Muffoletto v. Towers (Ct. of Special Appeals)

Muffoletto v. Towers (Ct. of Special Appeals)

Filed: January 30, 2020

Opinion by: James A. Kenney, III

Holdings: (1) An action seeking a declaration concerning the location of a common boundary line between adjacent boat slips was barred by the applicable statute of limitations. (2) Substantive and substantial discovery violations warranted the imposition of sanctions.

Facts: In the early 1980’s, a residential condominium was established in Dorchester County, Maryland.  Appurtenant to each condominium unit was a license to use a boat slip.  According to the 1982 site plan for the condominium, two adjacent boat slips were to be established as fourteen-feet-seven-inches wide each, separated by mooring piles.  However, according to an aerial photograph of the subject boat slips, taken in 1984, one slip was nineteen feet wide, and the adjacent slip was thirteen feet wide.

In 2004, the plaintiff purchased the condominium unit and corresponding slip license related to the thirteen-foot-wide boat slip.  Shortly thereafter, the plaintiff noticed the disparate sizes of the adjacent boat slips when he attempted to berth his boat.  In 2010, the plaintiff became a member of the condominium’s council of unit owners (the “council”), at which time he allegedly learned of a policy enacted by the council in 1999 requiring a unit owner who had made changes to the location of any mooring piles to return the piles to their original location when the appurtenant condominium unit is sold.  Title to each of the condominium units corresponding to the subject boat slips (and the related boat slip licenses) had been transferred multiple times before being transferred to the parties to this lawsuit.

In 2016, the plaintiff filed suit in the Circuit Court for Dorchester County, seeking (i) a declaration that the adjacent boat slips were intended and initially constructed to be of equal width and (ii) specific performance and injunctive relief, requiring that the mooring piles be moved to establish the adjacent boat slips as being equal in width.  During discovery, the defendants served the plaintiff with interrogatories.  Despite multiple court orders directing the plaintiff to respond to the interrogatories, the plaintiff failed to properly respond.

The Circuit Court entered sanctions against the plaintiff for failing to provide discovery responses as ordered, finding that the defendants had been prejudiced as a result.  Thereafter, the Circuit Court entered summary judgment in favor of the defendants, finding that the possible movement of the mooring piles was not a disputed material fact because they were placed in their current location no later than 1984 (when the aerial photograph was taken), and any legal action related to their present location was thus barred by the applicable three-year limitations period.  The plaintiff timely appealed the rulings to the Court of Special Appeals.

Analysis:  The Court of Special Appeals first addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the statute of limitations.  The plaintiff argued that the statute of limitations had been tolled by virtue of the “continuing harm” doctrine, which provides that claims in the nature of a continuous tort may toll the running of limitations based on new occurrences over time.  The court discussed Maryland case law applying the doctrine, and found that “courts have consistently held that the continuing harm doctrine rests on a new affirmative act” and does not apply to a “continuing ill effect” of a prior act.  The court then concluded that the continuing harm doctrine did not apply under the circumstances of this case because the act causing the harm was the alleged moving of the mooring piles, which occurred sometime before the photograph taken in 1984, and that “leaving them in place is a continuing effect of that act.”  Ultimately, the court held that the plaintiff’s claims were barred by the statute of limitations, noting that the action was filed six years after the plaintiff allegedly became aware that the piles may have been moved, twelve years after the plaintiff attempted to berth his boat in the slip, and more than twelve years after he bought the condominium unit (and corresponding boat slip license).

The Court of Special Appeals next addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of laches.  The court noted that laches is an equitable doctrine intended to ensure fairness, and that it is “based upon grounds of sound public policy by discouraging fusty demands for the peace of society.”  The court also noted that, generally, “an action for declaratory judgment will be barred to the same extent that the applicable statute of limitations bars an underlying action in law or equity.”  The court concluded that the plaintiff’s claims were barred by the doctrine of laches because the mooring piles had been in place for thirty-five years and the only people who would have had definitive knowledge regarding when and if the piles had been moved (the developer and the person who initially bought the nineteen-foot-wide slip in 1983) had died before the suit was filed.

The Court of Special Appeals also addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of adverse possession or prescription.  The court noted that whether or not the doctrine applies to riparian rights is unsettled in Maryland.  Ultimately, the court, without concluding that the doctrine applied to the boat slip licenses at issue, held that the requisite period of adverse possession (i.e., twenty years) had not run.

