Bontempo v. Lare (Md. Ct. of Appeals)

Filed: August 6, 2015

Opinion by: Robert N. McDonald

Holdings:

(1) The standard for determining whether a minority shareholder has been “oppressed” by the majority is the shareholder’s “reasonable expectations” upon obtaining an ownership interest in the company. This standard does not, however, dictate the type of equitable relief a trial court must provide, unless it is to be dissolution of the company.

(2) A breach of fiduciary duty to a corporation does not constitute fraud, absent a finding of fraud by the court. In this case, the majority shareholder’s self-dealing was a breach of his fiduciary duty, but because it did not involve deception, it did not rise to the level of fraud. The requested remedies of dissolution of the company and an award of punitive damages were therefore denied.  

Facts: See prior summary of Bontempo v. Lare (Md. Ct. Spec. App.).

Analysis:

The Court agreed with the opinions of the Circuit Court and the Court of Special Appeals on the standard for determining whether a minority shareholder has been “oppressed”: The court should look to the shareholder’s “reasonable expectations” at the time of acquiring an ownership interest in the company. If oppression has occurred, then dissolution of the company can be a remedy.

The Court of Appeals found, however, that even upon a finding of oppression, other, less punishing remedies can also be considered. In choosing a possible remedy, the court should take into account other stakeholders who may be affected, including other shareholders, managers, employees, and customers.

In this instance, Plaintiff argued that he had a reasonable expectation of future employment when he acquired a stake in the company. He said his investment, in the form of sweat equity, should trump his status as an at-will employee. The Court said a “reasonable expectation” can be used to determine whether oppression has occurred but does not dictate what form of equitable relief a court should grant. In addition, reinstating Plaintiff as an employee would not have been a viable option because he and Defendant could not reasonably have been expected to run a business together.

A provision in the shareholder agreement requires an employee to sell his stock upon termination “for cause.” Plaintiff argued that this provision effectively created an employment agreement, overriding his status as an employee at will. The Court was unpersuaded by this argument as well, noting that a buy-out requirement when a shareholder-employee is terminated for cause does not imply that the individual may be terminated only for cause.

On another mater, Plaintiff asked the Court to reconsider his allegations of fraud, which the Circuit Court had denied. He argued that Defendant’s breach of his fiduciary duty to the company constituted fraud as to the company itself and to Plaintiff as an oppressed shareholder.

The Court affirmed the lower court’s finding, noting that although Defendant’s self-dealing did constitute a breach of his fiduciary duty to the company, he made no attempt to conceal the activity. The illicit personal expenditures from the corporation’s accounts were entered into the company’s books, to which Plaintiff had full access.

Plaintiff made his allegations of fraud in connection with seeking dissolution of the company and an award of punitive damages for his benefit. As to the request for punitive damages, the Court said that they are not available as an equitable remedy and that, in any event, a finding of fraud would not support an award of punitive damages.

The full opinion is available in PDF.

Schlossberg v. Bell Builders Remodeling, Inc. (Ct. of Appeals)

Filed:  February 20, 2015

Opinion by: Clayton Greene, Jr.

Holding:  A court may disregard the corporate formality to prevent a paramount inequity and fraud is not required.  

Analysis:  This ruling comes from a certified question sought by the Bankruptcy Court. The Court relied on Hildreth v. Tidewater Equip. Co. Inc., which sets forth that piercing the corporate veil is proper for fraud or to prevent a paramount inequity. The Court determined that preventing a paramount inequity is sufficient grounds to disregard the corporate formality.

The full opinion is available in PDF.

United States of America ex rel. Cornelius Harris et al. v. Dialysis Corporation of America (Maryland U.S.D.C.)

Filed:  October 2, 2013

Opinion by Judge James K. Bredar

Held:  Relators brought four claims alleging Defendant violated the False Claims Act (“FCA”).  The Court held that Relators stated one viable claim for relief for Defendant’s alteration of Body Mass Index (“BMI”) numbers  in relation to Defendant’s billing the U.S. government for medical claims because BMI information was material to the Government’s payment approval decisions.  Relators’ three other claims were dismissed for failure to state a claim upon which relief can be granted or lack of subject-matter jurisdiction.

Facts:  Relators Harris and Boonie worked for Defendant Dialysis Corporation of America ("DCA") for approximately one year and both former employees’ responsibilities related to billing. 

