Monday, April 5, 2010

Antonio v. Security Services of America, LLC (Maryland U.S.D.C.)

Filed: March 31, 2010
Opinion by Judge Alexander Williams, Jr.

Held: (1) Parent of a company is not a proper party to suit against its subsidiary in Maryland under the corporate veil piercing doctrine due to the absence of a showing of fraud or a necessity to enforce a paramount equity; (2) Predecessor of a company is not a proper party to suit against its successor where there is no causality between the acts of the predecessor and the individual defendants; (3) Summary judgment granted to Corporate Defendants on breach of contract claim brought against them because Plaintiffs were not third party beneficiaries of the contract between security company and community developer; (4) Corporate Defendants held not liable for the acts of employee who took part in committing crime; (5) Summary judgment granted to Corporate Defendants on Fair Housing Act claim, claim for violation of 42 USC §1982(3), tortious interference with contract claim, and claim for intentional infliction of emotional distress ("IIED").

Facts: The case arises out of an arson incident on December 6, 2004 where five men conspired to burn mainly minority-owned homes in Hunters Brooke, a neighborhood in Charles County, Maryland. The thirty-two Plaintiffs in this case are individuals who owned or had contracted to purchase homes in Hunters Brooke. The Plaintiffs sued the individual defendants (who have all already been found guilty or pled guilty to felony criminal charges arising from their participation in the arson), and corporate defendants SSA Security, Inc. ("SSA, Inc."), the security guard company, its parent ("ABM"), and its predecessor ("SSA, LLC") (collectively, the "Corporate Defendants") on allegations of violations of the Fair Housing Act, Maryland Fair Housing Law, 42 USC §1982, 42 USC §1985(3), and claims of tortious inference with contract and IIED. Additionally, the Plaintiffs sued the Corporate Defendants for negligence in hiring, training, and supervision, negligence, violations of the Maryland Business Occupations and Professions Code, and breach of contract. The additional counts against the Corporate Defendants arise out of the hiring and employment by SSA, Inc. of two of the individual defendants as security guards to work at Hunters Brooke during the time of the arson.

Analysis: The Court began with a corporate veil piercing analysis to determine whether ABM, the parent corporation of SSA, Inc., was a proper party in the case. Unlike other states where showing a high level of control by the parent over the subsidiary is sufficient, Maryland is more restrictive; the corporate entity will only be disregarded when it is "necessary to prevent fraud or to enforce a paramount equity." In Maryland, the application of a control or instrumentality exception does not apply. The Plaintiffs were successful in showing ABM's control over the operations of SSA, Inc. considering the following: (1) ABM owned 100% of the voting securities in SSA, Inc., (2) SSA, Inc. does not hold annual board meetings, keep corporate minutes, or conduct its own audits, and (3) all but one of SSA, Inc.'s officers are ABM's officers. Therefore, if the case had arisen under another state's laws that accepts the control or instrumentality exception to the corporate veil doctrine, the level of control would be sufficient to justify piercing the corporate veil.

In Maryland, however, liability cannot be attached absent a showing of fraud or necessity to enforce a paramount equity, which does not exist in this case. Plaintiffs argued that ABM is directly liable and therefore there is no need to pierce the corporate veil considering ABM involved itself in the daily operations of its subsidiary, including contracting, training, and rehiring employees. The Court disagreed, and applied the veil piercing doctrine to hold that ABM was not a proper party to the suit because Plaintiffs failed to show or plead fraud or a similar inequity.

The Court also agreed with the Corporate Defendants that SSA, LLC, the predecessor to SSA, Inc. was not a party to the case because it cannot be held directly liable for its hiring and training of the two individual defendants who committed the crimes. SSA, LLC originally hired the two defendants, but the defendants were terminated and forced to reapply for positions with SSA, Inc. The Court held that the facts do not indicate that SSA, LLC was involved with the Hunters Brooke property at the time of the incident and that all potential issues of vicarious liability should be directed at SSA, Inc. In Maryland, a successor may be liable for allegations of misconduct against its predecessor that ripen into findings of liability because a successor is on notice that these allegations exist. However, no such notice could exist for a predecessor to be aware of future bad acts by a successor. The rehiring of the individual defendants by SSA, Inc. breaks any possible chain of causality for SSA, Inc. and it is therefore not a proper party to the suit.

The Court also granted the Corporate Defendants summary judgment on the breach of contract claim. The contract in question is the oral or implied one between the developer of the neighborhood and SSA, Inc. (there was no written contract in place). Plaintiffs argue that they are third parties beneficiaries of that contract. In Maryland, to recover for breach of contract as a third party beneficiary, a person must first demonstrate that the contract was intended for his benefit and it must clearly appear that the parties intended to recognize him as a primary party in interest and as privy to the promise. Without clarity that the contract was intended for the benefit of that person, the person is only an incidental beneficiary who cannot recovery for breach of contract. In this case, the Court held that the primary purpose of the contract was to protect the Hunters Brooke construction site at night from intruders. Even though the Plaintiffs have a vested ownership interest in the homes and therefore had some benefit from that protection, this benefit is not enough considering the developer was the primary beneficiary of the contract between SSA, Inc. and the developer.

The Court further granted partial summary judgment to the Corporate Defendants for alleged violation of Maryland Business Occupations and Professions Code Section 19-501 (licensing of security guard agencies) claim. After reviewing the legislative history and other considerations related to the statute, the Court held that the statute holds employer security guard agencies liable for acts of employees consistent with common law principles of vicarious liability, rather than strict liability for any acts committed by their employees while on duty. To determine whether the Corporate Defendants are liable under the statute, the Court will assess common law rules of vicarious liability by looking to see whether the employees acted within the scope of their employment or that SSA, Inc. ratified their actions.

Lastly, the Court granted summary judgment to the Corporate Defendants for claims under the Fair Housing Act and other civil rights statutes dealing with anti-discrimination (for failure to present evidence that the Corporate Defendants should be held directly or vicariously liable for violating these civil rights statutes), claim for IIED (for failure to find intentional or reckless conduct), and tortious interference with contract (for failure to establish intentional conduct).

The full opinion is available in PDF.

No comments:

Post a Comment