Penchuk v. Grant (Cir. Ct. Mont. Co.)

Opinion by: J. Anne Albright 

Holding:

Shareholders’ ratification of a board’s merger decision is valid where the shareholders were informed of the deal provisions at issue, and where the Plaintiff failed to explain how disclosing certain pieces of financial information would have altered the “total mix” of information available to shareholders.

Facts:

Plaintiff Walter Penchuk is a common stockholder of CYS Investments, Inc., a Maryland publicly-traded corporation that invests in residential mortgage pass-through certifications (the "Corporation"). In June 2018, the Corporation announced a proposed merger with Two Harbors Corporation, a real estate investment trust and also a publicly-traded Maryland corporation (the "REIT"). The Corporation and the REIT filed a joint proxy statement and two supplementary Form 8-Ks. In July, on the recommendation of the Board and by a majority vote of the shareholders of Corporation, the merger was consummated, and the Corporation became a wholly owned subsidiary of the REIT.

The Corporation's board had formed a special committee comprised of several of its directors to evaluate the merger proposals  — five bids in total, including the REIT's. As they narrowed down the bids to that of REIT, they negotiated the following conditions with REIT: an exclusivity period in exchange for three director appointments; that the transaction be taxable to the Corporation's shareholders; a non-solicitation provision; access to nonpublic information about competing proposals; a right to amend or match the offer; and a $43.2 million dollar termination fee.

Plaintiff filed a class action lawsuit against the Corporation (later dropped) and eight of its Directors (collectively, the "Defendants"), claiming a breach of fiduciary duty. The Plaintiff argued that these provisions amounted to onerous deal protections and a conflict of interest for the directors, and yielded inadequate consideration for the transaction, especially when considered in light of the Corporation's past financial performance. 

Defendants filed a motion to dismiss, and Plaintiff filed a second amended complaint, claiming failure to disclose one pro forma projection and two distributable cash flow projections, thus preventing the shareholders from making an informed decision about the merger. In their motion to dismiss, Defendants claimed, first, that venue is improper under the Corporation's amended bylaws and, second, that the business judgment rule protects their decision, as does the subsequent ratification of their decision by a majority of the shareholders.

Analysis:

First, Defendants argued that the Corporation's bylaws were amended to limit venue to Baltimore courts. The Court held that the amendment was invalid, citing Maryland Code Ann. Corps & Ass'ns section 2–110(a), which provides that a Corporation may not enact a provision that is inconsistent with Maryland law. Under Maryland law, a claimant may bring a claim against non-resident defendants in any county in Maryland. Md. Cts. & Jud. Proc. section 6–202(11).  Here, Defendants are non-Maryland residents, and its bylaws are inconsistent with the venue statute.  Defendants had argued that a change in the Corporations & Associations article permitted limiting shareholder claims to a particular venue in Maryland, but the Court's review of Maryland Corporations & Associations Article section 2-113 concluded that the statute permitted limitation on jurisdiction to a particular court system, but not as to venue of a specific court location within a jurisdiction.  The Court concluded that the legislative history for the section did not support an interpretation of it as permitting a limitation on venue.

Next, a shareholder's a valid claim for breach of fiduciary duty is extinguished when a majority of informed, disinterested shareholders vote to ratify a merger. In support, the Court cited long-held Maryland case law and Corwyn v. KKR Financial Holdings LLC, 125 A.3d (2015), which emphasized the requirement of “fully informed, uncoerced votes”. Maryland applies a materiality standard to disclosures to shareholders in advance of a merger (as does Delaware, and as is used in federal securities laws). A fact is considered a material only if there is a substantial likelihood that its disclosure would be viewed by a reasonable investor as significantly altering the total mix of information; for example, facts that would affect decisions to buy, sell or hold a company’s securities or affect a company‘s value. The burden is on a plaintiff to meet the materiality standard and explain how the facts at issue would have affected the total mix. Here, Plaintiff failed to meet the burden. First, the “onerous deal protections“ were disclosed to the shareholders. Second, as for the projections that were not disclosed, Plaintiff failed to specify how they would have significantly altered the total mix. Mere conclusory allegations are insufficient.

The Court therefore denied the Defendants' motion to change the venue, but granted its motion to dismiss with prejudice Count I of the Plaintiff's Complaint.

A pdf of the opinion is available here.

Mt. Hawley Ins. Co. v. Adell Plastics, Inc. (Maryland U.S.D.C.)

