plaintiff and Daughter to writing.  Father and Daughter continued to refer to Plaintiff as Daughter’s “full partner in the Camp” and assured Plaintiff that the Camp was doing well financially, though they did not disclose the extent of the Camp’s liabilities or cash-flow related challenges.  In August 2011, Daughter asked Plaintiff to lend $50,000 to the Camp to cover a cash-flow shortage.  Plaintiff did so, thereby depleting his life savings.

 

In late August 2011, the three met again to discuss various issues concerning the partnership.  They drafted and all signed a document called Partnership Stock Agreement (“PSA”) at that time.  Nevertheless, Father subsequently contended that this was a letter of intent contemplating a formal agreement in the future, and that he still needed to evaluate Plaintiff’s involvement, particularly given that the one-year vetting period had not been completed and he was not happy with Plaintiff’s performance during the summer.

   

The August 24, 2011 PSA included several terms.  Plaintiff was to pay $50,000 per year for ten years to purchase 50% stock in Company 1 and Company 2.  $50,000 of the %55,000 that Plaintiff invested in Company 3 was to be credited toward his stock purchase.  The PSA provided other terms, such as agreement as to the manner in which to invest profits and limits on expenditures requiring consent from the other partner.  The PSA's final term stated that “[a]fter this agreement, a due diligence of the company and the additional legal papers required for the transaction will be made.”  No stock certificates or other legal documents were executed at that time, but when Plaintiff encountered other legal troubles, Daughter faxed documentation of Plaintiff’s investment and part ownership in the Camp from the Camp’s Maryland office. 

Plaintiff’s relationship with Father and Daughter deteriorated in late 2011.  Plaintiff learned that the Camp’s appraised value was $2.9 million instead of the $6 million he was led to believe it was worth.  Daughter prevented Plaintiff from having input on the business plan and accessing the financial records.  Plaintiff also learned that Father and Daughter used Camp funds to pay for their personal expenses and commingled funds.  Nevertheless, Daughter asked Plaintiff to contribute more money and bring in more campers.  Meanwhile, Father’s wife had died, allowing him to become more actively involved in the Camp’s affairs both with respect to his time and access to additional capital.  Father expressed disappointment with Plaintiff’s work and inability to assume more of the debt, and eventually banned him from being present or involved in the Camp.  Plaintiff sued Father, Daughter, Company 1, Company 2 and Company 3 (collectively, “Defendants”), alleging breach of contract and other causes of action.  Defendants moved to dismiss, which the court treated as a motion for summary judgment, and Plaintiff filed a cross-motion for summary judgment. 

Analysis:  Company 1, which was organized and ostensibly based in West Virginia, moved to dismiss, arguing lack of personal jurisdiction in Maryland.  Maryland’s Code, Courts and Judicial Proceedings § 6-103(b)(1) provides that a court may exercise jurisdiction over a defendant “who directly or by an agent . . . [t]ransacts any business or performs any character of work or service in the State.”  By showing that Daughter faxed Plaintiff documents indicating his stock ownership from the Maryland office and conducted certain meetings and operations there, Plaintiff made a prima facie showing of personal jurisdiction.  Moreover, although generally the contacts of one entity are not imputed to its affiliate, an exception is found when the affiliates fail to maintain separate books and records, accounting procedures and directors’ meetings.  Because there was significant overlap between the books and records of Company 1 and Company 2, a Maryland company, it was not unreasonable to impute Company 2’s Maryland contacts to Company 1.  Finally, the exercise of jurisdiction was “constitutionally reasonable” because it wasn’t “so gravely difficult and inconvenient as to place the defendant at a severe disadvantage in comparison to his opponent.”  CFA Inst. V. Inst. of Chartered Fin. Analysts of India, 551 F.3d 285, 296 (4th Cir. 2009).  For example, Daughter, a half-owner and officer of Company 1 was a resident of Maryland, and Company 1 had retained the same lawyers as the other defendants.  In fact, because Company 1’s tax forms listed a Maryland address, and the business records were stored in the Maryland office except when Camp was in session during the summer, the evidence supported a finding that Company 1’s principal place of business was in Maryland. 

The court addressed four of the Defendants’ arguments relating to breach of contract.  First, Company 1 and Company 2 argued that they were not bound by the PSA because Father and Daughter signed as individuals, not on behalf of the companies.  Second, Defendants argued that the statute of frauds barred enforcement of the December 2010 employment agreement.  Third, they argued that the employment agreement was illegal or against public policy.  Fourth, they argued that the alleged agreement contained conditions precedent and therefore was not binding.

