Law Digest — Court of Special Appeals — Nov. 5, 2015

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Administrative Law, Exhaustion of remedies: The trial court properly dismissed a claim by a case management agency challenging the award of a case management contract by the Maryland Department of Health and Mental Hygiene to another candidate where the agency failed to first exhaust its administrative remedies, because the Department’s request for proposals and the subsequent contract award were not a “regulation” and, thus, were not subject to a statutory exception to the general rule that courts will review only a “final” decision of an agency. Medical Management and Rehabilitation Services, Inc. v. Maryland Department of Health and Mental Hygiene, No. 2386, Sept. Term, 2013.

Civil Procedure, Collateral order doctrine: An order denying an attorney’s motion to withdraw as counsel was not appealable under the collateral order doctrine because the order did not resolve an “important issue,” as there was no evidence of any harm to the attorney by the court’s ruling, and the order was not effectively unreviewable on appeal, as the attorney’s client would still have the benefit of a remedy before a final judgment was rendered; therefore, the appeal was dismissed. Norman v. Sinai Hospital of Baltimore Inc., No. 932, Sept. Term, 2014.

Commercial Law, Credit services business: A company that assisted Maryland consumers in obtaining loans from two federally insured out-of-state banks was a “credit services business” and therefore subject to the Maryland Credit Services Business Act, regardless of whether it received direct payment from consumers in exchange for these services. Maryland Commissioner of Financial Regulation v. CashCall, No. 1477, Sept. Term, 2013.

Criminal Law, Manufacture of methamphetamine: There was sufficient evidence to support the defendant’s convictions for manufacturing methamphetamine and for possession of plastic bottles adapted for the production of methamphetamine where the evidence established that the defendant was “cooking” the substance for his personal use, because by the plain language of the applicable statute, it is unlawful to produce or make methamphetamine, even if it is done by an individual for the individual’s own personal use. Stallard v. State, No. 1412, Sept. Term, 2014.

Criminal Procedure, Restitution: Where a financial agent holding a power of attorney for a nursing home resident embezzled and misappropriated her charge’s monies, including those intended to pay the nursing home bills, the nursing home was not transformed from a mere creditor to a “victim” for purposes of state restitution laws, and, therefore, the circuit court’s order requiring the agent to pay restitution to the nursing home was reversed. McCrimmon v. State, No. 1255, Sept. Term, 2013.

Evidence, DNA admissibility: A DNA analysis certified by the State as having been conducted pursuant to the FBI Quality Assurance Standards, which do not reflect the most recent advances in DNA analysis, was not automatically admissible under the DNA Admissibility Statute, because the legislative intent in adopting the DNA Admissibility Statute was to permit automatic admissibility of DNA analysis only if the DNA techniques complied with the standards promulgated by the most rigorous standards-setting body available; however, while not automatically admissible, this evidence was admissible under the Frye-Reed standard, which permits a scientific opinion to be received as evidence at trial if the basis of that opinion is shown to be generally accepted as reliable within the expert’s particular scientific field. Phillips v. State, No. 456, Sept. Term, 2013.

Insurance Law, Contractual indemnification: Under an insurance policy provision which included a contractor as an additional insured with respect to liability for bodily injury, property damage or personal and advertising injury caused, in whole or in part, by the contractor’s acts or omissions or by the acts or omissions of those acting on the contractor’s behalf in connection to a construction project, the insurer had the duty to defend the contractor in tort litigation arising from the actions of a subcontractor even though the tort allegations were not based solely on vicarious liability, so long as the contractor was alleged to be liable, in whole or in part, by the acts or omissions of the subcontractor. James G. Davis Construction Corporation v. Erie Insurance Exchange, No. 802, Sept. Term, 2014.

Insurance Law, Underinsured motorist coverage: As an intervening party in the plaintiff’s lawsuit against a tortfeasor whose negligence resulted in injury to the plaintiff, the company that provided uninsured/underinsured motorist coverage to the plaintiff did not have the burden of proving the amount of its policy limits or the amount of the credit to which it was entitled based on the tortfeasor’s settlement, because the insurer was never alleged to have committed any tort against the plaintiff and the judgment in the plaintiff’s action against the tortfeasor did not establish how much money the insurer owed the plaintiff under her insurance contract. Allstate Insurance Company v. Kponve,No. 0100, Sept. Term, 2014.

Administrative Law

Exhaustion of remedies 

BOTTOM LINE: The trial court properly dismissed a claim by a case management agency challenging the award of a case management contract by the Maryland Department of Health and Mental Hygiene to another candidate where the agency failed to first exhaust its administrative remedies, because the Department’s request for proposals and the subsequent contract award were not a “regulation” and, thus, were not subject to a statutory exception to the general rule that courts will review only a “final” decision of an agency.

CASE: Medical Management and Rehabilitation Services, Inc. v. Maryland Department of Health and Mental Hygiene, No. 2386, Sept. Term, 2013 (filed Oct. 28, 2015) (Judges Krauser, Woodward & Kenney (Retired, Specially Assigned)).

FACTS: Under §15-103(a) of the Health-General Article of the Maryland Code (1982, 2009 Repl. Vol.) (“HGA”), the Secretary of Health and Mental Hygiene is charged with the administration of Maryland’s Medicaid program, which provides health care services to qualifying low-income individuals and families throughout Maryland. Medicaid participants with specified rare, expensive, or medically complex conditions can enroll in the Rare and Expensive Case Management (“REM”) program, a case managed fee-for-service reimbursement system. At the inception of the REM program in 1997, the Maryland Department of Health and Mental Hygiene contracted for the necessary case management services with several different individual agencies to facilitate the recipients’ medical needs.

Medical Management and Rehabilitation Services, Inc. (“MMARS”) was one of the case management agencies selected in 1997 and had continued as a REM program case management provider for 15 years. In 2012, the Department decided to reduce the number of agencies providing REM program case management services from four to one, upon the recommendation of both the American Academy of Pediatrics and the Maryland State Medical Society. On December 20, 2012, the Department published a Request for Proposals (“RFP”) notifying case management providers of the Department’s intent to award the July 1, 2013 through June 30, 2016 contract for case management services to a single provider whose proposal it deemed most advantageous to the State. The RFP also set forth the procedures for protesting or disputing the RFP or the subsequent contract award, in addition to those procedures already established in 10.01.03 of the Code of Maryland Regulations (“COMAR”).

The prior REM contracts fell under the state procurement regulations, and case management providers were selected through the competitive bid process set forth in COMAR 21.05.03. However, because the Department, in 2009, set the rates for case management services by regulation, subsequent contracts for case management services were not procurement contracts governed by its competitive sealed proposal selection procedures. Five case management providers submitted proposals in response to the December 20, 2012 RFP, none of which objected to the procedures or to the reduction in the number of providers to one. A three-person evaluation committee concluded that TCC best addressed the evaluation factors provided in the RFP by offering a superior work plan, corporate qualifications, and experience.

After the Department notified MMARS, on April 12, 2013, that it had not received the contract award, MMARS challenged the award of the contract to TCC concurrently in multiple venues, including the Office of Administrative Hearings (“OAH”), the Maryland State Board of Contract Appeals, and the circuit court. On April 15, 2013, MMARS, via email to the Department, objected to the award of the case management contract to TCC, asserting that its proposal was the most advantageous to the State based on the criteria listed in the RFP. MMARS later supplemented its initial objection, asserting that the Department’s evaluations were tainted by bias in favor of TCC. Based on these objections, the Department gave MMARS the opportunity to discuss its proposal in a debriefing on May 8, in which a procurement officer explained the weaknesses and deficiencies in MMARS’s proposal. Following that debriefing, MMARS supplemented its objections with additional complaints.

On May 6, 2013, the Department delegated its authority to issue a proposed decision regarding MMARS’s objections to OAH. Following multiple hearings, the Administrative Law Judge concluded that the Department did not improperly reject MMARS’s proposal in response to the RFP and recommended that MMARS’s appeal of the contract award be dismissed. MMARS filed exceptions to the ALJ’s proposed decision with the Secretary of the Department, but, in March of 2014, it dismissed those exceptions.

On June 24, 2013, MMARS filed a bid protest with the Board challenging the contract award. The Board, finding that the RFP fell outside the definition of a procurement contract, and dismissed the protest for lack of jurisdiction on September 6, 2013. MMARS filed a petition for judicial review of that decision in the circuit court, but subsequently dismissed that petition.

On September 4, 2013, MMARS filed a Complaint and Motion for Temporary Restraining Order in the circuit court. The Department moved to dismiss for failure to state a claim. MMARS then withdrew its Motion for a Temporary Restraining Order. The court granted the Department’s motion to dismiss, stating that MMARS had failed to exhaust its available administrative remedies. At the time of the court’s ruling, the petition for judicial review of the Board’s decision was pending before the circuit court, and the exceptions and objections to the Department’s contract award were pending before OAH.

