Payne v. Erie Insurance Exchange (Md. Ct. of Appeals)

Filed:  March 30, 2015

Opinion by:  Robert N. McDonald

Holding:  Where the first permittee is not present in the vehicle, omnibus coverage does not extend to a second permittee if that driver deviates from an authorized purpose.

Facts:  The named insured owned the vehicle, which was covered by Defendant’s insurance policy.  Defendant’s policy contained an omnibus clause which provided coverage to (1) relatives by blood, marriage, or adoption, and (2) drivers given permission by the named insured. 

Named insured had granted the first permittee unrestricted use of the car, but had forbidden the second permittee from driving the car for any reason.  Despite the named insured’s wishes, first permittee directed the second permittee to use the car to pick up the first permittee's children from school.  Instead of taking a direct route to the school, the second permittee first drove to a nearby gas station and subsequently collided with a car driven by Plaintiffs.

Plaintiffs filed a tort action against the second permittee, the named insured, Plaintiff’s insurer and Defendant insurer.  Writ of certiorari was granted to reconsider whether omnibus coverage extended to second permittee’s use of the car without the presence of the first permittee and outside the scope of authorized use.

Analysis:  Because the first permittee was undisputedly not present in the car when the accident occurred, the court’s analysis turned on the circumstances under which the second permittee operated the vehicle.  The court highlighted jurisprudence showing the disjunctive nature of the test for second permittees as illustrated by Kornke, Federal Insurance Co., and Bond:

“The general rule that a permittee may not allow a third party to use the named insured’s car has generally been held not to preclude recovery under an omnibus clause where (1) the original permittee is riding in the car with the second permittee at the time of the accident, or (2) the second permittee, in using the vehicle, is serving some purpose of the original permittee.”

The court noted the existence of two alternative situations.  In one, where the first permittee was a passenger of the vehicle, authorization of the driver’s actions could be presumed.  Even if the first permittee was not actively directing the car’s operation, mere presence of the first permittee indicated operation for his benefit.  But in the second situation, where the first permittee was absent, the court required clear evidence that the driver operated the vehicle for the benefit of the first permittee in order for the second permittee to retain omnibus coverage.

The court determined that the first permittee became entitled to omnibus coverage as a blood relative regardless of any implied or express consent.  Accordingly, the first permittee possessed unrestricted authority to delegate permission to the second permittee.  But because the second permittee lacked the discretion to use the vehicle as he pleased, his departure from the assigned task excluded him from omnibus coverage.

The full opinion is available in PDF.

Gregg Lapointe v. SIGMA TAU Pharmaceuticals, Inc.

Filed: September 11, 2013 

Opinion by Michael D. Mason 

Holdings:  (1) A parent corporation is allowed to interfere with the subsidiary's contracts without liability under the "unity of interest" doctrine.  This privilege is not absolute, however.  It does not exist if the parent acts contrary to the interests of the subsidiary or interferes with a contract with a third party by use of wrongful means.  The burden of establishing a privilege lies with the complaining party. 

(2) If a privilege is found, it would extend to a shareholder with a controlling interest in the parent corporation. 

Facts:  Plaintiffs, former employees of corporate defendant's wholly owned subsidiary, alleged that the corporate defendant and its largest shareholder (also an individually named defendant) tortuously interfered with plaintiffs' long-benefit plan causing a refusal to pay benefits to which plaintiffs were entitled.  

Defendants filed motion to dismiss arguing that even assuming wrongful interference, no liability exists when a parent interferes in a contract between its wholly owned subsidiary and a third party because there is a "unity of interest" between the parent and its subsidiary.  The largest shareholder of the parent also claimed benefit to this doctrine.


Analysis:  Although Maryland courts have discussed the issue of whether the unity of interest doctrine applies to tortious interference claims involving a parent corporation and its wholly owned subsidiary, they have not adopted it.  In Copperweld Corp. v. Independence Tube Corp., the U.S. Supreme Court held that a parent corporation could not be prosecuted for an antitrust violation involving its subsidiary because a parent and its wholly owned subsidiary have a complete unity of interest. 

However, as the principle relates to a parent corporation’s liability for tortious interference with the contractual agreement of its subsidiaries, most courts that have adopted the doctrine have done so with limitations.  In Waste Conversion Sys., Inc. v. Greenstone Indus., Inc., 33 S.W.3d 779, 781 (Tenn. 2000), the Supreme Court of Tennessee held that a parent could lose its privilege if (1) acting contrary to its wholly-owned subsidiary’s economic interests the parent can be considered a third party to its subsidiary's contractual relationship and can be held for tortuously interfering with that relationship; and (2) it employs wrongful means even if the parent does not act contrary to the subsidiary's best interest.  Wrongful means is defined to include misrepresentation of facts, fraud, threats, intimidation, as well as a number of other acts, including any other wrongful act recognized by statute or common law.  The burden of proof lies with the plaintiff.

