Filed: May 23, 2017 Opinion by: Ellen L. Hollander Holding: Transfer of venue is appropriate if the convenience of the witnesses, convenience of the parties, and interest of justice outweigh the plaintiff’s choice of venue. Facts: Plaintiff is a ...

Capitol PaymentSystems, Inc. v. Salvatore Di Donato (Maryland U.S.D.C.) and more


Capitol PaymentSystems, Inc. v. Salvatore Di Donato (Maryland U.S.D.C.)

Filed: May 23, 2017

Opinion by: Ellen L. Hollander

Holding:  Transfer of venue is appropriate if the convenience of the witnesses, convenience of the parties, and interest of justice outweigh the plaintiff’s choice of venue.

Facts:  Plaintiff is a Maryland corporation with the principle place of business in Maryland that operated payment transaction processing services to a wide array of businesses. Defendant is a New Jersey company with a principle place of business in New Jersey, that operated as an agent in the electronic payment processing industry. Plaintiff and Defendant entered into a contractual agreement in which the defendant would provide independent marketing services.

Plaintiff alleged that Defendant entered into outside business agreements with third parties in breach of the agreement. Plaintiff and Defendant attempted to renegotiate the terms of the agreement, but failed to reach an understanding.

Plaintiff filed suit seeking injunctive relief in the Anne Arundel County Circuit Court on February 1, 2016. Defendant filed a counter suit in the United States District Court for the District of New Jersey on February 25, 2016 before being served for the Maryland case. After withdrawing the case for an injunction from the Circuit Court, the Plaintiff removed the case to the United States District Court of Maryland on March 23, 2016 and the Defendant moved to transfer venue to New Jersey.

Defendant argued that New Jersey was a more convenient forum because it is where the dispute arose, the potential witnesses reside, and the majority of the evidence is located. Plaintiff contended Maryland is the appropriate venue since it is a Maryland corporation, the agreement is governed by Maryland law, the signed agreement was returned to Maryland, and the first-to-file rule requires adjudication of the case in Maryland.

Analysis:  The Court began its analysis by upholding the validity of both the Maryland suit as well as the New Jersey action. In adjudicating a motion to transfer the Court examines several case-specific factors. The factors pertinent to this case include: 1) the weight accorded to the plaintiff’s choice of venue; 2) witness convenience and access; 3) convenience of the parties; and 4) the interest of justice. (Citing Plumbers and Pipefitters Nat. Pension Fund v. Plumbing Serv., Inc.)

The Court began its analysis by reviewing the Plaintiff’s choice of venue. Since the conduct underlying the claim occurred entirely in New Jersey the Plaintiffs’ choice of venue is diminished. The Court sided with the Defendant that the convenience of the witnesses favored New Jersey because all the third parties citied in the complaint, which the merchant Defendant allegedly interfered with, are located in New Jersey or New York. The convenience of the parties would not be more burdensome in New Jersey or Maryland, so the Court did not weight this factor heavily in the final determination. Likewise, transfer would not negatively impact the interest of justice since New Jersey Courts have ample history of ruling on cases controlled by Maryland law.

Finally, the Court declined to adhere to the first-to-file rule since the convenience of the factors supported transfer to New Jersey. Examining this rule under the interests of justice, the fact that the Plaintiff filed first in Maryland Court did not control because of the specifics of the matter. Defendants filed in Federal Court before the Plaintiff, weeks before being served notice of the Maryland case and the Maryland case was moved to Federal Court.

Motion to transfer Granted.

The full opinion is available in PDF.
     
 


Amster v. Baker (Ct. of Appeals)

Filed: May 22, 2017

Opinion by: J. Adkins

Holding:  Commercial information is “confidential” and therefore exempt from disclosure under the Maryland Public Information Act (the “MPIA”) if it “would customarily not be released to the public by the person from whom it was obtained.”