MMARS appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court.

LAW: MMARS asserted that the trial court erred in granting the Department’s motion to dismiss on the basis that MMARS had not exhausted all administrative remedies. Specifically, MMARS argued that the exhaustion doctrine did not apply because the single provider RFP and the subsequent contract award were, in effect, a regulation, and that SG §10-125 provides an exception to the general rule that courts will review only a “final” decision of an agency. The Department derives its authority to administer the REM program from statutes that emphasize individualized care and appropriate case management, and that exempt REM participants from mandatory enrollment in standard managed care organizations. See Md. Code (1982, 2009 Repl. Vol.), §§15-102.1(b)(1),10 15-103(b)(4)(i)11 of the Health General Article (“HGA”). Supporting regulations set forth REM participant eligibility, case management reimbursement rates, and the procedures for contracting for services.

Regulations are to be enacted in accordance with procedures set forth in Title 10 subtitle 1 of the Maryland Administrative Procedure Act (“APA”). Md. Code (1984, 2009 Repl.Vol., 2010 Supp.). Arguing that the circuit court erred in dismissing its complaint for failure to exhaust its administrative remedies and that the contract award to TCC created an unconstitutional monopoly, MMARS contended that the single provider RFP changed the REM program and was effectively a regulation that was not adopted in accordance with Title 10 of the APA. Therefore, MMARS contended, it was entitled to petition for a declaratory judgment challenging the Department’s award of the contract to TCC because SG §10-125(a)(1) states and individual may file a petition for a declaratory judgment on the validity of any regulation, whether or not the person has asked the unit to consider the validity of the regulation.

The Court of Special Appeals has held that the introduction of previously unconsidered provisions in a single RFP and case-by-case agency determinations fall outside of the definition of a regulation. Balfour Beatty Const. v. Md. Dep’t of Gen. Servs., 220 Md. App. 334, 357-58 (2014). Moreover, the Court of Appeals has determined that other experimental agency decisions, even long-lasting ones, are not considered regulations. Md. Ass’n of Health Maint. Orgs. v. Health Servs. Cost Review Comm’n, 356 Md. 581, 585-86 (1999). The Court of Appeals has also determined that case-by-case agency actions, even when these actions may have farther reaching implications, are not subject to rulemaking procedures. Consumer Prot. Div. Office of Attorney Gen. v. Consumer Publ’g, Co., 304 Md. 731, 751 (1985).

In other words, case-by-case determinations will not be considered regulations, so long as an agency action does not apply materially modified or new standards retroactively to the detriment of an individual who relied upon the agency’s past pronouncements. Balt. Gas & Electric v. Pub. Servs. Comm’n, 305 Md. 145, 169 (1986). It is only when an agency creates a “substantially new generally applicable policy” will it be considered to have promulgated a regulation that is subject to rulemaking procedures. CBS Inc. v. Comptroller of the Treasury, 319 Md. 687, 698–99 (1990). In this case, it did not appear that the Department, through the RFP, formulated new rules of widespread application, changed existing law, or applied rules retroactively to MMARS’s detriment.

Although the competitive bid procedure for procurement contracts that was followed for previous RFPs under the REM program no longer applied, that change in the procedure was in accordance with statute and implementing regulations adopted in accordance with the rulemaking provisions of the APA. Moreover, the single provider RFP, and the subsequent contract award was limited to case management services for a finite segment of the greater Medicaid population for a single contract period of July 1, 2013 through June 30, 2016, and applied only to the case management agencies responding to the RFP. The Department, through the RFP and the contract award, did not impair MMARS’s rights under the existing case management contract. Any claimed detrimental reliance on the Department’s previous contract awards to multiple case management would have been unreasonable in light of the clear language of the RFP. For these reasons, the RFP did not “formulate a new policy of widespread application or future effect.” See, e.g., Balfour, 220 Md. App. at 357.

Because the Department’s RFP and the related contract award did not constitute a regulation under Maryland law, MMARS was not entitled to a declaratory judgment under SG §10-125, but was required to exhaust its administrative remedies. The granting of the motion to dismiss was legally correct. Accordingly, the judgment of the circuit court was affirmed.

COMMENTARY: The judgment of a trial court granting a motion to dismiss may be affirmed on a ground different from that relied upon by the trial court, as long as the alternative ground is properly before the appellate court on the record. Forster v. State Office of Pub. Defender, 426 Md. 565, 580-81 (2012).

Civil Procedure

Collateral order doctrine

BOTTOM LINE: An order denying an attorney’s motion to withdraw as counsel was not appealable under the collateral order doctrine because the order did not resolve an “important issue,” as there was no evidence of any harm to the attorney by the court’s ruling, and the order was not effectively unreviewable on appeal, as the attorney’s client would still have the benefit of a remedy before a final judgment was rendered; therefore, the appeal was dismissed.

CASE: Norman v. Sinai Hospital of Baltimore Inc., No. 932, Sept. Term, 2014 (filed Oct. 28, 2015) (Judges Eyler, D., Graeff & HOTTEN).

FACTS: Attorney Elton Norman appealed a decision of the circuit court denying his motion to withdraw as counsel from a medical malpractice action filed by Celeste Puppolo, personal representative of the Estate of Nancy Puppolo, against the defendants, Sinai Hospital of Baltimore, et al. In the underlying action, the Estate sought compensation for damages allegedly caused by Sinai Hospital of Baltimore Inc. and Christine D’Arbela, M.D. regarding the care and treatment of the decedent, Nancy Puppolo. The claim was originally filed by Puppolo, pro se, on January 18, 2011 in the Health Care Alternative Dispute Resolution Office.

Puppolo proceeded pro se in this matter until she retained attorney Lowell Gordon, who entered his appearance on April 11, 2011. Gordon’s representation was subsequently terminated in August, 2012 for unspecified reasons. On July 25, 2013, attorney Thomas O’Toole entered his appearance on behalf of the Estate. On December 18, 2013, the court issued an order setting a trial date for the underlying action to begin on July 8, 2014.

On May 10, 2014, Puppolo wrote a letter to O’Toole, terminating his representation and citing several grievances relative to his performance as counsel. A pretrial settlement conference was held on May 19, 2014. Although the defendants attended, Puppolo failed to appear, without securing prior approval from the court or providing notice to the defendants. Thereafter, on May 27, 2014, Norman entered his appearance on behalf of the Estate.

On May 30, 2014, Norman filed a motion to modify the scheduling order as attorney for the Estate, seeking to postpone the July 8, 2014 trial date in order to conduct further discovery and allow additional time to prepare for trial. In response, the defendants filed an opposition to the motion and requested the court to move the trial date one day, to July 9, 2014. On July 2, 2014, the court denied the Estate’s motion, and the parties were scheduled to appear before a trial judge on July 8, 2014 for a continued pretrial conference.

During the pretrial conference held on July 8, 2014, Norman argued a motion for reconsideration of the denial of the motion to modify the scheduling order, as well as an oral motion to withdraw as counsel, citing lack of preparation and trial experience to try the case.  The court denied both motions, holding that Puppolo appreciated the risk of procuring the late-retained Norman to her detriment and that Norman failed to raise any grounds under the Maryland Rules in support of his motion to withdraw.

Norman filed a notice of appeal of the court’s denial of his motions. As a result, the trial did not commence on July 9, 2014. The Court of Special Appeals subsequently dismissed Norman’s appeal.

LAW: Norman argued that the circuit court abused its discretion by denying his motion to withdraw as counsel. Norman averred that an order denying a motion to withdraw is appealable under the collateral order doctrine. For an order to fall within the collateral order exception, four requirements must be met. In re Franke, 207 Md. App. 679 (2012). First, it must conclusively determine the disputed question. Second, it must resolve an important issue. Third, it must be completely separate from the merits of the action. And, fourth, it must be effectively unreviewable on appeal from a final judgment. In re Franke, 207 Md. App. 679, 685 (2012).

The collateral order doctrine is limited in scope, and Maryland case law consistently emphasizes that the doctrine is to be tightly construed. Kurstin v. Bromberg Rosenthal, LLP, 191 Md. App. 124, 144-46 (2010). In the present case, the circuit court’s order denying Norman’s motion to withdraw was not appealable because the order satisfied only two of the requirements under the collateral order doctrine. The order issued by the court conclusively determined the disputed question of whether Norman will continue representation of the Estate, and that issue was separate from the merits of the malpractice action. However, the order did not resolve an “important issue” because there was no evidence of any harm to Norman by the court’s ruling.

