Transamerica Premier Life Ins. Co. v. Selman & Co., LLC (Maryland U.S.D.C.)

Filed: July 9, 2019

Opinion by: Ellen L. Hollander

Holding:

The United States District Court for the District of Maryland denied a motion for failure to state a claim for (1) breach of contract, in light of ambiguous extrinsic evidence of intent to create a novation, and (2) unjust enrichment, where the existence of a contract governing the subject matter was in dispute.

Facts:

Plaintiff (“Insurer”) underwrote insurance products brokered and administrated by Defendant (“Agent”). Agent and Insurer’s business relationship eventually came to include products called TRICARE Supplements: voluntary plans offered to members of the military and their families that covered the various out-of-pocket costs not covered by the government-provided TRICARE health insurance program.

As Insurer and Agent transacted their insurance business together, three relevant sets of contracts came into being: one from 2002 (the “Original”), two acquired by assignment in 2014 (the “Acquired”), and a 2016 amendment to the 2002 agreement (the “Amendment”).

Under the 2002 Original agreement, Agent would administer and manage certain life and health insurance products, but the Original agreement’s language did not contemplate TRICARE supplement policies and lacked an exclusivity clause.

Pursuant to the 2014 Acquired agreement, Agent began to market, sell, and administer TRICARE Supplement policies in consideration of a portion of the premiums collected on those policies. In order to help Agent meet its contractual obligations, Insurer provided significant confidential and proprietary information (such as customer leads, records, risk analysis, performance results, and other non-public data). Agent and Insurer agreed to a confidentiality clause in order to protect this information, and to a narrow exclusivity clause with regard to the TRICARE Supplement policies marketed toward employers. An at-will termination clause allowed either party to terminate the Acquired agreement with 180 days' notice.

The 2016 Amendment reaffirmed the Original agreement but replaced the original fee schedule with a revised one that included the TRICARE accounts Agent had taken on since 2014. Two years passed.

In a November 2018 meeting, an Agent executive informed an Insurer executive about Agent's intent to move its TRICARE Supplement policies to one of Insurer’s competitors on January 1, 2019. Agent’s executive acknowledged the existence and enforceability of the exclusivity clause but implied that the provision only served to limit Insurer’s rights to underwrite coverage – not to limit Agent’s rights to move its business elsewhere.

Insurer promptly requested Agent cease and desist taking actions to transfer the policies, but Agent failed to comply. Insurer brought suit, alleging breach of contract (of the exclusivity and confidentiality clauses), anticipatory breach of contract (for failure to adhere to the 180-day notice requirement), and unjust enrichment (for taking Insurer’s data, services, and commission payments without consideration).

Agent moved to dismiss for failure to state a claim.

Analysis:

The court began by noting that in order to survive a Rule 12(b)(6) motion, the complaint must contain facts sufficient to state a claim to relief that is plausible at face value. Sufficiency required more than bald accusation or mere speculation, but less than detailed factual allegations: enough to suggest a cause of action even if the actual proof was improbable or recovery was unlikely. Accordingly, the court indicated the authenticity and import of the contract documents at issue and noted it would consider them at the 12(b)(6) complaint stage.

The court next evaluated whether the 2016 Amendment constituted a novation. If so, it would supersede the terms of the earlier Original and Acquired agreements, eliminating any language about exclusivity or confidentiality and mooting Insurer’s claims for breach of contract.

A novation forms a new contractual relationship and requires four elements: (1) a previous valid obligation, (2) agreement of the parties to the new contract, (3) validity of the new contract, and (4) the extinguishment of the old contract by substitution.

The court was ultimately unpersuaded that the parties had intended a novation because the contract text failed to clearly establish the parties’ intent to extinguish the 2002 Original and 2014 Acquired documents with the 2016 Amendment. The court considered the parties’ conflicting and ambiguous extrinsic evidence about their motivations for the 2016 Amendment to indicate lack of the requisite clear intent. In a light most favorable to Agent, the extrinsic evidence suggested an intent to keep separate and in force certain terms. Due to the conflicting extrinsic evidence, the court considered it premature (at the 12(b)(6) stage) to conclude that a novation could have occurred. Because the court declined to find a novation at this stage, Insurer had clearly stated a viable claim for breach of contract. The court separately noted that although Insurer had established sufficiency for its anticipatory breach claim, it would construe the count as one for breach of contract because the “anticipatory” relationship to January 1, 2019 had expired.

Finally, the court evaluated the unjust enrichment claim, explaining the general rule that no quasi-contractual claim for relief could arise where an actual contract existed. But a plaintiff is not barred from pleading such a theory in the alternative where existence of a contract was in dispute. At the 12(b)(6) stage, the court found it premature to conclude that one or the other or no contract language might govern the claim at issue. Accordingly, Insurer had met its burden of sufficiency for a claim of unjust enrichment.