Facts:  A developer submitted a zoning application to the Prince George’s Planning Board of Maryland-National Capital Park and Planning Commission (the “Commission”) to develop a certain tract of land for a mixed-use town center.  In connection with the planned development, the developer entered into a lease with a supermarket chain.  The developer voluntarily provided a redacted copy of the lease with the supermarket to the Prince George’s County Executive (the “County Executive”) to assist with ongoing discussions regarding the proposed development.  The plaintiff filed a MPIA request with the County Executive requesting a copy of the lease.  Such request was denied and plaintiff filed suit against the County Executive seeking access to the lease (the developer subsequently intervened as a defendant).  Applying the test established in Critical Mass Energy Project v. Nuclear Regulatory Commission (975 F.2d 871 (D.C. Cir. 1992)), and based in part on an affidavit from an employee of the developer that the contents of the lease were the product of “extensive confidential negotiations,” the circuit court granted the defendants’ motion for summary judgment finding the lease was “confidential commercial information.” On appeal, the Court of Special Appeals affirmed the circuit court’s grant of summary judgment and further held that confidential treatment of the lease had not been waived by the public disclosure of certain terms of the lease.

Analysis:  The MPIA grants a general right of access to records in the possession of the Maryland State and local governments, which is limited by numerous exemptions to the disclosure requirement.  A mandatory exemption to the disclosure requirement applies to any part of a public record containing any confidential commercial information.  Looking to federal courts’ interpretations of a similar exemption under the Federal Freedom of Information Act (the “FOIA”), the Court of Appeals declined to apply the two-part test established in National Parks and Conservation Ass’n v. Morton (498 F.2d 765 (D.C. Cir. 1974)) and instead upheld the circuit court’s application of the test established in Critical Mass, which held that commercial information voluntarily provided to the government is confidential, and therefore not required to be disclosed under the MPIA, if it “would customarily not be released to the public by the person from whom it was obtained.”  The Court of Appeals noted that in National Parks, the commercial information was provided to the government pursuant to statute, whereas in Critical Mass, and in this case, the commercial information was provided to the government voluntarily; therefore, the government interests at stake differed.  In the former situations, the government’s interest focuses on the effect of disclosure on its quality; in the later situations, the government’s interest is in ensuring continued available of the voluntarily disclosed commercial information, since the disclosing party may refuse further cooperation.  

Although the circuit court applied the correct test in granting summary judgment in favor of the defendants, the Court of Appeals vacated the summary judgment and remanded the matter back to the circuit court to conduct the necessary factual inquiry to determine whether all aspects of the lease were confidential and therefore exempt from disclosure under the MPIA.  The Court of Appeals highlighted that the disclosure requirements and exemptions under the MPIA apply to information, not documents, and therefore the circuit court needed to determine whether the lease contained any non-confidential information subject to disclosure, particularly because the defendants failed to demonstrate that the lease should be exempt from disclosure in its entirety because the developer had not demonstrated that it would not customarily disclose any contents of the lease.  Moreover, any information with respect to the lease that was already publically disclosed by defendants in other settings was not protected by the exemption for confidential commercial information.

The full opinion is available in pdf.
     
 


Proexpress Distributors LLC v. Grand Electronics (Ct. of Special Appeals, Unreported)

Filed: May 24, 2017

Opinion by: Judge Glenn T. Harrell, Jr.

Holding:

Simply storing a “trade secret” in a cloud-based service is not sufficient to be considered reasonable to maintain its secrecy under Maryland law.  Reasonable efforts may include changing the password to the account after an employee leaves, limiting access on a “need to know” basis within the company, or restricting the dissemination of information with confidentiality or non-disclosure agreements.

Facts:

Plaintiff sells electronic products on Amazon.com.  Defendant is a competitor and was founded by a former employee of Plaintiff.  Plaintiff alleges it owns a trade secret in its “methodology by which it inputs information into the Amazon search template in order to drive sales for its online tablet computer business.”  Plaintiff keeps its trade secret, along with other business documents, in cloud-based password-protected accounts on the Internet.  Plaintiff shares access to the Dropbox accounts with its service providers.

On September 18, 2014, Plaintiff filed a complaint in the Circuit Court for Montgomery County for misappropriation of a trade secret.  Plaintiff asserted that a consultant of Defendant, who was a former employee of a service provider of Plaintiff, viewed the trade secret in Plaintiff’s Dropbox account in April 2014.

The Circuit Court ruled in favor of Defendant on the trade secret issue.  Plaintiff appealed to the Court of Special Appeals (Court), which affirmed the decision regarding the alleged trade secret.