Moreover, the order did not meet the fourth requirement under the collateral order doctrine because the circuit court’s order denying Norman’s motion was not effectively unreviewable on appeal. Brandon v. Blech, 560 F.3d 536, 537 (6th Cir. 2009). Assuming, arguendo, that Norman continued representation of the Estate and the circuit court issued a verdict in favor of the defendants, an appellate court on review of that final judgment could decide whether the circuit court abused its discretion by denying his motion to withdraw. Thus, Norman would not continue to suffer any harm that would be impossible to remedy by the time of an appeal from a final judgment. In absence of such harm, the order denying Norman’s motion did not fit within the narrow class of interlocutory orders that are considered unreviewable final judgments.

Accordingly, because the circuit court’s denial of Norman’s motion was not an appealable order and thus was unreviewable, the Court of Special Appeals declined to address whether the circuit court abused its discretion in denying the motion, and dismissed the appeal.

COMMENTARY: Norman contended that pursuant to the holding in Franke, the court abused its discretion by denying the motion to withdraw. While Norman conceded that the case at bar did not involve a matter of compensation as in Franke, he asserted that Franke was analogous because, he claimed, an agreement was reached between attorney and client that was not upheld and which now created a hardship for the attorney. This argument was unpersuasive.

Norman did not establish that Puppolo substantially failed to fulfill obligations owed to him, as contemplated in Franke. And, to the extent there was a hardship, it was one that Norman created. Cases where a court determined that a client substantially failed to fulfill an obligation owed to counsel involved situations where the attorney would suffer immense financial hardship or exposure to sanctions for ethical violations, or a significant conflict of interest existed between attorney and client. See Franke, 207 Md. App. 679. Notably, in those instances, there was either actual harm or the potential for significant harm to the attorney seeking to withdraw that was not of the attorney’s own doing.

Additionally, Norman did not show that there was a conflict of interest between him and his client, making continued representation impossible or otherwise harmful to him. Norman demonstrated only that he was unprepared for trial and lacked the expertise to try the case. This was not evidence of actual harm or the potential for significant harm, because he was aware of those circumstances when he entered his appearance and the contingency agreement was a result of his own doing. The absence of actual harm or the potential for significant harm distinguished the case at bar from Franke and its predecessors. Thus, the order denying Norman’s motion did not resolve an “important issue” as required under the collateral order doctrine.

Commercial Law

Credit services business 

BOTTOM LINE: A company that assisted Maryland consumers in obtaining loans from two federally insured out-of-state banks was a “credit services business” and therefore subject to the Maryland Credit Services Business Act, regardless of whether it received direct payment from consumers in exchange for these services.

CASE: Maryland Commissioner of Financial Regulation v. CashCall, No. 1477, Sept. Term, 2013 (filed Oct. 27, 2015) (Judges KRAUSER, Kehoe & Rodowsky (Retired, Specially Assigned)).

FACTS: Prompted by consumer complaints, the Maryland Commissioner of Financial Regulation conducted an investigation into the business activities of CashCall, Inc., a California corporation, and its president and sole share-holder, John Reddam. The Commissioner found that CashCall had arranged, from 2006 to 2010, more than 5,000 loans for Maryland consumers, loans which were issued by two federally insured out-of-state banks, at interest rates significantly greater than the rates permitted by Maryland law. Then, three days after the issuance of each and every loan, CashCall, pursuant to an agreement it had with each of the two out-of-state banks, promptly purchased the loan from the issuing bank and thereafter collected all payments, interest, and fees due on that loan from the borrowing Maryland consumer.

Concluding that CashCall and Reddam had engaged in the “credit services business” without a license to do so and without complying with any of Maryland’s remedial statutes governing such enterprises, the Commissioner ordered the defendants to cease and desist from such activities and imposed upon them a civil penalty for each of the more than 5,000 loans they had arranged for interested Maryland consumers. Disagreeing with the Commissioner’s assessment of its business activities in Maryland, CashCall petitioned the circuit court for judicial review. Before that court, CashCall insisted that at no time did it act as a “credit services business,” as defined by the Maryland Credit Services Business Act (“MCSBA”), because it never received any compensation “directly” from a Maryland consumer for its services. The circuit court agreed and reversed the Commissioner’s order.

The Commissioner appealed to the Court of Special Appeals, which reversed the decision of the circuit court and remanded for that court to affirm the Commissioner’s decision.

LAW: It was undisputed that CashCall was assisting Maryland consumers to obtain loans from the two federally insured out-of-state banks. On appeal, the Commissioner contended that he was correct in determining that CashCall was operating as an unlicensed “credit services business” in Maryland in violation of the MCSBA. CashCall, claimed, however, that, under the decision of the Court of Appeals in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 (2012), which considered the MCSBA’s definition of a “credit services business,” CashCall was not a credit services business because it did not receive “direct payment” from consumers for its services, a requirement CashCall asserted is, under Gomez, a prerequisite for the MCSBA to apply.

The MCSBA, in conjunction with the Maryland Consumer Loan Law, grants the Commissioner broad licensing, investigatory, and enforcement authority over what the MCSBA deems to be a “credit services business.” A “credit services business” is defined by the MCSBA as one in which a person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that such person can or will sell, provide, or perform, any of a number of services in return for the payment of money or other valuable consideration, including obtaining an extension of credit for a consumer, or providing advice or assistance to a consumer with regard to [obtaining an extension of credit for a consumer. Com. Law §14-1901(e)(1). An “extension of credit” is the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes. Com. Law §14-1901(f). A “consumer” is any individual who is solicited to purchase or who purchases for personal, family, or household purposes the services of a credit services business. Com. Law §14-1901(c).

The MCSBA requires a “credit services business” to, among other things, secure a license from the Commissioner, maintain a surety bond, and provide an interested Maryland consumer with a written information statement that describes the duties and obligations of the credit services business. Com. Law. §§14-1903-1909. It further requires that any contract such a business enters into with a consumer include a statement that the consumer has the right to cancel the contract at any time prior to midnight of the third business day after the date of the transaction. Com. Law §14-1906. In assisting a Maryland consumer in obtaining a loan, however, the credit services business may not help a consumer secure a loan with an interest rate that exceeds the maximum interest rates permitted by Maryland law.

Under Maryland law, the maximum annual interest rate for a loan of $2,000 or less is 33 percent, and for a loan greater than $2,000, 24 percent. Com. Law §12-306(a)(6). However, Maryland limits on interest rates for consumer loans do not apply to federally insured out-of-state banks, and a federally insured depository institution, whether federal or state-chartered, may charge the interest rate permitted in its home state to borrowers across state lines, regardless of the legal rate in the borrower’s state. Gomez, 427 Md. at 163. Although federal law permits federally insured out-of-state banks to charge what would otherwise be usurious rates of interest on loans issued to Maryland consumers, the MCSBA prohibits a “credit services business” from assisting a consumer to obtain an extension of credit at a rate of interest which, except for federal preemption of State law, would be prohibited under state law. Com. Law §14-1902(9). In other words, a credit services business may not, under the MCSBA, assist a consumer in obtaining a loan, from any in-state or out-of-state bank, at an interest rate prohibited by Maryland law.

In Gomez, Maryland’s highest court was asked to decide whether a “tax preparer,” Jackson Hewitt, was acting as a “credit services business” when, in the course of preparing tax returns for its clients, it also assisted those clients in obtaining a “refund anticipation loan” or “RAL.” Gomez, 427 Md. at 163. The Court of Appeals held that Jackson Hewitt was not a “credit services business” because it did not assist the consumer in obtaining a RAL “in return for the payment of money or other valuable consideration.” Id. at 143. As such, the Court held that Jackson Hewitt was not subject to the MCSBA. Id. at 155, 178.

During its review of that issue, the Gomez Court thoroughly reviewed the legislative history of the MCSBA, ultimately concluding the Act was “not intended to regulate RAL facilitators who do not receive compensation directly from the consumer.” Id. at 159. However, the Court of Appeals, in rendering its decision in Gomez, did not intend to establish a universal rule. The “direct payment” requirement was not meant to apply to a company, like CashCall, which is exclusively engaged in assisting Maryland consumers to obtain small loans bearing annual interest rates that would be, under Maryland law, usurious and then, to further profit from this activity, immediately purchases the loans after their issuance and thereafter collects all payments due on the loans from the consumer.

In Gomez, the Court of Appeals was asked to address a set of facts quite different from those in the present case. In contrast to Jackson Hewitt, whose primary business is tax preparation and who provided assistance in obtaining RALs as an ancillary service to its customers, CashCall’s loan arrangement service was the only service CashCall provided. Since the nature of the commercial relationship between CashCall and Maryland consumers was clear, it was not necessary to make the “applicability of the MCSBA contingent on whether a consumer has made a “direct” payment to CashCall. The concerns that prompted the Court of Appeals in Gomez to require a “direct payment” from the consumer to the business entity in exchange for credit services did not exist here.

