Cappel v. Riaso (Ct. of Special Appeals)

Filed: February 7, 2011
Opinion by Judge Timothy E. Meredith

Held: Defendants' ownership of unimproved land in Maryland, unrelated to the cause of action, did not support the exercise of personal jurisdiction over the defendant in an action to enforce a confession of judgment clause in a guaranty.

Facts: The Defendants signed a guaranty containing a confession of judgment clause. In the guaranty, the defendants agreed to appear "in any court of competent jurisdiction in the State of Virginia or any other State or Territory of the United States" to confess judgment.

Upon a default, the plaintiff filed a complaint and affidavit for confessed judgment in the Circuit Court for Montgomery County. The clerk entered judgment against the defendants. The defendants filed a motion to vacate on grounds that the court lacked personal jurisdiction because of their minimal contacts with Maryland. The plaintiff opposed the motion on grounds that the defendants owned land in Maryland, thus availing themselves of the benefits and protections of the forum state. The trial court held that owning the property was a sufficient contact to justify the exercise of personal jurisdiction under International Shoe, and it denied the motion.
Analysis: First, the Court held that lack of personal jurisdiction is an appropriate basis under Rule 2-611(d) upon which to move to vacate a confessed judgment, though it is not specified in the rule.

Regarding the merits, the Court held that an out-of-state resident's ownership of real property unrelated to the cause of action, absent other ties, is insufficient to establish jurisdiction under either the long-arm statute or the Due Process Clause. Accordingly, the Court vacated the judgment.
The full opinion is available in pdf.

Potomac Valley Orthopaedic Associates v. Maryland State Board of Physicians (Ct. of Appeals)

Filed: January 24, 2011

Opinion by Judge Joseph F. Murphy, Jr.

Held: The prohibitions against self-referrals contained in the Maryland self-referral law applies to a physician's referral of a patient for a MRI or CT scan that are to be performed another health care provider in the same group practice as the referring physician or on an imaging or scanning machine in which the referring physician or the referring physician's practice has a financial interest.

Facts: This case began when two formal petitions were issued to the Maryland State Board of Physicians by CareFirst BlueCross BlueShield and The Injury Workers' Insurance Fund requesting that the Board issue a ruling on the propriety under the Maryland Self-Referral Law (Md. Health Occ. Code Art. § 1-301, et seq.) of referrals made by physicians for MRI and CT scans when the referring physician has a financial interest in the performance of the scan. On December 20, 2006, the Board issued a declaratory ruling responding to the petitions which stated that the exceptions under Sections 1-302(d)(2), (3) and (4) of the Maryland Self-Referral Law did not apply to a physician's self-referrals of patients for MRI and CT scans that were performed by a practitioner in the referring physician's practice group or on a machine in which the referring physician's practice has a beneficial financial interest. When the Board's declaratory ruling was affirmed by the Circuit Court of Montgomery County pursuant to Md. State Govt. Art. § 10-305, the appellants of the Board's declaratory ruling, which were twelve diversified medical practices, noted an appeal of the Circuit Court's ruling to the Court of Special Appeals. Prior to any briefs being filed with the Court of Special Appeals, the Court of Appeals issued a writ of certiorari on its own initiative to address the issues presented by the Board's declaratory ruling.

Analysis: Maryland Self-Referral Law generally prohibits a health care practitioner from referring a patient to a health care entity in which the health care practitioner owns a beneficial interest, unless the referral is included in explicit exceptions which are contained in the Maryland Self-Referral Law. At issue in the Board's declaratory ruling were exceptions which were set forth in Sections 1-302(d)(2), 1-302(d)(3), and 1-302(d)(4), which the Court and the Board's referred to as the (i) group practice exception, (ii) direct supervision exception, and (iii) in-office ancillary services exception, respectively. The Court agreed with the Board's analysis of the three exceptions and found that (i) the group practice was intended for referrals that transfer professional responsibility for a patient's continued care, permanently or temporarily, from one health care practitioner to another practitioner in the same group practice and does not exempt referrals for specific services or tests that the referring practitioner has already chosen; (ii) the direct supervision exception only created an exception for referrals for services or tests to a health care entity that is outside of the referring practitioner's practice when the referring physician is personally present in the treatment area when the services or tests are performed and either personally provides or directly supervises the services or tests; and (iii) the in-office ancillary services exception did not apply to the referring MRI and CT scans because the definition of in-office ancillary services explicitly excluded MRI, CT and radiation therapy services, except for services provided by a radiologist practice group or a practice or office consisting solely of radiologists.