Analysis:

Md. Code, Commercial Law Art. § 11-1201 states that a “trade secret” is “information… that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

The Court upheld the Circuit’s Court decision in ruling that Plaintiff’s actions were not reasonable to safeguard its proprietary information involving a cloud storage service.  Cloud storage is a “backup and storage service on the Internet” whereby a “customer’s files are downloaded to anyone’s computer with a Web browser and password.”  Dropbox’s desktop applications allow customers to “easily move files from (their) computer to the cloud and vice versa by dragging and dropping them into (their) Dropbox folder.  The service automatically and quickly syncs (their) files across all of (their) devices, so (they) can access everything, everywhere.”

The Court contrasted Plaintiff’s efforts with the company in LeJeune v.Coin Acceptors, Inc., 381 Md. 288, 310-11, 849 A.2d 451, 464-65 (2004), which did not want its customers disclosing its pricing with other customers because it used a “tiered pricing scheme”.  The company acted reasonably under those circumstances by (1) negotiating non-disclosure agreements with its customers, (2) marking “confidential” on pricing and proposal documents, and (3) communicating to the employees in the company’s employee handbook that it required employees to protect the company’s secret manufacturing process and business methods.

The Court determined that merely uploading its proprietary methodology to a cloud-based program on the Internet is not a reasonable effort to protect the information.  The Court suggested ways in which a company can satisfy the second prong of § 11-1201 when information is stored in the “cloud”.  Examples of reasonable efforts to maintain the secrecy of Plaintiff’s methodology include (1) changing the password to the account after an employee leaves, (2) limiting access on a “need to know” basis within the company, and (3) restricting the dissemination of information with confidentiality or non-disclosure agreements.

The Court also reviewed whether the punitive damages award was excessive.

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

The full opinion is available PDF.
     
 


James Dillon v. BMO Harris Bank, N.A. (4th Circuit)

Filed: May 10, 2017

Opinion by: Judge Barbara Milano Keenan

Holding: An arbitration agreement containing choice-of-law provisions applying tribal law and disclaiming the application of federal and state law was held to be unenforceable because (1) by its unambiguous language, it triggered the prospective waiver doctrine, which disallows arbitration agreements that prevent litigants from vindicating federal substantive statutory rights as contravening public policy; and (2) the provisions could not be severed as they went to the essence of the agreement and were negotiated by a party, not in good faith, with superior bargaining power.

Facts: Plaintiff, a resident of North Carolina, applied for and received a “payday loan” in 2012. “Payday loans” are short, unsecured consumer loans for small amounts and with generally high interest rates (sometimes in excess of 400%). The loan was offered through the website of Great Plains Lending, LLC (the “Company”), which was wholly owned by a federal tribe.  Plaintiff executed a contract (the “Contract”) that contained a loan agreement and an agreement to submit disputes to arbitration. Both agreements contained choice-of-law provisions that required the application of tribal law and disclaimed the application of state or federal law.

Plaintiff filed a putative class action lawsuit in district court, claiming that the Company and other tribal lenders had issued unlawful loans. Instead of suing the lenders for violating state usury laws, Plaintiff sued the financial institutions that facilitated the electronic lending transactions. Plaintiff claimed that the institutions constituted an enterprise whose members, including Defendant BMO Harris (“Defendant”), conducted and participated in the collection of unlawful acts in violation of the Rackeeter Influenced and Corrupt Organizations Act.

In district court, Defendant sought to compel arbitration pursuant to the terms of the Contract and relying on the Federal Arbitration Act (“FAA”). The district court held the Contract unenforceable because it denied the applicability of all federal and state law. Defendant appealed.

Analysis: Pursuant to the FAA, the Court has jurisdiction to review de novo the order denying the motion to compel arbitration. The FAA provides that arbitration agreements are valid and enforceable, except upon grounds at law or in equity for the revocation of any contract. Consistent with such contract principles, the Supreme Court has held that arbitration agreements that operated as prospective waivers of a party’s right to pursue statutory remedies are unenforceable as violating public policy. This prospective waiver doctrine keeps courts from enforcing arbitration agreements that prevent a litigant from vindicating federal substantive statutory rights. 

