Rockville Law: Maryland, D.C., and Virginia Business Law & Litigation

New Maryland Case on Attorney's Fee Awards - Fixed Percentage Fees in Promissory Notes & Post-Judgment Attorney Fee Awards

2011-10-12T07:26:00.000-07:00

The Maryland Court of Special Appeals recently addressed an issue that affects lawyers and other contract and promissory note drafters. In Suntrust Bank v. Goldman, the Court ruled that actual reasonable attorneys' fees incurred are the proper measure of an attorney fee award even where the promissory note calls for a fixed percentage fee based on the amount of the obligation due.

In the case, Sunstrust's Credit Line agreement provided that Suntrust was entitled to an award of attorneys' fees equal to 15% of the principal due "or reasonable attorneys' fees allowed by law." Suntrust asked for an award of $60,206.00 (15% of the balance due) and the Circut Court for Baltimore County awarded actual attorneys' fees of only $3,094.00.

The Court of Special Appeals agreed with the Circuit Court. The Court's opinion is here. Specifically, the Court held: "Thus, Maryland law limits the amount of contractual attorneys fees to actual fees incurred, regardless of whether the contract provides for a greater amount. The contract may provide that the amount of fees is determined by a percentage or some other method, but to comply with the indemnification requirement, the amount of fees paid pursuant to the agreement between the claimant and its attorneys must equal or exceed the amount provided for in the contract."

The Court also dealt with the issue of attorneys' fee awards for post-judgment collection efforts, and seemingly recommended that if a creditor wanted to be able to pursue reimbursement for post-judgment colection efforts, it could include clear language in its agreements providing that the parties intend that the attorneys' fee provision shall not merge into a judgment on the agreement.

New Business & Technology Opinion - Montgomery County Circuit Court

2011-09-26T08:09:00.000-07:00

The Circuit Court for Montgomery County, Maryland, Judge Ronald Rubin, recently issued an opinion in the Hospitality Partners, LLC v. Brewmasters Hotel, LLC case.

The case is summarized and linked to by Edward Sharkey of the Maryland State Bar Association's Business Law Section at http://bit.ly/r5Jx0h.

In the case, the Defendant argued (on a motion for new trial) that a $2.8 million judgment was inappropriate where there was a contractual clause allowing the Defendant to terminate a contract without cause and calling for a termination payment far below the $2.8 million awarded.

The court held that the Defendant did not argue applicability of that clause at trial, and could not do so now on a motion for new trial. In essence, the Defendant was stuck with its decision to try and terminate the contract "for cause."

Maryland Court of Special Appeals: Perpetual Waiver of Statute of Limitations Unenforceable

2011-09-07T13:07:00.000-07:00

In 2009, I helped my partner David Lease try the case of Ahmad v. Eastpines Terrace Apts. in the Circuit Court for Montgomery County. In that case, the plaintiff sued a company owned by his elderly father alleging that he was entitled to payment for services allegedly rendered to the company, and for amounts allegedly advanced on behalf of the company.

Defendant denied owing anything to Mr. Ahmad, and argued that even if any amounts ever had been due Plaintiff for his claims, those claims were barred by Maryland's three year statute of limitations. Plaintiff argued that a document he drafted and had his elderly father sign waived the statute of limitations. [The document had been drafted in English, and Plaintiff's father could not read English]

At trial, the Circuit Court held that the document did not perpetually waive the statute of limitations, and that in any event, a perpetual waiver would be against public policy and unenforceable. Judgment was entered in favor of our client on all of Plaintiff's claims. Plaintiff appealed to the Court of Special Appeals.

The Court of Special Appeals affirmed the Circuit Court. The appellate Court held that the document in question did not specifically say that it waived limitations perpetually, and that even if it did, perpetual waivers of limitations would be unenforceable under Maryland law.

A copy of the opinion is here.

New Case on Attorneys' Fee Awards

2011-09-07T12:56:00.000-07:00

The Maryland Court of Special Appeals today decided Friolo v. Frankel, which will be known as Friolo IV because it is the fourth appeal of this case on the issue of attorneys' fees in a wage payment and collection case under Maryland law.

The opinion is here.

It is likely that none of the parties in the case are happy with the result. According to Plaintiffs' counsel, they have billed hundreds of thousands of dollars in this case, but were only awarded a fraction of those fees. Defendants have spent similar amounts and the result of the case requires that they pay Plaintiffs the original (small) judgment in the case and more than four times that much in legal fees to the Plaintiffs' counsel.

Maryland Court of Appeals Rules: "Landlord - No License, No Rent Case"

2011-05-05T11:20:00.000-07:00

For a long time I have wondered how the Maryland Court of Appeals would rule in a summary ejectment (rent case) landlord-tenant case if the tenant challenged the validity of the suit based on the landlord’s lack of a license required by the local jurisdiction where the property is located. On May 4, 2011, the Court of Appeals ended my speculation. In McDaniel v. Baranowski, (copy here) the Court ruled that a landlord without a license to rent his or her property cannot bring a summary ejectment action against the tenant.

In light of the McDaniel case, every tenant lawyer will be searching the licensing records of the landlord to see if the rent case can be dismissed on a preliminary motion. Every landlord would be wise to make sure that all licensing requirements are followed.

A question remaining is what happens next if you are a landlord? How can you remove your tenant for failing to pay rent if you are not licensed? Well, the Court seems to say that as long as the landlord obtains a license and pleads and proves that licensure in Court, the landlord can proceed. Therefore, the landlord appears to be able to cure the defect; and even though the landlord was not licensed at the time of the lease to the tenant, a newly licensed landlord may sue for possession after a tenant’s failure to pay rent.

Negligent Hiring/Negligent Retention Claims not Barred by Workers' Compensation Law

2011-03-22T11:59:00.000-07:00

A common issue encountered in running a business is the application of the Workers’ Compensation laws. These laws provide for benefits to be paid to injured employees, and preclude employees from suing their employers for such injuries. Employers have, on occasion, sought to use these Workers’ Compensation laws to further narrow the scope of claims that an employee may bring.

On March 21, 2011, the Maryland Court of Appeals decided Ruffin Hotel Corporation of Maryland v. Gasper. In Ruffin Hotel, the Circuit Court for Montgomery County had dismissed Plaintiff’s negligent hiring/retention claim after finding that the cause of action was barred due to preemption by the State’s Workers’ Compensation laws. The Plaintiff appealed, and the Court of Special Appeals reversed, finding that the Workers’ Compensation laws did not preclude an employee from suing an employer for negligent hiring/retention of a fellow employee.

After the Court of Special Appeals’ decision, both parties sought review in the Court of Appeals. The Court of Appeals affirmed, stating that: “We reject the proposition that the General Assembly intended the Workers’ Compensation Commission is the exclusive forum in which a negligent hiring/retention claim must be litigated whenever such a claim is asserted by an employee against his or her employer as a result of intentional and unlawful misconduct of a fellow employee.”

A copy of the decision is found here.

Reported Maryland Court of Special Appeals Case on Personal Jurisdiction: Owning Unimproved Real Estate is not Sufficient Minimum Contacts

2011-02-16T09:16:00.000-08:00

An issue that often is litigated is personal jurisdiction, or “can we sue the defendant here?” Last week, the Maryland Court of Special Appeals rendered a published opinion on the issue in the case of Cappel v. RIASO, LLC. A copy of the opinion is here. In this case, the court was asked to determine whether, in an action to enforce a confession of judgment clause in a guarantee of a promissory note that was signed outside of the State of Maryland, the Circuit Court for Montgomery County, Maryland had personal jurisdiction over the guarantors (Mr. & Mrs. Cappel) by virtue of their owning unimproved real estate in Maryland that was unrelated to the issues in the case. The Circuit Court had found that it did have jurisdiction over the Cappels because by owning the land the Cappels were “transacting business” in Maryland and they had sufficient “minimum contacts” with the State of Maryland to allow personal jurisdiction.

The Court of Special Appeals reversed and vacated judgments against the Cappels for $2,938,312.51. The Court found that owning unimproved real estate in the State of Maryland was not sufficient to allow for personal jurisdiction in Maryland where the real estate in question had nothing to do with the dispute between the parties.

This means that the Plaintiff will now need to start over and sue the Cappels in either D.C. or Virginia, and that the lien on the Cappel’s Maryland real estate that was created by the judgment will be vacated. One wonders whether the Cappels will be able to sell the property before the creditor is able to obtain a new judgment in D.C. or Virginia and then record it as a lien against the Cappels’ Maryland property.