Moreover, the amendments made to the MCSBA in 2001, 2002, and 2010, were meant, as the Commissioner put it, to encompass third parties who, partnering with out-of-state banks, facilitate predatory lending against Maryland consumers. The legislature’s intent, averred the Commissioner, was to protect Maryland consumers from “schemes” in which a third-party business, like CashCall, entered into an agreement with an out-of-state bank to arrange a loan, from the bank to the consumer, at interest rates prohibited by Maryland law, regardless of whether that third party received “direct payment” from the consumer.

CashCall’s business practices, viewed in the light of the MCSBA’s goal of protecting Maryland consumers from the lending practices of companies marketing high-interest small loans and partnering with out-of-state banks in order to charge what would otherwise be usurious rates of interest, were precisely the sort of business activities that the act and its amendments were enacted to prevent. To make the MCSBA’s applicability contingent on a “direct payment” from the consumer to the business entity, under any and all circumstances, would undermine the protections for Maryland consumers the legislature strove so hard to put in place.

Accordingly, the judgment of the circuit court was reversed and the case remanded.

COMMENTARY: Even if it were the case that an enterprise, regardless of the nature of its business and the services it provides, cannot be a “credit services business” unless it is directly paid by the consumers it serviced, the direct-payment requirement was, as the Commissioner found, satisfied here. CashCall did, in fact, receive direct payment from Maryland consumers for the preparation and processing of the loans it arranged for them. CashCall received, directly from each Maryland consumer for whom it had arranged a loan, payment of the origination fee. By collecting the origination fee paid by the borrowing consumer, CashCall received “direct payment” from the consumers. Therefore, even if that were deemed to be the standard, CashCall was a “credit services business” under the MCSBA.

Criminal Law

Manufacture of methamphetamine

BOTTOM LINE: There was sufficient evidence to support the defendant’s convictions for manufacturing methamphetamine and for possession of plastic bottles adapted for the production of methamphetamine where the evidence established that the defendant was “cooking” the substance for his personal use, because by the plain language of the applicable statute, it is unlawful to produce or make methamphetamine, even if it is done by an individual for the individual’s own personal use.

CASE: Stallard v. State, No. 1412, Sept. Term, 2014 (filed Oct. 28, 2015) (Judges Meredith, Berger & THIEME (Retired, Specially Assigned)).

FACTS: On November 14, 2013, police officers assigned to the Garrett County Narcotics Task

Force executed a search and seizure warrant at the residence of the defendant, Dana Stallard, in

Friendsville, Maryland. When the warrant was executed about 9:56 a.m., Stallard, a woman, and a child were home at the residence. Prior to entering the premises, Maryland State Police Trooper Sid Bittinger asked Stallard whether there was “any methamphetamine cooking inside the residence.” Stallard responded that there was a “bottle underneath the kitchen table” and he advised the officer not to “tighten the lid on it” or it “might blow up and catch the house on fire.”

The search of the premises revealed a number of items, including two plastic bottles containing a “white powder” substance, a pipe believed to be a “marijuana smoking device, and a pouch with various items containing suspected methamphetamine. Just after the search was completed, Stallard related to Trooper Bittinger that he had “learned to cook methamphetamine” two or three weeks previously. Stallard explained that he used the “cold cook method” to manufacture the methamphetamine, which involved putting two cups of lye, crushed Claritin pills, three-quarters of a cold pack containing nitrate, and some Coleman fuel into “plastic bottles.” He went on to describe this process in great detail.

Trooper Bittinger further testified that Stallard informed him that he injected the methamphetamine and also smoked it. Stallard stated that he knew it was dangerous to cook, but he was so addicted he could not stop. Eileen Briley, a forensic examiner and chemist with the Maryland State Police, testified that she examined and tested some of the items recovered from Stallard’s home. She found residue of methamphetamine on or in various objects. Maryland State Trooper Pennie Kyle, an expert in the identification of methamphetamine and its production and manufacture, testified that the evidence recovered from Stallard’s home indicated that Stallard was involved in “a one-pot or a shake-and-bake type method of cooking methamphetamine.” Trooper Kyle further testified that the items found in Stallard’s home were consistent with the manufacture of methamphetamine.

Following a bench trial in the circuit court, Stallard was convicted of manufacturing methamphetamine, possession of plastic bottles adapted for the production of methamphetamine, possession of methamphetamine, possession of marijuana, and possession of drug paraphernalia. He was sentenced to five years’ imprisonment for manufacturing methamphetamine, a consecutive two-year term for possession of plastic bottles adapted for the production of methamphetamine, and a consecutive four-year term for possession of methamphetamine. He was fined $500 for possession of marijuana and fined $500 for possession of drug paraphernalia.

Stallard appealed to the Court of Special Appeals, which vacated the two-year sentence for possession of plastic bottles adapted for the production of methamphetamine and otherwise affirmed the judgment of the circuit court.

LAW: Stallard first argued that the evidence was insufficient to sustain his convictions for manufacturing methamphetamine and for possession of plastic bottles adapted for the production of methamphetamine. Specifically, Stallard asserted that the evidence established that he was “cooking” the substance for his personal use and, under the relevant statute, the manufacture of a controlled dangerous substance (“CDS”) for personal use is not a crime. The issue was less one of sufficiency of the evidence, and more a question of statutory interpretation.

Section 5-603 of the Criminal Law Article of the Maryland Code (2012 Repl. Vol.) provides that, generally, a person may not manufacture a controlled dangerous substance, or manufacture, distribute, or possess a machine, equipment, instrument, implement, device, or a combination of them that is adapted to produce a controlled dangerous substance under circumstances that reasonably indicate an intent to use it to produce, sell, or dispense a controlled dangerous substance in violation of this title. The term “manufacture” is used in various provisions throughout Title 5 (“Controlled Dangerous Substances, Prescriptions, And Other Substances”) of the Criminal Law Article. “Manufacture” is defined as meaning “to produce, prepare, propagate, compound, convert, or process a controlled dangerous substance” directly or indirectly by extraction from substances of natural origin, independently by chemical synthesis, or by a combination of extraction and chemical synthesis.

Under the statute, the term “manufacture” includes to package and repackage a controlled dangerous substance and label and relabel its containers. “Manufacture” does not include “to prepare or compound a controlled dangerous substance by an individual for the individual’s own use.” Crim. Law, §5-101(p). Stallard maintained that the so-called “personal use exception” in the definition of “manufacture” required the State to prove that the intent to manufacture methamphetamine was not for his personal use. Thus, by its plain and unambiguous language, the personal use exception applies only when someone prepares (gets ready) or compounds (mixes) a CDS for his or her own use, but not when a person produces, propagates, converts, or processes a CDS. Leppo v. State Highway Administration, 330 Md. 416, 423 (1993).

As such, the next question was whether Stallard was producing, propagating, converting, or processing methamphetamine, activities which do not fall within the “personal use exception.” “Produce,” with respect to a controlled dangerous substance, includes to manufacture, plant, cultivate, grow, and harvest.” Crim. Law, §5-101(w). By using the word “includes” (instead of “means”) to define “produce,” the legislature did not intend to limit what it means to produce a CDS, but rather gave examples of various ways a CDS can be created, that is, by manufacturing, planting, cultivating, growing, and harvesting.

In its ordinary sense, the verb “produce” means “to bring into existence; to create.” Black’s Law Dictionary (10th ed. 2014). The legislature did not indicate any intention to restrict or alter the ordinary meaning of “produce” when it used the term. Therefore, it is unlawful under Crim. Law, §5-603 to produce or make methamphetamine, even if it is done by an individual for the individual’s own personal use. As discussed, Stallard did not dispute that he was making methamphetamine, and he even explained to Trooper Bittinger the ingredients he purchased and the various steps he took to create the substance. Moreover, Trooper Kyle testified that the items found in Stallard’s home were indicative of a known method of manufacturing methamphetamine. As such, there was sufficient evidence from which any rational trier of fact could have concluded, beyond a reasonable doubt, that Stallard was guilty of manufacturing methamphetamine.

Because Stallard’s conviction of possession of plastic bottles adapted for the production of methamphetamine should have merged, for sentencing purposes, with his conviction for manufacturing methamphetamine, his two-year sentence for possession of plastic bottles adapted for the production of methamphetamine was vacated; the judgment of the circuit court was otherwise affirmed.

COMMENTARY: Stallard also asserted that he was entitled to merger of the convictions and sentences for manufacturing methamphetamine and for possession of plastic bottles adapted for the production of methamphetamine. The statute at issue here, Crim. Law, §5-603, clearly prohibits both the manufacture of a CDS and the adaption of equipment to produce a CDS. The penalty for violating this statute is found in Crim. Law, §5-607 which provides that a person who violates a provision of §§5-602 through 5-606 of this subtitle is guilty of a felony and on conviction is subject to imprisonment not exceeding 5 years or a fine not exceeding $15,000 or both. Repeat offenders may be subject to enhanced penalties. See Crim. Law, §§5-607-5-609.