A mere foreign choice-of-law provision is insufficient to trigger the application of the doctrine. A court must first analyze whether, as a matter of law, “the choice-of-forum and choice-of-law clauses operate in tandem as a prospective waiver of a party’s right to pursue statutory remedies.” Where it is unclear, the arbitrator should decide in the first instance whether a litigant is deprived of those remedies, and the waiver issue is not ripe until a federal court is asked to enforce the arbitrator’s decision. 

In Hayes v. Delbert Services Corp., 811 F.3d 666 (4th Cir. 2015), the Court applied the prospective waiver doctrine to a contract governing an internet payday loan by another federal tribe lender. The choice-of-law provision disclaimed the application of any law other than that of the tribe. The Hayes Court held that this language flatly and categorically renounced the authority of federal statutes. The provision was not severable from the contract because it went to its essence; the animating purpose of the agreement was to circumvent federal law. Another disclaimer of the application of federal and state law in the contract lent support to this position.

Here, Defendant argued that the waiver issue was not ripe as it had not yet come before an arbitrator. Plaintiff countered that the issue was ripe because the language of the choice-of-law provision was unambiguous, thus triggering the prospective waiver doctrine. The Court agreed with Plaintiff. The choice-of-law and other provisions in the Contract are similar or identical to the provisions in Hayes; these applied the law of the federal tribe or disclaimed the application of federal and state laws as to the Contract and lender. As in Hayes, the Contract was an unambiguous attempt to apply tribal law to the exclusion of federal and state law.

The Court held that the choice-of-law provisions could not be severed from the Contract. Severance is allowed only if the provision is not essential to the agreement and the party seeking to enforce the remainder of the agreement negotiated it in good faith. Restatement Second of Contracts § 184 (1981). Here, as in Hayes, the provision went to the essence of the agreement. The Court did not accept Defendant’s request to grant Plaintiff access to federal substantive rights because this would essentially allow Defendant to rewrite the Contract and defeat the purpose of the Contract entirely.

Additionally, the Company used its superior bargaining power to avoid the application of state and federal law, and Section 184 does not permit redrafting where superior bargaining power is used to extract a promise offensive to public policy. Thus, the Company did not meet the second prong to negotiate in good faith.  

The full opinion is available in PDF. 
     
 

Egan v. First Opportunity Fund Inc. (Cir. Ct. Balto. City)

Filed: April 22, 2016

Opinion by: Judge W. Michel Pierson

Holding: Stockholders of a Maryland corporation were not entitled to payment of fair value for their shares of stock (commonly referred to as “appraisal” rights) under the Maryland General Corporation Law (the “MGCL”), § 3-202, where the corporation’s charter was amended to expressly divest the stockholders of any appraisal rights in connection with a subsequent consolidation of the fund into another fund because (i) appraisal rights are not “contract rights” nor were they “expressly set forth” in the corporation’s charter as required under MGCL § 3-202(a)(4), and (ii) the amendment of the charter to divest the stockholder appraisal rights occurred prior to the consolidation and thus, at the time of the vote on the consolidation, the charter had eliminated appraisal rights in accordance with MGCL § 3-202(c)(4).

Facts: First Opportunity Fund, Inc., was a registered closed-end investment fund formed as a Maryland corporation (“FOFI”).  In 2014, the stockholders of FOFI and the stockholders of two other funds managed by affiliated directors and fund advisors were asked to approve a plan of reorganization (the “Consolidation”), under which the assets of those three funds would be transferred to Boulder Growth and Income Fund, Inc. (“BIF”).  Of all the funds involved in the Consolidation, FOFI was the only corporation whose stockholders enjoyed Maryland’s statutory appraisal rights under MGCL § 3-202 (because the other funds were publicly traded and thus excepted from the appraisal rights requirement pursuant to MGCL § 3-202(c)(1)).  Therefore, prior to submitting the proposed Consolidation to the stockholders for their consideration, the board of directors of FOFI proposed that the charter of FOFI be amended to divest FOFI’s stockholders of any appraisal rights (“Proposal 1”).

