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.  

Frank R. Nerenhausen v. Washco Management Corp. (U.S.D.C.)

Filed: April 18, 2017

Opinion by: James K. Bredar, United States District Judge

  

Holding:

            The United States District Court for the District of Maryland granted landlord Defendants, Washco Management Corp., summary judgment when tenant Plaintiffs attempted to collect damages for an injury occurring in the leased premises after Plaintiff entered into a lease agreement waiving Plaintiff’s rights to all legal claims resulting from Defendants’ negligence.

Facts:

            In April of 2013, Plaintiffs moved into a furnished townhouse, owned and managed by Defendants. On September 4, 2013, Plaintiffs signed a lease with Defendants, which was in force at the time of the critical events of this case. That lease contained an exculpatory clause purporting to disclaim Defendants’ liability for “any damage, loss, or injury to persons occurring in, on, or about the apartment or the Premises.”

           

            In compliance with the terms of the parties’ agreement, Plaintiffs’ townhouse was fully furnished. The furnishings included a coffee table with a metal frame and a top constructed from non-tempered glass. The table was located in the townhouse’s first floor family room.

           

            On January 4, 2014, as Plaintiff Frank Nerenhausen sat on the edge of the coffee table to tie his shoe, the glass top shattered. Broken glass punctured Mr. Nerenhausen’s right buttock, lacerating his pudendal artery and resulting in nerve damage.

Analysis:

(1)  Validity of the Exculpatory Clause under Maryland law

Relying on relevant case law and long-standing Maryland statute, the Court finds the well-established freedom to contract validates this lease agreement’s exculpatory clause.

The Court identifies two circumstances under which this exculpatory clause would have been invalid: (a) if the language of the clause was ambiguous; or (b) if the clause waived Plaintiffs’ claims with respect to liability for occurrences “on or about the leased premises or any elevators, stairways, hallways, or other appurtenances used in connection with them.” On the contrary, the Court suggests that exculpatory clauses waiving liability occurring within premises that are “within the exclusive control of the tenant” shall remain valid.

Because the language of the exculpatory clause at issue is unambiguous, and the injury suffered by Plaintiff was within an area exclusively controlled by the tenant Plaintiffs, the Court finds no reason to invalidate the lease agreement’s exculpatory clause.

The Court further articulates the meaning of what constitutes “exclusive control of the tenant,” pointing to Shell Oil Co, which states a landlord’s mere ability to enter the premises fails to render the premises not under exclusive control of the tenant. In other words, even though a landlord may enter the premises, barring other circumstances, the tenant still maintains exclusive control of the premises. Similarly, here, the landlord Defendants’ ability to enter the premises for a “reasonable business purpose” did not give reason to find Plaintiff was not in exclusive control of the premises.

Plaintiffs further allege they had no control over the selection and purchase of the table that gave rise to the injury, suggesting Plaintiffs did not have exclusive control over the premises. However, the Court notes that Plaintiffs cite no relevant law supporting this position. Consequently, Plaintiffs’ theory is dismissed.

(2)  Effect of Exculpatory Clause on Plaintiff’s Negligence Claim

The Court finds the exculpatory clause at issue successfully waived Plaintiffs’ negligence claim, as the language of the clause clearly and unequivocally indicates Plaintiff and Defendants’ intent to do so.

In Maryland, “contracts will not be construed to indemnify a person against his own negligence unless an intention to do so is expressed in those very words or in other unequivocal terms.” (Aldoo v. H.T. Brown Real Estate, Inc., 686 A.2d 298, 302 (Md. 1996)). Furthermore, an enforceable exculpatory clause need not use the word “negligence” or any particular “magic words,” but must “clearly and specifically indicate the intent to release the defendant from liability for personal injury caused by the defendant’s negligence. (Id. at 304).

In the case at bar, although the exculpatory clause does not use the word “negligence,” Plaintiff nonetheless agreed to absolve Defendants from liability for any injury “occurring in, on or about the apartment of the premises.” Furthermore, Plaintiff agreed to absolve Defendants from “any liability or claim to the fullest extent permitted by law.” The Court concludes the only reasonable interpretation of this clause is that the parties intended to exculpate Defendants from all claims to the extent permitted by applicable law, which would include exculpation from claims of negligence. Accordingly, the Court finds the exculpatory clause effectively and unequivocally disclaims Defendants’ liability for their potentially negligent action with respect to the glass table that was instrumental in Mr. Nerenhausen’s injury.

The 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.

Malinowski v. The Lichter Group, LLC (Maryland U.S.D.C.)