Finally, the Court of Special Appeals addressed the Circuit Court’s imposition of sanctions against the plaintiff for discovery violations.  The court first noted that circuit courts have very broad discretion to determine whether sanctions should be imposed.  The court then outlined the factors that circuit courts should consider when deciding whether to impose sanctions (noting that the factors need not be analyzed on a compartmentalized basis), which factors include (1) whether the sanctioned violations were “persistent and deliberate”; (2) whether the discovery violation was technical or substantial; (3) the timing of disclosures made; (4) any reason for the violation; (5) the degree of evidentiary prejudice resulting from the violation; and (6) whether the resulting prejudice might be cured by postponement and the desirability of a continuance.  Applying these factors, the court affirmed the Circuit Court’s imposition of sanctions.

The full opinion is available in PDF.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

Price v. Murdy (Ct. of Appeals)

Filed: December 18, 2018

Opinion by: Barbera, C.J.

Holding:

The Maryland Consumer Loan Law (“MCLL”) is considered an “other specialty” under Md. Code Ann., Cts. & Jud. Proc. § 5-102(a)(6), so any MCLL claim has a twelve-year statute of limitations.

Facts:

Two consumers financed the purchase of their vehicles through loans under $6,000.  The consumers brought a putative class action against a lender for violating the MCLL. The MCLL provides, among other matters, that a person may not engage in the business of making loans unless the person is licensed or meets certain exemptions.  The consumers alleged that the lender was unlicensed under the MCLL.  They further alleged that the lender failed to provide notice of repossession, as well as charged compound interest and inappropriate attorney fees.

The consumers brought this action after Maryland's blanket three-year statute of limitations, therefore the lender asserts that this claim should be barred.  However, the consumers argue that MCLL is an “other specialty” statute, allowing the claim to be brought within a twelve-year statute of limitations.

The United States District Court for the District of Maryland presented a certified question of law to the Maryland Court of Appeals: “Whether the MCLL § 12-302's licensing requirement is an "other specialty" subject to Maryland's twelve[-]year limitations period under [CJP] § 5-102(a)(6)?”

Analysis:

The general statute of limitations in Maryland is three years for civil actions.  CJP § 5-101.  There are exceptions, one of which is a twelve-year statute of limitations for any specialty statute.  CJP § 5-102(a)(6).

The Maryland Court of Appeals addressed a similar issue in Master Fin. Inc. v. Crowder, 409 Md. 51 (2009), when addressing whether the Maryland State Secondary Mortgage Loan Law was an “other specialty” and therefore subject to the twelve-year statute of limitations.

The Crowder Test lays out three elements that must be met for a statute be an “other specialty,” making the twelve-year statute of limitations apply:

(1) the duty, obligation, prohibition, or right sought to be enforced is created or imposed solely by the statute, or a related statute, and does not otherwise exist as a matter of common law;

(2) the remedy pursued in the action is authorized solely by the statute, or a related statute, and does not otherwise exist under the common law; and

(3) if the action is one for civil damages or recompense in the nature of civil damages, those damages are liquidated, fixed, or, by applying clear statutory criteria, are readily ascertainable.

Crowder, 409 Md. at 70.

Applying the Crowder Test, the parties agree that only prong one and three were at issue.

Prong One: The Court of Appeals concluded that the MCLL’s licensing requirement is part of a statutory scheme that includes but is not limited to licensing, interest rates, and attorney fees.  Therefore, the licensing requirement is “created or imposed solely by the statute,” and prong one is fulfilled.

Prong Three: The Court held that “readily ascertainable” is not mutually exclusive from the requirement of fact-finding to determine the damages.  Readily ascertainable should not be confused with “relative ease of proof.”  The Court of Appeals held that the third element is satisfied as the documents and additional information provided by the lender and consumers would allow the damages to be “readily ascertainable.”

The full opinion is available in PDF.

Ceccone v. Carroll Home Servs. (Ct. of Appeals)

Filed: July 28, 2017

Opinion by: Judge Robert N. McDonald

Holding: Under Maryland law, contractual provisions which purport to shorten the statutorily-prescribed period of time within which a civil action must be brought are enforceable only if (1) there is no statute to the contrary; (2) the provision is not the product of fraud, duress, misrepresentation, or the like; and (3) the provision is reasonable in light of all the circumstances.

Facts: Homeowners brought suit against a provider of maintenance services in connection with damages allegedly arising from improper maintenance of their home furnace.  The Defendant moved to dismiss the action based on a provision of a maintenance agreement entered into by the homeowners which provided that all claims of the homeowners against the Defendant, whether in contract or tort, were subject to a one-year limitations period.  The action, having been brought more than one year after the homeowners were on notice of a potential claim against the Defendant, was dismissed.    

