Filed: September 29, 2017 Opinion by: Judge Anne K. Albright Holding: Although Maryland is a “two-party” consent state under the Maryland Wiretapping and Electronic Surveillance Act and therefore requires prior consent by all parties to the ...

Sprye v. Ace Motor Acceptance Corp. (Cir. Ct. Mont. Cnty) and more


Sprye v. Ace Motor Acceptance Corp. (Cir. Ct. Mont. Cnty)

Filed:  September 29, 2017

Opinion by:  Judge Anne K. Albright

Holding:  Although Maryland is a “two-party” consent state under the Maryland Wiretapping and Electronic Surveillance Act and therefore requires prior consent by all parties to the communication prior to its interception, the Act does not reach interceptions made outside of Maryland.

Facts:  Plaintiffs were Maryland residents.  Defendant is a North Carolina corporation that provides sub-prime auto loans to Maryland consumers.  Defendant registered to do business in Maryland.  The sister of one Plaintiff listed the Plaintiffs as references on a car loan application without their knowledge.  When the loan went into default, Defendant began calling the Plaintiffs.  The calls were made from a Voice over Internet Protocol system provided by another company, which also operated outside of Maryland.  The calls were routed through servers in states other than Maryland, recorded and downloaded in data centers outside of Maryland. 

Plaintiffs alleged Defendant violated the Maryland Wiretapping and Electronic Surveillance Act (the “MWA”) by telephoning them from out-of-state and recording their conversations without their consent.  Defendant argued that the MWA neither reaches, nor imposes civil liability for, recordings made outside Maryland.

Analysis:  The MWA renders it unlawful to intercept any wire, oral or electronic communication and to disclose or use the contents of any such communication knowing or having reason to know that the information obtained through interception violates the MWA.  It is lawful under the MWA to intercept a communication where the intercepting person is a party to the communication and all of the parties have given their prior written consent.  The Court highlighted that interception is key and that for Plaintiff’s claim to be viable, the Court must conclude that the MWA reaches the out-of-state interception alleged.  Upon a plain reading of the statute, the Court held that the MWA does not reach out of state interceptions. 

Further, the Court disagreed with Plaintiff’s attempts to extend precedent regarding investigative and co-conspirator telephone calls involving admissibility of evidence.  Plaintiffs also argued that by agreeing to do business in Maryland, Defendant agreed to abide by the laws of Maryland.  The Court noted that Defendant did assent to the laws of Maryland by doing business in Maryland; however, the Court reiterated that the MWA does not proscribe the interception of telephone calls when it is done out-of-state.

The full opinion is available in PDF.  
     
 


Small Business Financial Solutions, LLC v. Pearl Beta Funding, LLC (Cir. Ct. Mont. Cnty)


Filed: September 29, 2017

Opinion by: Harry C. Storm

Holding: A claim that a small business finance lender tortiously interfered with a contract and with the rights of a senior secured lender under the UCC could not be resolved on summary judgement because the lender had entered into a loan agreement with a customer despite having notice of the terms of an agreement between the customer and another lender, and questions of intentionality and collusion central to the plaintiff’s claims were questions of fact.

Facts: Plaintiff loaned a Kentucky-based chiropractic practice (the “Practice”) monies, which would be repaid through daily bank account debits. Under the loan agreement, Plaintiff had a security interest in the personal property and proceeds of the Practice. Also, the Practice was prohibited from disposing of Plaintiff’s collateral outside the ordinary course of business. Furthermore, as conditions of default, the Practice was prohibited from (1) selling any existing or future account receivables to any third party without the Plaintiff’s consent or (2) entering into any financing agreement requiring daily or weekly repayments. 

Plaintiff filed a UCC-1 Financing Statement and sent Notice Letters to small business finance lenders, including a predecessor-in-interest to Defendant. The Notice Letters notified the businesses of the terms of the loan agreements and warned that engaging in activities that violated the terms constituted an interference with Plaintiff’s contracts.

Subsequently, the Practice sought additional loans, including one from Defendant. In its application, the Practice disclosed the existing loans with Plaintiff. Defendant learned of the daily debits to Plaintiff and of the UCC-1 Financing Statement. Defendant required the Practice to represent and warrant that contracting with Defendant would not cause it to default on any other loans. Under the loan agreement, Defendant would receive all of the Practice’s future accounts and payments from its clients, and a grant of a security interest in its property.

Two weeks later, the Practice asked Defendant to reduce the amount of its daily debits. One of Defendant’s representatives concluded that the Practice was overfunded, and Defendant temporarily reduced the debits. Subsequently, the Practice stopped paying both parties. Eventually, Defendant was repaid in full and the Practice and Plaintiff came to a settlement.