Filed: January 28, 2016

Opinion by: James K. Bredar

Holding:  The U.S. District Court for the District of Maryland, declining to import the doctrine of presumed reliance from federal securities-fraud cases, held that to succeed on a negligent misrepresentation theory involving audit reports made in connection with a 401(k) Plan, employees must prove, among other matters, justifiable action was taken in reliance on the alleged misrepresentation.

Facts:  Plaintiffs were former employees of a transportation contractor.  The company established a 401(k) Plan as an employee benefit plan governed by ERISA.  Defendant-auditor was retained to perform an audit of the Plan’s financial statements for 2009, 2010 and 2011, as required by ERISA’s detailed reporting requirements.

By year-end 2011, the company’s contributions to the Plan were several quarters behind, such that the company owed over $700,000 to the Plan.  Plaintiffs alleged that the Defendant’s audit reports for 2010 and 2011 contained material omissions regarding the Plan.

Analysis:  A plaintiff asserting a claim for negligent misrepresentation must prove that, among other factors, the plaintiff took justifiable action in reliance on the statement.  The Court stated that for purposes of the Plaintiff’s negligent misrepresentation theory, it was not enough that the audit reports may have contained omissions or even misinformation.  The Plaintiffs must demonstrate that they relied on the reports to their detriment.  The Court highlighted that four of the five Plaintiffs admitted that they had no independent recollection of reading or reviewing the audit reports. 

Plaintiffs urged the Court to import the doctrine of presumed reliance from federal securities-fraud cases into this state law claim.  The Court noted precedent indicating that the “most prominent distinction between common law fraud and a [10b-5] violation is that the latter permits recovery based on a … theory which presumes reliance, while the former requires proof of actual reliance.”  The Court, noting that it was a federal court sitting in diversity, declined to expand tort liability under Maryland law and granted summary judgment on the negligent misrepresentation claim. 

Plaintiffs also alleged breach of professional negligence.  The Court stated that a professional negligence claim, similar to any negligence claim, requires the plaintiff to establish: (i) a duty was owed to Plaintiff; (ii) a breach of that duty; (iii) causation between the breach and the harm; and (iv) damages.  Maryland courts recognize the “but for” test and the substantial factor test when analyzing whether causation exists.  The Court noted that the Defendants, as auditors, were not directly responsible for the over $700,000 deficiency in the Plan.  The Court also noted that the Plaintiffs cannot contend they would have taken action to remedy the deficiencies in the Plan because four of five of the Plaintiffs never saw the reports. 

Plaintiffs argued that the audit reports serve a dual purpose of alerting the Plan participants and the Department of Labor of irregularities and that “but for” the inaccurate audit reports the DOL would have been on notice of the deficiencies and able to correct the arrearage.  The Court stated that the DOL was already conducting an investigation at the time of the 2011 report and that “a careful study of the documents [from the 2010 report] shows the numbers reconcile.”  The Court granted summary judgment on the professional negligence claim.

The opinion is available in PDF.

White v. Green Tree Servicing, LLC (Maryland U.S.D.C.)

Filed:  August 4, 2015

Opinion by:  Richard D. Bennett

Holdings:  (1) Fair Credit Reporting Act (''FCRA'') claims alleging provision of false information and failure to investigate such information were dismissed to the extent plaintiff premised her claim on a theory of negligence.  (2) Plaintiff satisfied 12(b)(6) sufficiency standard by merely alleging she notified consumer reporting agency of disputed information.

Facts:  In 2001, Plaintiff acquired property in Baltimore City with her former husband, becoming sole owner after a 2007 divorce.  Five years later, servicing rights for the loan were transferred to Defendant.  Following the June 1, 2013 date of transfer Plaintiff alleged she made every ensuing payment in full and on time.

In October 2013, Plaintiff attempted to refinance the loan through her personal bank, receiving approval and a commitment letter conditioned on Plaintiff resolving unrelated disputes on her credit report.  Plaintiff fulfilled the conditions in January 2014, but Defendant soon thereafter reported to Plaintiff, Plaintiff’s personal bank, and the three major credit reporting agencies that she was no longer current on her mortgage payments.  Pursuant to the FCRA, 15 U.S.C. §1681, et seq., on January 27, 2014, Plaintiff notified the reporting agencies and Defendant that she disputed Defendant’s reporting of late mortgage payments.  One day later, Plaintiff’s bank denied her for final approval of the refinanced mortgage.

Defendant responded in February 2014, maintaining its position that Plaintiff was behind on her payments.  Defendant thereafter issued several letters indicating it would investigate disputed payment information, but ultimately sent another statement in March 2014 informing Plaintiff she had fallen farther behind on her mortgage, incurring additional late fees.

