Ripken Baseball Sex Discrimination Case - Arbitration Clause Not Enforceable

In a recent decision, Raglani v. Ripken Professional Baseball, the United States District Court for the District of Maryland denied an employer’s motion to dismiss or stay and compel arbitration in a gender discrimination action brought by a former employee. The decision rested on two grounds: 1) there was insufficient consideration for agreement, i.e., a mutual exchange of promises to arbitrate; 2) the requirement of a neutral forum was not met.

Briefly, the case involved an action under Title VII of the Civil Rights Act of 1964 and Maryland state law, alleging that the plaintiff was unfairly terminated for engaging in a romantic relationship with a subordinate, when, despite a company policy forbidding such relationships, she alleges several of her male counterparts engaged in sexual relations with their subordinates and never were reprimanded. The plaintiff’s action also alleged negligence, wrongful discharge and breach of contract.

Upon her hiring, the plaintiff was required to sign a Problem Support Policy Acknowledgement and Agreement (“PSP”), which stated it was “‘a valid and binding legal obligation … in consideration of [her] hiring for employment or [her] continued employment … .’” The PSP stated it was a “procedure” to be used by “‘[a]nyone who feels they have a problem that requires management’s attention.’” The court provided a pointed criticism of what it characterized as an unbalanced agreement: “The PSP is entirely one-directional, binding employees to dispute resolution procedures …. but silent on [the employer’s] obligations to do anything other than “facilitate” this process in the event an employee submits a ‘problem’ to management.”

The “binding arbitration” provision in the company’s PSP stated:

Human Resources will provide a list of qualified Arbitrators upon a formal request to move to this step. … The rules of the arbitration will be subject to the Federal Arbitration Act and agreed to by both parties. … [Employer] will assume responsibility for the costs of the Arbitrator. If the [employee] decides to have their attorney present, the cost of that attorney will be the responsibility of the [employee]. After the meeting, the Arbitrator will submit a decision in writing and this decision shall be final.

The court found the arbitration provision defective and unenforceable because by giving the employer exclusive control over the list of arbitrators, it denied one party (the employee) access to a neutral, arbitral forum. The court also stated that the arbitration provision was too vague with regard to establishing rules by which arbitration would be conducted. (The provision does state that arbitration rules would be subject to the Federal Arbitration Act, but the FAA does not establish rules.)

While the court addressed the potential for bias where one party has the authority to limit the arbitrator selection process, something not discussed is the exponential bias one might imply from the fact that the employer both circumscribed arbitrator selection and assumed sole responsibility for paying the arbitrator. Given this pairing of control and monetary power, the arbitrator could be viewed as the employer’s “hired gun.”

A link to the decision is here:

http://www.mdd.uscourts.gov/Opinions/Opinions/Raglani%2016%20April%202013.pdf

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

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

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.

More Arbitration Related Case Law - Arbitration Clause Not Enforceable

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.

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

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.

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

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

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 Law - New Maryland Landlord Tenant Case Law

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.

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

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).

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

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

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

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

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

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

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.

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

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

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

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