New Fourth Circuit Opinion on Arbitration -- Appeal of Arbitrability Decision Divests Trial Court of Jurisdiction

2011-02-15T09:22:00.000-08:00

I have addressed arbitration issues many times before on this Business Law Blog. They are important because so many agreements now contain mandatory arbitration clauses. On February 10, 2011, the United States Court of Appeals for the Fourth Circuit issued an opinion in the case of Levin v. Alms and Associates, Inc. A copy of the decision can be found here. In this case, the appellate court held that when a trial court order regarding arbitrability of a dispute was appealed, the trial court is divested of jurisdiction and cannot continue on to handle the case until the appeal is resolved. The appellate court reversed the trial court which had allowed what it believed was the “non-arbitrable” portion of the case to go forward while the appeal was pending.

The appellate court also went on to decide that the trial court was wrong on the merits. That is, the appellate court held that the trial court was wrong to decide that certain claims were not subject to arbitration.

Before including an arbitration provision in your business agreements, you should be sure to consult with counsel to determine whether such a provision is in your interest and to discuss the scope and effect of such a provision.

Dan Snyder v. The Washington City Paper -- Why Didn't Snyder Choose Home Field Advantage?

2011-02-03T10:40:00.000-08:00

In a case of note, local businessman Daniel Snyder of Rockville/Potomac, MD brought a libel suit in New York against local free newspaper The City Paper. A link to the lawsuit is here.

There is obviously a lot being written about this case now. One issue that I have not seen any information on is the choice of forum/venue. Snyder sued in New York, when he is a Montgomery County, Maryland resident, and would presumably have "home field advantage" here in Rockville. Or, maybe he thought that his reputation locally was so bad that he had to seek a venue where fewer people (Judges and Jurors alike) have formed an opinion of him.

I will wait and hope that the issue of venue/jurisdiction is litigated and that the case comes home to Rockville where it belongs.

Federal Court: Injunction Denied Where It Would Put Restaurant Out of Business

2011-01-15T14:50:00.000-08:00

Franchisors often seek injunctions in situations where their franchisees are violating the terms of the operative franchise agreements. In a case pending before the United States District Court for the District of Maryland (Greenbelt) titled Prosperity Systems, Inc. v. Ali, the Pizza-Bolis franchisor (Prosperity) sued its franchisee (Ali) alleging various violations of the parties’ franchise agreement. Specifically, Prosperity alleged that Ali advertised outside of his limited territory and that he used an unauthorized website. Prosperity sought an injunction that would have shut down Ali’s restaurant. The Court found that Prosperity was likely to win the case, and that Ali almost certainly was in breach of the franchise agreement. Nevertheless, the Court denied the request for an injunction finding that that the damage that Ali would suffer if the injunction was entered and the restaurant was shut down would outweigh the damage caused to the franchisor, Prosperity, resulting from Ali’s breaches of the agreement. A copy of the opinion is found here.

This shows a litigant that even where one can prove a breach of contract that does not mean that the court will necessarily grant an injunction barring further breaches of that contract; nor will a court shut down a business if lesser restrictions are available.

Attorney's Fee Request Denied in Unusual Citizenship Case

2011-01-14T06:53:00.000-08:00

On January 13, 2011, the United States Court of Appeals for the Fourth Circuit decided the case of Cody v. Caterisano. In this unusual case which deals with attorney’s fee awards, an Irish citizen enrolled at the United States Naval Academy. At the time, the Irish government was funding the cost of his attendance at the Academy. Once enrolled at the Academy, the Irish government indicated that it would not fund the cost of attendance. The student obtained alternative funding and continued to attend the Academy. Because the Irish government was not paying for his education, the student did not have any obligation to serve in the Irish military upon graduation from the Academy. The student decided that he wanted to serve in the United States Navy after graduation, and decided to apply for United States citizenship. His application for citizenship hinged upon whether or not attending the Naval Academy constituted serving honorably in an active-duty status during a period in which the Armed Forces of the United States were engaged in military operations involving armed conflict with a foreign force. The Naval Academy had initially completed a form indicating that the student’s attendance at the Academy constituted such “active-duty” status. Later, the Academy withdrew that form and reversed its position indicating that attending the Academy did not constitute active duty service. The USCIS, which decides immigration applications, failed to make a decision within the time allotted.

The student then sued to obtain a decision on his application. The United States District Court for the District of Maryland (Baltimore) found that the student qualified for naturalization and the United States government did not appeal.

The student then sought his attorney’s fees under the Equal Access to Justice Act (EAJA) and the District Court denied that request. Under the EAJA, a victorious party to litigation against the Government may be entitled to an award of counsel fees “unless the court finds that the position of the United States was substantially justified. . ..” The Fourth Circuit Court of Appeals affirmed, holding that the particular circumstances of the student’s case, the Government’s position in contesting naturalization, while ultimately unsuccessful, was “substantially justified.”

This is another example of courts being hesitant to award attorneys’ fees, and being restrictive in awards, whether the basis for the request for the attorneys’ fee award is statutory or contractual. The opinion is found here.

Health Care Statute Exceeds Congressional Power

2010-12-13T10:23:00.001-08:00

The United States District Court for the Eastern District of Virginia today held that a portion of the Health Insurance Reform Act is unconstitutional. Specifically, in Commonwealth of Virginia v. Sebelius, the Court held that Section 1501 of the Act: the Minimum Essential Coverage Provision exceeded the power of Congress granted to Congress in the Commerce Clause. A copy of the opinion is found here.

The Minimum Essential Coverage Provision essentially penalized individuals who did not purchase at least a minimal level of health insurance. The United States argued that the Provision was in the nature of a tax, but the Court agreed with the Commonwealth of Virginia which argued that the Provision was in the nature of a penalty.

Federal Court Jurisdiction - Non-Compete Case

2010-11-14T18:26:00.000-08:00

A question that often arises in litigation practice is: where do we file suit? We often have a choice of federal or state court. To sue in federal court, one needs either a federal question or diversity jurisdiction. Federal courts have diversity jurisdiction where there is $75,000.00 or more in controversy and the parties are citizens of different states. In JTH Tax Inc. v. Frashier, decided on November 10, 2010, the United States Court of Appeals for the Fourth Circuit issued a decision regarding the amount in controversy for the purposes of diversity jurisdiction under 28 U.S.C. Section 1332(a). In the case, Plaintiff JTH Tax had originally sued a former franchisee in the United States District Court for the Eastern District of Virginia for $80,000.00, and for an injunction for breaches of contract arising out of a franchise agreement including breaches of non-compete obligations. Later, the Plaintiff filed documents with the court showing that its actual monetary damages were only approximately $60,000.00. The District Court dismissed the case on its own motion due to its determination that the amount in controversy was conclusively less than $75,000.00. The Fourth Circuit reversed, holding that District Courts could only dismiss in such cases where there was “legal certainty” that the amount in controversy was less than $75,000.00. The Court found many ways that the controversy could be valued in excess of $75,000.00 even where money damages were only $60,000.00. One such way was to value the injunctive relief sought.

A copy of the full opinion is here.

New Maryland Court of Appeals Case on Contractual Attorneys' Fees

2010-11-12T13:20:00.000-08:00

In the recent Monmouth Meadows Homeowners Association v. Hamilton case, a copy of which can be found here, the Maryland Court of Appeals clarified the method by which trial courts can calculate attorneys’ fee awards in contractual fee-shifting cases (as distinguished from statutory fee-shifting cases). Specifically, the Court held that the “lodestar” method of calculating attorneys’ fees does not apply to contractual fee-shifting cases, and that, instead, courts must look to the standard for determining appropriate attorneys’ fees under Rule 1.5 of the Maryland Lawyers’ Rules of Professional Conduct. While the distinction may seem subtle, a fee award under lodestar can be quite different from a fee award under Rule 1.5. That is because a fee award under the lodestar method of calculation takes into account the “importance of the right vindicated.” This means that in an appropriate case with a statutory fee-shifting clause a $10,000.00 judgment for money damages can justify a much larger fee award. In the contractual fee-shifting situation, the courts in Maryland will be required to review the fee requested in the context of the principal amount in controversy in the litigation. Therefore, in a breach of contract case where $10,000.00 is at stake, it will be difficult for a court to justify a fee of $10,000.00.