Analysis:  The Court of Appeals reviewed the factors to consider in determining whether the contractual provision in question was reasonable.  The Court of Appeals provided that the circuit court should consider the totality of the circumstances, including, for example, the length of the shortened limitations period, its relation to the statutory period, the relative bargaining power of the parties, the subject matter of the contract, whether the shortened limitations period applies only to claims brought by one of the parties or runs in both directions, and other facets of the limitations provision—e.g., it appears to apply equally to claims of negligence and intentional torts.  Here, the Court of Appeals noted circumstances to suggest that the Defendant had greater bargaining power.

The Court of Appeals reversed the dismissal and remanded the matter to the Circuit Court to consider whether there was any misrepresentation or fraud which undermines the validity of the shortened limitations period provided in the maintenance agreement and to determine expressly whether the shortened limitations period is reasonable.

The full opinion is available in PDF.

Murray v. Midland Funding, LLC (Ct. Spec. Appeals)

Filed: April 26, 2017

Opinion By: Friedman

Holding: The applicable statute of limitations limits the timeliness of legal claims, and the doctrine of laches limits the timeliness of equitable claims, but either or both sets of principles may limit the timeliness of declaratory relief from a court.

Facts: The Plaintiff had been sued by the Defendant on a debt, resulting in a judgment in favor of the Defendant.  Subsequently, in 2010, the Maryland State Collection Agency Licensing Board held that companies like Defendant are debt collectors and must be licensed to operate in Maryland.  The Court of Appeals held in Finch v. LVNV Funding, 212 Md. App. 748 (2013), that judgments obtained by such unlicensed debt collectors are void.  The Plaintiff brought a purported class action on behalf of herself and other debtors seeking various relief against Defendant for judgments obtained by the Defendant while it was unlicensed.

Analysis: The Court discussed the rules that bar stale claims.  For legal claims, the time limitations are determined by the applicable statute of limitations.  Under Maryland law, Courts & Judicial Proceedings Article § 5-101 may apply the three year limitation period for monetary claims against debt collectors that attempt to enforce void judgments against a debtor.  However, the Court held that this was not a bar to Plaintiff's equitable claims advanced and dismissed by the trial court.

For equitable relief, such as injunctive relief, the doctrine of laches determines whether a plaintiff's claim is time barred.  "There is no firm time limit for laches: rather a judge sitting in equity considers plaintiff's delay in asserting the claim and its causes and weighs that against the prejudice to the defendant caused by the late assertion of the equitable claim."  As to the Plaintiff's count for injunctive relief against the Defendant, the Court held that the trial court's dismissal of this count had to be reversed, and the above laches doctrine would need to be applied to her demand.

However, declaratory judgments sit in a hybrid category when analyzing whether such a claim is time-barred.  The Court notes that when a plaintiff merely seeks a court declaration that a judgment obtained by an unlicensed debt collector is void, there is no time limit on when such an action may be filed.  But, when the declaratory judgment count includes other relief, the applicable time limit on each of those claims must be calculated based on whether the relief is legal or equitable in nature.  As a result, the Court reversed the trial court's dismissal of her declaratory judgment claim so that the trial court could determine what relief, if any, was sought by the Plaintiff ancillary to a declaration that Defendant's judgment was void.

The full opinion is available in PDF.

Windeshein v. Larocca (Md. Ct. App.)

Filed: June 23, 2015

Opinion by: J. Adkins

Holdings: 

(1) When a person signs an affidavit containing incorrect information, such person is generally on inquiry notice of any claim arising under such affidavit and the statute of limitations for such claim will not be tolled absent evidence of fraud or concealment or a fiduciary relationship between the party preparing the affidavit and the affiant; and

(2) To be liable for engaging in indirect false advertising regarding secondary mortgage loans and their availability under Md. Code Ann., Commercial Law § 12-403 (the "Secondary Mortgage Loan Law"), mere knowledge of false advertisements is not sufficient to violate the Secondary Mortgage Loan Law, a lender must do some act to bring about the false advertising. 

Facts: 

In 2006 and 2007, three married couples (the "Borrowers") contacted realtors to express interest in selling their current homes and purchasing new ones.  The realtors encouraged Borrowers to purchase a new home before selling their current home by obtaining home equity lines of credit ("HELOCs") against their current homes and then obtain a primary mortgage for the new home.  The realtors referred Borrowers to Michelle Matthews, a loan officer for Propensity Mortgage Company, who informed Borrowers the HELOC strategy was a "common lending tool at Propensity." 

Propensity Mortgage Company and Matthews, advertised in flyers on the website of some of the realtors, claiming that they could provide "Home Equity Lines and Loans (to make your client non-contingent)."  Borrowers claimed they believed at all times that Matthews and Propensity were processing the HELOCs; however, Matthews referred the HELOCs to Suzanne Windesheim, a loan officer for National City Bank (now PNC Mortgage).  The HELOCs were processed through National City Bank using false information contained in Borrowers' signed affidavits, allegedly added by Windesheim with Matthews' knowledge. 

