Gebhardt & Smith, LLP v. Md. Port Adm'n (Ct. of Special Appeals)

Filed: October 29, 2009
Opinion by Judge Kathryn Grill Graeff

Held: Language in a Lease Agreement stating that the operating expenses payable by the tenants "shall be determined by Lessor's certified public accountant," is not a condition precedent to tenant's obligation to pay these expenses. Further, when a contract provides that a determination rendered by a designated person is "final," that determination is binding on the parties and cannot be contested in court in the absence of fraud or bad faith.

Facts: Gebhardt & Smith, a law firm, leased office space in Baltimore, Maryland, from 1977 until 2006 in the World Trade Center, an office building operated by Maryland Port Administration. The parties executed the lease at issue in 1992 and the tenant agreed to pay per month base rent, plus its proportional share of real estate taxes and operating expenses. The tenant challenged the operating expenses invoiced by the Landlord and did not pay any bills for operating expenses from 2003 to 2006 based upon a provision in the lease that provided that these expenses shall be determined by the landlord's certified public accountant.

Relying on this passage, the tenant argued that it was a condition precedent to its obligation to pay for operating expenses for the landlord to have an independent certified public accountant determine the actual operating expenses at year's end. The tenant also argued it was not precluded from contesting the certified public accountant's calculations as to the accuracy of the operating expenses.

The Circuit Court rejected the tenant's position. It held that the lease does not require an "independent" certified public accountant to determine the operating expenses and that the landlord complied with the lease provisions by employing its internal certified public accountant to determine the operating expenses. Further, the lower court noted that pursuant to the terms of the lease, which stated that the certified public accountant's calculations were "final," the tenant was precluded from challenging whether the operating expenses were calculated correctly.

On appeal, the Court of Special Appeals held the the lease provision at issue does not contain clear language providing that the determination of the operating expenses by the "Lessor's certified public accountant" is a condition precedent to the tenant's obligation to pay these expenses. The lease at issue does not contain language typically used to create a condition precedent, such as a statement that the tenant is obligated to pay operating expenses "if," "when," "after," or "provided that," "Lessor's certified public accountant" determines the operating expenses.

The Court further noted that even if lease contained a condition precedent, that condition had been fulfilled by the audit performed by the landlord's internal certified public accountant (the MDOT Office of Audits). The Court rejected the tenant's argument that the certified public accountant be "independent" should be reasonably implied since the lease referred to "Lessor's certified public accountant" and did not contain the word "independent." In that regard, the Court stated "if the parties to a contract intend that a certified public accountant specified in the contract be 'independent,' the contract would specifically state that requirement." The Court further noted that even if the term "independent" is considered an implied term in this matter, that the Landlord and MDOT Office of Audits satisfied that condition since "Certified public accountants are held to professional, ethical and work standards by the very nature of their training and certification."

Finally the Court held that, where a contract provides that a determination rendered by a designated person is "final," that determination is binding on the parties and cannot be contested in the absence of bad faith or fraud. The Court noted that generally parties to a contract are entitled to turn to the courts to resolve disputes arising from a contract, but that the parties to a contract can waive that right and provide that a designated person has authority to render a final and binding decision.

In order for the contract to foreclose or waive the right of a party to challenge or litigate the conclusions of a third party, the contract must use unequivocal language that unmistakably evidences the parties' intent that the third party's determination is final, binding, and conclusive. The language in the lease in question, that the statement of operating expenses be "determined by Lessor's certified public accountant," was deemed to be sufficient to show that parties' intent that the determination constitutes a "final determination" between the parties that can be challenged only on the narrow grounds of bad faith or fraud.

The full opinion is available in PDF.

Posey v. Comptroller (Maryland Tax Ct.)

Filed: October 29, 2009
Opinion by Chief Judge Walter C. Martz, II

Held: A physician severed his domicile in Maryland for tax purposes when he closed his professional practice in Maryland and manifested a subjective intent to be domiciled elsewhere.