The court summarily dismissed the first argument by saying that because the subject of the PSA was the ownership of Company 1 and Company 2, and because Father and Daughter were the only two shareholders of both companies, it was clear that Father and Daughter signed on behalf of Company 1 and Company 2.

The court agreed with the second argument concerning the statute of frauds by interpreting Florida law.  The oral employment agreement arose from a meeting of Plaintiff, Father and Daughter in Florida, so Florida’s statute of frauds applied.  Florida law requires that any agreement that cannot be fully performed within one year of creation to be reduced to writing and signed.  The statute of frauds barred enforcement of the December 2010 employment agreement, which completed Plaintiff’s employment for one year beginning in January 2011.  Moreover, the court rejected Plaintiff’s argument that the employment agreement had been fully performed in light of the August 2011 PSA, because Daughter had effectively made him a partner.  Because Plaintiff’s own complaint referred to the oral agreement as “an oral agreement that was to last one year,” the court granted summary judgment for Defendants on the breach of contract claim. 

The court rejected the third argument regarding terms contrary to public policy.  First, the court observed that contracts should not be held unenforceable for public policy grounds unless their illegality is clear and certain.  The court found no merit in Defendants’ argument that it would have been illegal for a partnership to replace a corporation, as Plaintiff could have been both a partner and a shareholder in Company 1 and Company 2.  The court also rejected Defendants’ argument that the contract was unenforceable because a “nonresident alien” may not own stock in an S corporation pursuant to 26 U.S.C. § 1361(b)(1)(C).  A nonresident alien’s purchase of stock in an S corporation is not illegal, but rather it causes the entity to lose its tax status as an S corporation.  Finally, the court rejected Defendants’ argument that the PSA was illegal and unenforceable because Plaintiff’s E-2 visa authorized him to work in the United States for Company 3, not Company 2 or Company 1.  This argument failed because the PSA did not call for Plaintiff to work in the United States, but rather he was to work in Europe recruiting campers, and the agreement did not call for the violation of the terms of his visa. 

As for the conditions precedent argument, the court found that summary judgment was improper on that ground.  Because the PSA was written and signed in West Virginia, the court applied West Virginia law on the existence of a contract.  The court noted that nothing on the face of the PSA indicated that it was a letter of intent and not a contract.  Moreover, even if the PSA were construed as a “preliminary agreement,” it would still be enforceable.  Under West Virginia law, there are two types of binding preliminary agreements, called Type I and Type II.  Type I is a complete agreement in which the parties fully intend to be bound, but they contemplate a more elaborate formalization of the agreement.  See Burbach v. Broad Co. of Delaware v. Elkins Radio Corp., 278 F.3d 401, 407 (4th Cir. 2002).  By contrast, Type II agreements do not fully commit the parties to the ultimate contractual objective, but they commit the parties to negotiate the open terms in good faith within an agreed-upon framework.  See id. at 408.  The court found that the PSA was a Type I preliminary agreement, as its language, “[a]fter this agreement, a due diligence of the company and the additional legal papers required for the transaction will be made,” states that the agreement only needed to be formalized.  Because the parties did not express their intent for the formalization to be a condition precedent, the court would not construe it as such. 

Summary judgment was denied with respect to Plaintiff’s shareholder oppression claims.  The claim against Company 1 arose under West Virginia law, and the claim against Company 2 arose under Maryland law.  Both states’ laws allow for the dissolution of a corporation when the directors or controlling parties act in a manner that is illegal, oppressive or fraudulent.  The court observed that majority shareholders of a corporation have a fiduciary duty to the minority shareholders, which requires the former to exercise good faith and fair dealing toward the latter.  In West Virginia, when a majority shareholder acts to “freeze or squeeze out” a minority shareholder from deriving any benefit of his investment without a legitimate business purpose, oppressive conduct may be found.  In Maryland, oppression is conduct that “substantially defeats the reasonable expectations held by minority shareholders in committing their capital to the particular enterprise.”  Bontempo v. Lare, 119 A.3d 791, 804 (Md. 2015).  The court rejected Defendants’ argument that Plaintiff was not a shareholder of Company 1 or Company 2, because Daughter provided Plaintiff with documentation that he had contributed capital and was a 10% shareholder of both companies.  Summary judgment on this claim was therefore improper. 