The full opinion is available in PDF.

Kimberly Pinsky v. Pikesville Recreation Council (Ct. of Special Appeals)

Filed: October 30, 2013
Opinion by Judge Robert A. Zarnoch

Held:

Directors and officers of an unincorporated nonprofit association may be held liable for contracts entered into by the association if they authorized, assented to or ratified the contract in question.

Facts:

Defendant, an unincorporated nonprofit association, hired plaintiffs to work in a pre-school. Before the end of their respective contract terms, defendant terminated plaintiffs pursuant to letters of termination. Plaintiffs sued defendant and its individual officers and directors to recover payments still owed to them, plus treble damages, attorney's fees, and costs. After a three-day bench trial, the circuit court entered judgment for plaintiffs, but rejected the claims against the individual directors and officers. The court also declined to grant appellants' motions for sanctions and for attorney's fees and costs. Plaintiffs appealed  the adverse judgment with respect to the individual directors and officers and the court's rulings on sanctions, attorney's fees, and costs.

Analysis:

The Court of Special Appeals noted that as an unincorporated association, defendant had at least some formal organization, as it operated under a constitution, bylaws and policy manual. Citing Littleton v. Wells & McComas Council, 98 Md. 453, 455 (1904) and Restatement (Second) of Judgements Sec. 61 cmt. a (1982) the Court found that unincorporated associations had the right to sue and be sued and that a judgement against the association alone does not reach the assets of its members.  Further, although no law explicitly permits unincorporated associations to enter into contracts, the Court indicated that this is a long-recognized and uncontroversial power (see Miller v. Loyal Order of Moose Lodge No. 358, 179 Md. 350, 356).

At common law, officers of an unincorporated association were personally liable for the debts of the association. Since the Court of Appeals= decision in Littleton, 98 Md. at 456, and the Legislature's subsequent enactment of the legislative predecessors to CJP  Sec. 11-105, a judgment rendered solely against an association does not, on its own, expose the association's officers to liability. Yet CJP Sec. 11-105 does not address whether the officers, if named personally, can be held liable in actions also brought against the association. The Court quoted Littleton, which observed that "[t]he statute does not take away the right existing at common law to sue the members of an unincorporated association, but the creditor has the option to sue either the association or the members; and, when the suit is against the former, a judgment obtained can only affect its joint property." The Court noted that it does not read Littleton as positing an either/or system of recovery.

Officers and other agents of associations, such as the defendant, are statutorily protected from personal liability for damages in any suit if the association maintains insurance coverage. CJP Sec. 5-406(b). The Court noted that, absent such insurance coverage, personal liability could attach.  The Court then turned to the case law of other states for a better understanding of when officers are personally liable, and since the majority of states have not enacted comprehensive statutes on unincorporated associations, the common law still generally covers the principles of liability.  The Court found a distinction in the case law between for-profit and nonprofit associations.  Individual liability of a for-profit organization is analyzed under partnership principles; individual liability of a nonprofit association is analyzed under agency principles. Therefore, in nonprofit associations, "a member is personally responsible for a contract entered into by the nonprofit association only - if viewing him as though he were a principal and the association were his agent - that member authorized, assented to, or ratified the contract in question." (See Karl Rove & Co. v. Thornburgh, 39 F. 3d 1273, 1284).  The Court went on to discuss ratification, authorization and assent to a contract.

The full opinion is available in PDF.

BJ's Wholesale Club, Inc. v. Rosen (Ct. of Appeals)

Filed: November 27, 2013

Opinion by Lynne A. Battaglia

Held:  The Maryland Court of Special Appeals erred by invoking the State’s parens patriaeauthority to invalidate the exculpatory clause found in a liability waiver signed by the father of a five-year-old child who was injured at a kid’s club. 

Facts: Plaintiffs, mother and father, sued BJ’s Wholesale Club on behalf of their son, who was injured at the Club’s Owings Mills location.  The Incredible Kids’ Club, is a free supervised play area in BJ’s Wholesale club, where children can play while their parents shop at the warehouse.  Plaintiff’s son was in the club when he fell from a small apparatus onto the floor, resulting in a serious brain injury.  Prior to the day of the accident, along with other membership documents, the father had executed an agreement, which contained an exculpatory provision and indemnification language pertaining to the use of Kids’ Club. 