Analysis: The Comptroller attempted to assess taxes against the plaintiff as if he were domiciled in Maryland. The plaintiff disputed the assessment, claiming he had severed his domicile in Maryland and established a domicile in Maine.

The court applied the two-pronged test for determining a change in domicile articulated in Shenton v. Abbot, 178 Md. 526 (1940):

1. It must be shown that a new residence was acquired with the intent of remaining there;
2. The abandonment of the old domicile must be so permanent as to exclude the existence of an intent to return.

To make a decision, the court examined the circumstantial evidence particular to the case. The court found several things material: the plaintiff acquired a new home in Maine, it was designed to be permanent, he signed a two year contract with a practice group in Maine, and he closed his Maryland practice and referred its patients to other doctors.

On that basis, the court concluded that the plaintiff clearly intended to abandon his domicile in Maryland. Accordingly, the Comptroller's assessments were reversed.

The full opinion is available in PDF.

Bayly Crossing, LLC v. Consumer Protection Division (Ct. of Special Appeals)

Filed: October 5, 2009

Opinion by: Judge James R. Eyler

Held: Limited liability company violated the Maryland Home Builder Registration Act and the Maryland Consumer Protection Act by failing to register as a home builder and by failing to disclose its unregistered status to prospective purchasers of new homes. The LLC's liability stemmed from entering into contractual obligations to build and sell new homes even if LLC did not perform the actual construction. The LLC members were personally liable for these violations because they were found to have participated in, controlled, or had knowledge of the LLC'sunregistered home building activity.

Facts: A limited liability company entered into form contracts to construct and sell new homes to individual buyers. The contracts disclosed that an affiliated corporation, closely held by the three members of the LLC, was registered as a home builder in Maryland and would perform the actual construction of the new homes. The contracts failed to disclose, however, that the LLC itself (designated as the "Seller" under each contract) was not registered as a home builder. Each contract also offered a one-year, limited warranty on the newly built home in exchange for the buyer's release of the LLC and its members from all liability relating to the construction. Prior litigation involving unregistered home-building activity by the affiliated corporation led to entry of a consent order, to which both the corporation and its principals (who would later also be the members of the LLC) were parties. The consent order prohibited the principals and "any entity with which they are or will be involved" from engaging in new home-building activities without first registering with the Maryland Home Builder Registration Unit of the Consumer Protection Division.

Analysis: By undertaking a legal obligation to "sell and construct" new homes to consumers without first registering as a home builder, the LLC violated the Maryland Home Builder Registration Act ("HBRA") even though its contracts disclosed that an affiliated corporation would perform the actual construction. The LLC also engaged in unfair and deceptive trade practices, in violation of the Maryland Consumer Protection Act ("CPA"), by failing to disclose its unregistered status in its contracts and promotional materials, thereby falsely implying to consumers that the LLC was lawfully authorized to sell new homes to consumers.

The members of the LLC were properly held jointly and severally liable for the LLC's statutory violations for two reasons.

First, they violated the prior consent order, which required both them and any entity with which they were or would become involved to register as home builders before engaging in any new home-building activity.

Second, consistent with the standard announced in Consumer Protection Div. v. Morgan, 387 Md. 125, 874 A.2d 919 (2005) for holding principals personally liable for corporate violations of the CPA, there was sufficient evidence demonstrating that the LLC members participated in, controlled, and had knowledge of the LLC's unlawful operation as an unregistered home builder. Also of note, the LLC itself was dismissed as a party to the appeal for lack of standing because its corporate charter was forfeited prior to the deadline to notice an appeal. The court held that revival of a forfeited corporate charter does not relate back to the filing of a notice of appeal by the corporation when it had no legal existence.