The court further observed that both West Virginia and Maryland law provide for accounting as a form of relief against shareholder oppression.  Because there was evidence that Plaintiff was a shareholder of Company 1 and Company 2, summary judgment on the accounting claim was denied. 

The full opinion is available in PDF.

Dynport Vaccine Co. LLC v. Lonza Biologics, Inc. (Maryland U.S.D.C.)

Filed: April 30, 2015

Opinion by: James K. Bredar

Holding: A basic ordering agreement that provides a framework for future contracts but fails to include mutuality of obligation is not by itself an enforceable contract.

Facts: Contractor and subcontractor entered into a basic ordering agreement, wherein defendant “agreed to provide certain services, pursuant to task orders.” Plaintiff issued various task orders, including three specific task orders mentioned in the complaint. Plaintiff brought suit alleging it incurred significant costs because of defendant’s refusal to perform and its breach of the basic ordering agreement.

Defendant argued the basic ordering agreement was not an enforceable contract and, therefore, the claim of breach of contract failed to state a claim for relief. Defendant conceded that the task orders were binding and legally enforceable contracts, but noted that plaintiff did not rely on breach of the task orders for its breach of contract claims.

Analysis: The “meager case law available” provides that a basic ordering agreement “is not an enforceable contract, despite its use of terms typically used in the language of contracts.” The court likened a basic ordering agreement, which only provides the framework for future contracts, to an agreement to agree because “contractual obligations will arise only after an order is placed.” Under such an agreement “no obligations are assumed by either party until orders are given by the [plaintiff] and accepted by the [defendant].”

The court reviewed the language of the basic ordering agreement in question, concluded it lacked mutuality of obligation and found it to be unenforceable. However, as both parties agreed the task orders were enforceable contracts, the court redefined plaintiff’s count as claiming breach of contract as to those task orders.

The full opinion is available in PDF.

Falls Garden Condominium Ass’n, Inc. v. Falls Homeowners Ass’n, Inc. (Md. Court of Appeals)

Filed: January 27, 2015

Opinion by: Lynne A. Battaglia

Holding:  A letter of intent may be an enforceable contract where definite terms are included, signaling intent of the parties to be bound, and the material terms of a contract are included.  Further, where the letter of intent is unambiguous and constitutes an enforceable contract, it is unnecessary to have a plenary hearing on the merits of a motion to enforce a settlement agreement

Facts: The appeal arose out of the execution of a letter of intent which was the result of the settlement of litigation over the contested ownership of parking spaces.

Analysis:  Distinguishing Cochran v Norkunas, which held that the parties did not intend to be bound by a letter of intent and it was therefore unenforceable, the Court noted that in the present case the parties expressed their intent to be bound to the letter of intent through the definiteness of terms included therein.

In discerning the enforceability of the letter of intent the Court relied upon the often cited and influential treatise Corbin on Contracts, which divides cases where letters of intent have been an issue into a spectrum with four categories: (i) where the parties specifically say that they intend not to be bound until the formal writing is executed; (ii) cases where the parties clearly point out one or more specific matters on which they must yet agree before negotiations are concluded; (iii) cases where the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters not essential, but that are often included in similar contracts; and (iv) cases like those of the third class, with the addition that the parties expressly state that they intend their present expressions to be a binding agreement or contract, and are thus conclusive as to the parties intent.  The Court indicated that the essential distinction between the indefinite middle two categories centers on the question as to whether the terms included in the document are definite or indefinite, which then informs the central question as to whether the parties intended to be bound and, thus, their mutual assent.  Under this framework of analysis, the Court finds the letter of intent to be enforcable due to the mutual assent of the parties, and the lease is not enforceable.

Following this line of reasoning, the Court noted that due to the absence of ambiguous terms in the letter of intent the trial judge need not entertain extrinsic evidence, especially if the evidence were to be of a self-serving nature, as in the present case.

The full opinion is available in PDF.

Ohio Learning Centers, LLC v. Sylvan Learning, Inc. (Maryland U.S.D.C.)

Filed July 24, 2012

Opinion by Judge Richard D. Bennett

Held:  (1) A forfeited corporation may defend against a lawsuit and file counterclaims arising out of the same subject matter as the underlying suit.  (2) Courts employ a totality of the circumstances approach in reviewing a jury trial waiver provision, including factors such as the parties' bargaining power, the conspicuousness of the waiver provision and whether the provision is comprehensible.
 