The complaint pled a cause of action in negligence.  BJ’s filed an Answer with a general denial in addition to a counterclaim alleging a breach of contract for failing to indemnify, defend, and hold BJ’s harmless pursuant to the indemnification clause.  In their Motion for Summary Judgment under Rule 2-501, BJ’s asserted that no factual matters were in dispute and that, pursuant to the Court’s decision in Wolf v. Ford, 335 Md. 525 (1994), the exculpatory clause was valid and the claim was barred as a matter of law.  Plaintiffs filed an opposition contending that the exculpatory and indemnification clauses were unenforceable, because they violated Maryland’s public policy interest of protecting children. 

The trial court noted that in general, Maryland courts have upheld exculpatory clauses that were executed by adults on their own behalf.  The trial court recognized that the issue of whether or not an exculpatory clause signed by a parent on behalf of their minor child was in fact one of first impression in Maryland.   In Wolf, the Court of Appeals had recognized three circumstances in which enforcement of an exculpatory clause could be precluded.  The trial court addressed the relevant exception, that public policy will not permit exculpatory agreements in transactions affecting the public interest.  Under Wolf, “transactions affecting public interest” fall into three categories.  Of those three, the only one relied upon by the trial court was a catchall category of the public interest exception to the validity of exculpatory clauses.  The trial court recognized this category was not easily defined, opining that while the Maryland Court of Appeals has intended to create a public interest exception, without further guidance, the trial court was not capable of evaluating the “totality of the circumstances” against a “backdrop of current societal expectations,” as it quoted from the Wolf decision.  The trial court closed by indicating that it did not have the ability to pronounce public policy grounds to invalidate the clause that the plaintiff had signed on behalf of his minor child, and granted BJ’s motion for summary judgment on the grounds that the exculpatory clause was valid. 

Analysis:  In their appellate decision, the Court of Special Appeals began by framing the issue as follows:  “The central issue in this case is whether a parent may waive any and all future tort claims his or her child may have against a ‘commercial enterprise.’”  Rosen v. BJ's Wholesale Club, Inc., 206 Md. App. 708, 718 (2012)

To begin its analysis the Court of Special Appeals emphasized that Maryland case law provided very little guidance on the issue.  The Court turned to the appellate courts of other states, where they found that a substantial majority of states (majority view) that had “squarely considered whether a release agreement may bar future negligence claims of a child, have held that such agreements are invalid and unenforceable on public policy grounds.”   Their observation was that the minority view – states which held the exculpatory clause signed by the parent to be valid – only applied where a “commercial enterprise” was not the subject of the release, but instead where the release was of a claim against either a government agency or non-profit organization, or its agents.  The Court pointed to their observation that in nearly all of the other states where the majority view was adopted, the facts were nearly identical to those of the case at bar, in that a parent had executed, on his or her minor child's behalf, a release agreement (with or without an indemnification clause) in favor of a private commercial enterprise, usually as a pre-condition for allowing the child's access to and participation in some recreational activity.   While participating in that activity, the child sustained injuries, and suit was thereafter brought on the child's behalf.   In each case, the defendant entity attempted to shield itself from liability by invoking the release agreement, and the trial court granted summary judgment or a motion to dismiss.   Thus, all of the cases presented the same legal issue and were in essentially the same procedural posture. 

 With these considerations in mind, the Court first reflected on the Court of Appeals decision in Wolf.  Wolf v. Ford, 335 Md. 525 (1994).  However, where the trial court had stopped by expressing that it was not capable of evaluating the “totality of the circumstances” against a “backdrop of current societal expectations,”the Court of Special Appeals pointed to that third of the three exceptions discussed above – transactions effecting the public interest – and declared that such a backdrop may be found 1.) in the Plaintiffs claim 2.) in the Maryland Code and 3.) in Maryland common law, which, the Plaintiffs point out, reflected a substantial public interest in protecting children and their rights to seek redress for negligence, when that negligence results in injury to them.  The Court, in addition to relying on this wording in Wolf, rested their opinion on two other considerations.  First, they rooted their opinion on a perceived distinction between commercial and non-commercial enterprises.  Second, they based their decision on the exercise of the State’s parens patriae interest in caring for those, such as minors, who cannot care for themselves.  The Court of Special Appeals ruled the exculpatory agreement invalid and unenforceable. 