There are two significant practice pointers arising from this decision. First, by engaging in commercial activity that is subject to a comprehensive licensing and regulation statute enforced by an administrative agency, the actor is deemed to be making an implicit representation of a material fact to consumers that the actor is properly licensed and registered. Second, reflecting a growing trend in Maryland jurisprudence, corporate principals can be held personally liable for violations of these statutes under standards similar to long-held common-law principles imposing personal liability on corporate principals who direct, participate in, or cooperate in the commission of tortious activity by the corporation.

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.

McDonald v. Metropolitan Life Insurance, Co. (Maryland U.S.D.C.)

Filed October 20, 2009
Opinion by Judge J. Frederick Motz

Held: Summary judgment granted to defendant insurance company, MetLife, because it did not abuse its discretion under ERISA in terminating plaintiff's long term disability ("LTD") benefits based on the reports of independent consultant physicians who reviewed plaintiff's medical records and did not do their own vocational review or actual physical examination of the plaintiff.

Facts: In March 2007, the plaintiff submitted a claim for LTD benefits under his employer's LTD plan, governed by ERISA, after experiencing a tremor in his arm while driving. MetLife (the Plan's claim administrator) approved the claim after evaluating plaintiff's medical records from his physician and neurologists. MetLife determined that plaintiff met the Plan's definition of "disabled" and informed the plaintiff that he had a continuing obligation to provide proof of his disability as defined by the Plan to continue receiving benefits.

In October 2007, MetLife referred plaintiff's claim file, including his medical records, to an independent physician consultant. The consultant expressed the opinion that the medical records did not manifest incapacity to the extent of being disabled. Accordingly, MetLife decided to terminate the plaintiff's LTD benefits.

Plaintiff submitted an appeal that included additional medical documentation and other materials in support of his claim. MetLife referred the claim to two additional independent physician consultants who concluded that the plaintiff was not unable to perform to his job and his mental status results were essentially normal. MetLife submitted the consultant reports to plaintiff's treating physicians for review and comment. Only one physician responded, stating that the plaintiff was physically incapacitated by his disorder and emotionally disabled. Finding this response incomplete and failing to provide objective evidence in support of disagreement with the independent consultants, MetLife issued a letter upholding its decision to terminate the plaintiff's benefits. Plaintiff filed suit thereafter.

Analysis: The parties agreed that the Court could only find in favor of the plaintiff if MetLife abused its discretion in terminating the plaintiff's LTD benefits. The Court held that MetLife did not abuse its discretion because it conducted a full and fair review of the claim.

MetLife collected numerous medical records from the plaintiff's various health professionals and therefore, according to the Court, MetLife's decision resulted from a "principled decision-making process." In addition to reviewing the plaintiff's medical records from its physicians, MetLife also requested reviews from three independent consultants and requested responses from the plaintiff's doctors. The Court noted that the fact that MetLife initially awarded LTD benefits to the plaintiff did not weigh in favor of the plaintiff's position because MetLife was entitled to continue to evaluate the plaintiff's condition even after initially awarding benefits.

The Court also ruled that it was not an abuse of discretion for MetLife to rely more heavily on the consultants' determinations than those of the plaintiff's doctor since an administrator, such as MetLife, can adopt the position of one doctor over another.

Finally, the Court held MetLife's decision not to secure an additional vocational assessment to the plaintiff's vocational assessment was not an abuse of discretion because the Fourth Circuit does not require a vocational assessment in the course of a full and fair review. Moreover, MetLife had nevertheless reviewed the report submitted by the plaintiff's vocational consultant.

The full opinion is available in PDF.

Mervis Diamond Corp. v. Congressional Hotel Corp. (Cir. Ct. Mont. County)

Filed October 1, 2009

Opinion by Judge Ronald B. Rubin

Held: When there is a remand after an appeal, the prevailing party is not automatically barred from recovering fair, reasonable, and necessary contract-based attorneys' fees incurred as a consequence of the second trial.