Facts:  Plaintiffs and Defendants entered into an asset purchase agreement, a license agreement and two promissory notes pursuant to which Plaintiffs would purchase and operate a  franchise.   The license agreement also contained a non-compete clause.  Shortly thereafter, Plaintiffs were unable to make payments on the promissory notes.  Defendants sent two notices of default and intent to terminate license agreement to the Plaintiffs. 

The Court ordered Plaintiffs to "not use any or all of the trademarks, service marks, or trade names associated" with the Defendants.  The Court also held that the agreements were valid and enforceable and that Plaintiff breached those agreements.  The Court withheld ruling on any damages in order to adjudicate the remaining claims, set forth below. 
 

Analysis:  Plaintiffs argued that because two of the Defendants had forfeited their charters for failing to file personal property tax returns with the State Department of Assessments and Taxation, the defendants were prohibited from maintaining or defending any lawsuit in the state.  The Court disagreed and stated that “it is well established in Maryland that a forfeited corporation may defend against a lawsuit and file counterclaims arising out of the same subject matter as the underlying suit.”  Finch v. Hughes Aircraft Co., 57 Md. App. 190 (1984) and Price v. Upper Chesapeake Health Ventures, 192 Md. App. 695 (2010) ("an LLC whose rights have been forfeited...may only defend an action in court, not prosecute one"). 

Defendants moved to strike Plaintiffs' demand for a jury trial because the promissory notes and the asset purchase agreement contained a jury trial waiver.  The Court agreed that three of the four agreements at issue contained jury waiver clauses.  But, the Court highlighted that the main contract governing the claims in litigation did not.  The Court employed a totality of the circumstances approach.  It denied the motion after review of the superior bargaining power of the Defendants, the integrations clause in the license agreement and the inconspicuous location of the waiver clause in the promissory notes and the asset purchase agreement.   

Defendants' also moved to dismiss with respect to several fraud claims, including claims involving Maryland Franchise Registration and Disclosure Law.  The Court stated "a plaintiff can successfully bring a tort action for fraud that is based on false pre-contract promises by the defendant even if (1) the written contract contains an integration clause and even if (2) the pre-contractual promises that constitute fraud are not mentioned in the written contract."  Next Generation Group, LLC v. Sylvan Learning Ctrs, LLC, No. CCB-110986 (2012).  Because the materiality of any alleged omissions are factual questions inappropriate for determination at the motion to dismiss stage, the Court denied the motion.

The Court briefly reviewed other claims, including tortious breach of good faith, unfair competition, defamation, tortious interference in contractual relations, deceptive trade practices and antitrust conspiracy.

The full opinion is available in pdf. 

Stalker Brothers, Inc., et al. v. Alcoa Concrete Masonry, Inc. (Ct. of Appeals)

Filed: October 24, 2011
Opinion by Judge Joseph F. Murphy Jr.

Held: The Maryland Home Improvement Law does not render a contract between a home improvement general contractor and an unlicensed subcontractor unenforceable. The statute was intended to protect the public under contractor-owner contracts and not contracts between contractors who engage in arms-length transactions with one another.

Facts: Alcoa Concrete Masonry, Inc. ("Plaintiff") was an unlicensed subcontractor providing work for Stalker Brothers, Inc. ("Defendant") on contract. The two companies did business together from 2004 to 2007. Payments were regular at first but the Defendant started to miss payments in 2005 and after an attempt to reconcile the amount due among themselves the Defendant began to miss payments again, eventually refusing to pay the Plaintiff altogether.

The Plaintiff contended that they had been intentionally misled by the Defendant and that the Defendant had signed Releases of Liens stating that all subcontractors had been paid for the work when in fact the Defendant knew they had not paid the Plaintiff thereby gaining access to funds not rightfully theirs. As a defense the Defendant claimed that the Plaintiff had preformed this residential home improvement work while an unlicensed subcontractor in Maryland and as such contracts made by such an unlicensed subcontractor were illegal and unenforceable under the Maryland Home Improvement Law.

Analysis: In broad agreement with the opinion of the Court of Special Appeals [see HERE for a prior blog entry regarding the Court of Special Appeals opinion] the Court of Appeals applied the "revenue/regulation rule". Using this rule the Court distinguished between a contract between an owner and contractor as a contract covered under the Maryland Home Improvement Law, and a contract between a contractor and a subcontractor as not covered under this statute. The Court found that the purpose of the Maryland Home Improvement Law is to protect the public and not a method by which contractors could escape liability for past due amounts due to subcontractors that were unlicensed at the time they performed the contract.

The full opinion is available in PDF.