In their suit against DCA Relators alleged Defendant violated four provisions of the FCA, 31 U.S.C. §3729 et seq. by knowingly presenting false or fraudulent claims for payment or approval to the Government, knowingly making false records or statements to get false or fraudulent claims paid or approved by the Government, conspiring to defraud the Government by getting false or fraudulent claims paid, and knowingly making false records or statements to conceal, avoid, or decrease obligations to pay the Government.  Specifically, Relators alleged Defendant altered Social Security numbers on medical claims, changed patients’ BMI numbers on medical claims, overbilled for Epogen, and overbilled D.C. and Ohio Medicaid.

Defendant moved to dismiss the Relators' complaint under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.  Defendant’s motion to dismiss was granted in part and denied in part.

Analysis:  The Court first analyzed Relators’ allegation that Defendant altered Social Security numbers on Medicare claims.  The Court examined whether the alleged inaccuracy of the Social Security numbers was material to the Government’s decision to pay for or approve the claims, because the governing standard in the Fourth Circuit at the time this case was filed required a false statement to be material to the Government’s payment approval decision.  UnitedStates ex rel. Berge v. Bd. Trs., Univ. of Ala., 104 F.3d 1453, 1459-60 (4th Cir. 1997).  A false statement is “material” in the context of FCA claims if it “has a natural tendency to influence agency action or is capable of influencing agency action.”  Id. at 1460.  Since the Government relies on information other than just Social Security numbers to process Medicare claims, the Court found no plausible inference that inaccurate Social Security numbers were capable of influencing agency action.  The Court could not infer that Defendant made false, material statements to the Government in violation of the FCA, and therefore Relators’ allegations as to Social Security numbers failed to state a claim under Rule 12(b)(6).

The Court then investigated Relators’ claim that Defendant changed patients’ BMI numbers on medical claims in order that patients would qualify for Medicare reimbursement for excess dialysis treatments.  Relators stated that on multiple occasions, they personally observed Defendant enter the billing system and alter BMI numbers without the proper physician authentication.  Because a patient’s BMI number must be above a certain threshold for excess dialysis treatments to qualify for Medicare reimbursement, the Court found that these false statements were material and Relators stated a valid claim upon which relief could be granted.

Next, the Court analyzed Relators’ claim that Defendant overbilled for Epogen.  The Court found that this claim failed under both Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6).  The claim failed under Rule 12(b)(1) because the first-to-file bar contained in the False Claims Act prevents bringing false claims actions related to civil actions for false claims already filed.  31 U.S.C.A. 3730(b)(5).  The Fourth Circuit follows a “same material elements” test when considering whether a fraud claim is barred under the first-to-file bar.  United States ex rel. Carter v. HalliburtonCo., 710 F.3d 171, 181-82 (4th Cir. 2013).  This claim failed because when Relators’ claim was filed, another case against Defendant was before the Court alleging the same material elements for overbilling of Epogen.

Finally, the Court considered the claim that Defendant overbilled D.C. and Ohio Medicaid.  Because Relators did not allege this fraud claim with particularity, the claim failed to meet the pleading standards of Rule 9 (b) and was dismissed.

The full opinion is available in PDF here.

Ohio Learning Centers, LLC v. Sylvan Learning, Inc. (Maryland U.S.D.C.)

Filed July 24, 2012

Opinion by Judge Richard D. Bennett

Held:  (1) A forfeited corporation may defend against a lawsuit and file counterclaims arising out of the same subject matter as the underlying suit.  (2) Courts employ a totality of the circumstances approach in reviewing a jury trial waiver provision, including factors such as the parties' bargaining power, the conspicuousness of the waiver provision and whether the provision is comprehensible.
 

Facts:  Plaintiffs and Defendants entered into an asset purchase agreement, a license agreement and two promissory notes pursuant to which Plaintiffs would purchase and operate a  franchise.   The license agreement also contained a non-compete clause.  Shortly thereafter, Plaintiffs were unable to make payments on the promissory notes.  Defendants sent two notices of default and intent to terminate license agreement to the Plaintiffs. 

The Court ordered Plaintiffs to "not use any or all of the trademarks, service marks, or trade names associated" with the Defendants.  The Court also held that the agreements were valid and enforceable and that Plaintiff breached those agreements.  The Court withheld ruling on any damages in order to adjudicate the remaining claims, set forth below. 
 

Analysis:  Plaintiffs argued that because two of the Defendants had forfeited their charters for failing to file personal property tax returns with the State Department of Assessments and Taxation, the defendants were prohibited from maintaining or defending any lawsuit in the state.  The Court disagreed and stated that “it is well established in Maryland that a forfeited corporation may defend against a lawsuit and file counterclaims arising out of the same subject matter as the underlying suit.”  Finch v. Hughes Aircraft Co., 57 Md. App. 190 (1984) and Price v. Upper Chesapeake Health Ventures, 192 Md. App. 695 (2010) ("an LLC whose rights have been forfeited...may only defend an action in court, not prosecute one"). 