Filed:  December 3, 2018

Opinion by:  James K. Bredar

Holding:  The United States District Court for the District of Maryland (1) granted a motion for partial reconsideration to modify an interlocutory judgment and (2) denied motion for summary judgment due to genuine disputes of fact surrounding a claim for lack of good faith.

Facts: 

Defendant (“Manufacturer”) ran a business with several buildings covered by a commercial insurance policy maintained by Plaintiff (“Insurer”).  In late 2016, fire destroyed several buildings at Manufacturer’s Baltimore facility. 

Insurer sued in early 2017 seeking a declaration that the contract did not cover Manufacturer’s losses resulting from fire.  A period of significant discovery precipitated cross-motions for summary judgment; the United States District Court of Maryland denied Manufacturer’s motion in full and Insurer’s in part.  Insurer subsequently filed motions to partially reconsider and again for summary judgment, instituting the present proceeding before the same adjudicator.

Analysis: 

First, the court approached the threshold matter of the partial motion to reconsider.  Below, the court had ruled on Manufacturer’s claim that Insurer had lacked good faith in carrying out its investigation when the court denied summary judgment.  Insurer now posited that the court had failed to rule on whether Insurer had demonstrated good faith in carrying out its investigation.  Concurring with Insurer, the court agreed to modify its interlocutory judgment below and grant the motion to reconsider.

Having successfully landed its first punch, Insurer next needed to execute a haymaker: establish the absence of any genuine dispute of material fact as to both elements of a lack of good faith claim.  In order to prevail in summary judgment, Insurer would have to demonstrate that based on the developed record, no dispute of any material fact existed and that Insurer was entitled to judgment as a matter of law on the good faith claim.  "Good faith" is defined by Maryland statute "as an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim." Md. Cts. & Jud. Proc. Code § 3-1701(a)(4).  The court found that few cases explained this definition of good faith, but that Maryland case law tended to take a totality-of-the-circumstances approach looking at what the insurer did to resolve the coverage dispute, the substance of the coverage dispute, and the insurer's diligence.

Returning to the factual record established below, the court found an abundance of evidence establishing a genuine dispute over both elements.  Insurer had pointed to its claim professional’s declarations and correspondence in denying the insurance claim.  Manufacturer had supported its assertions of bad faith with deposition testimony.  The record supported a genuine dispute as to why Insurer had stopped covering Manufacturer’s losses after attempts at subrogation had failed.

Finding genuine dispute of material fact as to both elements of the lack of good faith claim, the court denied motion for summary judgment.

The full opinion is available in PDF.

Al-Sabah v. Agbodjogbe (Maryland U.S.D.C.)

Filed:  January 14, 2019

Opinion by:  Ellen L. Hollander

Holding:  Motions for summary judgment (1) granted in part as to breach of contract claim where no genuine dispute of material fact existed as to the formation of a contract for a loan and its subsequent default, and (2) denied in part as to a claim for fraudulent misrepresentation where genuine dispute of material fact existed as to the requisite scienter.

Facts: 

Plaintiff (“Donor”) is a Kuwaiti citizen who met Defendant (“Entrepreneur”) in 2014 in Baltimore.  Entrepreneur operated a few restaurants and convinced Donor to invest in his business and to entrust him with the creation of investment entities and charitable endeavors on her behalf.  Donor thereafter transferred more than $3 million for these purposes.

Instead, Entrepreneur allegedly formed entities with himself as sole owner through which he purchased commercial property.  Entrepreneur also, allegedly without authorization, purchased a $470,000 family home in cash using the proceeds of a 2015 wire transfer from Donor. 

Donor became suspicious of Entrepreneur in early 2016 and demanded documentation relating to the business and charitable entities and their transactions.  These requests were met with delays and misrepresentations.  Three months later, Entrepreneur’s wife contacted Donor claiming that a loan taken out against the family home was in default and would result in the family’s eviction if $350,000 were not paid by the end of the week.  Donor phoned Entrepreneur requesting more details.  Entrepreneur responded indicating the amount needed was only $165,000 by the next Friday or he risked eviction. 

In fact, Entrepreneur’s pending obligation was less than $10,000, paid weekly toward a personal loan and bearing no collateral relationship to the family home.

Against her better judgment, Donor provided $150,000 in the form of an interest-free one-year loan.  Entrepreneur defaulted on the loan and Donor filed suit alleging claims of (1) fraudulent misrepresentation, (2) conversion, (3) conspiracy, (4) detrimental reliance, (5) unjust enrichment, (6) breach of contract, (7) breach of agency duties, and seeking damages and other equitable relief. 