More Arbitration Related Case Law - Arbitration Clause Not Enforceable

2009-12-01T12:30:00.001-08:00

Another recent case, Henry v. Gateway, Inc., et. al., (No. 0537, September Term 2008, Issued August 31, 2009), shows that binding arbitration clauses are not always binding in Maryland. The case arose from plaintiff-appellant’s purchase of a Gateway computer at a local Best Buy retail store, and the subsequent malfunctioning of said computer. The computer came with a standard One Year Limited Warranty, the terms of which the consumer was required to agree to in order to render the computer operational. One of those terms was submission of all disputes to binding arbitration, which would be governed by the Federal Arbitration Act, 9 U.S.C. § 1, et. seq. Disregarding the binding arbitration clause, plaintiff-appellant elected to file a complaint in The Circuit Court for St. Mary’s County, alleging three state law claims: 1) breach of express warranty; 2) breach of implied warranty; and 3) violation of the Maryland Consumer Protection law, Md. Code (1975, 2005 Repl. Vol.), Commercial Law Article §§13-101 et seq. In addition, there was one federal claim: violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et. seq. The Circuit Court for St. Mary’s County ruled in favor of defendant-appellee, dismissing plaintiff-appellant’s state law claims (with prejudice) and ordering the arbitration of said claims.

On appeal, the Court of Special Appeals of Maryland ruled that the binding arbitration clause in the consumer contract was unenforceable given a 2007 ruling by the Court of Appeals of Maryland, Koons Ford of Baltimore, Inc. v. Lobach, 398 Md. 38 (2007). In Koons Ford, the Court of Appeals held that the Magnuson-Moss Warranty Act supersedes the Federal Arbitration Act, so that a litigant advancing a federal warranty claim cannot be forced to resolve his or her claim through binding arbitration.

Further, the contract in Henry had a South Dakota choice-of-law designation. The choice-of-law question was whether, in the absence of a controlling decision by the U.S. Supreme Court, and given the divided nature of the relevant federal precedent, a Maryland Court is bound to apply a contractual choice-of-law rule that has the effect of interpreting federal law in a way inconsistent with a decision of the Court of Appeals of Maryland. The Court of Special Appeals answered with a resounding no, finding that it would be contrary to the fundamental policy of the state (as embodied in Article 2 of the Maryland Declaration of Rights, and a 1979 case, Pope v. State) for a Maryland court to apply a choice-of-law provision that conflicts with the state’s highest court’s interpretation of federal law.

The Circuit Court for St. Mary’s County ruling was reversed and the case was remanded to that court for further proceedings. The Court of Special Appeals ordered that all costs be covered by defendant-appellant.

It just goes to show that what is written in a contract is not always an accurate reflection of a consumer’s actual rights and/or potential recourse.

Court Decides Unsigned Arbitration Agreement is Not Enforceable

2009-07-06T18:40:00.000-07:00

In a recent Maryland Court of Special Appeals decision, All State Home Mortgage, Inc. v. Francis A. Daniel, et al., (No. 579, September Term, 2008; Filed June 9, 2009) that Court upheld a Montgomery County Circuit Court decision regarding the unenforceability of a standard arbitration agreement relating to a contract for the refinancing of residential real estate. In this case, a Rockville, Maryland couple attempted to secure a loan from All State Home Mortgage (“All State”) in order to refinance their home. Citing “issues” with the appraisal of the house, All State initially delayed funding the loan. Although the loan officer made assurances that everything was “okay,” All State never disbursed money pursuant to the loan agreement. The following month, All State contacted the Rockville couple and attempted to change the terms of the loan, which included a reduction in the loan amount. Rather than accepting these new terms, the homeowners filed suit in the Circuit Court for Montgomery County. All State filed a petition to compel arbitration. The Circuit Court originally granted the petition to compel arbitration. On a motion for reconsideration, however, the Court changed its decision and denied the defendant's petition to compel arbitration. The defendant appealed.

The Court of Special Appeals affirmed the denial of the petition to compel arbitration. The Court found that All State had neglected to sign its own arbitration agreement which stated, in part, as follows:

AGREEMENT FOR THE ARBITRATION OF DISPUTES
(“We, our or us) request the person(s) named below (“you”) to contact us immediately if you have a problem with a loan application or loan transaction with us. . . . If we are not able to resolve our differences informally, you and we agree that any dispute, regardless of when it arose, shall be settled, at your option or ours, by arbitration in accordance with this Agreement. Judgment on the arbitrator’s award may be entered in any court having jurisdiction. Except as otherwise expressly provided by applicable law, there is no right of judicial review of any award by the arbitrator. . . . This agreement is effective and binding to you and your heirs, successors and assigns and us when both parties sign it.

Not only did All State fail to sign the arbitration agreement, it failed to include an All State logo or any other information identifying itself as the other party to the agreement. The couple who had sought to refinance their home had signed the arbitration agreement, but argued that the absence of All State’s signature on the document meant that no agreement to arbitrate was ever made.

The Court stated that ordinarily a signature is not necessary to bring a contract into existence, and a signature is not always necessary to the execution of a written contract. However, when the terms of the contract make the parties’ signatures a condition precedent to the formation of the contract, the signature becomes an essential part of the agreement. In the absence of signatures of both parties, no binding arbitration agreement existed and the Rockville couple was free to proceed against All State in a court of law.

Maryland Court of Appeals Quotes Jerry Seinfeld, Rules in Favor of Tom Clancy on Fiduciary Duty Claim

2008-08-27T05:54:00.000-07:00

In an interesting juxtaposition of pop culture icons, the Maryland Court of Appeals cited Jerry Seinfeld in an opinion ruling in favor of novelist Tom Clancy. The case is Clancy v. King (opinion available here), decided August 26, 2008. In the case, Tom Clancy’s ex-wife (King) sued Clancy when Clancy decided to remove his name from the “Op-Center” series of books to which he had licensed his name. The Circuit Court for Calvert County had ruled in favor of ex-wife King issuing a declaratory judgment that Clancy’s removal of his name from the series was a breach of his fiduciary duty to King and the partnership. The Court of Special Appeals affirmed but remanded to the Circuit Court for Calvert County, Maryland for some clarification. Before any such clarification by the Circuit Court could occur, the Court of Appeals granted Certiorari and reversed.

The Court of Appeals held that while Clancy’s actions would have been a breach of fiduciary duty under typical circumstances, those actions were not a breach of fiduciary duty because of language in the partnership agreement that limited Clancy’s duties. In so holding, the Court determined that parties to a partnership can agree to limit their duties to one another and that their agreement would be analyzed under contract law and not under traditional partnership law.

In discussing the contract law issue, the Court found that Clancy’s actions were limited only by good faith, and not the broader fiduciary duties usually enforced against partners. The Court’s discussion of good faith led the Court to the 1996 “The Wig Master” episode of Seinfeld. Specifically, the Court (at footnote 27) referred to the episode as follows:

Jerry Seinfeld, perhaps an unlikely legal illustrator, once epitomized the duty of good faith in contract. In an episode of his television show, Jerry's character purchased a jacket at a men's clothing shop. The terms of the contract permitted Jerry to return the item for refund at his discretion. When Jerry attempted to return the jacket after an unrelated personal quarrel with the salesman, the following discussion took place.

Jerry: Excuse me, I'd like to return this jacket.
Clerk: Certainly. May I ask why?
Jerry: For spite.
Clerk: Spite?
Jerry: That's right. I don't care for the salesman that sold it to me.
Clerk: I don't think you can return an item for spite.
Jerry: What do you mean?
Clerk: Well, if there was some problem with the garment. If it were unsatisfactory in some way, then we could do it for you, but I'm afraid spite doesn't fit into any of our conditions for a refund.
Jerry: That's ridiculous, I want to return it. What's the difference what the reason is?
Clerk: Let me speak with the manager . . . excuse me . .. Bob! (walks over to the manager and whispers)
Bob: What seems to be the problem?
Jerry : Well, I want to return this jacket and she asked me why and I said for spite and now she won't take it back.
Bob: That's true. You can't return an item based purely on spite.
Jerry: Well, so fine then . . . then I don't want it and then that's why I'm returning it.
Bob: Well you already said spite so . . . .
Jerry: But I changed my mind.
Bob: No, you said spite. Too late.
Seinfeld: The Wig Master (NBC original television broadcast 4 April 1996).

In attempting to exercise his contractual discretion out of "spite," Jerry breached his duty to act in good faith towards the other party to the contract. Jerry would have been authorized to return the jacket if, in his good faith opinion, it did not fit or was not an attractive jacket. He may not return the jacket, however, for the sole purpose of denying to the other party the value of the contract. Jerry's post hoc rationalization that he was returning the jacket because he did not "want it" was rejected properly by Bob as not credible.

The Court’s sense of humor is refreshing, and serves to illustrate that the Court is made up of people just like everyone else who draw on all of their experiences in making reasoned judgments. Of course, Ms. King and her counsel probably aren’t laughing….

