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.

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

Opinion by Judge Catherine C. Blake

Filed:  October 23, 2017

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

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

Analysis:

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

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

The opinion is available in PDF.  

Plum House IV, Inc. v. Wells Fargo Merchant Services, LLC (Maryland U.S.D.C.)

Filed: January 29, 2016

Opinion by: Catherine Blake

Holding: Under Maryland’s "economic loss rule" courts have limited remedies if the loss is purely economic and the parties were engaged in arms-length commercial bargaining.

Facts: Plaintiff operated a restaurant that allowed customers to pay with American Express Credit Cards. Plaintiff alleged that Defendant, a merchant payment card processor, mixed up the customer identification number and this mistake resulted in $349,395.14 being routed incorrectly to John Doe/ ABC Co. Plaintiff sued Defendant, American Express, and John Doe/ABC Co. to recover payments made by customer’s credit cards.

Plaintiff sued Defendant for negligence and breach of contract. Defendant filed a motion to dismiss for failure to state a claim. Parties agreed, per the terms of the contract, to apply NY law for the breach claim. The Court applied the Erie doctrine, choice of law, and outcome determinative test. Maryland law controlled the negligence claim and NY law controlled the breach of contract claim.

Analysis: The Court relied on Jacques v. First Nat'l Bank of Md., to determine if a duty exists. The Jacques test balances the nature of the harm that is likely to result from a failure to exercise due care and the nature of the relationship between the parties. When the failure to exercise due care creates only a risk of economic loss courts generally require an intimate nexus between the parties to impose tort liability. Plaintiff argued that, like in Jacques, it had a special relationship with Defendant which trumps the economic loss rule.

A special relationship exists when: (i) the business is affected with the public interest; (ii) the plaintiff is an individual consumer who is particularly vulnerable and dependent upon the other parties' exercise of due care; (iii) there is a disparity in strength of bargaining position; (iv) and one party more sophisticated than the other.

The Court disagreed. Specifically, it distinguished this matter from Jacques in two ways. First, Defendant in this matter is a merchant payment card processor, not a bank. Second, and more importantly, Jacques centered upon the fiduciary relationship a bank has to the individual clients. The Defendant conducts a sophisticated commercial enterprise with the same bargaining power as the Plaintiff. The Court ruled that a credit card payment processor does not have the same fiduciary relationship to a vendor that a bank has to individual consumers.

The Court determined that the economic loss doctrine applies for the negligence claim and granted Defendant’s motion to dismiss the negligence claim.

The full opinion is available in PDF.

Montgomery County v. Parsons Brinckerhoff, Inc. (Cir. Ct. Mont. Cnty.)

Filed: March 22, 2016

Opinion by Michael D. Mason

Holding:  Neither tortfeasor is entitled indemnification by the other in a case where they are concurrent or joint tortfeasors and where each tortfeasor owes a separate duty to the same third party, but there is no legal relationship between the tortfeasors.

Facts:  Parsons Brinkcerhoff, Inc. (“PB”) and Foulger-Pratt Contracting, LLC (“FPC”) were hired by Montgomery County (the “County”) and Washington Metropolitan Area Transit Authority (“WMATA”) to design and supervise the construction of the Silver Spring Transit Center. FPC hired Facchina Construction Company, Inc. (“Facchina”) as the primary concrete subcontractor for the project. The County and WMATA filed suit against PB and FPC, among others, alleging injuries suffered as a result of negligence in the design and construction of the center. The majority of complaints related to concrete work; thus PB filed a cross-claim against Facchina for indemnity.

Analysis:  Because there was no legal relationship between PB and Facchina, the court dismissed PB’s cross-claim against Facchina, finding each party owed a separate legal duty to the County and WMATA. The court, citing the Court of Appeals in Franklin v. Morrison, 350 Md. 144, 162 (1998), stated that “[i]n the case of concurrent or joint tortfeasors, having no legal relationship to one another, each of them owing the same duty to the injured party, and involved in an accident in which the injury occurs…no right of indemnity exists on behalf of either against the other; in such a case there is only a common liability and not a primary and secondary one, even though one may have been much more negligent than the other” (emphasis added by the court). Conversely, the court reasoned that a concurrent or joint tortfeasor’s right to indemnity from the other tortfeasor results from the obligations between the tortfeasoers and not from the duty each tortfeasor owes to the injured party. The court, quoting Board v. RTKL Associates, 80 Md. App. 45, 55-56 (1989) followed the reasoning that, “Indemnity requires that, where one of the wrongdoers is primarily liable, that wrongdoer must bear the whole loss. The joint tortfeasoer must have had some sort of relationship prior to the tort which justified the claim for indemnity.” (emphasis added by the court).

The court acknowledged it was possibly that the negligence of PB was minor in comparison to the negligence of Facchina, but that the difference in degree would not justify a claim for indemnity. Any negligence by PB was active, not passive, and therefore PB is not entitled to indemnity by Facchina.

The full opinion is available in PDF.

Sutton v. FedFirst Financial Corporation (Ct. of Special Appeals)

Filed:  October 29, 2015

Opinion by:  Graeff, J.

Holdings:  (1) The common-law fiduciary duties of candor and maximization of shareholder value articulated in Shenker v. Laureate Education, Inc. did not apply to a merger where shareholders received a mix of cash and stock consideration because the merger did not result in a sale or change of control of the target company.  (2)  Shareholder’s appeal is not moot even though rescission of merger would be impracticable, because shareholder could obtain rescissory damages in lieu of actual rescission if he were to prevail on his claims.

Facts:  Plaintiff, a shareholder of FedFirst Financial Corporation, sought to enjoin a merger between FedFirst and CB Financial Services, Inc., alleging that FedFirst’s directors breached fiduciary duties owed to FedFirst’s shareholders and that CB Financial aided and abetted the alleged breaches.