The court denied Agent’s motion to dismiss in its entirety.

The full opinion is available in PDF.

Wilkens Square, LLLP v. W.C. Pinkard & Co., Inc. t/a Colliers Pinkard (Ct. of Special Appeals)

Filed: November 30, 2009
Opinion by Judge Deborah S. Eyler

Held: Proof of dual agency must consist of evidence that the broker represented opposite sides of a transaction when the transaction took place. The mere co-existence of a brokerage agreement and a listing agreement does not constitute a dual agency as a matter of law in Maryland.

Facts: In early 2005, Colliers Pinkard entered into a brokerage agreement with Charles McMann Investments ("CMC") in which Colliers Pinkard would identify potential investment properties for CMC in the Baltimore City/Washington, D.C. area. By August 2005, the relationship between CMC and Colliers Pinkard had not proven successful and CMC and Colliers Pinkard decided that the brokerage agreement would expire on December 31, 2005.

In the meantime, Wilkens Square, LLLP decided to put up for sale an office building it owned at 300 W. Pratt Street in Baltimore City. On November 18, 2005, Wilkens entered into a listing agreement with Colliers Pinkard wherein Colliers Pinkard would serve as Wilkens' broker in the sale of the property.

In December 2005, CMC representatives met with Colliers Pinkard to view properties in the Baltimore area. Wilkens' Pratt Street property was not one of them. Colliers Pinkard suggested that CMC take a look at the Pratt Street property but did not accompany CMC on its visit.

The sale of the Pratt Street property was done by "controlled auction." CMC had shown interest in the Pratt Street property following its visit in December 2005 and as a result Colliers Pinkard added CMC to the list of potential buyers who would receive promotional material and information about the sale. CMC continued to show interest in the property and proceeded with the controlled auction. By February 2006, CMC was one of two remaining bidders on the Pratt Street property. Ultimately, CMC purchased the property on June 14, 2006. Prior to the closing, Colliers Pinkard sent an invoice to Wilkens for its commission under the listing agreement. Wilkens failed to pay Colliers Pinkard's commission.

Colliers Pinkard sued Wilkens for breach of contract seeking payment of its commission. Wilkens filed counterclaims for breach of contract, negligence, intentional concealment of material facts and conspiracy by a fiduciary.

The case in the lower court was tried before a jury which found for Colliers Pinkard on the breach of contract claim and against Wilkens on its counterclaims. The jury awarded Colliers Pinkard $226,321.67 for Wilkens' breach of contract. Wilkens appealed asserting: (1) the trial court erred in not finding, as a matter of law, that Colliers Pinkard was in a dual agency with Wilkens and CMC; (2) the trial court erred by not ruling, as a matter of law, that Colliers Pinkard's relationship with CMC was a material fact that Colliers Pinkard had a duty to disclose; and (3) that the trial court erred by not giving requested jury instructions.

Analysis: A real estate broker stands in a fiduciary relationship to his client. Because of the opposing interests of a buyer and seller in a real estate transaction, a broker cannot represent one without violating his fiduciary duty to the other. Under this theory, Maryland law has long held that a broker cannot profit from a transaction in which he represents opposing parties (a dual agency relationship) without the parties' consent. The court noted that "There are no Maryland dual agency cases that extend the commission forfeiture rule to situations in which a real estate broker . . . has represented two parties to a transaction at different periods of time."

Relying on the holding in Ricker v. Abrams, 263 Md. 509 (1971) that "proof of dual agency must consist of evidence that the broker represented the opposite sides to a transaction when the transaction took place", the court held that Colliers Pinkard was not acting as a dual agent because it did not represent CMC when the sale went forward or when the auction for the sale was held. As a result, the court held that there was no dual agency as a matter of law.

The court dismissed Wilkens' argument that the overlap of the brokerage agreement and the listing agreement from November until December 31, 2005 rendered Colliers Pinkard a dual agent. In its analysis the court explains that the prohibition on dual agency stems from the conflict between the interests of buyer and seller. At the time the contracts overlapped there were no conflicts between Wilkens' and CMC's interests such that Colliers Pinkard would have violated its fiduciary duty.

As to Wilkens' contention that Colliers Pinkard breached its duty to disclose a material fact, the court noted that "the materiality of a fact will depend upon the nature of the transaction and the effect, if any, the fact may have on its outcome." The court held that there was no evidence that Colliers Pinkard's contract with CMC would have been material to Wilkens with respect to the ultimate sale of its property.

Finally, Wilkens argued that the trial court erred in not providing jury instructions on the issue of when disclosure of dual agency must be made. The court dismissed this argument holding that "even if the court had erred by failing to instruct the jury on when disclosure should have been made, the error would not have been prejudicial," because the jury's finding that there was no dual agency rendered as moot the the issue of when disclosure must be made.

The full opinion is available in PDF.