Although manufacturing methamphetamine and adapting devices for use in the manufacturing process would not merge under the “required evidence test,” because each offense requires proof of a fact which the other does not, in this case merger was required under the rule of lenity. The rule of lenity is a principle of statutory construction that amounts to an alternate basis for merger in cases where the required evidence test is not satisfied, and is applied to resolve ambiguity as to whether the Legislature intended multiple punishments for the same act or transaction. Kyler v. State, 218 Md. App. 196, 228. Under this rule, two crimes created by legislative enactment may not be punished separately if the legislature intended the offenses to be punished by one sentence. Id.

Both charges against Stallard – the manufacturing of methamphetamine and the adaption of plastic bottles used to produce it – were brought under the same statute based on the totality of the evidence recovered from his residence when the police executed the warrant on November 14, 2013. Although multiple plastic bottles were found when the warrant was executed, the evidence at trial was that all of the bottles were used in some phase of Stallard’s multi-step production of methamphetamine. The statute is not clear whether, under such circumstances, the legislature intended separate sentences be imposed for manufacturing a CDS and adapting items for use in that same manufacturing process. Because of this uncertainty, the benefit of the doubt is resolved in Stallard’s favor. Accordingly, for sentencing purposes, Stallard’s conviction for adapting plastic bottles for use in the production of methamphetamine should have merged with his conviction for manufacturing methamphetamine.

Criminal Procedure

Restitution

BOTTOM LINE: Where a financial agent holding a power of attorney for a nursing home resident embezzled and misappropriated her charge’s monies, including those intended to pay the nursing home bills, the nursing home was not transformed from a mere creditor to a “victim” for purposes of state restitution laws, and, therefore, the circuit court’s order requiring the agent to pay restitution to the nursing home was reversed.

CASE: McCrimmon v. State, No. 1255, Sept. Term, 2013 (filed Oct. 27, 2015) (Judges Krauser, ZARNOCH & Reed).

FACTS: On March 31, 2011, the State filed a criminal information in the circuit court charging Penny McCrimmon with theft of property valued at least $10,000 to $100,000, obtaining the property of a vulnerable adult, and fraudulent appropriation by a fiduciary of the victim’s money or property (embezzlement). The victim was McCrimmon’s cousin, Reginald Gant. On January 18, 2012, McCrimmon pleaded guilty to the third count, and the State agreed to enter a nolle prosequi on the remaining two charges.

According to the prosecutor’s recital of the facts at the guilty plea hearing, from April 1, 2010, through February 17, 2011, Gant resided at the Chapel Hill Nursing Home in Baltimore County. During that time period, Gant, who was in a very poor medical condition, gave McCrimmon a Power of Attorney, granting her authority to manage his funds so that she could take care of his medical bills. In fact, McCrimmon was collecting Gant’s income, but, without his permission, was diverting this money for her own benefit, and not paying Gant’s bills. Gant eventually realized that his obligation to Chapel Hill was not being met, and he owed a bill of $19,718. That bill was never paid by McCrimmon.

The circuit court accepted the guilty plea and sentenced McCrimmon to five years’ incarceration, suspended in favor of five years of unsupervised probation. The court also ordered McCrimmon to pay restitution to Chapel Hill Nursing Home in the amount of $19,718. McCrimmon filed a petition for post-conviction relief. The circuit court granted the petition in part and allowed McCrimmon leave to file a belated application for leave to appeal. All other relief was denied.

The case was transferred to the direct appeals docket of the Court of Special Appeals, which reversed the judgment of the circuit court.

LAW: McCrimmon argued that the Chapel Hill Nursing Home was not an entity entitled to restitution in this case. Restitution, as applied in a criminal case under Maryland’s Criminal Procedure Article, is a criminal sanction, not a civil remedy. The predominant and traditional purpose of restitution is to reimburse the victim for certain kinds of expenses incurred as a direct result of the defendant’s criminal activity. Chaney v. State, 397 Md. 460, (2007).

Because restitution statutes are penal in nature, they must be strictly construed. Addison v. State, 191 Md. App. 159, 180 (2010). Restitution is governed by Title 11, subtitle 6 of the Criminal Procedure Article (“Crim. Proc.”), Md. Code (2001, 2008 Repl. Vol., 2014 Supp.), §§11-601 et seq. Section 11-601(j) defines a “victim” as a person who suffers death, personal injury, or property damage or loss as a direct result of a crime or delinquent act, or, if the person is deceased, the personal representative of the estate of the person. Under §11-603(a), a court may enter a judgment of restitution that orders a defendant or child respondent to make restitution in addition to any other penalty for the commission of a crime or delinquent act, if, as a direct result of the crime or delinquent act, property of the victim was stolen, damaged, destroyed, converted, or unlawfully obtained, or its value substantially decreased. Alternatively, restitution may be ordered if, as a direct result of the crime, the victim suffered actual medical, dental, hospital, counseling, funeral, or burial expenses or losses, direct out-of-pocket loss, loss of earnings, or expenses incurred with rehabilitation.

Finally, §11-606(a) states that the court may order that restitution be paid to: the victim; the Department of Health and Mental Hygiene, the Criminal Injuries Compensation Board, or any other governmental unit; a third-party payor (such as an insurer) or any other person that has compensated the victim for a property or pecuniary loss or paid an expense on behalf of a victim; any person for whom restitution is authorized by law; or a person who has provided to or for a victim goods, property, or services for which restitution is authorized under §11-603. Emphasizing the restrictive language of these provisions, particularly the “direct result” requirement and the express inclusion in §11-603 and §11-606 of specific creditors, Maryland appellate courts have held that the creditors of a victim are generally not entitled to restitution. See, e.g., In re Ryan S., 369 Md. 26, 56 (2002). In the present case, it was necessary to determine whether, under the tailored definitions and carefully constructed language of §11-601(j) and §11-603(a), a nursing home such as Chapel Hill, which is also clearly a creditor of a “direct” victim, is itself a “victim” under the restitution statute.

In many respects, Chapel Hill appeared to be more than a mere creditor. Both the Durable Unlimited Power of Attorney Form and the Advance Directive giving McCrimmon Power of Attorney were witnessed by an employee or employees of Chapel Hill, most likely at the facility. Moreover, absent Gant’s admission to the nursing home, such forms would likely never have been executed, and the opportunity to embezzle would have never been presented. Significantly, as the Attorney General told residents in his consumer manual on nursing homes, “If you have a financial agent, that person must pay the nursing home using your resources. The agent does not accept personal responsibility for your debts, but does accept responsibility to use your resources to pay your debts.” Attorney General’s Office, Nursing Homes: What You Need to Know, at 42-43 (2012). Similarly, the Attorney General’s manual goes on to note, “If you are a nursing home resident’s financial agent, you must use the resident’s money appropriately. In most cases, this means using their money to pay for the resident’s nursing home care.” Id. at 44.

Even so, the Durable Unlimited Power of Attorney Form signed by Gant spoke in the most general terms of the financial agent’s duties with respect to Gant’s financial and business transactions and did not specifically mention obligations to the nursing home. This document did not treat a nursing home any differently from any other debtor of Gant that McCrimmon was authorized to pay. Under these circumstances, to treat a nursing home as an entity suffering loss as a “direct result” of the embezzlement – even if Gant consented to the restitution order – would eviscerate the clear text of the restitution statutes. Nor would such a construction further the purpose of the restitution statutes, which do not make a Maryland court a collection agent for any indirect losses suffered by a direct victim. See In re Tyrell A., 442 Md. 354, 372 (2015).

Given the limited purpose of the restitution statutes, the exclusion of Chapel Hill as a direct victim did not lead to an absurd or unreasonable result. As such, the nursing home did not fall within the statutory definition of “victim” under the restitution laws. For these reasons, the $19,718 restitutionary order could not stand.

The State has requested that if the restitution order were to be vacated, then the case should be remanded for a correct determination of the amount of restitution. On remand, McCrimmon was also free to urge the court to find under §11-605(a)(1) that she did not have the ability to pay the judgment of restitution. Lastly, because Gant had previously indicated that he wished to see Chapel Hill’s bill paid, the State was entitled to seek a restitution order for Gant as a true victim of McCrimmon’s offence. And, as provided in Maryland Rule 2-624, Gant could (although was not required to), if he so chose, assign the judgment to Chapel Hill.

Accordingly, the order of restitution was vacated and the case remanded to the circuit court.