Defendants moved to strike Plaintiffs' demand for a jury trial because the promissory notes and the asset purchase agreement contained a jury trial waiver.  The Court agreed that three of the four agreements at issue contained jury waiver clauses.  But, the Court highlighted that the main contract governing the claims in litigation did not.  The Court employed a totality of the circumstances approach.  It denied the motion after review of the superior bargaining power of the Defendants, the integrations clause in the license agreement and the inconspicuous location of the waiver clause in the promissory notes and the asset purchase agreement.   

Defendants' also moved to dismiss with respect to several fraud claims, including claims involving Maryland Franchise Registration and Disclosure Law.  The Court stated "a plaintiff can successfully bring a tort action for fraud that is based on false pre-contract promises by the defendant even if (1) the written contract contains an integration clause and even if (2) the pre-contractual promises that constitute fraud are not mentioned in the written contract."  Next Generation Group, LLC v. Sylvan Learning Ctrs, LLC, No. CCB-110986 (2012).  Because the materiality of any alleged omissions are factual questions inappropriate for determination at the motion to dismiss stage, the Court denied the motion.

The Court briefly reviewed other claims, including tortious breach of good faith, unfair competition, defamation, tortious interference in contractual relations, deceptive trade practices and antitrust conspiracy.

The full opinion is available in pdf. 

The George Wasserman and Janice Wasserman Goldsten Family Limited Liability Company v. Kay (Ct. of Special Appeals)

Filed: February 9, 2011

Opinion by Judge James R. Eyler

Held: A claim brought by partners in a general partnership or members of an LLC against a managing partner or managing member will survive a motion to dismiss if they sufficiently allege they suffered harm directly and the managing partner or managing member violated duties owed to the partners or members.

Facts: Plaintiffs are partners in five real estate investment general partnerships and two real estate investment LLCs. Defendants are Mr. Kay, an individual that is the managing member or de facto managing member or partner of the partnerships and LLCs, and Kay Management Company, Inc. and Kay Investment Group, LLC, two entities controlled by Kay. Plaintiffs alleged Defendant took money from the partnerships and LLCs and invested the money with Kay Investment through Kay Management. In turn, Kay Investment invested the money with the Bernard Madoff entities. Plaintiffs brought suit following the Madoff ponzi scheme collapse.

The complaint set forth thirteen counts, including, among others, fraud, breach of fiduciary duties, conversion, civil conspiracy and negligence. The Circuit Court granted Defendant's motion to dismiss because none of the claims were individual, the derivative claims involving the partnerships were not agreed to by a majority of the partnership, and the failure to make demand on behalf of the LLCs was unexcused.

Analysis:

After a lengthy discussion of corporations, general partnerships and LLCs, the Court framed the principal issues on appeal as (1) whether Plaintiffs may assert individual claims against Kay and (2) whether Plaintiffs may bring derivative claims on behalf of the partnerships and LLCs against Kay.

(1) Individual Claims

Applying logic from Shenker v. Laureate Education, Inc., which permitted a shareholder to bring a direct action when the shareholder suffers the harm directly or duties owed to the shareholder have been violated, the Court extended the rationale to the law of partnerships and LLCs. The Court then concluded Plaintiffs sufficiently alleged (a) they suffered harm directly and (b) Kay violated duties owed directly to the Plaintiffs.

Plaintiffs alleged Kay took funds that were required to have been distributed. He also took funds required to be held in reserve, further injuring Plaintiffs by forcing them to replace the removed reserves.

Under the Revised Uniform Partnership Act, general partners owe each other, not just the partnership, fiduciary duties. Section 9A-405(b) of the RUPA "clearly provides a mechanism through which partners can sue other partners directly for breach of those obligations and others." However, there is no statute in Maryland expressly addressing LLC members' fiduciary duties. The Court, after finding managing members to be "agents for the LLC and each of the members, which is a fiduciary position under common law," again applied rationale from Shenker, to state where no statute precludes or limits fiduciary duties under common law, the underlying duties apply. Accordingly, the Court found Kay's fiduciary duties as the managing partner/member to run to the partnerships, the LLCs, the partners and the members.