Analysis: 

Plaintiff sought relief under two theories: tortious interference of the loan agreement and interference of Plaintiff’s rights as a senior secured lender under Maryland UCC Section 9-625. Defendant moved for summary judgment, which the Court denied because the issues could not be resolved as a matter of law. The summary judgement standard requires the Court to enter judgement where there is no genuine dispute as to any material fact and a party is entitled to judgment under matter of law.

Tortious interference with contract has five elements; one is intentional interference. “Intentional interference” requires intentionality, interference, and impropriety. The intentionality issue hinged on several facts, including the receipt of the Notice Letter, the filing of the UCC-1 Financing Statement, and the information known to Defendant through the application process.  Next, purposeful conduct, however subtle, may be enough to constitute inducement. Furthermore, if a fact-finder determined that Defendant interfered with the contract, this determination may suffice to show that the interference was improper. Thus, these issues were matters of fact rather than of law. 

As for damages, Plaintiff claimed that Defendant’s funding caused the Practice to breach its loan agreement because it was unable to sustain the volume of debits. Defendant argued that its infusion of funds actually allowed the Practice to make some repayments to Plaintiff. Both positions had support in the record; thus, summary judgement was inappropriate. 

As for the UCC claim, Section 9-625(b) states that a “transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.” Defendant is a transferee of the collateral shared with Plaintiff. Its rights to the collateral depend on whether it colluded with the practice. A comment to another UCC section defines the term “collusion” to include a scenario where one party knows that the other’s conduct constitutes a breach and gives substantial assistance or encouragement to the other. This is a question for the fact-finder. 

The opinion is available in PDF here.
     
 


Bainbridge St. Elmo Apts v. White Flint Express Realty (Ct. of Special Appeals)

Filed: July 18, 2017

Opinion By: Raker

Holding: Bainbridge was liable for White Flint's attorney's fees under an express attorney fees shifting provision found in the indemnification agreement between the parties.

Facts: The case involves a written easement agreement between the parties that permitted Bainbridge St. Elmo Apartments ("Bainbridge") access to White Flint Express Realty's ("White Flint") property for a construction project of a 17 story high rise building immediately adjacent to White Flint's property in Bethesda, Maryland.  Bainbridge promised in the agreement to perform in a professional manner and would not use a pile-drive system to secure the hole for the foundation of the apartment building.  In exchange, Bainbridge received the right of access to the White Flint property, including air rights for a crane, as a part of the construction.

Article 9 of the agreement provided that "[t]he prevailing party in any arbitration shall be awarded reasonable counsel fees, expert and non-expert witness costs and expenses and all other costs and costs and expenses reasonably incurred, directly or indirectly, in connection with said arbitration, and all costs and fees of such arbitration shall be borne exclusively by the non-prevailing party.”  Article 19 provided the following indemnification language: "Bainbridge hereby indemnifies, and agrees to defend and hold harmless White Flint . . . from any and all claims, demands, debts, actions, causes of action, suits, obligations, losses, costs, expenses, fees, and liabilities (including reasonable attorney’s fees, disbursements, and litigation costs) arising from or in connection with Bainbridge’s breach of any terms of this Agreement or injuries to persons or property resulting from the Work, or the activities of Bainbridge or its employees, agents, contractors, or affiliates conducted on or about the White Flint Property, including without limitation, for any rent loss directly attributable to any damage to the White Flint Property caused by the construction of the Project, however Bainbridge shall not be liable for matters resulting from the negligence or intentional misconduct of White Flint, its agents, employees, or contractors. The indemnification obligations set forth herein shall survive the termination of this Agreement indefinitely.”

During construction, damaged occurred to the buildings on White Flint's property, resulting in a stop work order from Montgomery County, leading to White Flint terminating the agreement for material breach by Bainbridge.  Subsequently, White Flint filed an action against Bainbridge, resulting in the grant of a motion for summary by the trial court, finding: "that Bainbridge’s obligations survived the termination, that Bainbridge materially breached the agreement ... [and] under Article 19 of the Agreement, White Flint was entitled to attorney’s fees."  After a hearing, the trial court then entered an order awarding a total of $3,931,648.47 in attorney's fees and costs to White Flint.  Bainbridge appealed the fee order.