The proxy statement issued by the directors of the four funds disclosed that if Proposal 1 was approved, the stockholders meeting would be temporarily adjourned and FOFI would file articles of amendment to amend the charter to include Proposal 1.  If Proposal 1 was not approved, the proposal to consider the Consolidation would not be considered.

At the FOFI stockholders meeting, Proposal 1 was approved.  The meeting then adjourned and articles of amendment containing Proposal 1 were accepted for record by the State Department of Assessments and Taxation.  The meeting then resumed and the transfer of assets from FOFI to BIF was approved by the FOFI stockholders.  Following these actions, two of FOFI’s stockholders (the “Plaintiffs”) submitted a written demand for the fair value of their shares and otherwise complied with the statutory requirements for perfecting appraisal rights under the MGCL.  FOFI and BIF denied the demand and the Plaintiffs filed suit, seeking fair value of their stock pursuant to MGCL § 3-202.  The defendants moved to dismiss the action, and, for the reasons detailed below, the Court granted the defendants’ motion and dismissed the Plaintiffs’ claims.

Analysis: MGCL § 3-202 provides that stockholders of a Maryland corporation may demand and receive payment of fair value of their stock in the event of certain fundamental corporate changes.  The statute also provides a number of circumstances where a dissenting stockholder has no such appraisal right.  See MGCL § 3-202(c).  In Egan, the Plaintiffs alleged that two fundamental changes occurred in connection with the Consolidation process, thus triggering their appraisal rights under the MGCL.  First, in Count I of the Plaintiffs’ complaint, based on the Consolidation of FOFI into BIF, the Plaintiffs asserted appraisal rights arising under MGCL § 3-202(a)(1), which provides for appraisal rights in the event a “corporation consolidates or merges with another corporation.”  Second, in Count II of their complaint, the Plaintiffs asserted appraisal rights arising under MGCL § 3-202(a)(4), which provides for appraisal rights if a “corporation amends its charter in a way which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholder's rights, unless the right to do so is reserved by the charter of the corporation.” 

As to Count I, the Court found that, although there was “no dispute” that the Consolidation of FOFI into BIF was a consolidation or merger under MGCL § 3-202(a)(1), the Plaintiffs’ claims were subject to the provisos of MGCL § 3-202(c).  Among other things, that subsection provides that “a stockholder may not demand the fair value of the stockholder’s stock and is bound by the terms of the transaction if: … [t]he charter provides that the holders of the stock are not entitled to exercise the rights of an objecting stockholder under this subtitle.”  MGCL § 3-202(c)(4).  The Court found that the amendment to FOFI’s charter was adopted in accordance with the literal requirements of the MGCL and, consequently, pursuant to MGCL § 3-202(c)(4), the Plaintiffs had no appraisal rights by virtue of the Consolidation.  In reaching this conclusion, the Court rejected the Plaintiffs’ arguments that the adoption of Proposal 1 and the consolidation were really one and the same transaction and that the amendment of FOFI’s charter should therefore be ignored for purposes of determining the Plaintiffs’ appraisal rights.  Rather, the Court held that the independent nature of the adoption of Proposal 1 and the approval of the Consolidation could not be ignored by the Court in search of a higher equity under the guise of a substance over form analysis.

As to Count II, the Court found that the Plaintiffs had no appraisal rights as a result of the amendment of FOFI’s charter because, after reviewing the legislative history of MGCL § 3-202(a)(4), the Court concluded that appraisal rights are not “contract rights” as used in the statute but that the statute instead refers to “contractual attributes of the stock itself, and does not mean every contract right included in the corporate charter.”  The Court also found that, even if appraisal rights were contract rights, FOFI’s charter made no mention of such rights and thus they were not “expressly set forth” in FOFI’s charter prior as required under MGCL § 3-202(a)(4).  In reaching this conclusion, the Court rejected the Plaintiffs’ assertion that appraisal rights should be deemed to be expressly set forth in FOFI’s charter because a corporation’s charter is a contract between the corporation and its shareholders and statutory law is incorporated into a contract under Maryland law.  On this issue, the Court concluded that “treating an object ‘as though’ it is expressly set forth is not equivalent to that object actually being expressly set forth.”

The full opinion is available in PDF.
     
 

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