(2) Derivative Claims

The Court found the term "derivative" inappropriate in a general partnership context. Derivative actions are necessary in a corporate and limited partnership context because shareholders and limited partners have no management rights. "Unlike shareholders and limited partners, however, general partners all have the ability to act on behalf of the partnership, and all have management rights." Accordingly, no need for a derivative action exists. The Court turned to whether minority general partners can bring claims against other partners. The Court cited many sections of RUPA to conclude all partners have equal ability to enforce rights involving partnership property. While section 9A-405(j) of RUPA requires unanimous consent of all the partners, the Court felt it should be tempered "when non-plaintiff partners have conflicts of interest." Instead, "the unanimity requirement should not apply to defendant partners and other interested partners."

However, based on the facts, the Court found a suit on behalf of the partnerships unnecessary because Plaintiffs adequately alleged an individual direct injury. If Plaintiff's prove the allegations, complete relief will be afforded. The derivative claims on behalf of the LLC were rejected for the same reason.

Note: In discussing fiduciary duties in the LLC context, the Court, citing section 4A-402(a) of the Maryland Limited Liability Company Act, notes that "one Maryland statute governing LLC operating agreements does suggest that provisions within operating agreements could alter existing duties or create other duties..." However, no such provisions were alleged in the case.

The full opinion is available in pdf.

Dean v. Beckley (Maryland U.S.D.C.)

Filed: October 1, 2010.

Opinion by Judge Catherine C. Blake.

Held: Allegations that Defendant failed to disclose to purchaser of an RV before selling a warranty that RV manufacturer had declared bankruptcy when questions were raised regarding the nature of the warranty is sufficient to deny a motion to dismiss a claim alleging fraud in the inducement.

Facts: Plaintiff made a down payment to purchase a new RV from a dealer. Before closing on the sale, the manufacturer of the RV filed for bankruptcy. Eight days later, Plaintiff and employees of the dealer discussed a limited warranty while conducting a walk-through of the RV. None of the employees informed the Plaintiff of the bankruptcy. Plaintiff purchased a seven-year warranty on the RV. Plaintiff soon discovered numerous problems with the RV allegedly covered by the warranty. In subsequent conversations, the dealer allegedly agreed to accept return of the RV and refund Plaintiff's money. Ultimately, the dealer refused both the return and the refund.

Plaintiff sued the dealer and the individual employee that discussed the warranty with the Plaintiff, alleging fraud in the inducement among other things. Defendants moved to dismiss.

Analysis: Under Maryland law, corporate officers are personally liable for the torts they personally commit. Plaintiff's allegations that the individual employee personally explained in detail the nature of the warranties they would receive, while knowing the manufacturer had filed bankruptcy, coupled with the allegation that the bankruptcy was a material fact within the "unique possession" of the Defendants is sufficient to permit the fraud claim to proceed against the individual.

The Court found allegations of false representations regarding (i) the quality of the RV itself and (ii) the acceptance of the RV's return and subsequent refund of Plaintiffs money to be insufficient as the representations concerning the quality of the RV were puffery and the alleged promise to accept a return was promissory in nature. However, Plaintiff made sufficient allegations regarding failure to disclose and fraudulent concealment of the manufacturer's financial troubles to deny the motion to dismiss.

"Generally, the failure to disclose does not amount to a false representation unless there is a separate duty to disclose." In transactions conducted at arm's length, such as here, a duty may arise if the fact is material, the concealer has superior knowledge and knows the other is acting on the assumption the fact does not exist. Here, Plaintiff alleged the specific inquiries regarding the warranty gave Defendants knowledge that Plaintiffs assumed the manufacturer would be able to honor the warranty."

The full opinion is available in pdf.

Central Truck Center, Inc. v. Central GMC, Inc. (Ct. of Special Appeals)

Filed: September 7, 2010.
Opinion by: Judge J. Frederick Sharer.

Held: This Court affirmed the trial court’s decision to grant summary judgment in favor of the Seller of a truck dealership on the basis that no fraud had been committed by the Seller and that an integration clause found in an agreement barred the Buyer from asserting claims of fraud (including fraud in the inducement), concealment, and negligent misrepresentation.

Facts:

The Seller initially sued the Buyer for breach of a written contract by failing to pay approximately $50,000. The Buyer counterclaimed for breach of contract, fraud, concealment, and negligent misrepresentation based upon Seller’s inaccurate financial statements resulting in a large part from the cancellation of a contract between the Seller and a government agency. The Buyer asserted that the proceeds of the government contract had inflated the Seller’s sales figures in the financial reports and that the Seller’s gross receipts on the financial reports were inflated due to overbilling the government agency.