The Borrowers filed a putative class action lawsuit in the Circuit Court for Howard County, Maryland against National City and Windesheim alleging that National City and Windesheim engaged in indirect false advertising in violation of the Secondary Mortgage Loan Law through the actions of Propensity and Matthews.

Analysis:

Inquiry Notice:  Borrowers argued that, because the information contained in the signed affidavits was false and because they were encouraged to sign without reading them, the statute of limitations had been tolled until the Borrowers had been contacted by counsel in 2010 and 2011 informing them that they may have been the victims of mortgage fraud.  The Court, however, found no evidence to refute the fact that Borrowers were on inquiry notice of their claims in 2006 and 2007 when they closed their HELOCs and primary residential mortgages because: (1) Borrowers signed the affidavits containing the false information and there was no evidence National City Bank or Windersheim attempted to conceal the false information in the affidavits; and (2) neither National City Bank nor Windersheim owed Borrowers any fiduciary duties which would justify tolling the statute of limitations.

Secondary Mortgage and False Advertising:  The Court determined that the plain meaning of "indirect" as used in the Secondary Mortgage Loan Law provided two reasonable interpretation as to how a lender could advertise "indirectly" – (1) "by making a false or misleading statement to a potential borrower that the same potential borrower then re-communicates to another potential borrower" or (2) "by having another party advertise false or misleading statements on the first party's behalf." 

The Court looked to the legislative history and policy purpose of the Secondary Mortgage Loan Law and reasoned that, because it was meant to protect consumers, it was reasonable to conclude that the Maryland General Assembly intended to proscribe both definitions of "indirect."  The current law removed the phase "to cause to be placed before the public" from a prior version of the law and therefore, the Court inferred, the General Assembly intended that to be guilty of a violation of the Secondary Mortgage Loan Law a person must "bring about the placing of a false or misleading statement before the public."  The Court applied the second definition of advertising indirectly and determined that neither National City Bank nor Windesheim violated the Secondary Mortgage Loan Law and that "mere knowledge that another is falsely advertising" would not violate the Secondary Mortgage Loan Law. 

The Court also held that Windesheim and National City Bank were not vicariously liable for indirect advertising in violation of the Secondary Mortgage Loan Law under a civil conspiracy theory because there was no evidence that Windesheim knew Matthews and Prosperity were falsely advertising that Prosperity, not National City Bank, would handle the HELOCs.

The full opinion is available in PDF.

Federal Insurance Co. v. Mathews Brothers, LLC, and Alban Tractor Co., Inc. (Maryland U.S.D.C.)

Filed: August 14, 2015

Opinion by: Richard D. Bennett

Holdings:

(1) The Maryland Uniform Commercial Code (UCC) applies to the manufacture of a yacht because the predominant purpose is the provision of a good with labor incidental thereto.

(2) The UCC applies to the manufacture and installation of a yacht engine and related parts because the predominant purpose is the provision of a good with labor incidental thereto.

Facts:

Original Owner contracted with Builder to manufacture a yacht (Yacht Contract).  Builder then contracted with Engine Company to install an engine on the yacht (Engine Contract).  Engine Company provided an engine to Builder, who physically placed it on the yacht.  Before delivery to Original Owner, Engine Company performed final “hook ups” and accessory installations, conducted a “PAR Test” and replaced the engine.  Then, Builder delivered the completed yacht to Original Owner.  Original Owner died and his estate sold the yacht to Second Owner, who procured insurance from Insurance Company.  Subsequently, the yacht sunk and Insurance Company paid Second Owner on the insurance contract.  Then, Insurance Company sued Builder and Engine Company.

Analysis:

The Court determined the Yacht and Engine Contracts were mixed contracts because they involved both goods and services.  The Court accordingly applied the predominant purpose test to determine whether these mixed contracts are controlled by the UCC.  The UCC applies to transactions in goods, which are “movable at the time of identification to the contract for sale.”  The predominant purpose test asks “whether (the contract’s) predominant factor, (its) thrust, (its) purpose, reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, labor incidentally involved (e.g., installation of a water heater in a bathroom).”

The Court cursorily concluded the Yacht and Engine Contracts were contracts for the sales of goods, with labor incidentally performed.  Therefore, the UCC and its four-year statute of limitations applied and the default three-year statute of limitations in the Courts and Judicial Proceedings Code did not apply.  The UCC’s statute of limitations ran from the date of tender of delivery to the Original Owner, which expired over 18 months before the filing of the action, thus Insurance Company’s claims were barred.  Builder’s and Engine Company’s Motions to Dismiss were Granted pursuant to FRCP 12(b)(6).