New Maryland Court of Appeals Case on Attorney's Fees and Indemnification

2008-08-26T13:58:00.000-07:00

On July 25, 2008, the Maryland Court of Appeals addressed an issue that often arises in commercial disputes: whether an indemnification clause in the parties’ contract which provides that one party is indemnifying and holding the party harmless for losses including attorney’s fees will allow for an award of attorney’s fees that were incurred in the dispute between the two parties to the contract.

In Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 405 Md. 435, 952 A.2d 275 (2008), the Maryland Court of Appeals held that attorney’s fees are not recoverable in a first party action between parties who have such an indemnification clause in their agreement. Instead, the Court of Appeals reasoned, the American Rule on attorney’s fees (each party is responsible for its own fees) controls and each party is responsible for its own legal fees. By holding as it did, the Court of Appeals reversed the unpublished decision of the Maryland Court of Special Appeals in which that Court had held that attorney’s fees were recoverable. Three members of the Court of Appeals dissented.

What this means for businesses is that if they expect to have fee-shifting occur they must not only include such an indemnification clause, but also they must make sure that their agreements include an explicit clause that provides that the prevailing party in any dispute shall be awarded its attorney’s fees.

Change in Maryland Wage Payment Law

2008-08-25T06:46:00.000-07:00

Another example that goes to show that you must be careful of what you read on the Internet.

In 2006, several former employees of Catapult Technologies represented by my law partner, Marc Smith, sued their employer for the value of their unused accrued vacation pay. The employees prevailed and the decision was affirmed on appeal by the Maryland Court of Special Appeals in an unpublished decision.

The Maryland Department of Labor Licensing and Regulation, which oversees Maryland’s employment policies and the like was informed of the Court decision. In response, the DLLR updated its policy/regulations to now include vacation leave as “wages” that must be paid to terminated employees. This change in policy based on the Catapult case was written up in many employment law blogs and still remains on those blogs.

Once DLLR updated its policy/regulations on this, some large Maryland employers complained to their representatives in the state legislature, etc., and the law was clarified and changed.

Specifically, Section 3-505 of the Labor and Employment Article of the Maryland Annotated Code was amended effective April 24, 2008 so that it now provides:

____________________________________________________________________________________
§ 3-505. Payment on cessation of employment

(a) Except as provided in subsection (b) of this section, each employer shall pay an employee or the authorized representative of an employee all wages due for work that the employee performed before the termination of employment, on or before the day on which the employee would have been paid the wages if the employment had not been terminated.

(b) An employer is not required to pay accrued leave to an employee if:

(1) the employer has a written policy that limits the compensation of accrued leave to employees;

(2) the employer notified the employee of the employer's leave benefits in accordance with § 3-504(a)(1) of this subtitle; and

(3) the employee is not entitled to payment for accrued leave at termination under the terms of the employer's written policy.
____________________________________________________________________________________

In sum, despite what it may say in an employment lawyer’s blog or on his website, the law now is that unused vacation pay does not constitute wages that are required to be paid at the termination of employment so long as the written company policy on such leave clearly provides that vacation pay will not be paid out at termination of employment and so long as that written policy has been provided to the employee. If you do not have a written policy, you should seek counsel to create one for you.

New Developments in Anti-Spam Law – Spam Plaintiff Ordered to Pay Spam Defendant’s Attorneys’ Fees under CAN-SPAM

2007-09-03T12:33:00.000-07:00

Under CAN-SPAM, courts have discretion to award a prevailing party defendant its attorneys’ fees incurred in defending a case brought under that law. In a decision issued on August 1, 2007, in Gordon v. Virtumundo, the United States District Court for the Western District of Washington awarded Virtumundo, see previous post, more than $100,000.00 in attorneys’ fees and costs incurred in defense of that suit. The Court, however, only awarded Virtumundo approximately 20% of the more than $500,000.00 that its counsel requested. The opinion is accessible here.

In ruling on the request for fees, the Court took into account the fact that Gordon had not claimed that he had suffered any actual injury, that Gordon actually benefitted from receiving spam, and that Gordon appeared to be in the business of collecting email in order to bring lawsuits. The Court commented that:

First, it is obvious that Plaintiffs are testing their luck at making their “spam business” extraordinarily lucrative by seeking statutory damages through a strategy of spam collection and serial litigation. Plaintiffs are parties to ten additional cases similar to the instant case in the Western District of Washington alone, see Case Nos. C06-1118-MJP, C06-1129-JCC, C06-1210-TSZ, C06-1284-TSZ, C06-1348-MJP, C06-1350-JCC, C06-1469-MJP, C06-1537-JCC, C07-222-RSM, and C07-386-MJP, as well as at least one “spam” case in the Eastern District of Washington, see Case No. C05-5079-FVS. The Court is not merely speculating on Plaintiffs' motives or assessment of potential profits. In analyzing Plaintiffs' CAN-SPAM standing, this Court noted that Gordon testified that the “benefits” of receiving spam can be quantified in terms of his dissertation research, as well as “settlement agreements for people who have said that they wouldn't spam me any longer.” (May 15, 2007 Order 7.) The Court recounted the lists of Gordon and Omni “clients,” more than half of whom share the “Gordon” surname. (Id. at 6-7.) The Court recognized that Gordon took over control of e-mail accounts for “gordonworks” clients in order to continue collecting spam. (Id. at 7.) The Court noted that none of the Omni or Gordon clients has paid Plaintiffs for their services. (Id.) Gordon testified that all of Plaintiffs' income or revenue for 2006 and 2007 has been from settlements and disputes. (Id. at 7-8.) Gordon also testified regarding the “time-consuming process” of collecting, sorting, and compiling spam regarding these and other defendants. (Id. at 8.) Clearly, Plaintiffs are assembling a litigation factory, which, if successful, could net millions of dollars in profit, at least theoretically.

Moreover, after assessing the utter lack of evidence going to any technical impact or financial harm due to the alleged illegal spam, this Court found it significant that Gordon did not seek actual damages in the instant litigation, because none exist, and that he is instead seeking solely statutory damages for each e-mail sent. (Id. at 8.) Plaintiffs admitted that they benefit from receiving spam, and this Court concluded that “Plaintiffs' continued use of other people's e-mail addresses to collect spam and their undisputed ability to separate spam from other e-mails for generating lawsuit-fueled revenue directly contradicts any hint of adverse effect that otherwise might exist.” (Id. at 15.) Not only are Plaintiffs “ not the type of entity that Congress intended to possess the limited private right of action it conferred on adversely affected bona fide Internet access service providers” (id. at 15), they are not the type of plaintiff that should be allowed to pursue the strategy outlined above without financial cost.(emphasis added

In light of the August 1st decision in the Gordon v. Virtumundo case, professional spam collecting plaintiffs (like Beyond Systems in its dozens of Maryland cases) need to beware that they may be subject to paying the legal fees incurred by those that they choose to sue in baseless cases.

Interesting Developments in Anti-Spam Law – Gordon v. Virtumundo – CAN-SPAM Preempts Washington State Anti-Spam Law Causes of Action

2007-08-28T18:22:00.001-07:00

The law in regard to CAN-SPAM’s preemption of state law causes of action continues to develop. On May 15, 2007, the United States District Court for the Western District of Washington at Seattle decided the case of Gordon v. Virtumundo, Case No.: 06-00204, the Court held that CAN-SPAM preempted a plaintiff’s claims under Washington State’s Commercial Electronic Mail Act: WASH. REV. CODE §§19.190.010–.110. The Court relied, in part, on the decision of the Fourth Circuit in the Omega World Travel v. Mummagraphics case. The Court specifically held that:

This Court agrees with the Omega court's assessment of congressional purpose as well as its preemption holding. Applying the Omega analysis here, the Court finds the following. Plaintiffs' allegations here are that “from addresses” ending, for example, with “vm-mail.com” do not suffice to make the header not false or misleading because they require one to figure out to whom or what “vmmail.com” refers-i.e., the message is not obviously from “Virtumundo.” The parties agree that identification can be achieved by reverse-look-up using, for example, the “WHOIS” database, which “is an Internet program that allows users to query a database of people and other Internet entities, such as domains, networks, and hosts.” Definitions, Implementation, and Reporting Requirements Under the CAN-SPAM Act; Proposed Rule, 70 Fed.Reg. 25,426, 25,446 n. 233 (May 12, 2005). The WHOIS database is maintained by domain registrars and “includes the registrant's company name, address, phone number, and e-mail address.” Id. Plaintiffs do not dispute that WHOIS data can identify Defendants, and they have pointed to no e-mails that fail to provide information useful to a correct WHOIS look-up. Plaintiffs instead contend that this extra step should not be required of consumers. Regardless of the merits of that argument, the Court cannot find that “from addresses” ending with a domain that facilitates an accurate identification of Defendants could in any sense be found “false” or “deceptive.” Accordingly, while claims actually alleging falsity or deception under CEMA would not be preempted, Plaintiffs' claims here-for, at best, “incomplete” or less than comprehensive information-are for immaterial errors that may not be litigated under state law. Plaintiffs have not raised any issues of material fact that could prove Defendants' e-mails materially “false or deceptive” as those terms are used in the CAN-SPAM Act. Accordingly, Plaintiffs' CEMA claims are preempted by CAN-SPAM.