Analysis: The Court of Appeals analyzed the dispute over first-party attorney fee shifting by using traditional contract interpretation principles, including interpreting language in a contract based on its customary meaning, and looking at the entire agreement for context of a disputed provision. Under Maryland law, the American Rule for attorney fee shifting means that each party typically bears its own attorney's fees in a lawsuit, absent an applicable exception to that rule.  One such exception - where the parties have agreed to a fee shifting provision - is at issue in the present litigation.  Under the American Rule, typically an agreement to indemnify a party may include a fee shifting provision, but that Rule distinguishes between first and third party attorney's fees.  The former - where a party expends attorney's fees to determine the existence of an indemnification obligation - is distinguished from the latter - where a party expends attorney's fees to defend itself from a third party claim which was the obligation of the other party to defend.  Generally, first party attorney's fees are not recoverable under the American Rule in indemnification clauses where third party attorney's fees are recoverable in such clauses.

The Court then explains that the Nova Research v. Penske, 405 Md. 435 (2008), case required that first party fee shifting provisions must be express and strictly construed in indemnity agreements to be enforceable, using traditional contract interpretation principles.  The Court goes on to distinguish Nova Research from the present case, as Article 19 of the agreement here expressly provided for recovery of attorney's fees as a part of the indemnification obligations of Bainbridge to White Flint.  The Court then construed Article 19 by examining the purpose of the agreement - to make sure White Flint was made whole in the event that Bainbridge caused damage during construction - and then by examining the specific language in the indemnification provision itself.  The Court held that the clause involved three different clauses of indemnification, and that each clause was read independently.  Only the latter two of these clauses involved defense of third-party claims by Bainbridge, meaning that Bainbridge was still obliged "to defend and hold harmless White Flint" in the event that Bainbridge breached the agreement.  This first clause contained an express provision to shift attorney's fees.

The Court's view was that the indemnity agreement between the parties.  "Bainbridge and White Flint designed the agreement to ensure that Bainbridge, and not White Flint, carried all of the risk from the construction work; otherwise, White Flint had no incentive to support Bainbridge’s plans. Thus, the parties designed Article 19 to ensure that White Flint would be made whole if Bainbridge breached the agreement, which supports first-party fee shifting."

As a result, the Court affirmed the Court of Special Appeals and the trial court's order, directing Bainbridge to pay White Flint's attorney's fees incurred in the litigation.

The full opinion is available in PDF.
     
 


Deutsch v. G&D Furniture Holdings (Ct. of Special Appeals, Unreported)

Filed: August 28, 2017

Opinion by: Judge Nazarian

Holding:

A business owner’s requests for inspection of financial books and records relating to the management of a corporation and for the appointment of a receiver fall within the arbitration provision in a Stockholders Agreement that set forth comprehensive agreements involving many businesses and 55 investors.

Facts:

Plaintiff and Defendant jointly owned many retail furniture businesses.  In 2006, the parties executed a Stockholders Agreement, which replaced a 1990 agreement.  The Stockholders Agreement set forth comprehensive agreements regarding the ownership of the companies, transferability of corporate shares, management of the companies, composition of the board of directors, division of profits, payment of dividends, maintenance of life insurance policies on stockholders, as well as providing for mediation and arbitration “in the event that there is any dispute between the parties regarding this Agreement.”

As the businesses encountered setbacks, the parties held different views about the operation and management of the business, financial decisions, the creation of other entities to which business assets allegedly were transferred, and decisions to wind down the original businesses.  The disputes between the parties ultimately led to litigation.  The Court of Special Appeals affirmed the Circuit Court for Anne Arundel Court’s decision that the Stockholders Agreement’s arbitration clause should be read broadly to include the requests for a receiver and to inspect the books.

Analysis:

The Maryland Uniform Arbitration Act “embodies a ‘legislative policy’ in favor of the enforcement of agreement[s] to arbitrate.”  Harris v. Bridgford, 153 Md. App. 193, 201 (2003) (quoting Allstate Ins. Co. v. Stinebaugh, 374 Md. 631, 641 (2003)).  Although arbitration is favored, the contract language and intent of the parties must be respected.   “Where there is a broad arbitration clause calling for the arbitration of any and all disputes arising out of the contract, all issues are arbitrable unless expressly and specifically excluded.”  Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 104 (1983).

Combined with the policy to read arbitration clauses broadly (The Redemptorists v. Coulthard Servs. Inc., 145 Md. App. 116, 149 (2002) (citing NSC Contractors, Inc. v. Borders, 317 Md. 394, 403 (1989)), the Court held the arbitration clause’s “regarding this Agreement” language indicated that the parties intended to require alternative resolution of everything they disputed.

The Court also held that the Defendants did not waive their right to compel arbitration of the claims in the counterclaim merely by filing pleadings in this litigation (their pleadings requested the court compel arbitration).

This is an unreported opinion.  See Md. Rule 1-104.

The full opinion is available 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.
     
 

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