The full opinion is available in PDF.

Walton v. Network Solutions (Ct. of Special Appeals)

Filed: February 26, 2015

Opinion By: Michael W. Reed

Holding: Appellant, Jeffrey Walton, failed to allege facts sufficiently specific to substantiate his claims against Appellee, Network Solutions, for violating either the Maryland Commercial Electronic Mail Act (“MCEMA”) or the Maryland Consumer Protection Act (“MCPA”), and his claims were timed barred under the applicable three year statute of limitations.

Facts: Appellant was the recipient of certain unsolicited commercial email (“spam”) from Appellee starting in 2009.  Appellant complained twice to Appellee, but continued to receive spam, which he alleged in his complaint was false or misleading as to where the spam came from and the information provided in the subject line of each email message.

Analysis: The Court began with the language of MCEMA, which specifically bars sending commercial emails that contain unauthorized, false or misleading information under section 14-3002.  Md. Com. Law Code Ann. § 14-3002 (2014).  Section 14-3002(b)(2)(ii) specifically bars “sending a message that contains false or misleading information about the origin or the transmission path of the commercial electronic mail.”  Appellant had asserted that Appellee had violated this provision because when Appellant sent a message to the reply-to address of Appellee, the message was returned indicating that the destination mailbox was full.  The Court concluded that this was not prohibited conduct under the statute because the statute did not require the mailbox to accept messages, only that it be a misrepresentation of where the spam originated from.  Moreover, the Appellant was able to determine from the sending email address to contact Appellee

Section 14-3002(b)(2)(iii) prohibits sending a message that contains false or misleading information in the subject line of the message.  The Court examined the subject lines of the emails attached to Appellant’s complaint, and concluded that because the subject lines of each such message were related to Appellee’s business of selling domain names, the subject lines did not, as a matter of law, have “the capacity, tendency, or effect of deceiving” the Appellant.  Instead, the case before the Court was factually distinguishable from a California case, Hypertouch, Inc. v. ValueClick, Inc., 123 Cal. Rptr. 3d 8 (Ct. App. 2011), because the subject lines in Hypertouch offered free gifts without any limitation when the offer was actually far more limited.

Finally, the Court determined that Appellant’s claims under MCPA were time barred, holding that Appellant was aware on December 1, 2009 that Appellee had failed to remove him from Appellee’s email list, but failed to file a claim against Appellee until March 7, 2013 – more than three years from when he knew or should have known of the allegedly false or misleading conduct of Appellee.  Appellant’s claim here is premised on the statements of Appellee’s employees that Appellant was removed from the mailing list, but continued to receive spam after being told he was removed.  The Court concluded that such a claim had to be filed within three years, and that the continuing harm doctrine, which if applicable, might extend the limitations period for each new spam message received, was not applicable to the present matter.  The Court held that this argument was waived by not being raised and decided by the trial court at the hearing on the motion to dismiss, but that even if not waived, the continuing harm doctrine should not be applied to alleged violations of MCEMA.

The full opinion is available in PDF.

Mathews v. Cassidy Turley Maryland, Inc. (Ct. of Appeals)

Filed: November 26, 2013

Opinion by Judge Robert N. McDonald

Held: (1) Under the Maryland Securities Act (the “Act”), the offer and sale of a tenant-in-common (“TIC”) interest in commercial real estate under terms requiring a mandatory management contract with an affiliate of the seller and granting the purchasers only a limited opportunity to change management involves a “security.” (2) The statute of limitations periods for claims brought under the Act for sale of an unregistered security and for transacting business as an unregistered broker-dealer or agent are not tolled by the judicially created discovery rule of Poffenberger v. Risser, 290 Md. 631 (1981), or under the fraudulent concealment provision of Md. Code, Courts & Judicial Proceedings §5-203 (“CJ §5-203”). (3) The statute of limitations periods for claims brought under the Act for fraud in the offer or sale of a security and for transacting business as an unregistered investment advisor and for material misrepresentations made in that capacity are not tolled by the discovery rule of Poffenberger but may be tolled under the fraudulent concealment provision of CJ §5-203.

Facts: In 2003, petitioner, who had owned and managed rental properties for over forty years, sold eleven different properties through the respondent real estate brokerage for approximately $4 million. For favorable tax treatment petitioner sought to re-invest the proceeds in other real estate and based on the respondent’s advice, petitioner used much of the proceeds to purchase five fractional interests or TICs in various commercial buildings.