Conclusion: Relying upon the legislative history of Maryland's Self-Referral Law, prior opinions of the Attorney General that were consistent with the Board's declaratory ruling, and the General Assembly's rejection of numerous bills introduced during the period from 2007 through 2010 that would have changed the Maryland Referral Law to allow physician's to engage in the self-referral practices that were at issue in this case, the Court ultimately held that the Board's declaratory ruling was not premised upon an erroneous conclusion of law and affirmed the ruling of the Circuit Court.

The full opinion is available in pdf.

Scotch Bonnett Realty Corp. v. Matthews (Ct. of Appeals)

Filed: January 21, 2011.

Opinion by Judge Lawrence F. Rodowsky.

Held: The use of a deed that is neither a forged document, nor signed with a forged signature, but which derives its transactional vitality from forged corporate articles of amendment, does not render a conveyance of land void ab initio; rather, good title is transferred to bona fide purchasers for value without notice.

Facts: Scotch Bonnett Realty Corporation ("SBRC") is a Maryland corporation in the business of buying and selling real estate. An amendment to SBRC's articles of incorporation was filed two years after its formation. The amendment stated that "Corey Johnson is to be added as an officer of Company." At the bottom of the amendment was a signature line preprinted for "President" on which was signed "Richard Hackerman." The signature was forged.

Corey Johnson conveyed property on behalf of SBRC to a third party. The third party later entered into Chapter 13 Bankruptcy. On certification from the Maryland Bankruptcy Court, the Court of Appeals addressed whether the use of a deed which derives transactional vitality from forged articles of amendment renders a conveyance of land void ab initio

Analysis: The Court of Appeals held that such a conveyance is not void ab initio and instead transfers good title to bona fide purchasers for value without notice. The court noted that holding otherwise would inject uncertainty into a property owner's chain of title. A property owner's title, according to the court, should not be at risk simply because a grantor in the chain of title decides that a conveyance has been induced by a written misrepresentation, even if the misrepresentation includes a forged signature.

The full opinion is available in pdf.

Maryland Limited Liability Company Revision Act of 2011

The Maryland State Bar Association Business Law Section Committee on Unincorporated Business Associations has drafted a proposed set of revisions to the Maryland Limited Liability Company Act. The proposed revisions can be found here and the report of the drafting committee can be found here.

The proposed revisions have been approved by the Section Council of the MSBA Business Law Section. Needless to say, the proposed revisions are subject to amendment and modification at each step of the process, including modification before the bill is formally submitted to the General Assembly.

Anderson v. Burson (Ct. of Special Appeals)

Filed: December 22, 2010
Opinion by James P. Salmon

Held: A "person in possession" of a note has the right of a holder of the note, including the right to appoint a substitute trustee to the deed of trust securing the note and the right to proceed to foreclose under that deed of trust.

Facts: In 2006, the Andersons refinanced their home in Columbia, Maryland, borrowing $277,250.00 from Wilmington Finance, Inc. The loan was evidenced by a note and secured by a deed of trust on their home. Mortgage Electronic Registration Systems, Inc. ("MERS") was named in the deed of trust as the nominee of the lender. As explained by the Court:

In 1993, members of the real estate mortgage industry created MERS, an electronic registration system for mortgages. Its purpose is to streamline the mortgage process by eliminating the need to prepare and record paper assignments of mortgage, as had been done for hundreds of years. To accomplish this goal, MERS acts as nominee and as mortgagee, for its members’ successors and assigns, thereby remaining nominal mortgagee of record no matter how many times loan servicing, or the mortgage itself, may be transferred. MERS hopes to register every residential and commercial home loan nationwide on its electronic system.

Subsequently, MERS transferred its beneficial rights under the note and deed of trust to Morgan Stanley Capital Holdings, Inc., and its servicing rights to Saxon Mortgage Services, Inc. Thereafter, the Andersons began making their mortgage payments to Saxon.

Some time later, Morgan Stanley transferred its rights to Morgan Stanley ABS Capital I, Inc. The rights were then subsequently transferred to Deutsche Bank Trust Company Americas, as Trustee and Custodian for Morgan Stanley Home Equity Loan Trust, MSHEL 2007-2.