COMMENTARY: Alternatively, the State argued that restitution would be authorized by CP §11-606(a)(3) as a “third-party payor” who “compensates” the victim for pecuniary loss or pays “an expense” on behalf of a victim. However, Chapel Hill, while it might have lost revenue, did not “pay” anything. Therefore, this provision was not triggered in this case.

Similarly, §11-606(a)(5), which authorizes restitution to a person who has provided to a victim “services for which restitution is authorized under §11-603,” was not applicable here. Clearly, Chapel Hill was an entity that provided services to Gant, the victim. However, §11-606(a)(5) goes on to point courts in the direction of §11-603(a), and the statutory categories of restitution beneficiaries listed there do not include a general creditor such as Chapel Hill.

Evidence

DNA admissibility

BOTTOM LINE: A DNA analysis certified by the State as having been conducted pursuant to the FBI Quality Assurance Standards, which do not reflect the most recent advances in DNA analysis, was not automatically admissible under the DNA Admissibility Statute, because the legislative intent in adopting the DNA Admissibility Statute was to permit automatic admissibility of DNA analysis only if the DNA techniques complied with the standards promulgated by the most rigorous standards-setting body available; however, while not automatically admissible, this evidence was admissible under the Frye-Reed standard, which permits a scientific opinion to be received as evidence at trial if the basis of that opinion is shown to be generally accepted as reliable within the expert’s particular scientific field.

CASE: Phillips v. State, No. 456, Sept. Term, 2013 (filed Oct. 27, 2015) (Judges Leahy, FRIEDMAN & Raker (Retired, Specially Assigned)).

FACTS: Following a jury trial in the circuit court, Richmond Phillips was convicted of two counts of murder in the first degree, one count of use of a handgun in a crime of violence, and one count of child abuse in the first degree. He was sentenced to two consecutive terms of life imprisonment without the possibility of parole.

Phillips appealed to the Court of Special Appeals, challenging the DNA evidence the State used against him. The Court of Special Appeals affirmed the judgment of the circuit court.

LAW: The State argued that the DNA evidence used against Phillips was automatically admissible under §10-915 of the Courts and Judicial Proceedings Article (“CJP”). Section 10-915, however, requires that, to be admissible, a DNA profile must include certification that the analysis was performed according to standards promulgated by two entities that no longer exist. Phillips asserted that the DNA evidence failed to comply with this factually obsolete statute and, therefore, that the trial court was correct in conducting a Frye-Reed hearing to determine whether to admit the DNA evidence. Phillips contended, however, that the trial court erred in concluding that the DNA evidence was admissible under Frye-Reed.

Subsection (a) of Maryland’s DNA Admissibility Statute provides, in relevant part, that “DNA profile” means an analysis of genetic loci that have been validated according to standards established by the Technical Working Group on DNA Analysis Methods (“TWGDAM”) or The DNA Advisory Board of the Federal Bureau of Investigation. Subsection (c) of the statute states that the evidence of a DNA profile is admissible to prove or disprove the identity of any person, if the party seeking to introduce the evidence of a DNA profile satisfies certain notice provisions. The import of the statute is clear: so long as the sponsoring party complies with the notice provisions of subsection (c), a DNA profile will be automatically admissible to prove or disprove identity if it is accompanied by a statement from the testing laboratory that it was “validated by standards established by TWGDAM or the DNA Advisory Board.” CJP §10-915(b).

In Phillips’s case, however, the DNA profile was accompanied by a certification stating: “The DNA profiles reported below were determined by procedures which have been validated according to the Federal Bureau of Investigation’s Quality Assurance Standards.” Thus, the threshold question was whether compliance with the FBI’s Quality Assurance Standards is sufficient for automatic admissibility or whether compliance with standards issued by TWGDAM or the DNA Advisory Board is required. If compliance with the FBI Quality Assurance Standards is sufficient, then the steering wheel DNA sample at issue in the present case was automatically admissible because the Prince George’s County DNA laboratory complied with those standards. If, on the other hand, the DNA analysis needed a statement that it complied with standards from either TWGDAM or the DNA Advisory Board (which it did not have), then the steering wheel sample was not automatically admissible. If not automatically admissible for this reason, it was required that the DNA analysis satisfy the Frye-Reed standard of general acceptance in the scientific community before it may be admitted.

The issue was made more complicated because neither TWGDAM nor the DNA Advisory Board remain in existence. Accordingly, today, compliance with Maryland’s DNA Admissibility Statute is impossible, making the statute factually obsolete. There is no regularized mechanism for eliminating factually obsolete statutes.

Courts have generally taken three different approaches when dealing with factually obsolete statutes: (1) enforce the statute “as is”; (2) invent a new interpretation, unimagined by the legislative drafters, that saves the statute from obsolescence; or (3) declare the obsolete statute unconstitutional. Guido Calabresi, A Common Law for the Age of Statutes 6 (1982). All of these approaches are unsatisfactory. Instead, the proper way to deal with a statute that is obsolete on its face is to look to the legislature’s intent and work to effectuate that intent in the present legal and factual landscape.  See, e.g., Sieglein v. Schmidt, 224 Md. App. 222, 242 (2015). Thus, here, it was necessary to discern the legislature’s intent in passing the DNA Admissibility Statute, to determine if and how the legislature would have intended for this now-obsolete statute to be enforced.

The legislative history of the DNA Admissibility Statute strongly suggests that the 1997 statute was enacted to address a perceived drafting flaw in a previous version. The 1991 version of the DNA Admissibility Statute allowed automatic admissibility of DNA that was analyzed with the restriction fragment length polymorphism method (“RFLP”), which it specified by name. CJP §10-915 (1991) (amended 1997). By 1997, however, the RFLP method for DNA analysis had been superseded by a new technique, the polymerase chain reaction method (“PCR”). Jud. Proc. Comm., Bill Analysis: H.B. 414 (1997). Laboratories were using PCR but, because the 1991 DNA Admissibility Statute specified only RFLP by name, PCR was not automatically admissible. Id.

In effect, the 1991 statute had become obsolete. As a result, state’s attorneys throughout Maryland were forced to justify their use of PCR in every case at expensive Frye-Reed hearings. State of Maryland Department of State Police, Position on Proposed Legislation HB 414 (Feb. 11, 1997). In drafting the 1997 DNA Admissibility Statute, the General Assembly wanted to eliminate the need for Frye-Reed hearings for PCR analysis. See Jud. Proc. Comm., Bill Analysis: H.B. 414 (1997). Moreover, the legislature did not want to repeat the drafting weakness of the 1991 statute and identify the PCR method by name, such that when scientific advances inevitably replaced PCR, the 1997 statute would become obsolete too. As such, the legislature delegated the power to approve new DNA analysis techniques to two national standards-setting entities on the cutting edge of DNA science, TWGDAM and the DNA Advisory Board. Id.

Thus, the 1997 DNA Admissibility Statute was designed to be obsolescence-proof. If a new technique was good enough for TWGDAM and the DNA Advisory Board, it would be good enough for automatic admissibility in Maryland courts. Id. Those standards-setting entities soon became defunct, however, in effect, rendering the obsolescence-proof statute, ironically, obsolete. Nevertheless, it was apparent that the legislature intended to create a statute that would track cutting-edge DNA science and ensure automatic admissibility only if the DNA techniques complied with the standards promulgated by the most rigorous standards-setting body available.

For this reason, it was appropriate to contrast the FBI’s Quality Assurance Standards to those set by the Scientific Working Group on DNA Analysis Methods (“SWGDAM”), which is both the successor entity and the successor “in spirit” to both TWGDAM and the DNA Advisory Board. TWGDAM and the DNA Advisory Board no longer exist, and their responsibility for recommending rigorous standards for cutting-edge DNA technology was transferred to SWGDAM. As the trial court concluded, a DNA analysis would be automatically admissible pursuant to the DNA Admissibility Statute if it bore a statement that it had been conducted pursuant to standards promulgated by SWGDAM.

The FBI Quality Assurance Standards fulfill a different purpose. Unlike SWGDAM’s recommendations, which are based on cutting-edge DNA science, the FBI Quality Assurance Standards are the minimum requirements that must be followed by forensic DNA laboratories. Therefore, unlike SWGDAM recommendations, the FBI Quality Assurance Standards do not reflect the most recent advances in DNA analysis. Thus, while a DNA analysis conducted pursuant to the FBI Quality Assurance Standards may be admissible, it is not automatically admissible under the DNA Admissibility Statute.

Therefore, the trial court was correct in finding that the steering wheel DNA sample was not automatically admissible under the DNA Admissibility Statute. The trial court properly applied the Frye-Reed standard in concluding that the Prince George’s County DNA laboratory used generally accepted scientific methodology to analyze the sample.

Accordingly, the judgment of the circuit court was affirmed.