The TICs were all created by DBSI, Inc. of Idaho, or an affiliate. Purchasers of the TICs were required to retain DBSI or its affiliate as the property manager and in return the purchasers would receive a set annual rate of return on their purchase monies. The property manager could only be removed by majority vote of all TIC owners of a specific property and a new property manager could only be appointed by the unanimous consent of all the TIC owners. The TIC owners had no direct control over the property.

In 2008, after petitioner learned that DSBI would be suspending payments on certain properties, DBSI filed a voluntary petition for bankruptcy under Chapter 11 of the bankruptcy code. The properties subject to petitioner’s TICs were foreclosed. The bankruptcy court ultimately found DSBI’s transactions to have been constructively or actually fraudulent. The Securities Division of the Maryland Attorney General’s Office contacted petitioner in 2009 in the course of investigating the offer and sale of the TICs in Maryland. On March 23, 2010, the petitioner filed suit in Circuit Court against the respondent for violation of the Act, breach of contract and common law tort claims of fraud, negligent misrepresentation, negligence and constructive fraud. The Circuit Court granted summary judgment for the respondent on all counts finding in pertinent part that the TICs were not a security under the Act and, even if they were deemed a security, the petitioner’s claims were time barred. Following petitioner’s timely appeal the Court of Appeals granted certiorari to determine, inter alia, whether (1) the TICs are securities under the Act; and (2) whether the petitioner’s claims under the Act are time barred.

Analysis:  The Court of Appeals first analyzed the Act to determine if the TICs were securities. The Act broadly defines a “security” to include an “investment contract” but the meaning of the term “investment contract” was a matter of first impression for the Court.  The Court noted that when interpreting the Act, it may consider the federal Securities Act because the Act states that it is to be coordinated with the related federal law. Reviewing pertinent federal precedent, particularly SEC v. Howey, 328 U.S. 293 (1946), the Court determined that an “investment contract” was an investment of money in a common enterprise with an expectation of profits derived from the significant efforts of others.

In this case, the sole issue was whether the purchasers of TICs had an expectation of profits derived from the significant efforts of the property manager. The Court concluded that the Howey test was met because the profits were generated by the property manager’s actions. Even though the investors, acting collectively, had the authority to remove the property manager, the efforts by the property manager were no less dominant and essential to the success of the enterprise than are the efforts of the management of a corporation. The TIC investment was, therefore, held to be a “security” under the Act.

The Court then considered whether the petitioner’s claims under the Act were time barred. The petitioner’s private causes of action under the Act included allegations of respondent’s (1) offer and sale of an unregistered security, (2) transacting business as an unregistered broker-dealer or agent, (3) misrepresentations or omissions of material fact in the offer and sale of a security, and (4) violations of the investment advisor requirements of the Act (i.e., both lack of registration as an investment advisor and misrepresentations made in that capacity). The statutes of limitations under the Act for each of these various claims had lapsed.

The Court analyzed whether petitioner’s claims could be tolled by either (1) the Poffenberger discovery rule, which delays the accrual of the statute of limitations until when the wrong is discovered or when the wrong should have been discovered through reasonable diligence; or (2) CJ §5-203, which delays the accrual of the cause of action when the plaintiff remains ignorant of the cause of action due to the defendant’s fraudulent concealment.

Analyzing the private causes of actions under the Act, the Court found that Poffenberger discovery rule did not toll the relevant statutes of limitations. The Court compared the limitations provisions for the causes of actions involving lack of registration (of the security or as a broker-dealer) with the limitations provisions for causes of action involving misrepresentations and fraud. Citing Md. Code Corp. & Assn’s, §11-703(f)(1)&(2)(i), the Court noted that for the sale of an unregistered security or acting as an unregistered broker-dealer, a cause of action must be brought “after the earlier to occur” of (1) three years after the contract of sale or purchase; or (2) one year after the violation. On the other hand, citing Md. Code Corp. & Assn’s, §11-703(f)(1)&(2)(ii), the Court noted that for a violation of the anti-fraud provisions, a cause of action may not be brought “after the earlier to occur” of (1) three years after the contract of sale or purchase or (2) one year after “discovery of the untrue statement or omission, or after discovery should have been made by the exercise of reasonable diligence.” The limitations provision applicable to the investment advisor requirements likewise requires such a claim to be brought no later than the earlier of (1) three years “after the date of the advisory contract or the rendering of investment advice” or (2) two years after “the discovery of the facts constituting the violation.” Md. Code Corp. & Assn’s, §11-703(f)(3). The Court concluded that because the limitations provisions applicable to anti-fraud and investment advisor violations under the Act includes their own discovery rule, the legislature did not intend for the Poffenberger discovery rule to apply to those violations. Further, the legislature did not intend for the Poffenberger discovery rule to apply to registration violations because it did not include a discovery rule in the limitation for those violations, as it did for the anti-fraud violations. Thus, the Court held the Poffenberger discovery rule to not apply to these private causes of action under the Act.