Facts: Mervis Diamond Corporation entered into a 10 year commercial lease with Congressional Hotel Corporation ("CHC") for retail space. Under the terms of the lease, CHC was to complete certain construction work prior to providing the premises to Mervis ("Landlord's Work"). When CHC did not respond to Mervis's inquiries regarding CHC's commencement of the Landlord's Work on the premises, Mervis filed suit on March 16, 2005 in Circuit Court for Montgomery County for (1) breach of contract; (2) specific performance; and (3) a temporary restraining order to prevent CHC from demolishing the premises.

The Circuit Court ruled that CHC had breached the lease and entered judgment ordering CHC to specifically perform its obligations under the lease. The Circuit Court also enjoined CHC from performing any work on the premises other than the Landlord's Work and awarded Mervis damages for lost profits. In addition to lost profits, the Circuit Court also awarded Mervis attorneys' fees in accordance with Section 25.01 of the lease (a fee shifting provision that provided for the prevailing party to receive reasonable attorneys' fees).

On appeal, the Court of Special Appeals reversed the Circuit Court's ruling on lost profits because it concluded that the correct date to be used for calculating lost profits was the date CHC should have completed the Landlord's Work and not the date used by the Circuit Court, namely the date that CHC was to commence the Landlord's Work.

Analysis: On remand, CHC argued that Mervis was barred from recovering any amount of attorneys' fees from the second trial because Mervis's incorrect argument regarding lost profits necessitated the second trial. The Circuit Court found that the argument asserted by Mervis during the first trial, although incorrect, was not unreasonable and awarded attorneys' fees to Mervis for the second trial. Moreover, CHC, after remand, pursued an aggressive defense, raising many issues and arguments not pursued during the first trial. Thus, the Court found that the second trial bore little resemblance to the first trial.

The full opinion is available in PDF.

Moffit v. Baltimore American Mortgage; Ruble v. The Mortgage Consultants, Inc.; and Fulmore v. Premier Financial Corp. (Maryland U.S.D.C.)

Filed October 9, 2009
Opinion by Judge J. Frederick Motz

Held: Plaintiffs waived their right to seek a remand when they filed a Second Amended and Class Action Complaint in federal court following the removal from state court by the defendants.

Facts: Plaintiffs filed individual complaints in the Circuit Court of Maryland alleging violations of Maryland law. These complaints did not contain allegations with respect to any proposed class action. The Plaintiffs' claims were dismissed by the Circuit Court. The Maryland Court of Appeals reversed.

After remand, plaintiffs' counsel sent a draft amended complaint to defendants' counsel. This complaint contained class action allegations. Plaintiffs' counsel stated in the letter to defendants' counsel that the draft amended complaint containing the class action allegations would be filed unless a settlement were reached.

Defendants believed the draft complaint sent to their counsel met the requirements for the exercise of federal jurisdiction under the Class Action Fairness Act ("CAFA") and filed notices of removal. Thereafter, plaintiffs filed their amended complaint with the class action allegations in the United States District Court for the District of Maryland. Plaintiffs then filed motions to remand on the basis that the complaint that they had filed did not constitute "other papers" under the meaning of 28 U.S.C. §1446(b) (the federal class action removal statute).

Analysis: The Court relied on the proposition in Koehnen v. Herald Fire Ins. Co. 89 F.3d 525 (8th Cir. 1996) that "[a] party that engages in affirmative activity in federal court typically waives the right to seek a remand." Following this principle, the court held that the filing of a complaint setting forth class action claims in the District Court clearly constituted "affirmative activity" in federal court. The Court also relied on the interest of policy in preventing the plaintiffs from "manipulat[ing] the litigation process to deprive this court of jurisdiction it would otherwise have." The Court reasoned that had it ruled on and granted the plaintiffs' motion to remand and then the plaintiffs filed the class action complaint in state court the defendants would have an opportunity to file new notices of removal because the "other papers" issue on which the plaintiffs had based their current motions to remand would be eliminated.