FedFirst began to explore a possible business combination with CB Financial in January 2013.  During the course of negotiations with CB Financial, FedFirst’s financial advisors were unsuccessful in soliciting other offers.  On April 14, 2014, after receiving a fairness opinion from its financial advisors, the FedFirst board unanimously approved the merger agreement with CB Financial, which was executed and announced that day.

The merger agreement provided that FedFirst shareholders would receive either  cash or shares of CB Financial common stock in exchange for each FedFirst share, at their election, subject to the requirement that 65% of the total shares of FedFirst would be exchanged for CB Financial stock and 35% would be exchanged for cash.  The agreement prohibited FedFirst from soliciting other acquisition proposals, but did not preclude it from considering unsolicited offers, as long as they were “superior proposals.”  If FedFirst terminated the agreement before consummating the merger it would pay CB Financial a termination fee.

On April 21, 2014, Plaintiff filed a class action lawsuit in the Circuit Court for Baltimore City against FedFirst, its seven individual directors and CB Financial, asserting both direct and derivative claims.  He later voluntarily dismissed the derivative claims, and on September 19, 2014, the Circuit Court dismissed the remainder of his claims with prejudice.  Plaintiff promptly noted his appeal, but did not move to stay the merger pending appeal, and on October 31, 2014, FedFirst and CB Financial completed the merger.

Analysis:  Plaintiff argued that FedFirst’s directors had breached common-law fiduciary duties of candor and maximization of shareholder value, as articulated in Shenker,, which held that directors owed such duties to shareholders in “cash out” mergers that effectively eliminated their interest in the target company without providing any interest in the acquiring company.  Shenker also established an exception to the general rule that a shareholder may only challenge a merger transaction in a derivative action (i.e., on behalf of the corporation), holding that a shareholder may bring direct claims when “the occurrence of appropriate events” triggers the aforementioned common-law duties to shareholder individually.  Plaintiff argued that  Shenker’s holding was not limited to “cash out” transactions, but that other “appropriate events” could give rise to fiduciary duties of candor and maximization of value to shareholders.

The Court conducted a detailed analysis of Shenker and agreed that its holding was not limited to “cash out” transactions, but that fiduciary duties of candor and maximization value are owed to shareholders when “the decision is made to sell the corporation,” the “sale of the corporation is a foregone conclusion,” or the sale involves “an inevitable or highly likely change-of-control situation.”  While the Court of Appeals declined to explain what factual scenarios may satisfy these triggering events, the Court looked to Delaware case law, which recognizes duties to shareholders only in the following scenarios:

(1) when a corporation initiates an active bidding process seeking to sell itself or to effect a business reorganization involving a clear break-up of the company; (2) where, in response to a bidder’s offer, a target abandons its long-term strategy and seeks an alternative transaction involving the break-up of the company; or (3) when approval of a transaction results in a sale or change of control (internal quotations and citations omitted).

The Court found none of these scenarios present with respect to the FedFirst/CB Financial merger.  Plaintiff did not allege that FedFirst initiated an active bidding process or abandoned a long-term strategy to seek to break up the company. Rather, the FedFirst directors merely explored options for a potential merger, which they would then present to the stockholders for approval.  The facts did not indicate that the sale of the company was a foregone conclusion. And, perhaps most importantly, the Court found that the mixed cash and stock consideration did not result in a sale or change of control of the company, noting that, “Unlike the scenario involved in the cash-out merger transaction in  Shenker, FedFirst’s shareholders in this case, by virtue of the stock portion of the merger agreement, have a continuing interest, including voting power, in the combined company, and they can participate in the future successes of CB Financial.”

For these reasons, the Court found that the duties articulated in Shenker did not apply, , that FedFirst’s directors were subject only to the ordinary managerial duties set forth in C.A. § 2-405.1 and were protected by the business judgment rule, and that Plaintiff had no basis for his direct claims against FedFirst and its directors.  The Court also dismissed Plaintiff’s aiding and abetting claims against CB Financial because it had found no underlying breach of fiduciary duties.

While the Court ultimately affirmed dismissal of Plaintiff’s claims on the merits, it rejected Defendants’ threshold argument that Plaintiff’s claims were moot because he sought to prevent a merger that had been completed while the appeal was pending.  The Court recognized that unwinding a long-completed merger involving more than two million publicly traded shares and an integration of corporate management would not be practicable, but found that the possibility of rescissory damages (i.e., the fair value of Plaintiff’s shares) had Plaintiff prevailed on the merits of his claims precluded a finding of mootness.

The full opinion is available in PDF.

Doris Mitchell v. WSG Bay Hills IV, LLC (Maryland U.S.D.C.)

Filed December 11, 2013

Opinion by Judge Richard D. Bennett

Holding: A business operator does not have implied duty to protect the public from lawful actions of third parties partaking in the business’ activities.

Facts: Plaintiff was struck in the leg by a golf ball while living in a condominium adjacent to a golf course owned by the Defendant. Prior to this incident, occupants of the condominium complained to the Defendant after errant shots damaged the building. The Defendant elected not to alter the course because of costs. The Defendant moved for summary judgment arguing  it did not have a duty to protect the condominium residents.

Analysis: A business is not required to control the actions of third-parties lawfully partaking in business, unless a “special relationship” exists between the business and the injured party. In most instances a special relationship is created by either statute or contract. However, the Court acknowledged that a special relationship may be implied by either “(1) the inherent nature of the relationship between the parties; or (2) by one party undertaking to protect or assist the other party, and thus often inducing reliance upon the conduct of the acting party.” The Defendant did not have a direct relationship with the Plaintiff and the Defendants never offered to protect the condominium residents.

The Court granted the motion for summary judgment.

 

The full opinion is available in PDF.