It seems that a consensus is building in regard to CAN-SPAM’s preemption of state law causes of action that are not based on traditional fraud claims of actual injury suffered by the plaintiff seeking to enforce the law.

Business Litigation - New Case on CAN-SPAM's Preemption of State Anti-Spam Law Claims

2007-08-23T19:22:00.000-07:00

Another case in the burgeoning case law in regard to CAN-SPAM’s preemption of state law claims for alleged spamming activity has been decided. In Kleffman v. Vonage Holdings Corp., decided on May 23, 2007 by the United States District Court for the Central District of California, the Court held that a plaintiff’s claims that he received 11 emails advertising Vonage’s telephone service in violation of the California Business and Professions Code Section 17529.5 were preempted by CAN-SPAM.

Specifically, the Court held that Kleffman’s claims were “clearly preempted” because “He does not allege a traditional tort theory at all, or even that he was at any point misle[d] by any of the eleven Vonage emails.”

The decision is based on reasoning similar to that set forth in the case of Omega World Travel v. Mummagraphics see earlier post here a 2006 decision by the United States Court of Appeals for the Fourth Circuit (which is the Federal Appeals Court for, inter alia, Maryland and Virginia). Even though the Kleffman Court’s opinion relied on the same underlying authorities as the Mummagraphics opinion, the Court distinguished Mummagraphics and seemed to try and limit its holding. The Kleffman case is now on appeal to the United States Court of Appeals for the Ninth Circuit. A copy of the Court’s opinion will be made available soon.

Business Law - New Maryland Landlord Tenant Case Law

2007-08-22T14:24:00.000-07:00

On August 22, 2007, the Maryland Court of Appeals ruled in the Hanna v. ARE Acquisitions, LLC that a commercial landlord could not maintain an action against the owners of a former tenant for trespass where the tenant allowed a substantial amount of property to remain in the leased premises after the tenant vacated the premises. The Circuit Court for Mongtomery County, Maryland had ruled in favor of the owners of the tenant and the landlord appealed to the Court of Special Appeals of Maryland. The Court of Special Appeals reversed, holding that the landlord was allowed to sue for trespass. The Court of Appeals reversed the Court of Special Appeals, and held that there cannot be a cause of action for trespass under circumstances where property is left in a leased premises. The Court reasoned that there cannot be a trespass where the property came into the premises during the tenant's posession of the premises. A copy of the opinion can be accessed on the Maryland Judiciary website:

http://mdcourts.gov/opinions/coa/2007/87a06.pdf.

District Court of Maryland for Montgomery County - New Cellphone & Camera Policy

2007-08-07T06:28:00.000-07:00

The District Court of Maryland for Montgomery County recently issued a new policy on the use of cellphones and cameras in its two courthouses. The policy is as follows:

CELL PHONE AND PROPERTY POLICY
FOR DISTRICT SIX, MONTGOMERY COUNTY
This policy applies to everyone using a courthouse facility in Montgomery County, including attorneys (public or private), police officers and court employees.
A violation of this policy can result in the confiscation of the phone and/or ejection of the violator.
1. A person may possess a cell phone in a courtroom only if the phone is on a belt clip, in a pocket, briefcase or handbag.
2. Cell phones must be in the off or silent position at all times while in the courtroom.
3. Cell phones may not be removed from a pocket, clip, briefcase or handbag at any time while in the courtroom unless removal of the cell phone is authorized by the presiding judge.
4. The wearing of Bluetooth earpieces or other similar cell phone accessories is prohibited in the courtroom at all times.
5. Taking of photographs by cell phone or otherwise is prohibited anyplace in the Courthouse at all times.
6. Use of cell phones at clerk window stations is prohibited at all times.
7. Any violation of this cell phone policy may result in confiscation of the cell phone.
8. Any cell phone which has been confiscated and which has not been claimed within thirty days of the date of confiscation shall be donated to sheriff’s office for use in the domestic violence program.
9. The bailiff will not accept or hold anyone’s cell phone or other property while that person attends Court. Any property left unattended shall be deemed abandoned property, and subject to be disposed of by the Bailiff.

Business Law and Litigation - New Maryland Case Law on Accountant Client Privilege

2007-07-30T20:11:00.000-07:00

In an important case for Maryland businesses, accountants and lawyers, the Maryland Court of Appeals on Friday July 27, 2007, Court held that there is no exception to the Maryland Accountant-Client Privilege, Maryland Code Courts & Judicial Proceedings Article Section 9-110 in cases involving alleged fraudulent conveyances. BAA, PLC v. Acacia Mutual Life Insurance Company, ___ A.2d ___ (Md. July 27, 2007). A copy of the opinion can be found at the Maryland Judiciary Website HERE.

In so deciding, the Court of Appeals specifically overruled a long-standing Court of Special Appeals opinion, Dixon v. Bennett, 72 Md.App. 620, 531 A.2d 1318 (1987), cert. denied, 311 Md. 557, 536 A.2d 664 (1988).

Litigation - New Fourth Circuit Opinion - "John Doe" Defendants

2007-07-30T07:05:00.000-07:00

Last week the United States Court of Appeals for the Fourth Circuit issued an opinion further refining its previous holdings on relation-back of amended pleadings. In Goodman v. Praxair, Inc., ___ F.3d ___ (4th Cir. July 25, 2007), the Court specifically reaffirmed its decision in Locklear that the replacement of a “John Doe” placeholder defendant with an actual defendant does not trigger the relation back doctrine. Specifically, the Court held:

Moreover, the majority of courts agree that Rule 15(c)(3) does not permit substitution for “Doe” defendants after the limitations period has run. See, e.g., Wayne v. Jarvis, 197 F.3d 1098, 1103-04 (11th Cir.1999); Jacobsen v. Osborne, 133 F.3d 315, 321 (5th Cir.1998); Baskin v. City of Des Plaines, 138 F.3d 701, 704 (7th Cir.1998); see also Locklear, 457 F.3d at 367. In denying substitutions of new defendants for “Doe” defendants, some courts base their analysis on the Rule's “mistake” language. See Wood v. Worachek, 618 F.2d 1225, 1230 (7th Cir.1980) (“Rule 15(c)(2) permits an amendment to relate back only where there has been an error made concerning the identity of the proper party and where that party is chargeable with knowledge of the mistake, but it does not permit relation back where, as here, there is a lack of knowledge of the proper party”).

Thus, for example, substitutions for “Doe” defendants after limitations have run would be barred by the two separately stated requirements of Rule 15(c)(3) that focus on the new party. Rule 15(c)(3)(A) requires that the change not prejudice the party being substituted for Doe, and Rule 15(c)(3)(B) requires that the new party knew or should have known within the limitations period that but for a mistake, it would have been a party. Most parties substituted for “Doe” defendants would be protected against being added either because they were prejudiced or because they did not have proper notice. Moreover, while parsing among different kinds of mistakes does not typically aid application of the Rule, naming Doe defendants self-evidently is no “mistake” such that the Doe substitute has received proper notice.

As a result of the decision in Praxair, it remains the law in the 4th Circuit that suing a “John Doe” defendant does not preserve the statute of limitations against any real defendant.

Business Law - Commercial Landlord & Tenant - Modification of Lease/Contract

2007-07-27T14:03:00.000-07:00

In a recent case I represented a small business here in Rockville that had operated a restaurant in a local shopping center in Maryland. The restaurant had been a tenant in the shopping center pursuant to a detailed written lease for the previous ten years or more. The lease required that rent be paid by check mailed to the landlord’s office due by the 5th day of each month. The lease provided that there would be a late fee (5% of the rent payment) and interest (at 24% per year) on late payments.