After discovery, Donor moved for partial summary judgment on the fraudulent misrepresentation and breach of contract claims. 

Analysis: 

The court began with the breach of contract claim, requiring Donor not only to establish that Entrepreneur owed a contractual obligation and breached that obligation, but also that no genuine dispute of material fact existed in the matter. 

Entrepreneur contended that a genuine dispute of material fact existed due to the possibility that the money had not come from Donor but one of her charities.  The court, however, properly found Donor to have acted through her agent as a partially disclosed principal – an arrangement which did not undermine her claim for breach of contract.  The court also found compelling the evidence that Donor had personally reimbursed the charity for the cost of the loan and that her agent had disclaimed any personal interest in the sum. 

Accordingly, the court found no genuine dispute that the parties formed a contract which Entrepreneur breached by failing to repay the loan.

Moving next to the fraudulent misrepresentation claim, the court required Donor to show no genuine dispute of material fact existed that:

(1) Entrepreneur had made a false representation
(2) its falsity was known to Entrepreneur or made with reckless indifference to its truth
(3) the misrepresentation was made for the purpose of defrauding Donor
(4) Donor relied on the misrepresentation and had the right to do so
(5) Donor suffered compensable injury from the misrepresentation. 

Evaluating the factual record, the court found no genuine dispute as to element 1 given that the actual amount owed was less than $10,000 and that Entrepreneur’s representation of needing $165,000 would have made the actual amount received, $150,000, insufficient to meet the purported obligation.

The court had more difficulty finding the necessary scienter requirement of element 2, refusing to impute deliberate intent to deceive from Entrepreneur’s failure or inability to explain why he thought eviction was imminent or why he needed such a large sum of money.  Faced with ambiguity and silence, the court determined a fact-finder more appropriate to determine the merits of Donor’s fraudulent misrepresentation claim.

The full opinion is available in PDF.

Garner v. ClaimAssist, LLC (Maryland U.S.D.C.)

Filed: August 9, 2018

Opinion by: Judge Hollander

Holding:  An entity seeking to collect a nondefaulted debt on behalf of another entity is not considered a debt collector as defined by the Fair Debt Collection Practices Act ("FDCPA").

Facts:  Plaintiff was injured in a car accident and received medical treatment for her injuries at a hospital ("Hospital"). Plaintiff retained a lawyer to pursue a tort case relating to the accident.

Hospital’s sole member (the "Member") hired defendant to identify and seek reimbursement from third-party payors in auto liability accounts. Member transferred these accounts before they were in default. Defendant would then reach out to the patient to determine the appropriate third-party payor.

Plaintiff’s medical account was transferred to defendant to identify the proper third-party payor. Defendant sent a letter to the attorney retained to notify the plaintiff of the unpaid medical bills and that a hospital lien had been filed and attached to any reimbursement of funds as a result of the accident.

Plaintiff’s medical bill related to the accident was $801.16. Plaintiff has medical insurance and U.S. Medicare. Plaintiff alleges that the Hospital should have received payment through her medical insurance. As of April 28, 2015, the Hospital has not processed the bill. Plaintiff alleges that the debt was therefore "plainly false, inaccurate, deceptive, and/or misleading."

The defendant moved for summary judgment arguing that they are not a debt collector under the FDCPA.

Analysis: The FDCPA was enacted to protect consumers from "false, deceptive, or misleading" debt collection practices. 15 U.S.C. § 1692(e). To establish a claim under the FDCPA, one must prove: “(1) the plaintiff has been the object of collection activity arising from consumer debt; (2) the defendant is a debt collector as defined by the FDCPA; and (3) the defendant has engaged in an act or omission prohibited by the FDCPA."

The FDCPA differentiates a debt collector from a creditor by looking at the status of the debt when assigned to the entity. The status of the entity will change depending on whether the debt was or was not in default when acquired by the entity.

The FDCPA defines a debt collector as

any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

15 U.S.C. § 1692a(6).

The FDCPA excludes as a debt collector "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another . . . which was not in default at the time it was obtained." 15 U.S.C. § 1692a(6)(F)

The FDCPA defines a creditor as:

any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

15 U.S.C. § 1692a(4).

Courts have included within the term creditor, and not debt collector, entities collecting debts assigned to them before default. The intention was to exclude loan servicers of debt that was not in default to be included as a debt collector under the FDCPA.