The Court of Appeals reversed.  In the Court’s review of the statutes and case law, they observed a reflection of a societal expectation that a parent’s decision-making is not limited.    The Court did not however believe that the plaintiff’s execution of an exculpatory agreement on behalf of their son was a transaction affecting the public interest within the meaning of Wolf, which otherwise would have impugned the effect of the agreement.   The Court took further issue with COSA’s opinion as to the perceived distinction between commercial and non-commercial enterprises.  The Court disagreed, and posited that the distinction between commercial and non-commercial entities is without support in Maryland jurisprudence.  The Court added that whether an agreement which prospectively waived a claim for negligence executed by a parent on behalf of a child should be invalidated because a commercial entity may better be able to bear the risk of loss than a non-commercial entity by purchasing insurance, is a matter for the legislature to consider.  Finally, the Court addressed COSA’s reference to the State’s parens patraie authority.  The Court clarified that the authority only reflects the State’s intervention when a parent is unfit or incapable of performing the parenting function, which was not alleged in the present case.

The Court concluded that they had never applied parens patriae to invalidate, undermine, or restrict a decision made by a parent on behalf of her child in the course of the parenting role.  The Court held the exculpatory agreement signed by the plaintiff on behalf of his son to be valid and enforceable. 

The full opinion is available in PDF here.

Appiah v. Hall (Ct. of Appeals)

Filed: October 27, 2010

Opinion by Judge Mary Ellen Barbera

Held: To hold an employer liable for the torts of an independent contractor the employer must exercise control over the work that leads to the injury.

Facts: Seagirt is a shipping terminal owned by the Maryland Port Administration. The MPA contracted with P&O Ports of Baltimore, Inc. to conduct stevedoring at the terminal. Amongst other contractors that leased space at the terminal, Marine Repair Services delivered power to and monitored the temperature of refrigerated containers stored at the terminal. An employee of Marine Repair Services was severely injured in an accident involving a trucking company's attempt to pick up a refrigerated container. Plaintiff, as personal representative of the deceased, brought a wrongful death claim against the truck driver, the trucking company, P&O and the MPA.

The Circuit Court granted summary judgment in favor of P&O and the MPA. The Court of Special Appeals affirmed the Circuit Court.

Analysis: An employer will not be liable for the torts of an independent contractor unless the employer retained control over the operative details and manner of the work of the independent contractor such that the independent contractor is not free to do the work in his own way and the employer has retained control over the very thing that caused the injury in question. Here, the MPA and P&O's alleged accident investigation is not relevant to determining the issue of their control of the work performed by Marine Repair Services. Also, while the lease agreement required the MPA's permission before Marine Repair Services could install additional safety signs, permission was not required to impose safety protocol. In sum, Plaintiff failed to show how the MPA and P&O controlled Marine Repair Service's specific work of connecting containers to trucks.

Judge Murphy provided a dissenting opinion, joined by Judge Harrell, which contended the Court of Special Appeals and the Court interpreted too narrowly the "very thing that caused the injury."

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.

Saul Holdings Limited Partnership, et al. v. Raquel Sales, Inc. and Barefeet Enterprises, Inc. (Cir. Ct. for Mont. County)

Filed August 27, 2009
Opinion by Judge Durke G. Thompson

Held: When accelerated rent clauses provide for the payment to the landlord of a lump sum over a lengthy term and also allows the landlord the present possession of the leased premises with no incentive to mitigate its damages, the accelerated rent clause will be found to speculative and unenforceable as a penalty.

Facts: On or about January 23, 2006, Raquel Sales, Inc. (“RSI”) entered into a 10-year shopping center retail lease with Saul Holdings Limited Partnership for space in the South Dekalb Plaza Shopping Center in Decatur, Georgia and a 10-year shopping center retail lease with Briggs Chaney Plaza, LLC for space in the Briggs Chaney Shopping Center in Silver Spring, Maryland. Barefeet Enterprises, Inc. (“BFI”) executed a guaranty for each of the 10-year shopping center retail leases, whereby BFI guaranteed RSI’s performance under the terms of each of the leases, including payment of all obligations and liabilities under the terms of the leases.

On or about August 1, 2007, RSI abandoned the leased space in the shopping center in Georgia and failed to pay the rent and other fees due under the lease since October of 2007. RSI also abandoned the leased space located in Maryland in October of 2008 and ceased paying the rent and other fees due under the lease beginning in November of 2008. Saul and Briggs Chaney filed suit in the Circuit Court for Montgomery County for breach of lease against RSI and breach of guaranty against BFI seeking damages for unpaid rent and accelerated rent due under Section 29(c) of each lease.

The Court ruled that the accelerated rent due under Section 29(c) of the Georgia lease upon the breach of the lease was not permitted under Georgia law as liquidated damages, but was considered a penalty because the damages were too speculative and uncertain. The Court also found that Saul was entitled to any deficiency resulting from its re-letting of the leased space under its new 5-year lease with a replacement tenant.