The full opinion is available in PDF.

McDevitt v. Reliance Standard Life Insurance Co. (Maryland U.S.D.C.)

Filed October 13, 2009
Opinion by Judge J. Frederick Motz

Held: Medical condition caused by inhalation of toxic fumes was an "illness" under the terms of a worker's disability insurance policy. It was not an "injury" which would be excluded from coverage.

Facts: The plaintiff suffered a harm when he inhaled toxic fumes in the course of his employment. This manifested in the form of pneumonia. He claimed disability insurance benefits, and his carrier denied the claim, asserting that the condition was excluded pursuant to the terms of the policy. The policy excluded coverage for "injury" occurring in the course of employment.

Analysis: Relying in part on the dictionary, the court held that the condition was an "illness", not an "injury". The court stated that "insurance policies must be construed not in the context of academic discourse but in the context of the language used by ordinary persons whose contractual relationships the policies are intended to govern."

The court also opined that “the ultimate purpose of insurance is to provide coverage to those who have contracted for it (or who are beneficiaries of a contract made on their behalf by an employer or other third party). It is not to erect administrative barriers, increase transaction costs, or delay the payment of legitimate claims. Whenever a non-governmental insurer becomes blind or indifferent to this simple proposition, public confidence in the integrity and efficacy of the system of private insurance inevitably is eroded.”

The full opinion is available in PDF.

Strudwick v. Whitney (Cir. Ct. Balto. City)

Filed August 28, 2009.
Opinion by Judge Evelyn Omega Cannon.

Held: Defendants whose contacts with Maryland were primarily limited to sending correspondence into the state and maintaining a passive website lacked sufficient contacts for the court to exercise personal jurisdiction over them.

Facts: In a lawsuit concerning the ownership of business interests in Costa Rica, the plaintiffs alleged claims against two foreign defendants who moved to dismiss for lack of personal jurisdiction.

The plaintiffs alleged general jurisdiction on grounds that the defendants had clients in Maryland and had earlier entered their appearance as counsel in the case. The court held that the defendants' limited client roster in the State was not sufficient. The court further held that appearing in the case could not be considered a factor because a defendant's contacts are to be measured as of the time the claim arose.

The plaintiffs alleged specific jurisdiction based on 1) an e-mail and a letter sent to the plaintiff in Maryland, 2) an allegedly defamatory website, and 3) allegedly defamatory e-mails sent to third parties, including Maryland residents. The court held that a passive website and e-mails that allegedly caused harm to business interests outside the jurisdiction were not sufficient grounds upon which to exercise personal jurisdiction.

The full opinion is available in PDF.

Federal Trade Commission v. Innovative Marketing, Inc. (Maryland U.S.D.C.)

Filed September 16, 2009
Opinion by Judge Richard D. Bennett

Held: Under the recently articulated Iqbal "plausibility" standard, the FTC sufficiently pleaded a cause of action against a corporate officer for personal liability for deceptive marketing practices.

Facts: The FTC sued multiple companies and their officers for marketing software using misleading "scareware" tactics. One officer moved to dismiss for failure to state a claim against him in his individual capacity. Under the FTC Act, upon establishment of corporate liability for deceptive marketing, individual defendants may be held personally liable upon proof that they "participated directly" in the acts or "had authority to control them." In addition, the FTC must prove the individual had some knowledge of the conduct.

Regarding the individual, the FTC alleged that 1) he was a corporate officer, 2) he handled the company's finances and merchant accounts, 3) this was important because of the difficulty maintaining payment processors due to a high rate of chargebacks and complaints, and 4) his credit card was used by another defendant to buy advertising. The court held that these allegations were sufficient to support a claim for personal liability under the Act.

*Concerning the knowledge requirement, the court relied on the defendant's degree of participation in business affairs, the small size of the enterprise, and the breadth of the scheme to infer that he had knowledge.

The full opinion is available in PDF.