In 2007, the Andersons went into default on the note and deed of trust and various substitute trustees were named and foreclosure proceedings instituted. As part of the filings in the foreclosure proceedings, the substitute trustees filed a lost note affidavit claiming that the original promissory note had been lost. Subsequently, Mr. Anderson filed for bankruptcy protection.

Ultimately, the automatic bankruptcy stay was lifted and foreclosure proceedings resumed. The Andersons sought to obtain an injunction blocking the foreclosure because they alleged that the substitute trustees and Deutsche Bank had no legal standing to foreclose on the residence because they had failed to establish that Deutsche Bank was the lawful owner or holder of the note and deed of trust. They contended that in order for Deutsche Bank to have a right to name the substitute trustees it would have to demonstrate that it was a holder of the note. According to the Andersons, if DeutscheBank was not a holder then it had no right to appoint anyone to foreclose on the property. In support of this contention, they pointed out that the note was not indorsed by anyone in Deutsche Bank’s chain of title except Wilmington, but that Wilmington indorsed it after it had given up all of its right, title and interest in the note.

The substitute trustees stressed that the Andersons had never controverted the fact that the loan was in default and that they had not paid the money due under the note for a long period of time. They also pointed out that during the lengthy period the note had been in default, no one else had claimed ownership of the note. This proved, circumstantially, that it would be impossible to suppose that some third party owned the note. The substitute trustees also pointed out that, in Mr. Anderson's bankruptcy proceeding, he had listed the creditor who had a first lien on the residence as "Saxon Mortgage."

The circuit court had initially granted a temporary restraining order blocking the foreclosure, but, after an evidentiary hearing, dissolved the injunction. This appeal followed.

Analysis: The Court of Special Appeals rejected the argument of the substitute trustees that Deutsche Bank was a "holder" of the note because Maryland Comm. L. Art. § 1-201(20) defines a "holder" of a note to be one who is either in possession if (i) the note is payable to bearer or (ii) is payable to a person who is identified in the note. Deutsche Bank did not meet either qualification.

However, the Court concluded that Deutsche Bank was a "a non-holder in possession of the [note] who has the right of a holder" pursuant to Maryland Comm. L. Art. § 3-301(ii). This conclusion turned on the finding that Deutsche Bank was a successor to the holder. See Maryland Comm. L. Art. § 3-203(a).

Discussion: Because of the securitization of the residential mortgage market, it is more often than not the case that bank loans and the related promissory notes and mortgages have passed through several hands before a mortgage goes into foreclosure. Frequently, due to the large number of transfers, the paper trail evidencing each link in the ownership chain is imperfect. The question of whether parties holding these "imperfect" documents and who seek to enforce their rights by foreclosure can do so has become a matter of great contention due to the collapse of the residential housing market and the Great Recession. The Court of Special Appeals has clearly taken the position that the note and mortgage holders (or, perhaps more correctly, the note and mortgage possessors) will be allowed to assert all rights under the loans so long as they can show that they were successors to the holder or holders.

The opinion is available in PDF.

RCC, Inc. v. Cecchi (Cir. Ct. Mont. Co.)

Filed: November 18, 2010
Opinion by Judge Michael D. Mason

Held: To shield communications with non-lawyers using the attorney-client privilege, a party must show that the communication was reasonably necessary for the purpose of obtaining or providing legal advice. If the client is an individual, this means satisfying the "derivative privilege" test. If the client is a corporation, it must establish that the third parties are the “functional equivalent” of the client using a five-factor test.

Facts: A defendant attempted to discover communications by and between a plaintiff, its accountants, and its lawyer. The plaintiff claimed attorney/client privilege.

Analysis: The attorney/client privilege may protect communications involving an accountant when the accountant enables communication with the attorney by 'translating' complex accounting concepts. This privilege is narrowly interpreted. Most courts limit the application to instances where the accountant was necessary to facilitate the communication.

There is a four-part test: 1) to whom was the advice provided - client or lawyer; 2) where client's in-house lawyer is involved, whether counsel also acts as a corporate officer; 3) whether the accountant is regularly employed by the client; 4) which party initiated or received the communications.