There is no dispute of material fact of whether the account was in default when the Member transferred the account to defendant. Plaintiff failed to present any evidence showing the account was in default. Further, defendant was seeking to collect the debt of another, the Member. Defendant, therefore, falls under the 15 U.S.C. § 1692a(6)(F) debt collector exclusion reserved for an entity collecting nondefaulted debt of another.

Therefore, the Court granted the Summary Judgment Motion as to plaintiff’s FDCPA Claims.

The full opinion is available in PDF. 

Ellicott Dredges, LLC v. Ananda Shipyard & Slipways LTD (Maryland U.S.D.C.)

Filed: September 14, 2018

Opinion by: Catherine C. Blake, United States District Judge 

Holding:                                                      

The United States District Court for the District of Maryland denied Defendant’s motion to dismiss for lack of personal jurisdiction, holding Defendant, Ananda Shipyard & Slipways LTD, subjected itself to the jurisdiction of the state of Maryland when it consented to a valid freely-negotiated forum-selection clause.

Facts:

On January 19, 2012 Ellicott Dredges, LLC (“Ellicott”) and Ananda Shipyard & Slipways LTD (“Ananda”) entered a Joint Venture Agreement to “build and sell dredges, ancillary crafts and accessories to the government of Bangladesh.” In addition, about one year later the parties signed a License Agreement through which Ellicott licensed some of its products to Ananda, complete with mutual non-compete clauses. This License Agreement also stated that all disputes arising under the agreement would be resolved by the federal district court in Baltimore, Maryland:

            

Notwithstanding what is provided elsewhere in the Contract, disputes regarding the license agreement…will be handled as provided below in this clause 7.6…[Ananda]…hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the (federal) courts of the State of Maryland and of the United States of America (located in the City of Baltimore) for any actions, suits or proceedings arising out of or relating to this clause of this agreement.

The parties’ Joint Venture was successful and, as a result, Ananda entered four different Purchase Orders, governed by the “laws of the State of Maryland.” Further, these Purchase Orders stated Ananda was to secure letters of credit from specific banks. Ellicott alleges that Ananda violated several provisions of these orders, including its obligation to acquire said letters of credit.

As a result of these breaches, in December 2014 the parties entered a Separation Agreement, formally titled, “Amendments to Deed of Agreement dated 19^th January, 2012 and License Agreement dated March 15, 2013.” By its own terms, the Separation Agreement was executed “to supplement and/or alter certain provisions of the [Joint Venture Agreement] and License Agreement in order to elucidate the extent and the ambit of relationship between the parties.” Among other things, the Separation Agreement removed the non-compete restrictions on Ellicott’s conduct. The Separation Agreement also stated that the Separation Agreement, “the [Joint Venture Agreement] and the License Agreement and all non-contractual obligations arising from or in connection with the same shall be governed and enforced in accordance with the governing law and enforcement provisions contained in Clause 7.6 of the License Agreement.” 

Despite these modifications, Ananda sent Ellicott a demand letter in December 2017 claiming Ellicott violated the non-competition provision of the License Agreement. One month later, Ellicott filed suit seeking a declaratory judgment on the parties’ rights and obligations under the Separation Agreement and claiming Ananda breached its obligations under the Joint Venture Agreement, Purchase orders, and License Agreement, as amended by the Separation Agreement.

Analysis:

The federal court had to determine several interrelated legal issues, including whether it had jurisdiction over the dispute, and whether the forum selection clause in incorporated into the Separation Agreement was constitutionally enforceable.  In evaluating the enforceability of this clause, the court had to decide what substantive contract law would apply using Maryland's choice-of-law rules.

(1)  Personal Jurisdiction Standard of Review

A court’s assertion of personal jurisdiction over a nonresident defendant must comply with two requirements: (1) the exercise of jurisdiction must be authorized under the state’s long-arm statute; and (2) the exercise of jurisdiction must comport with the due process requirements of the Fourteenth Amendment. Carefirst, 334 F.3d at 396.  For purposes of its analysis, the court concluded that Maryland’s long-arm statue is coextensive with the limits of the due process clause. Id.

The due process clause permits parties to waive their challenge to personal jurisdiction by “either implicitly or explicitly” consenting to the court’s jurisdiction. Foster v. Arletty 3 Sarl, 278 F.3d 409, 413 (4^th Cir. 2002). Further, a party may consent through a “valid forum selection clause,” which courts have held “is enough to confer personal jurisdiction on a nonresident defendant.” CoStar Realty Information, Inc. v. Field, 612 F. Supp. 2d 660, 668 (D. Md. 2009). Maryland has long enforced freely negotiated forum-selection clauses.