The Court analyzed next whether CJ §5-203 applied to the private causes of action under the Act. It found that CJ §5-203 did not apply to the violations of the registration provisions because a reasonably prudent buyer could have discovered those violations from publicly available information at the time of sale of the unregistered security or sale by an unregistered broker-dealer. However, CJ §5-203 could toll the anti-fraud violations because the tolling arises from the affirmative misconduct of the defendant and has been held applicable to limitations as to both statutory and common law claims. Finding no indication that the legislature did not intend for CJ §5-203 to apply to claims of fraud under the Act if plaintiff’s acquisition of knowledge of the violation is hindered by defendant’s fraudulent concealment, the Court held that CJ §5-203 could apply to anti-fraud claims under the Act. Because the issue of fraudulent concealment is fact-intensive and the Circuit Court did not explicitly consider whether the undisputed facts negated tolling under CJ §5-203, the Court reversed the Circuit Court’s grant of summary judgment for the  respondent to the extent the counts under the Act asserted claims for fraud.

The judgment of the Circuit Court was affirmed in part and reversed in part and the case remanded back to the Circuit Court.

The full opinion is available in PDF.

Kumar v. Dhanda (Ct. of Appeals)

Filed May 2, 2012
Opinion By Judge Clayton Greene, Jr.

Held:
While nonbinding arbitration, mandated by the contract, may have constituted a condition precedent to litigation, pursuing arbitration neither postponed the accrual of the underlying breach of contract claims nor otherwise tolled the statute of limitations applicable to maintaining an action in court.

Facts:
Petitioner and Respondent entered into an employment agreement on August 28, 2001. The contract contained a non-compete clause which prohibited Respondent from practicing within a specified radius of Petitioner’s multiple offices or soliciting or accepting Petitioner’s patients for three years following the expiration of the contract, or through August of 2005. The contract also included a standard mandatory, non-binding arbitration clause.

The agreement was not renewed upon termination on August 31, 2002. Soon thereafter, Respondent filed an initial suit for breach of contract against Petitioner in the Circuit Court for Anne Arundel County seeking damages for a breach of contract based on Petitioner’s refusal to grant Respondent partner status and the withholding of certain monies.

Four months later, on February 26, 2003, Petitioner filed a motion to compel arbitration and to dismiss the action. The judge presiding in Anne Arundel County dismissed the action without prejudice on April 24, 2003, stating that the “claims are subject to mandatory arbitration,” but noting that “[t]he case may be reopened to enforce the arbitration.”

On April 29, 2005 Petitioner filed, in the Circuit Court for Baltimore City, a petition to compel arbitration and to appoint an arbitrator. The petition also included separate counts concerning the substantive claims for breach of contract and breach of the non-compete provision. On March 9, 2006, Respondent filed both a response to Petitioner’s petition to compel arbitration and his own motion to dismiss the substantive counts for improper venue and as claims subject to mandatory arbitration. Petitioner then filed a response to the motion to dismiss, offering to withdraw the substantive counts if the Circuit Court would compel arbitration in order to resolve the issues. The court dismissed the substantive counts on April 28, 2006, but did not order arbitration. On August 25, 2006, Petitioner filed a motion for summary judgment, urging the Circuit Court for Baltimore City to grant the earlier petition to compel arbitration. Following a bench trial on November 20, 2006 the  judge granted the petition to compel arbitration.

Petitioner submitted the matter to the arbitrator in March of 2008. The arbitrator denied all relief to Petitioner and also denied relief to Respondent, save for an award of $868.00 as reimbursement for certain disability insurance premiums.

Finally, on March 16, 2009, almost a year after the arbitration award was issued, Petitioner filed the instant action in the Circuit Court for Montgomery County. The complaint stated that “[t]he Agreement requires arbitration as a requirement before Plaintiff can pursue a remedy in court . . . [t]he matter went to arbitration, and a decision in favor of the Defendant was rendered in June of 2008. This matter is brought de novo.” Respondent filed a motion to dismiss, arguing that the applicable three-year statute of limitations barred the action because the alleged breaches of contract occurred between 2002 and 2005. Petitioner filed in opposition, contending that, because completion of arbitration was a condition precedent to filing a claim, the statute of limitations had not begun to run until the arbitration decision of June 20, 2008. After a hearing and supplemental briefing by the parties, Judge McGann, of the Circuit Court for Montgomery County dismissed the action with prejudice.