The Seller sought summary judgment based, in part, on the grounds that the sale agreement contained an integration clause stating that it constituted a complete integration of the terms of the contract and superseded "all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, with respect hereto, except as contained herein." The sale agreement also did not contain any representations or stipulations to Buyer as to a continuation of Seller’s past income or the accuracy of Seller's financial statements.

The Seller also argued that: (i) the Buyer had no expectation of income from the government contract because it had expired months before the sale agreement was executed; (ii) the Seller retained (and thus did not sell) the accounts receivable after the closing; and (iii) the Buyer was aware of a pending audit of the Seller's billing practices by the government agency because the Seller had disclosed the investigation in the Exhibits to the sale agreement.

The trial court found no clear and convincing evidence that the Seller made any false representations to the Buyer, with the intent that the Buyer would rely on them, with regard to the status of the financial statements, the status of the government contract, and the allegedly overbilled contract.

The trial court determined that the Seller's financial statements were prepared and utilized in the ordinary course of business, not in anticipation of the parties' negotiations for the purchase and sale of the truck dealership. The Buyer asked to view the statements well before closing, but it did not take further action to verify or question the numbers prior to entering into the Agreement, even in light of its undisputed knowledge that an audit of the allegedly overbilled contract was in the offing. Especially given the integration clause, the fact that the financial statements were not incorporated into the agreement, and that the parties were sophisticated in business matters and represented by counsel, there was no evidence that Buyer reasonably relied on the figures in the Seller’s financial statements.

The Buyer appealed the lower court’s decision to grant summary judgment on the grounds that the lower court erred by employing the incorrect standard in evaluating the claims and wrongly concluded there was no dispute of material facts and improperly relied on the sale agreement’s integration clause to foreclose any argument on fraud, concealment and any of the tort claims such as negligent misrepresentation.

The Seller argued against the appeal on the grounds that the lower court: (i) properly applied the integration clause to bar the court from considering any document outside of the four corners of the agreement; (ii) correctly ruled that the record did not support a finding that the Seller made any false representations, and (iii) the lower court found proper notice of the status of the government contract and thus any reliance by the Buyer on a different status was improper.

Analysis:

This Court affirmed the lower court’s decision to grant summary judgment in favor of the Seller because the Buyer did not show that the Seller made any false representations that it justifiably relied upon or that it suffered compensable injury from such representations.

The Court evaluated the matter based on the elements for fraud under Maryland law, which are: (1) the defendant made a false representation to the plaintiff, (2) that its falsity was either known to the defendant or that the representation was made with reckless indifference to the truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered compensable injury resulting from the misrepresentation.

The Court found that the government contract, books and records were found to be in existence long before the sale agreement was even contemplated, and that the exhibits to the sale agreement provided notice to the Buyer of the pending audit by the government agency, and that the Seller made no representation to the Buyer that it could expect the same level of income in the summer months following the closing of the transaction.

The Court also found that the Buyer’s reliance on any statements by the Seller was improper because the Seller’s financial statements were prepared by the Seller and used by the Seller in its ordinary course of business and were provided to Buyer well before closing and the Buyer made no further investigation of the financial statements even though it had notice of a pending audit. It also found that the parties were represented by sophisticated service providers and could not understand how the Buyer could conclude that financial statements reporting the past could guarantee future performance.

The Court also found that the integration clause combined with the sophistication of the parties made the reliance by the Buyer of documents not part of the sale agreement (the financial statements were not included in the agreement) unreasonable.

The Court, even after assuming for argument purposes that the Seller misrepresented the sales figures and the Buyer justifiably relied on the misrepresentation, held that the Buyer did not present any clear and convincing evidence of any compensable injury as a result of such acts. Buyer's evidence of damages consisted of the speculative and unsupported assertion that it paid more for Seller’s dealership than the dealership was worth. The mere fact that Buyer's sales in the first three months of operating the dealership were lower than anticipated, based on the allegedly inflated revenues in Seller's financial statements, does not by itself establish that the Buyer's losses were caused by any unfulfilled promise by the Seller. Even if the allegedly overbilled contract had improperly inflated the Seller’s revenues, the Buyer had no expectation of any revenue from that contract, which expired prior to the negotiations for purchasing the dealership. Furthermore, the Seller had retained all rights to collect its account receivables.

The Court affirmed that lower court’s summary judgment in favor of the Seller because there was no evidence of any misrepresentation or concealment by the Seller.

The full opinion is available in PDF.

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.