During the course of the lease, however, the landlord came into my client’s restaurant and told my client that my client should no longer mail his rent checks to the landlord, and that, instead, my client should give the landlord the rent checks when the landlord came to the shopping center. From that time on, my client had followed the landlord’s instructions and paid the landlord during the landlord’s periodic (usually monthly) visits to the restaurant, which were rarely before the 5th day of any month.

After many years of this method of rent payment, my client decided to move his business from Maryland to Virginia. My client told the landlord of his intention and the landlord immediately told my client that my client owed a significant sum of money for late fees and interest under the lease because the rent payments were always late when the landlord came and picked them up. My client refused to pay interest and late fees and the parties went to court on that and many other issues.

In Court, the landlord argued entitlement to the late fees and interest denying that he requested the in-person rent payments and arguing that even if he did request that method of payment, the landlord’s alleged oral request for in-person late payments could not modify the lease’s requirement of payments by the 5th day of each month. The lease provided that it could not be modified by oral agreement, and that there would be no waiver of any of the terms of the lease unless that waiver was in writing.

In Court we argued that the landlord’s request for in-person payment and the parties’ practice of hand payment of rent was an enforceable oral modification of the lease. The Court agreed that if we could prove the oral agreement and the past practice, we could defeat the landlord’s claim for late fees and interest at trial. Our argument was based upon Hoffman v. Glock, 20 Md.App. 284, 288-289 (1974). In that case, the Court of Special Appeals held that: “Notwithstanding a written agreement that any change to a contract must be in writing, the parties by subsequent oral agreement and by their conduct may waive the requirements of a written contract.” Ultimately, the landlord could not prove the amount of late fees and interest at trial and agreed to walk-away from its claims.

Whether you are representing the landlord or the tenant it is important to know that this argument (oral modification to a written contract) can be made and that you cannot always count on the written lease, or any written contract, to preclude a party from arguing that the parties modified their contract by subsequent oral agreement.

Business Law - Residential Landlord Licensing

2007-07-24T18:59:00.000-07:00

One very common small business is that of the residential landlord. Just as with any small business, this one should not be entered into without first considering the laws that govern it. We represent landlords and tenants in both residential and commercial landlord tenant lease negotiations and disputes. My partner David W. Lease conducts seminars on landlord tenant law twice a year and both of us regularly are in Court on both simple and complicated issues facing landlords and tenants.

In Montgomery County, Maryland, as well as other jurisdictions within the State (City of Rockville and City of Gaithersburg have licensing departments separate from the County’s Department of Housing and Community Affairs). In order to obtain a license, the landlord must file an application and pay a fee. By so doing, the landlord subjects the property to inspections by the County so that the government can determine whether the rental housing is safe and maintained in accordance with the applicable building code.

Being a licensed landlord is important, because failing to obtain a license subjects the landlord to a fine of $500.00. More important, however, is that failing to have a license, whether that failure is intentional or unintentional, may preclude the landlord from collecting rent from its tenants, and may otherwise render a lease illegal and invalid.

Licensing information can be found here and the application for a license is located here. The sample lease approved for use in Montgomery County is located here.

In an upcoming article, I will discuss some of the most important Maryland appellate court opinions in regard to landlord licensure.

Business Law - Important Clauses for Small Business Contracts - Funds Held in Trust for Contracting Partner

2007-07-24T15:11:00.001-07:00

In some instances your company may have a business opportunity that it cannot contract for on its own and it needs the assistance of another company to help it pursue that opportunity. Oftentimes your company may be willing to agree to pay a percentage of the revenue received on the deal to the company that is providing its assistance. You may consider having the revenue flow through the company assisting your company. That company can receive 100% of the funds from the customer and agree to send you 98% of those funds, keeping a 2% fee for its services. If the revenue flows through the company assisting your company you can run into a serious problem: What happens where the company assisting you receives payment from the customer, and then promptly files for bankruptcy before paying you your 98% of the revenue on the deal?

There is no easy answer to this question. If you do nothing, then the revenues received by your business partner will be a fund for the creditors of your bankrupt business partner, and you will be an unsecured creditor and unhappily receive pennies on the dollar, if anything.

One way to protect against such a catastrophe is to include “trust fund” language in your agreement with your business partner. If the funds in question are “trust funds,” then that can be excluded from the bankruptcy and paid over to your company. Specifically, if your company is XYZ Company and your partner is Partner Company, and you have agreed to pay Partner Company 2% of the revenue received by it, an example of such language could be:

Partner Company agrees that all funds received by it from the customer are to be received as trust funds, and are to be held in trust for the benefit of XYZ Company. Partner Company shall not have any beneficial interest in the funds received from the customer except to the extent of 2% of the funds received.

While such a clause is no guarantee that you will be safe in the bankruptcy situation, it will certainly be helpful in your effort to protect your business. A case illustrating the "trust fund" situation is Holmes Environmental, Inc., 287 B.R. 363 (Bankr.E.D.Va. 2002). In that case, the Court reviewed the state of the law in Virginia in regard to the exclusion of property from the bankruptcy estate under trust theory. Specifically, in Holmes, the Court held that funds that were held in a trust created by the debtor were not property of the debtor’s estate. In so holding, the court quoted Old Republic Nat. Title Ins. Co. v. Tyler (In re Dameron), 155 F.3d 718 (4th Cir. 1998), as follows:

Virginia law recognizes three basic forms of trust. Of these, the two that are potentially relevant to the instant case are the express (or actual) trust and the constructive trust. An express trust is created when the parties affirmatively manifest an intention that certain property be held in trust for the benefit of a third party. An express trust may be created "without the use of technical words." All that is necessary are words, or circumstances, "which unequivocally show an intention that the legal estate was vested in one person, to be held in some manner or for some purpose on behalf of another ...,". In contrast to an express trust, a constructive trust "arise[s] by operation of law, independently of the intention of the parties...." Such trusts "occur not only where the property has been acquired by a fraud or improper means, but also where it has been fairly and properly acquired, but it is contrary to the principles of equity that it should be retained...." With either form of trust, Virginia law recognizes the beneficiary as "equitable owner of the trust property." Holmes, 287 B.R. at 375 (citations omitted) (emphasis added).

While we have not litigated this issue through to a court decision, because of language in our client's contracts, we have been able to argue the issue and reach a favorable settlement in a bankruptcy case where our client would otherwise have lost more than $300,000.00. Before contracting to pay another company to be involved in an important business deal, you should always have counsel assist you in the process of developing agreements that protect your interests.

Business Owners - New Minimum Wage Goes Into Effect July 24, 2007

2007-07-23T19:50:00.001-07:00

Business owners must take note that July 24, 2007 is the effective date for the increase in the Federal Minmum Wage. The Federal Minimum Wage will increase from $5.15 per hour to $5.85 per hour.

This is the first of three increases in the Federal Minimum Wage. The next increase (to $6.55 per hour) goes into to effect on July 24, 2008 and the final increase (to $7.25 per hour) goes into effect on July 24, 2009.

In Maryland, the minimum wage is currently higher than the Federal Minimum Wage and requires employers to pay employees working in Maryland at least $6.15 per hour. On July 24, 2008, it will increase to $6.55 per hour. On July 24, 2009 it will increase to $7.25 per hour.

In the District of Columbia, the minimum wage is also higher than the Federal Minimum Wage and is now $7.00 per hour. On July 24, 2008, it will increase to $7.55.

In Virginia, the state minimum wage law does not contain current dollar minimums. Instead the state adopts the Federal minimum wage rate by reference. The State law excludes from coverage any employment that is subject to the Federal Fair Labor Standards Act.

A link to the minimum wage rates in all of the states is found here.

Interesting Defense Issues Under the Maryland Anti-Spam Act - MCEMA - the Impropriety of Suing "John Doe" Defendants

2007-07-19T18:27:00.000-07:00

Another issue that is being litigated in cases under Maryland’s Anti-Spam Act, MCEMA, is whether a plaintiff in such cases can sue “John Doe” defendants, or other place-holder defendants. Plaintiffs in these cases often claim that they do not know the true identity of the party responsible for the email and sue unknown defendants as “John Doe” or “Bulk E-mailers 1-600.”

Attempts to sue unknown defendants under the name “John Doe” is not permitted under Maryland law. The Court of Special Appeals in Nam v. Montgomery County, 127 Md. App. 172 (1999), held that:

Pleadings against fictitious persons are often called “John Doe” pleadings. There is generally no authority to proceed against a fictitious party in the absence of statute or rule. 59 Am.Jur.2d Parties § 16 (1987, 1998 Cumm. Supp.) While some states by statute or rule authorize John Doe pleadings and then the subsequent substitution of the person's true name when discovered, Maryland is not one of them. Although Maryland does not recognize “John Doe” pleadings directly, we do permit liberal amendment of pleadings to add a party or correct the misnomer of a party.