Analysis:
The applicable statute of limitations is encompassed in § 5-101 of the Courts and Judicial Proceedings Article, which states: “[a] civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.” In the context of the statute of limitations, “[t]he law is concerned with accrual in the sense of testing whether all of the elements of a cause of action have occurred so that it is complete.” St. Paul Travelers v. Millstone, 412 Md. 424, 432 (2010). In the instant case, although not specifying the particular dates, both parties agree that the alleged breaches of contract occurred more than three years prior to the filing of the complaint in the Circuit Court for Montgomery County.

The cases Petitioner cites in order to assert that the statute of limitations does not begin to run until a plaintiff can “maintain his action to a successful result” all concerned whether the necessary elements of a cause of action had arisen under the facts that were presented. In the instant case, neither party disputes that all of the elements of Petitioner’s breach of contract claims existed, at the very latest, as of the dates upon which the applicable contractual provisions terminated.  Like the situation in Arroyo v. Board of Educ. of Howard County, 381 Md. 646 (2004), while resolution of the legal action must wait until the satisfaction of the condition precedent, the court’s jurisdiction may be maintained and the claim properly stayed prior to that time.

The court could find no applicable exception to § 5-101, or language within the Maryland Uniform Arbitration Act, §§ 3-201 to 3-234, that would toll the statute of limitations in this case. In Philip Morris v. Christensen, the court explicated for the first time two factors that continue to guide  consideration of whether to apply a judicial tolling exception in a particular case. In order for an exception to be applied the court must find that: “there is persuasive authority or persuasive policy considerations supporting the recognition of the tolling exception, and, recognizing the tolling exception is consistent with the generally recognized purposes for the enactment of statutes of limitations.” Philip Morris, 394 Md. at 238 (2006).  While, to be sure, arbitrating parties are on notice of any possible claims against them, thereby guarding them from stale claims, another purpose of the statute of limitations would be threatened by tolling in this situation. The court has repeatedly touted the value of statutes of limitations as not only ensuring fairness between the parties, but also as essential to judicial economy and the pursuit of diligence in litigation. Petitioner’s pursuit of his legal claims was not vigilant.

The full opinion is available in PDF.

Ali v. CIT Technology Financing Services, Inc. (Ct. of Special Appeals)

Filed: October 5, 2009
Opinion by Judge James R. Eyler

Held: Section 5-202 of Maryland's Courts and Judicial Proceedings Article tolls the three year statute of limitations of Section 5-101 during the pendency of a bankruptcy proceeding. The case was remanded to the lower court to apply Section 11 U.S.C 349(b) and determine whether the damages to be awarded should be calculated based on the consent order issued by the bankruptcy court in a case that was later dismissed or the original contract executed between the parties prior to the bankruptcy filing.

Facts: The parties entered into a five year equipment lease in June of 1997 with monthly payments for an aggregate amount of $196,536. In May of 1999, the Lessee defaulted under the lease agreement and the outstanding payment sum of $158,760,86 became immediately due.

On June 11, 2001, the Lessee filed a chapter 11 petition in bankruptcy and in August of 2004, the parties entered into a stipulation and proposed consent order that was executed by the court which allowed the Lessor a general unsecured claim in the amount of $190,725.86, and an administrative claim in the amount of $53,200.

The Lessor received some portion of the payment towards the administrative claim but did not receive any payment towards its general unsecured claim by way of a distribution in the bankruptcy proceeding. On on July 12, 2006, the bankruptcy court dismissed the Lessee’s bankruptcy case without discharge of its debts. In January, 2007, the Lessor filed suit against the Lessee for breach of the lease and, alternatively, by amended complaint filed in March, 2008, to enforce the stipulation and consent order.

The Lessee's principal defense was that Lessor's claims was barred by limitation because the tolling of Maryland's three year statute of limitations was only suspended from the date on which the bankruptcy proceeding commenced until the date on which the bankruptcy court lifted the automatic stay as to the equipment lease at issue.

The Lessor argued that Section 5-202 of the Courts and Judicial Proceedings Article tolled the running of the statute of limitations during the entire bankruptcy proceeding.

The Lessee also contended that the Lessor was seeking more than what it was entitled to receive under the lease.

The Court of Special Appeals discussed, in a fair amount of detail, the history of bankruptcy law and its inter-relationship with state insolvency laws. Ultimately, it concluded that, under §5-202, the running of the statute of limitations was tolled during the entire period that the bankruptcy proceeding was pending. However, the Court vacated the judgment and remanded the matter for to the Circuit Court for a proper assessment of damages as determined by either the stipulation and consent order or the original lease. The Court also vacated the portion of the judgment awarding pre-judgment interest because it could not determine how the Circuit Court had determined the amount of pre-judgment interest that it had awarded.

The entire opinion is available in PDF.