Where the client is a corporation, there is a five-part test: 1) whether the communication was made for the purpose of securing legal advice; 2) the employee making the communication did so at the direction of his corporate superior; 3) the superior made the request so that the communication could secure legal advice; 4) the subject matter of the communication is within the scope of the employee’s corporate duties; and 5) the communication is not disseminated beyond those persons who need to know its contents.

In the given circumstances, the Court found it impossible to tell from a review of the documents and the privilege log the nature of the advice being sought or offered and the role being served by the intermediaries. The accountants had served the client for decades. A number of the communications were more than 10 years old, much older than the dispute. It was frequently difficult to tell who initiated the communication and why. Accordingly, the Court held the plaintiff had failed to meet its burden and it compelled production of the documents in question.

*The Court then stayed the effect of its order for 10 days to allow for the plaintiff to submit further information to the Court.

The full opinion is available in pdf.

Ocean Petroleum, Co., Inc. v. Yanek (Ct. of Appeals)

Filed: October 4, 2010
Opinion by Judge Mary Ellen Barbera.

Held: A lease term granting a tenant the option to purchase the land at "fair market value" must be interpreted within the context of the lease and the circumstances under which it was executed. Accordingly, the phrase “fair market value of the land” refers to the fair market value of the land to a buyer, unencumbered by the tenant's existing lease.

Facts: Appellant's lease agreement, for property on which its convenience store is located, provided that Appellant shall have the right and option to purchase the premises after twenty years. The lease directed the parties to negotiate a price and, if a negotiated price could not be reached, the price would be the fair market value, determined by appraisers. The parties could not agree on a purchase price or on the meaning of the phrase “fair market value,” with the dispute being whether “fair market value” meant the value as encumbered by the existing 99-year lease (the reversionary interest of the landlord) or the value as unencumbered. Appellant filed a complaint seeking a declaratory judgment construing that phrase. The lower court determined that “fair market value” should be determined as if the land were unencumbered.

Analysis: Employing an objective approach to contract construction, the Court “consider[ed] the plain language of the disputed provisions in context, which includes not only the text of the entire contract but also the contract’s character, purpose, and ‘the facts and circumstances of the parties at the time of execution.’” The Court reasoned that “[b]ecause the relevant provisions of the lease agreement contemplate a transaction between a landlord and a tenant rather than an ordinary property owner and potential buyer, these provisions indicate that the parties contemplated a transaction in which the property is sold free of the tenant’s encumbrance thereon.”

The full opinion is available in pdf.

Appiah v. Hall (Ct. of Appeals)

Filed: October 27, 2010

Opinion by Judge Mary Ellen Barbera

Held: To hold an employer liable for the torts of an independent contractor the employer must exercise control over the work that leads to the injury.

Facts: Seagirt is a shipping terminal owned by the Maryland Port Administration. The MPA contracted with P&O Ports of Baltimore, Inc. to conduct stevedoring at the terminal. Amongst other contractors that leased space at the terminal, Marine Repair Services delivered power to and monitored the temperature of refrigerated containers stored at the terminal. An employee of Marine Repair Services was severely injured in an accident involving a trucking company's attempt to pick up a refrigerated container. Plaintiff, as personal representative of the deceased, brought a wrongful death claim against the truck driver, the trucking company, P&O and the MPA.

The Circuit Court granted summary judgment in favor of P&O and the MPA. The Court of Special Appeals affirmed the Circuit Court.

Analysis: An employer will not be liable for the torts of an independent contractor unless the employer retained control over the operative details and manner of the work of the independent contractor such that the independent contractor is not free to do the work in his own way and the employer has retained control over the very thing that caused the injury in question. Here, the MPA and P&O's alleged accident investigation is not relevant to determining the issue of their control of the work performed by Marine Repair Services. Also, while the lease agreement required the MPA's permission before Marine Repair Services could install additional safety signs, permission was not required to impose safety protocol. In sum, Plaintiff failed to show how the MPA and P&O controlled Marine Repair Service's specific work of connecting containers to trucks.

Judge Murphy provided a dissenting opinion, joined by Judge Harrell, which contended the Court of Special Appeals and the Court interpreted too narrowly the "very thing that caused the injury."

The full opinion is available in pdf.

Jung Chul Park v. Cangen Corporation (Ct. of Appeals)

Filed: October 27, 2010

Opinion by Judge Mary Ellen Barbera.

Rule: The Fifth Amendment privilege against compelled incrimination affords no protection to a former corporate employee that is compelled to produce corporate documents in his possession.