A federal court exercising diversity jurisdiction must apply the substantive law of the state in which it sits, including the state’s choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Under Maryland law, if “the contract contains a choice of law provision,” the court must apply “the law of the specified jurisdiction.” Cunningham, 107 A.3d 1194, 1204 (Md. 2015).

Where a contract is silent as to the substantive law to be applied, a court applying Maryland's choice-of-law rules "[must] apply the law of the jurisdiction where the contract was made.” Id.  A contract is “made where the last act necessary to make the contract binding occurs.” Riesett v. W.B. Doner & Co., 293 F.3d 164, 173 n.5 (4^th Cir. 2002). The parties and circuit precedent agree that the last act necessary to make a contract binding is the final party’s signature. 

(2)  Personal Jurisdiction Standard of Review Applied to Ananda

The relevant contract for this Analysis is the Separation Agreement, which modified the License Agreement, and is therefore the most current expression of the parties’ relationship. The last act required to form the Separation Agreement, the final signature, occurred in Maryland when the agreement was signed by Ellicott’s representative and therefore Maryland law applies. And because the Separation Agreement selected this forum to resolve the parties’ disputes through its incorporation of clause 7.6 of the License Agreement Ananda consented to this court’s jurisdiction. 

Ananda has not claimed that the forum selection clause is invalid and unenforceable under Maryland law. Instead, Ananda argues that by its terms the clause only governs “actions…arising out of or relating to” the clause itself. In Ananda’s view, it only consented to the court’s jurisdiction for disputes over the scope of the clause. The court dismisses this argument, explaining, “If the forum selection clause only governs claims arising out of the forum selection clause then the parties agreed to have this court engage in a circular exercise: the court can decide whether it has jurisdiction to decide if it has jurisdiction and so on. That is an absurd reading, unsupported by common sense or the very clause Ananda attempts to interpret.” 

The court further highlights that what the parties intended by their forum selection clause is written right above its text: “notwithstanding what is provided elsewhere in the Contract, disputes regarding the license agreement or intellectual property or confidential data will be handled as provided below in this clause 7.6.” And further, Ananda consented to “irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this agreement or the transactions contemplated hereby.”

The full opinion is available in PDF.

Atlas Master Fund, LTD. v. Terraform Global Inc. (Cir. Ct. Mont. Co.)

Filed:  January 3, 2019

Opinion by:  Judge Rubin

Holding:  To determine whether a claim under the Securities Act of 1933 adequately alleged omissions from a registration statement, a court will review whether there is a substantial likelihood that the disclosure of the omitted information would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.

Facts:  A Delaware corporation (the “Company”) with its principal office in Bethesda, Maryland, was formerly controlled by its sponsor/parent (“Parent”) in a YieldCo structure.  A YieldCo is a tax-efficient financing structure that exists largely to benefit the sponsor, by allowing “the sponsor to tap the public equity markets without giving up control of the underlying assets.”  The Company completed an IPO on July 31, 2015 at $15.00 per share of common stock.  The Company’s stockholders were paid $5.10 per share when it was acquired by a third party in December 2017.  Plaintiffs are investment funds that bought shares in the IPO and brought suit alleging the loss in value in the span of two years, resulted in large measure, from material representations and omissions in the Company’s registration statement. 

The registration statement provided that any material transaction between the Company and Parent would require the approval by the Company’s conflicts committee, which was composed entirely of independent directors (the “Conflicts Committee”).  On November 20, 2015, the Company’s board allegedly terminated the two members of the Conflicts Committee following the Committee’s failure to approve a transaction requested by Parent.  Later the same day, three new members were added to the Company’s board and approved the transaction. 

The registration statement also provided an assurance that Parent, which borrowed money to purchase and develop the assets it sold to the Company, had adequate capital and access to the capital markets to make acquisitions and to develop projects.  Plaintiffs alleged the registration statement failed to disclose that, at the time of the IPO, Parent needed a $169 million loan to satisfy an undisclosed margin call related to an earlier acquisition by Parent.  While the loan closed after the IPO in August 2015, plaintiffs alleged the terms were known before the offering.  The interest rate exceeded the disclosed average annual interest rate by 500%. 

The defendants, which included the Company and persons who served as officers and directors of both the Company and Parent, filed a motion to dismiss arguing that the plaintiffs failed to plead viable claims for relief under the Securities Act of 1933.