COMMENTARY: Under Maryland’s Frye-Reed standard, before a scientific opinion will be received as evidence at trial, the basis of that opinion must be shown to be generally accepted as reliable within the expert’s particular scientific field. Reed v. State, 283 Md. 374, 381 (1978). At the Frye-Reed hearing in this case, the central issue was whether the Prince George’s County DNA laboratory had adequate methodologies to deal with the unique complications of complex, low copy number DNA, which is particularly susceptible to stochastic effects (random errors that make accurate DNA analysis more difficult) and increased risks of contamination. John M. Butler, Forensic DNA Typing 593, 168-69 (2d ed. 2005).

The laboratory complied with the FBI Quality Assurance Standards, which while insufficient for automatic admissibility under the DNA Admissibility Statute, were sufficient to show that the analysis is generally accepted in the relevant scientific community. Further, the experts testified that forensic laboratories commonly use the same methods employed by the Prince George’s County DNA laboratory when analyzing complex, low copy number DNA.

Thus, the State sufficiently demonstrated that the Prince George’s County DNA laboratory’s analysis of the steering wheel sample was admissible under Frye-Reed. Therefore, any attack on the reliability of the DNA analysis properly went to the weight that the trier of fact should accord the evidence, rather than to its admissibility.

Insurance Law

Contractual indemnification

BOTTOM LINE: Under an insurance policy provision which included a contractor as an additional insured with respect to liability for bodily injury, property damage or personal and advertising injury caused, in whole or in part, by the contractor’s acts or omissions or by the acts or omissions of those acting on the contractor’s behalf in connection to a construction project, the insurer had the duty to defend the contractor in tort litigation arising from the actions of a subcontractor even though the tort allegations were not based solely on vicarious liability, so long as the contractor was alleged to be liable, in whole or in part, by the acts or omissions of the subcontractor.

CASE: James G. Davis Construction Corporation v. Erie Insurance Exchange, No. 802, Sept. Term, 2014 (filed Oct. 28, 2015) (Judges Meredith, BERGER & Leahy).

FACTS: In 2009, Davis G. Construction Corporation served as the general contractor for a home construction project in Washington, D.C. On January 6, 2009, Davis subcontracted Tricon Construction, Inc. to provide drywall, insulation, and fireplace services on the project. The terms of the subcontract agreement between Davis and Tricon contained an indemnification provision stating that Tricon would indemnify and save harmless Davis from any and all claims, and liabilities for property and personal injury arising out of any negligent act or omission of  Tricon, its sub-subcontractors, vendors or anyone else for whom Tricon was responsible in the execution of the work, whether or not caused by the active or passive negligence or other fault of a party identified the contract.

Under the subcontract agreement, Tricon was to indemnify Davis for up to $1 million per occurrence and up to $2 million in the aggregate for all work performed on the project. Upon execution of the subcontract agreement, Tricon presented Davis with a certificate of liability insurance as proof that it had procured insurance coverage for Davis as required by the subcontract agreement. Attached to the certificate of liability insurance was an additional insured endorsement (the “certificate additional insured endorsement”). The certificate additional insured endorsement provided in part, “Who is an insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of [Tricon’s] ongoing operations performed for that insured.” Read together, these documents provided that Tricon was issued a commercial general liability policy by Erie and that Davis was named as an additional insured on the policy.

The certificate additional insured endorsement also included a schedule, listing Davis an additional insured under the policy. The policy actually issued to Tricon, however, included an additional insured endorsement (the “policy additional insured endorsement”) with slightly different terms from those in the certificate additional insured endorsement. The policy additional insured endorsement amended “Who Is An Insured” to include as an additional insured the parties shown in the Schedule, but only with respect to liability for “bodily injury,” “property damage” or “personal and advertising injury” caused, in whole or in part, by Tricon’s acts or omissions, the acts or omissions of those acting on Tricon’s behalf; in the performance of Tricon’s ongoing operations for the additional insured(s) at the designated location(s).

As part of its work on the project, Tricon erected a scaffold, which it owned, at the construction site. Another of Davis’s subcontractors, American Mechanical Services, subcontracted Frost Fire Insulation to perform air conditioning and insulation work on the project. On September 24, 2009, two employees of Frost Fire were using Tricon’s scaffold to complete their work on the project when the scaffold collapsed, injuring the two Frost Fire employees. The injured Frost Fire employees alleged that they were authorized to use Tricon’s scaffold and were assured by Davis that the scaffolding was safe and secure.

The two injured Frost Fire employees filed suit against Tricon and Davis in the circuit court, alleging one count of negligence against Tricon and one count of negligence against Davis. After being served with the complaint, Davis notified Erie of the tort litigation and tendered its defense to Erie. Erie, however, declined to assume Davis’s defense, claiming that the policy did not cover Davis, as an additional insured, for Davis’s own negligent acts.

On June 5, 2013, Davis filed a complaint in the circuit court alleging that Erie breached its contract with Davis by failing to honor its duty to defend and indemnify Davis in the tort litigation. Davis filed a motion for partial summary judgment, and Erie filed a cross-motion for summary judgment. The circuit court denied Davis’s motion for partial summary judgment and granted summary judgment in favor of Erie.

Davis appealed to the Court of Special Appeals, which reversed the judgment of the circuit court.

LAW: Davis argued that the terms of the policy required Erie to assume Davis’s defense in the tort litigation. In analyzing this claim it was first necessary to address the discrepancy between the certificate additional insured endorsement and the policy additional insured endorsement.

The certificate of liability insurance and the policy that Tricon presented to Davis upon execution of the subcontract agreement was produced not by Erie, but by an independent insurance broker. The text of the certificate of liability insurance further stated that the certificate was issued as a matter of information only and did not amend, extend or alter the coverage afforded by the policy. In light of these facts, the certificate additional insured endorsement was not a part of the policy and, therefore, its terms were not binding on Erie. See G.E. Tignall & Co. v. Reliance Nat. Ins. Co., 102 F. Supp. 2d 300 (D. Md. 2000). However, Erie was bound to the terms of the policy additional insured endorsement, which constituted part of the policy. Accordingly, the circuit court erred by exclusively analyzing the scope of coverage afforded by the policy under the terms of the certificate additional insured endorsement.

The circuit court found that the policy did not cover Davis for Davis’s own negligence, but rather for “the acts or omissions of the named insured” (i.e., Tricon) or “the acts or omissions of those acting on the named insured’s behalf during ongoing operations for the additional insured.” The circuit court, therefore, concluded that the terms of the policy covered Davis only for claims of vicarious liability based on the actions of Tricon as Davis’s subcontractor. In analyzing the scope of coverage afforded by the Policy, the circuit court explicitly relied on two cases: G.E. Tignall & Co. v. Reliance Nat. Ins. Co., 102 F. Supp. 2d 300 (D. Md. 2000), and Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540 (1997).

Both Tignall and Baltimore Gas dealt with factual situations similar to those in the instant case, in which a general contractor was added to the insurance policy of a subcontractor as an additional insured, but the insurer refused to defend the general contractor in a tort suit. See Tignall, 102 F. Supp. 2d at 301-02; and Baltimore Gas, 113 Md. App. at 546-552. Nevertheless, Tignall and Baltimore Gas were not directly applicable to the instant case because the terms of the additional insured endorsements in both cases materially differed from the language of the applicable policy additional insured endorsement in the instant case. The language of the certificate additional insured endorsement in the instant case mirrored the additional insured endorsements in Tignall and Baltimore Gas in that it limited coverage for the additional insured to “liability arising out of” Tricon’s work on the project. However, as discussed, the certificate additional insured endorsement was not part of the policy and, therefore was not binding on Erie.

The 4th Circuit recently construed an insurance policy utilizing the “caused, in whole or in part, by” language of the policy additional insured endorsement to mean that an insurer has a duty to defend an additional insured “only if the underlying pleadings allege that” the named insured, “or someone acting on its behalf, proximately caused” the injury or damage. Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, Subscribing to Policy Number: ARTE018240, 788 F.3d 375, 379 (4th Cir. 2015). Because vicarious liability is used to impute liability to “an innocent third party,” such liability cannot be caused merely “in part.” The third party to whom liability is imputed would not be “innocent” unless the wrongdoer’s acts caused the liability “in whole.” Thus, the word “liability” in the policy at issue related to proximate causation and not vicarious liability. See Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F.Supp. 2d 242 (D.Me. 2011).