Because it is impermissible to bring actions against fictitious persons in Maryland, doing so does not preserve the statute of limitations (the deadline to commence a lawsuit) against any unknown defendants. Moreover, the doctrine of “relation back” does not act to preserve claims against unknown defendants. In Locklear v. Bergman & Beving AB, 457 F.3d 363 (4th Cir. 2006), the Fourth Circuit affirmed the District Court’s dismissal of an amended complaint on limitations grounds. The Fourth Circuit held:

Although Rule 15(c)(3)(B) speaks broadly of a “mistake concerning the identity of the proper party,” we have, in analyzing the scope of this rule, distinguished between mistake due to a lack of knowledge and mistake due to a misnomer. In so doing, we have not viewed lack of knowledge of the proper party to be sued as a “mistake” as that term is used in Rule 15(c)(3)(B). In the principal case on point, Western Contracting Corp. v. Bechtel Corp,we adopted the Seventh Circuit's holding that Rule 15(c)(2) permits an amendment to relate back where that party is chargeable with knowledge of the mistake, but it does not permit relation back where, as here, there is a lack of knowledge of the proper party. 885 F.2d 1196, 1201 (4th Cir.1989)(quoting Wood v. Worachek,618 F.2d 1225, 1230 (7th Cir.1980)) (internal citations omitted).

We have also noted that “Rule 15 has its limits, and courts properly exercise caution when reviewing an application of the rule which would increase a defendant's exposure to liability.” Intown Properties Management, Inc. v. Wheaton Van Lines, Inc., 271 F.3d 164, 170 (4th Cir.2001); see also Rennie v. Omniflight Helicopters, Inc., No. 97-1524, 1998 WL 743678 4th Cir. Oct.23, 1998). Rule 15, moreover, must be applied especially cautiously when an amendment that “drags a new defendant into a case” is proposed. Intown Properties, 271 F.3d at 170.

Under the reasoning in Locklear, the fact that a plaintiff in an MCEMA case or any other case previously sued “John Doe” in its original Complaint does not toll the statute of limitations against previously unknown defendants. As a result, anytime you are faced with defending a case where “John Doe” is sued, it would be appropriate to move to dismiss claims against all such fictitious defendants.

Interesting Defense Issues Under the Maryland Anti-Spam Statute - MCEMA - Excessive Statutory Damages

2007-07-18T18:49:00.000-07:00

Another interesting legal issue yet to be decided under the Maryland Anti-Spam Act, MCEMA, is whether the statute’s damages provision is enforceable in light of the “due process” clause of the Fourteenth Amendment to the United States Constitution. The due process clause of the Fourteenth Amendment provides that: “Nor shall any State deprive any person of life, liberty, or property, without due process of law.”

MCEMA Section 14-3003, fixes statutory damages at $1,000.00 per electronic mail received by an interactive service provider, and $500.00 per electronic mail received by an ordinary recipient. Maryland law recognizes “that a defendant also enjoys an additional constitutional right, under the Due Process Clause of the Fourteenth Amendment, not to be subjected to an excessive punitive damages award.” Darcars Motors of Silver Spring, Inc. v. Borzym, 818 Md.App. 1159, 1186 (2003), citing, inter alia, BMW of North America v. Gore, 517 U.S. 559, 116 S.Ct. 1589 (1996).

The United States Supreme Court in the BMW v. Gore case held that the “guide posts” for considering the constitutionality of punitive damages under the 14th Amendment include an assessment of “(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the award imposed in comparable cases.” Considering those “guide-posts” in some cases under MCEMA, the “degree of reprehensibility,” is fairly benign. Plaintiffs often contend that a defendant merely assisted in the transmission of unsolicited electronic mail – not particularly outrageous conduct warranting extremely harsh punishment. Reviewing the “disparity of actual harm when compared to the potential punitive damage award” as required by Gore shows a complete lack of relationship between actual harm and the punitive award. That is, MCEMA does not require any showing of actual harm suffered by anyone.

The Gore “comparable cases” component is instructive in showing how outrageously excessive the damages award can be in cases under MCEMA. Under Maryland Code Annotated Criminal Law Section 3-805.1(e)(2), the Attorney General is allowed to bring a civil action in cases of unsolicited commercial electronic mail and can claim only between $2.00 and $8.00 per electronic mail received by the “victim” of such electronic mail. Even under CAN-SPAM which, as shown in the preceding post has been held to preempt state statutes similar to MCEMA, the damages allowed are far more limited than the damages authorized under the Maryland Act. Under CAN-SPAM, 15 U.S.C. §7706(g), if an “Internet access service” brings a civil action, it may seek only actual damages, or $250.00 per e-mail that has false or misleading header or “from” line information, and $25.00 per e-mail that otherwise violates that Act (including e-mail that has a misleading “subject” line). The Act then allows for “aggravated” damages (of up to three (3) times the statutory damages ($750.00 or $75.00) depending on the character of the e-mail), and for the reduction of damages under certain circumstances.

Remarkably, under well settled Maryland law, a victim of an accident caused by a drunk driver cannot obtain punitive damages without proof of the specific intent to injure the particular individual who is injured. See, e.g. Owens-Illinois, Inc. v. Zenobia, 325 Md. 420, 450-463, 601 A.2d 633, 647-654 (1992) (overruling a long line of cases which, in certain ill-defined types of tort actions, permitted the recovery of punitive damages on an "implied malice" basis). Under MCEMA, however, an entity that provides assistance in the transmission of electronic mail, whether or not it has actual knowledge of the electronic mail or its destination in Maryland, is exposed to being hauled into Court in Maryland to face severe punitive damages whether or not there are actual damages suffered by anyone.

Because MCEMA may subject out-of-state persons and entities to these damages, without any requirement that those persons knew they were sending mail into Maryland or even any requirement of actual damages, MCEMA defendants should argue that MCEMA violates the due process clause of the 14th Amendment, rendering its enforcement unconstitutional.

Interesting Defense Issues Under the Maryland Anti-Spam Act - MCEMA - CAN-SPAM's Preemption of State Anti-Spam Statutes

2007-07-17T05:47:00.000-07:00

One of my practice areas is the defense of cases brought under the Maryland Anti-Spam Act (“MCEMA”) and the Federal statute known as CAN-SPAM. I have represented companies involved in online marketing that have unwittingly become caught-up in these cases. These cases are very interesting and because they are relatively new, there is a lot of uncertainty as to the status of the law on many issues affecting their outcome.

I am currently before the United States District Court for the District of Maryland arguing that the MCEMA is preempted by CAN-SPAM. CAN-SPAM on its face states that it “supersedes any statute, regulation, or rule of a State or political subdivision of a State that expressly regulates the use of electronic mail to send commercial messages, except to the extent any such statute, regulation, or rules prohibits falsity or deception in any portion of a commercial mail message or information attached thereto." CAN-SPAM, 15 U.S.C. § 7707(b)(1).

MCEMA broadly regulates electronic mail that has the “capacity” or “tendency” to deceive. As a result, we are arguing on behalf of our clients that MCEMA regulates e-mail that may not contain any false information and it regulates e-mail that is not actually deceptive.

By regulating e-mail beyond the very limited exemption in the CAN-SPAM, the Maryland legislature crossed the line into preempted territory. If the legislature had simply written the Act to prohibit e-mail that is actually false or deceptive, mirroring the language in the Federal Act’s exemption, it could have remained on its side of the line.

In a 2006 case, Omega World Travel, Inc. v. Mummagraphics, Inc., 469 F.3d 348 (4th Cir. 2006), the United States Court of Appeals for the Fourth Circuit held that the Oklahoma anti-spam act at issue in that case was preempted by CAN-SPAM. Our position is that like the Oklahoma statute, MCEMA should similarly be deemed to be preempted by application of CAN-SPAM.

Other defendants in the case have already raised the preemption argument without success. It remains to be seen, however, how the Court will resolve the issue in regard to my clients. Moreover, the case would present very interesting issues for appeal, as the Fourth Circuit has already ruled that a statute similar to the MCEMA is preempted.

Appellate Victory - Real Estate Breach of Contract Case

2007-07-16T18:55:00.000-07:00

The next post shows the importance of a fee-shifting clause. This time, in the context of a standard real estate sales contract.