Analysis:  With respect to alleged omissions from a registration statement, a court will review whether there is a “substantial likelihood that the disclosure of the omitted [information] would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”  Under circumstances where a registration statement contains both seemingly accurate and inaccurate information, “the Supreme Court has cautioned that ‘not every mixture with the true will neutralize the deceptive.  If it would take a financial analyst to spot the tension between the one and the other, whatever is misleading will remain materially so, and liability should follow.”

The Court found factual questions existed whether the registration statement was misleading with regard to each of the following aspects: (a) the Conflicts Committee, which was represented to be an effective control against self-dealing by Parent; (b) Parent’s then-existing financial condition and ability to raise capital to acquire and fund drop-down projects; and (c) Parent’s ability to disengage from the YieldCo model and decline to drop-down projects to the Company if Parent could get a better deal elsewhere. 

Conflicts Committee.  The Court stated that while the registration statement disclosed Parent’s ability to appoint all of the Company’s directors, including members of the Conflicts Committee, “a fair reading of the registration statement makes it seem that there would be a meaningful check in place to block overreaching by Parent regarding drop-downs.  No rational investor would equate the power to appoint [the Company’s] directors with the power to sack an independent Conflicts Committee, at will, and replace it with loyalists, the first time [the Company’s] Conflicts Committee rejected” a proposal. 

Parent’s Financial Condition.  The plaintiffs alleged that, although the loan closed in August 2015 after the IPO, the terms were known before the offering.  Plaintiffs conceded that the registration statement warned generally about the Company’s dependence upon Parent, and need for liquidity.  The Court stated that a registration statement may be misleading if “it fails entirely to disclose a material risk that is already known by the company” and concluded that it is a reasonable inference that certain defendants “knew of these impending, and imminent material financial events on July 31, 2015.”  The Court noted that the registration statement did not disclose the Parent’s need to secure the $169 million loan, which “likely would have alerted potential investors of material risks, otherwise unknown to the public.”  The Court disagreed with defendants’ contention that the Company had no duty to disclose any information about Parent’s financial condition, even if it knew about it, due to the YieldCo structure and the Company being completely controlled by Parent.

Ability to Disengage.  The Court recognized this part of plaintiffs claim as being more tenuous.  While the registration statement did not say that Parent could, at will, simply abandon the Company, “the offering documents did say that neither party was required to buy or sell any project, or to do so on any particular terms.”  Giving plaintiffs the benefit of all favorable inferences, the Court was disinclined to dismiss this part of the claim. 

The Court denied the motion to dismiss.  The Court also discussed the doctrine of class action tolling.  

The opinion is available in PDF.

Omni Direct v. Creative Direct Response (Cir. Ct. Mont. Co.)

Filed:  December 18, 2018

Opinion by: Judge Rubin

Holding:  Section 11-1207 of the Maryland Uniform Trade Secrets Act (MUTSA), which provides for both legal and equitable remedies in the event of a misappropriation of a trade secret, displaces common law claims that could be based on the same set of operative facts, even if “extra” facts are added to the other claims.

Facts:   Two direct mail marketing companies, Omni Direct (Omni) and Creative Direct Response (Creative), signed an NDA to pursue a business development collaboration for targeting the Hispanic community based on Omni’s expertise in this field.  Omni later sued Creative for allegedly using confidential information from Omni to start its own in-house Hispanic marketing program.

Analysis:  11-1207 of Maryland’s Commercial Law Article “displaces conflicting tort, restitutionary and other law…providing civil remedies for misappropriation of a trade secret.”  The purpose of this provision is to avoid pleading in the alternative if a Court decides during the trial that the information is not a trade secret.

This provision, adopted by other states from the Uniform Trade Secrets Act (USTA), has divided courts across the United States into three camps, although Maryland has not examined it in detail.  One, some courts throw out all duplicate common law claims, except contract-based remedies, even if the Court decides the information is not a trade secret.  Two, other courts allow a plaintiff to pursue other civil remedies in that lawsuit.  Three, a final group of courts take a middle of the road approach and displace other claims that are “based solely on the alleged misappropriation of a trade secret.”  Maryland courts have not had the opportunity to evaluate the displacement provision.

Here, the Circuit Court for Montgomery County dismissed Counts IV through VII because they were “grounded in the same core of operative facts” as Counts I through III which claimed a trade secret violation under MUTSA.  Adding “extra” facts and pleading in the alternative is exactly what the USTA sought to avoid with the displacement provision.

The full opinion is available PDF.

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.