In June 2014, Plaintiff filed in Circuit Court for Baltimore City, alleging violations of the Maryland Consumer Protection Act (''MCPA''), Debt Collection Act, (''MCDCA''), and Mortgage Fraud Protection Act, (''MMFPA''), contending Defendant failed to investigate or correct the payment information and that she suffered economic damages.  Defendant moved to dismiss, arguing the complaint was preempted by the FCRA.  Plaintiff thereafter amended her complaint to allege identical state claims but add FCRA claims.  Defendant again moved to dismiss the common law claims as preempted by the FCRA, and to dismiss the FCRA claim because Plaintiff had failed to state a claim on which relief could be granted.

Analysis:  The court began by explaining that the FCRA’s preemption provisions –  15 U.S.C. §1681t(b)(1)(F) as to state statutory claims and 15 U.S.C. §1681h(e) as to state common law claims – had been consistently interpreted to preempt claims arising from inaccurate information provided to credit reporting agencies.  Accordingly, the court dismissed Plaintiff’s counts alleging violations of the MCPA, MCDCA and MMFPA as a result of Defendant’s purported materially false, misleading oral or written statements, omissions, or representations related to the Plaintiff’s loan status or mortgage lending process.

The court next moved to Plaintiff’s FCRA claims, which focused on Defendant’s provision of allegedly false information and failure to investigate the allegedly false information.  To the former, Plaintiff alleged Defendant’s liability in defamation for making a series of false and misleading statements as to the late mortgage payments.  Here, the court cited §1681h(e):

[No] consumer may bring any action …in the nature of defamation… with respect to the reporting of information against …any person who furnishes information to a consumer reporting agency, … based on information disclosed by a user of a consumer report to or for a consumer against whom the user has taken adverse action, based in whole or in part on the report except as to false information furnished with malice or willful intent to injure such consumer.

Accordingly, the court granted Defendant’s motion to dismiss the defamation claim in part and only to the extent the claim was premised on a theory of negligence.

Plaintiff’s second FCRA claim alleged that Defendant violated §1681s-2(b) by a failure to investigate allegedly false information for several months after it was informed of the disputed information.  FCRA §1681s-2(b) imposed a duty to investigate disputed information after receiving notice [from a credit reporting agency].  Defendant moved to dismiss, arguing Plaintiff failed to explicitly allege that Defendant received such notice.  Finding no controlling Fourth Circuit authority, the court looked to decisions of the U.S. Courts of Appeal for the Seventh and Ninth Circuits, indicating that under the FCRA a plaintiff triggered a defendant-furnisher’s duty to investigate by merely notifying the consumer reporting agency of a dispute.  In the court’s view, all that was required to meet the Rule 12(b)(6) pleading sufficiency standard was plaintiff’s allegation that she notified the reporting agency of disputed credit information.  As a result, Plaintiff’s second FCRA claim survived Defendant’s motion to dismiss.

The full opinion is available in PDF.

Federal Deposit Insurance Corporation as received for Bradford Bank v. Arthur (Maryland U.S.D.C.)

Filed: March 2, 2015

Opinion by: Richard D. Bennett

Holding:  In a claim against officers and directors of a Maryland corporation, a plaintiff may only overcome the business judgment rule with a showing of gross negligence. 

Facts: Plaintiff was appointed receiver for a Bank and brought suit against four former officers of the Bank.  Plaintiff alleged Defendants were negligent, grossly negligent and breached fiduciary duties to the Bank by ignoring the Bank’s loan policy and failing to exercise due care in approving seven loan transactions. 

Analysis:  The Court first enforced a Tolling Agreement that was executed by and between the Plaintiff and each of the Defendants (and extended five times) to suspend operation of the statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  The Court noted that a defendant who enters into a contract while believing the contract is enforceable cannot be said to be acting in good faith. 

The Court then addressed the correct standard of liability for director and officer conduct under the FIRREA and Maryland law.  The Court stated that the FIRREA provides that a director or officer of an insured depository institution may be held personally liable for monetary damages for gross negligence, as such term is defined under applicable state law. 

Plaintiff argued that negligence applied to the conduct of corporate officers and directors under Maryland law due to the codification of the business judgment rule.  The Court disagreed and cited Parish v. Maryland & Virginia Milk Producers Ass’n and Billman v. State of Md. Deposit Ins. Fund Corp. as precedent from the Court of Appeals and the Court of Special Appeals, prior to and after codification of the business judgment rule, that applied a gross negligence standard.  

The opinion is available in PDF.