With regard to Briggs Chaney, the Court similarly ruled that the accelerated rent due under Section 29(c) of the Maryland lease upon breach of the lease was not permitted under Maryland law as liquidated damages but was considered a penalty because it would disincentivize Briggs Chaney from mitigating its damages. Moreover, the Court determined that the length of the remaining lease term was far too long to fairly calculate Briggs Chaney’s damages resulting from RSI’s default. Thus it concluded that RSI was liable only for those damages resulting from Briggs Chaney’s inability to re-let the premises despite it using commercially reasonable efforts.

The Court also found BFI liable to each of Saul and Briggs Chaney for RSI’s default in accordance with the terms of the damage provisions set forth in each respective guaranty.

Analysis: In determining whether the accelerated rent due under Section 29(c) of the Georgia lease was liquidated damages or a penalty under Georgia law, the Court reviewed previous opinions of the Georgia Court of Appeals. Specifically, the Court applied the precedent set by the Georgia Court of Appeals in Peterson v. P.C. Towers, L.P., 206 Ga. App. 591 (1992), where the Georgia Court of Appeals held that accelerated rent provisions were enforceable liquidated damage clauses if the injury caused by the breach was difficult or impossible to accurately estimate, the parties to the lease intended to provide for damages rather than a penalty, and the sum stipulated in the accelerated rent provision was a reasonable pre-estimate of probable loss. This lead the Court to conclude that the damages provided for in Section 29(c) of the Georgia lease were too uncertain and speculative and, therefore, a penalty. Moreover, because Section 29(c) of the Georgia lease did not either require Saul to mitigate its damages by re-letting the premises or account for the possibility that Saul would re-let the premises, the Court found that awarding Saul the accelerated rent would provide Saul with present possession of the premises and a lump sum award for the lengthy 7 years remaining in the term, even though the awarded damages bore no relation to the actual damages suffered by Saul.

Although Maryland case law allows parties to a lease agreement to impose liability for rent, damages or any deficiency arising after re-letting premises, the question of whether accelerated rent provisions were permitted as liquidated damages had not been addressed by Maryland Courts. Because Maryland courts have generally enforced liquidated damages provisions that provide for a fair estimate of potential damages at the time that the parties entered into the contract and if the damages were incapable of being estimated at the time the parties entered into the contract, for Section 29(c) of the Maryland lease to be enforceable as a liquidated damages clause it would have to meet that standard. Briggs Chaney argued that Section 29(c) was enforceable as liquidated damages because it provided a reasonable estimate of potential damages by calculating the monthly rent at the amount due at the time of default and not at the increased amounts due in future months. Moreover, it contended that lease alleviated any concerns regarding awarding a lump sum payment of future rent for the remainder of the lease term because Maryland law required Briggs Chaney to mitigate its damages.

The Court ultimately held that Section 29(c) of the Maryland lease was a penalty and not enforceable as liquidated damages because it did not provide a fair estimate of the potential damages that would arise out of RSI’s breach of the lease. Rather, the lease provided for damages that were disproportionate to the damages that might be reasonably expected to result from RSI’s breach. As with Saul, the Court found that by awarding the lump sum provided for under Section 29(c), the Court would be providing Briggs Chaney a lump sum award for payment of rent for the remainder of the lengthy term and, at the same time, would allow the landlord present possession of the premises. As a result, Briggs Chaney would have no incentive to re-let the premises during the remainder of the term.

The Court also awarded the plaintiffs attorneys' fees and there is a brief discussion of the procedure and standards to be followed in awarding such fees.

The full opinion is available in PDF.

On November 2, 2009, the Court entered a judgment against RSI in the amount of $704,365.45 and against BFI in the amount of $402,970.53.

Green v. N.B.S. Inc. (Ct. of Appeals)

Opinion by Judge Joseph F. Murphy, Jr.
Filed July 21, 2009

Held: The statutory cap on non-economic damages applies to personal injury claims brought pursuant to the Consumer Protection Act.

Facts: The Plaintiff won a verdict in the Circuit Court for Baltimore City on her claim for lead paint poisoning pursuant to the Maryland Consumer Protection Act (the "CPA"). The Circuit Court reduced the verdict to comply with Maryland's statutory cap on non-economic damages for personal injury - §11-801, Courts and Judicial Proceedings Article.

The Plaintiff argued on appeal that the cap on non-economic damages, which applies to "victims of tortious conduct" in "personal injury actions," does not apply to awards pursuant to the CPA. She contended that a violation of the CPA is not a tort, and an action for violation of the CPA is not a "personal injury action."

The Court of Appeals rejected the argument. The full opinion is available in PDF.