Facts: A company filed a replevin action to recover thousands of documents allegedly stolen by its former CEO. During discovery, the company served a subpoena duces tecum upon another former employee, commanding him to produce all company documents in his possession. The employee asserted his Fifth Amendment privilege against compelled incrimination and refused to respond. The company filed a motion to compel production, which the circuit court granted. The employee noted an appeal, which was transferred to the Court of Appeals on its own initiative.

Analysis: The Court of Appeals affirmed, holding that the Fifth Amendment privilege against compelled incrimination affords no protection to a former corporate employee that is compelled to produce corporate documents in his possession. In so holding, the court reasoned that corporate documents belong to the corporation itself, and not to its former employee. The employee had no privilege to resist a subpoena compelling the production of corporate documents, even though the act of production may prove personally incriminating.

The opinion is available in pdf.

Pease v. Wachovia SBA Lending, Inc. (Ct. of Appeals)

Filed: October 21, 2010
Opinion by Judge J. Harrell

Held: In vacating the Circuit Court’s decision, the Court of Appeals held that the Maryland Credit Agreement Act (Courts & Judicial Proceedings 5-408(b)) does not bar the Circuit Court from considering negligence, fraud and breach of a fiduciary duty so long as the claims are not attempting to enforce either an oral credit agreement or oral modification of an existing loan agreement.

Facts: The Appellants sold a plumbing business in Virginia, relocated to Maryland, purchased a home and entered the market to purchase another plumbing business. After identifying a potential target, the Appellants elected to finance the acquisition using a SBA loan provided by the Appellee. With the goal of protecting their house from any possible foreclosure arising from the commercial loan, the Appellants also created two legal entities, one to own their house and the other to own their business.

Upon alleged advice from Appellee’s agent, the Appellants also reduced the equity in their house to an amount less than twenty-percent by encumbering their home with a home equity line of credit with the Appellee. The Appellants also learned on or around closing that the target business had weaker financials than originally contended, and alleged that the Appellee withheld certain negative financial information from them until after settlement.

Settlement of the purchase took place in August 2005, and the Appellants signed the loan agreement, including a confessed judgment clause and a guarantee secured by their house. In November of 2007, Appellants defaulted on the commercial loan, and Appellee accelerated the loan and instituted proceedings. The Circuit Court for Baltimore City entered and indexed confessed judgments against both of the Appellants’ business entities in January of 2008.

The Appellants filed a motion to open, modify, or vacate the confessed judgments in April of 2008, asserting allegations of negligence, fraud, and breach of fiduciary duty. Appellants asserted that Appellee and its agent verbally misrepresented that this “artificial loan” would safeguard their home from foreclosure if they defaulted under the SBA loan, and that these statements were made to induce them into executing the SBA loan. Appellee argued Appellants’ defenses were barred by the Maryland Credit Agreement Act.

At the hearing, the Appellants argued that if the confessed judgment were vacated, they would seek to void the SBA loan and pursue the tort claims using the same facts. The hearing judge denied the Appellants’ motion on the basis that the Maryland Credit Agreement Statute barred their claims. Appellants appealed to the Court of Special Appeals. The Court of Appeals granted certiorari before the intermediate appellate court could decide the appeal.

Analysis: The Court after reviewing that Legislative History held that the Maryland Credit Agreement Act is intended to act as a statute of frauds for loan agreements, and accordingly, the Act would bar any of the Appellants’ counterclaims attempting to enforce either an oral credit agreement or a verbal modification of an existing loan agreement.

Applying the Courts holding to the Appellants’ counterclaims of negligence, fraud, and breach of fiduciary duty, the Court held that such claims were not attempting to enforce a verbal agreement to borrow or to modify an existing agreement, but did constitute an attempt to obtain a set-off against any recovery by the Appellee.

Applying the Courts holding to the Appellants’ attempt to void the loan agreements based on the same facts used in the tort claims, the Court found that this maneuver is the type that the Maryland Credit Agreement Act was intended to prevent. The Court found that the parol evidence in the current case, while not an attempt to enforce an oral credit agreement, was an attempt to enforce a verbal modification to an existing credit agreement by not enforcing the guaranty.

The Court of Appeals vacated the judgment of the Circuit Court and remanded to the court for consideration not inconsistent with the Court’s decision.

The full opinion is available in pdf.