Coleman v. Soccer Association of Columbia (Ct. of Appeals)

Filed: July 9, 2013
Opinion by Judge John C. Eldridge

Held: The defense of contributory negligence remains the law in Maryland. While the Court has the authority to change the rule, it declines to do so out of deference to the legislature.

Facts: The plaintiff was coaching soccer for the defendant soccer association. While standing in front of a soccer goal, the plaintiff jumped up and grabbed onto the front crossbar. The goal was not anchored to the ground. The plaintiff fell backward, drawing the weight of the crossbar onto his face. He was severely injured.The plaintiff sued the defendant. At trial, the defendant argued that the condition of the goal was open and obvious and that the accident was caused by the plaintiff's own negligence.

The jury returned a verdict finding that the defendant was negligent and the plaintiff was negligent also. On the basis of the doctrine of contributory negligence, the trial court entered judgment in favor of the defendant. The plaintiff appealed and challenged the viability of the contributory negligence defense as a legal doctrine in Maryland.

Analysis: The opinion contains an analysis of the history and policy behind the defense of contributory negligence. It also contains an analysis of the Court's authority to abrogate the common law, concluding that the Court could change the common law rule of its own accord. The Court notes, however, that since the rule was last affirmed by the Court in Harrison v. Montgomery County Bd. of Educ., 295 Md. 442, 444, 456 A.2d 894 (1983), the Maryland General Assembly has continually considered and failed to pass bills that would abolish or modify the rule. The failure of so many bills "is a clear indication of the legislative policy at the present time." The Court concludes that where the General Assembly has endorsed a public policy, the "Court will decline to enter the public policy debate, even when it is the common law that is at issue and the Court certainly has the authority to change the common law." On that basis, the Court affirmed the trial court.

Dissent: Judge Harrell, joined by Chief Judge Bell, wrote a dissenting opinion that concurs that the Court has the authority to abrogate the common law. It goes further and states that the Court need not defer to continued legislative inaction. It points out that, since 2003, the General Assembly has considered the adoption of comparative negligence only one time. In that context, legislative inaction need not be taken as endorsement of a public policy favoring contributory negligence. Ultimately, the dissent argues that the Court should adopt "pure comparative fault" as the controlling standard, whereby damages are apportioned among the parties according the percentage that each party's negligence contributed to the injury.

The full opinion is available in .pdf.

Pennsylvania National Mutual Casualty Insurance Co. v. City Homes, Inc. (Maryland U.S.D.C.)

Filed: June 25, 2010
Opinion by Judge Catherine C. Blake.

Held: An insurance company will owe a duty to indemnify an insured for any judgment against it for negligence and/or negligent misrepresentation if the insured does not foresee or expect an injury resulting from a negligent act. The act of negligence is an “accident” under liability insurance.

Facts: An insurance company filed a declaratory judgment action claiming that it did not have a duty to indemnify and defend a rental property company and its president in a lawsuit filed by two minors who alleged they were exposed to lead paint. The rental property company counterclaimed and both sides moved for summary judgment.

The house in question had been a subject property in a “Lead-Based Paint Abatement and Repair & Maintenance Study.” It had undergone a lead-abatement intervention. During the time period in which the two minors lived in the house, the rental property company held commercial general liability insurance. After the rental property company sought indemnification from the insurance company, the insurance company argued that it did not owe a duty to defend or indemnify the rental property company because the underlying litigation did not involve an “occurrence,” as defined in the insurance contract.

The insurance company also argued that, even if the underlying case involved an “occurrence,” the contract’s exclusion for bodily injury that was expected or intended by the insured applies. The insurance company argued that the participation in the lead paint study showed the rental property company must have foreseen and expected the alleged injuries.

The insurance contract defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Analysis: The court applied the standard set forth in Sheets v. Brethren Mutual Insurance Company, 342 Md. 634, 679 A.2d 540 (1996). In Sheets, the Maryland Court of Appeals held that an act of negligence constitutes an “accident” under a liability insurance policy and identified the relevant inquiry to be whether the insured actually foresaw or expected the injury resulting from the insured’s negligent act. By this standard, the court held that it could not be inferred from the rental property company’s participation in the study and its knowledge of the risks of lead poisoning that it foresaw the injuries sustained by the two minors.

Granting the rental property company’s motion and denying the insurance company’s motion for summary judgment, the court held that the insurance company will owe a duty to indemnify the rental property company for any judgment against it if the rental property company is ultimately found liable for negligence and/or negligent misrepresentation because the alleged were accidental and caused by an “occurrence.”

The full opinion is available in pdf.