Recently we were hired by a local home seller who was frustrated when the couple purchasing his home refused to go to closing. The purchasers contended that they had not received the Home Owners Association Disclosure Documents (“HOA Documents”) to which they were entitled under Maryland Law. After investigating the matter, we learned the purchasers’ real estate agent had previously told the seller’s real estate agent that he had in fact received the HOA Documents.

We demanded that the purchasers go to closing. The purchasers refused. After some time, the seller re-sold his home, but he suffered a loss due to a downturn in the real estate market. He also had incurred carrying-costs during the months that had passed between his original closing date and the date that he sold to the subsequent purchasers. The total of his damages was approximately $20,000.00.

Eventually, the case was tried before a jury in the Circuit Court for Montgomery County, Maryland. The jury found that the purchasers’ real estate agent had received the HOA Documents on behalf of the purchasers, and awarded our client just under $20,000.00 in damages. After trial, we submitted a petition for payment of our attorneys' fees, and the purchasers were found liable for approximately $17,000.00 in legal fees incurred by our client.

The purchasers then appealed the jury’s verdict to the Court of Special Appeals of Maryland. The Court of Special Appeals affirmed the jury verdict, finding that the purchasers had waived most of their appellate arguments, and also finding that a real estate agent’s receipt of documents constituted receipt of those documents by his clients.

Once the case returned to the Circuit Court, we claimed entitlement to reimbursement of our client's attorneys fees incurred during the course of the appeal. The Purchasers settled, paying out an additional $12,000.00 in legal fees. All tolled, our client collected all of his legal fees and all of the damages awarded by the jury. Without the fee-shifting clause, the case may not have been worth litigating.

A copy of the unreported opinion can be viewed as a PDF document here: Click Here for the PDF File

Business Law - Important Clauses for Small Business Contracts - Fee Shifting

2007-07-14T06:28:00.000-07:00

I find myself explaining the “American Rule” on attorneys’ fees at least a couple of times per week, mostly to the owners of small businesses who need to bring collection claims against customers. Under the “American Rule,” each party to a dispute pays its own attorneys’ fees, whether that party wins or loses the case. This is in contrast to the “English Rule.” Under the English Rule, the loser in the dispute pays the winner’s legal fees.

In the United States the American Rule is the law, and you can only recover your legal fees in very limited situations: (1) where you have an agreement providing that the loser pay legal fees; (2) where a statute provides that the loser pays (for example: civil rights cases, consumer protection act cases); or (3) where a party acts in bad faith or without substantial justification.

Because we operate under the American Rule, one of the most important clauses that any business can have in its agreements is a clause mandating that the losing party in any dispute must also pay the winning party’s legal fees and costs. A sample “fee-shifting” clause is as follows: "The prevailing party in any dispute arising out of or related to this agreement shall be entitled to an award of its reasonable attorneys’ fees and costs."

This type of clause is so important because of the situation that occurs without it. If your business is owed $15,000.00 by one of its customers, and you bring your case to your lawyer to file suit, your lawyer is likely to tell you that the legal fees could be $5,000.00 to bring that matter through your local court system from filing through trial. As a result, immediately the value of your claim is arguably diminished by the cost of bringing the claim: reducing your best case scenario to $10,000.00.

By contrast, if you have a fee-shifting provision in your customer agreements, then the value of your claim is not automatically diminished by your expected legal fees. Instead, if you prevail in your case, then your best case scenario is a $15,000.00 award for your underlying collection claim, plus a possible $5,000.00 attorneys’ fee award.

It makes sense, particularly for the small business owner, to have a business lawyer review your standard contracts to make sure that those contracts include fee-shifting clauses. This is particularly so in those contracts that would form the basis for collecting your company’s revenues.

How Not to Answer Questions at Deposition

2007-07-13T11:37:00.001-07:00

This is an article previously posted on my website: www.slglaw.com or www.rockvillelaw.com.

In the article, I have written about a recent deposition taken in a civil case arising from a dispute between one business owner (my client) against the other owner who had improperly used the company's funds for his own benefit with his co-owner's permission.

The deposition became "colorful" when the witness was confronted with the checks that he had written to his own creditors out of the business' bank account.

Enjoy!

HOW NOT TO ANSWER QUESTIONS AT A DEPOSITION

In our litigation practice one of the most important tools we have at our disposal is the deposition. In a deposition, we are able to ask questions of parties to the proceeding, and other witnesses. The question and answer session is transcribed by a court reporter. Prior to any of our clients having their depositions taken, we always insist on meeting with our client to discuss the “do’s” and “don’ts” of deposition testimony. One of those “don’ts” is: “don’t be argumentative and hostile to the lawyer asking you the questions;” another is “don’t use profanity.”

What follows is an excerpt from a recent deposition that illustrates how NOT to answer questions in a deposition.

Q. Why didn't you just pay [your lawyer] out of your own personal bank account?
A. Because I didn't see a need to.

Q. I'm showing you what's been marked as Exhibit Number 6 to this deposition.

[The document was a photocopy of a business check written by the witness to one of his personal creditors.]

Can you tell me what that is?

[The answer could have been as simple as “a copy of a check.”]

A. That is an installment loan from the business to Suntrust Bank, endorsed by me on the -- on the 12th 19-05, basically further saying that since the business wasn't making any money, I could pay some personal payments.

[Remember - the document he was to identify was a copy of a check.]

Q. Okay. That's a check that you wrote and you signed off the company's account to pay a debt that you had with Suntrust Bank, correct?

COUNSEL FOR DEFENDANT: I'm going to object. I think he's just answered. He said it was a business loan.

COUNSEL FOR PLAINTIFF: He wasn't answering in a language that I understand.

BY COUNSEL FOR PLAINTIFF:

Q. Well, that check is not an installment loan, correct?

COUNSEL FOR DEFENDANT: You're asking him is this check an installment loan?

COUNSEL FOR PLAINTIFF: You know, whatever anybody else thinks of anybody in this room, I asked what that document is and the gentleman said it's an installment loan.

THE WITNESS: That's right.
BY COUNSEL FOR PLAINTIFF:

Q. It's a check, right? It's a copy of a check?
A. I don't know where you're going, my friend, but, yeah, it's a *%@ing check.

[It’s not usually a good idea to use profanity on the record at a deposition]

Q. Right.
A. What is wrong with you?

[The witness is being argumentative and hostile]

Q. That's why it's an easy question to answer.
A . That's what I said. I answered. It's a check.
Q. You said it's an installment loan.
A. It's a check for an installment loan. That's what I said.
Q. Now, and you wrote it.
A. *%@ing moron.

[This is additional profanity and a personal attack on counsel: that is never appropriate at a deposition]

COUNSEL FOR DEFENDANT: Hey, watch your language.

BY COUNSEL FOR PLAINTIFF:

Q. You wrote it, correct?
A. Yes, I did.
Q. And you signed it?
A. I did.
Q. And you paid one of your creditors with that money?
A. Absolutely, with pleasure.

In this excerpt, a witness was being asked a simple question: to identify a document being shown him at the deposition. The document was a check written by the witness from a corporate bank account to pay his personal expenses. One can infer that because the witness felt “caught” by the question, he answered evasively, and then directed his defensiveness at the lawyer asking him the questions by using profanity.

Because deposition transcripts are routinely used in court filings, for impeachment at trial, and for other purposes, it is not appropriate to turn a deposition into an argument, particularly an argument laden with profanity.

RockvilleLaw First Blog

2007-07-13T10:36:00.000-07:00

This is the first Blog entry of Jeffrey D. Goldstein at RockvilleLaw. Jeffrey D. Goldstein is an attorney practicing with the law firm of Smith, Lease & Goldstein, LLC in, (surprise) Rockville, Maryland. We are findable on the web at www.slglaw.com or www.rockvillelaw.com.

On this RockvilleLaw Blog, I will strive to provide useful and interesting information related to my law practice which includes civil litigation of real estate, construction, collection, corporate, commercial and residential landlord/tenant and many other matters.

In addition to representing individuals and companies in varied litigation, a large part of my practice is serving as outside general counsel to a number of local businesses.

My business clients include companies that:

Provide web-hosting, network administration and Internet related services;

Develop Alternative Education programs for state and local governments;

Provide design, printing, and duplication services;

Enagage in transportation planning for state and local governments;

Are government contractors providing networking, cabling, and software development services;

Organize trade shows throughout the country;

Provide fire and water restoration services;

Construct home improvements and build new construction;

Own and operate automotive dismantling and recycling centers;

Provide real estate title services; and

Manage residential properties.

However you have made it to this Blog, thank you for taking the time to read this. I hope to post some interesting topics, or at least topics that are interesting to me.

Jeff Goldstein