As such, under the policy additional insured endorsement, Erie had the duty to defend Davis even if the allegations were not based solely on vicarious liability as long as Davis was alleged to be liable, in whole or in part, by the acts or omissions of Tricon. The complaint theorized that the negligence of Tricon, the negligence of Davis, or the negligence of both Tricon and Davis contributed to the injury of the Frost Fire employees. By asserting virtually identical allegations against both Davis and Tricon for a single tortious injury, the complaint suggested a lack of awareness regarding the true cause of the Frost Fire employees’ injuries. Presumably, the claim of negligence asserted against Tricon was grounded on the fact that Tricon, as the owner of the scaffolding, was responsible for maintaining the scaffolding such that it would not collapse when used. Furthermore, the claim of negligence against Davis was likely based on the fact that Davis, as the general contractor, had a duty to ensure the safety of the entire project construction site, including all construction equipment.

Therefore, the circuit court erred in declaring that the terms of the policy limited coverage of Davis, as an additional insured, to claims of vicarious liability based on Tricon’s actions. The allegations in the complaint in the tort litigation triggered Erie’s duty to defend Davis, as an additional insured, under Maryland law. Accordingly, the judgment of the circuit court was reversed.

COMMENTARY: Even if it were not clear from the allegations that Davis was being sued for liability caused in whole, or in part, by Tricon’s scaffolding work for Davis, or “arising out of” Tricon’s scaffolding work, Erie would still have a duty to defend because the allegations recited above establish at least the “potentiality that the claim could be covered” by the Policy’s endorsements. Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407 (1975).

Insurance Law

Underinsured motorist coverage

BOTTOM LINE: As an intervening party in the plaintiff’s lawsuit against a tortfeasor whose negligence resulted in injury to the plaintiff, the company that provided uninsured/underinsured motorist coverage to the plaintiff did not have the burden of proving the amount of its policy limits or the amount of the credit to which it was entitled based on the tortfeasor’s settlement, because the insurer was never alleged to have committed any tort against the plaintiff and the judgment in the plaintiff’s action against the tortfeasor did not establish how much money the insurer owed the plaintiff under her insurance contract.

CASE: Allstate Insurance Company v. Kponve,No. 0100, Sept. Term, 2014 (filed Oct. 28, 2015) (Judges Eyler, D., Reed & SALMON (Retired, Specially Assigned)).

FACTS: Allstate Insurance Company provided uninsured/underinsured motorist coverage to Austria Kponve. On April 10, 2009, while Allstate’s policy was in force, Kponve was involved in an automobile accident with a motorist named Douglas Mendoza. Kponve sued Mendoza in the circuit court, alleging that Mendoza’s negligence resulted in severe injury to her.

Allstate filed a motion to intervene in the lawsuit, alleging that Kponve and her husband had a contract of insurance with Allstate and that Mendoza “may be or is” an underinsured motorist as defined in that policy. The motion to intervene further alleged that under the policy issued to the Kponves, Allstate “will or may be bound by any judgment entered against” Mendoza. Lastly, Allstate alleged that Allstate’s interest “may or may not be adequately represented by the existing parties who had failed to include Allstate as a defendant. The motion to intervene was granted. Subsequently, Mendoza’s insurance carrier settled Kponve’s claim against Mendoza for Mendoza’s policy limits, leaving Allstate as the only remaining defendant.

Prior to trial, counsel for the parties stipulated to the fact that Allstate issued Kponve an automobile insurance policy that provided her with uninsured/underinsured motorist coverage and that, on the date of the subject accident, that policy was in effect. The parties did not stipulate, however, as to the amount of the uninsured/underinsured coverage or as to the amount of setoff, if any, Allstate was entitled to as a result of the settlement by Mendoza’s carrier.

At the conclusion of a two-day jury trial in the circuit court, the jurors answered several questions set forth on a special verdict sheet. The jury found that: 1) Kponve was not contributorily negligent; 2) Mendoza’s negligence caused Kponve’s injuries; and 3) the damage suffered by Kponve, as a result of the subject accident, totaled $374,000. The clerk entered a judgment in favor of Kponve and against Allstate in the amount of $374,000, even though Allstate’s liability to Kponve under its contract had never been established.

Within ten days of the entry of that judgment, Allstate filed what it called a “Motion to Alter or Amend Judgment,” in which it alleged: 1) the underinsured motorist limits set forth in Kponve’s policy were $50,000 per individual; and 2) that the insurance carrier for Mendoza had settled Kponve’s claim against Mendoza for $25,000, which was the liability limit under Mendoza’s policy. According to Allstate, the court should therefore reduce the judgment against it to $25,000. The trial judge took the matter under advisement. About six months later, the court issued an order denying, without explanation, Allstate’s motion.

Allstate then appealed to the Court of Special Appeals, which vacated the judgment of the circuit court and remanded the case.

LAW: The central issue presented in this appeal was whether, as Kponve contended, Allstate had the burden of proving: 1) the amount of underinsured motorist coverage; and 2) the amount, if any, of credit Allstate was entitled to receive as a result of the settlement by Mendoza’s carrier. Under §19-509 of the Insurance Article, the uninsured motorist coverage contained in a motor vehicle liability insurance policy shall at least equal the amounts required by Title 17 of the Transportation Article and the coverage provided to a qualified person under Title 20, Subtitle 6 of this article. Maryland Code (2011 Repl. Vol.) Insurance Article §19-509. In addition, it may not exceed the amount of liability coverage provided under the policy.

Unless waived in accordance with §19-510, the amount of uninsured motorist coverage provided under a private passenger motor vehicle liability insurance policy shall equal the amount of liability coverage provided under the policy. As made clear by §19-509(a), the term “uninsured motor vehicle” includes motor vehicles operated by individuals that are “underinsured.” See West American Insurance Company v. Popa, 352 Md. 455, 462 (1998). Uninsured/underinsured recovery by the policyholder becomes available only when the policyholder’s damages “exceed the liability coverage of the tortfeasor.” Erie v. Heffernan, 399 Md. 598, 612 (2007).

In Waters v. U.S. Fid. & Guar. Co., the Court of Appeals provided a good explanation as to how uninsured/underinsured cases are to be adjudicated. Waters v. U.S. Fid. & Guar. Co., 328 Md. 700, 712 (1992). In that case, the negligent party had liability limits of $100,000 per person/$100,000 per accident. The accident in which the party was involved injured two persons, one of whom settled with the party’s insurer for $97,000. The second person injured, Waters, had uninsured motorist coverage provided by United States Fidelity & Guaranty Corp. (“USF&G”), with $100,000/$300,000 limits. Id. at 705-07. Discussing a contract action by Waters against USF&G, the Court found it necessary to compare the amount of liability insurance carried by the tortfeasor with the amount of uninsured motorist coverage carried by the injured party. Id.

Accordingly, in Waters, it was necessary for the Court to determine whether Waters’s uninsured motorist coverage exceeded the amount of liability coverage purchased by the tortfeasor. Waters’s uninsured motorist coverage exceeded the tortfeasor’s liability coverage because Waters would have had available a separate per person limit of $100,000 had the tortfeasor carried liability coverage of $100,000 per person and $300,000 per accident. Because Waters’s uninsured motorist coverage exceeded the liability coverage carried by the tortfeasor, the torteasor was an uninsured motorist with respect to the injuries sustained by Waters. Waters could therefore proceed against his uninsured motorist carrier, USF & G, for the remainder of his damages, up to the per person limit of $100,000. Id. at 714-15.

Thus, in a contract action against an insurer by a plaintiff claiming underinsured motorist coverage, three figures are important: 1) the tort damage suffered by the policyholder; 2) the amount the policyholder receives, or is entitled to receive, from the underinsured motorist; and 3) underinsured policy limits of the policyholder. Here, Kponve argued that because Mendoza settled before trial, leaving Allstate and Kponve as the only remaining parties, what started out as a tort case, became a breach of contract case. This argument was without merit. A tort case is not transformed into a contract action simply because one of the defendants is dismissed.

Even if such a transformation had occurred, however, Kponve, as the plaintiff in a contract action, would have had to prove what her damages were due to the breach. See Erie v. Heffernan, 399 Md. at 617. Those damages could only be the amount by which Allstate’s uninsured motorist policy limits exceeded Mendoza’s coverage. Waters, 328 Md. at 715. Under the Maryland uninsured/underinsured motorist statutory provisions, when an insured under an automobile insurance policy has incurred damages as a result of the allegedly tortious driving by an uninsured or underinsured motorist, the insured has the option of initially bringing a contract action against his or her insurer to recover under the policy’s uninsured/underinsured motorist provisions or of initially bringing a tort action against the tortfeasor. West American Insurance Co. v Popa, 352 Md. 455, 463 (1998).

When the insured chooses the second option (i.e., brings a tort action), and notifies his or her insurer of the tort action, the issues of the uninsured/underinsured defendant’s liability (i.e., the tortfeasor’s liability) and the amount of damages are resolved in the tort action. Id. Under the second option, in the ordinary situation, if the defendant prevails in the tort action, or if the defendant is able to pay the amount of the plaintiff’s damages as determined in the tort action despite the defendant’s lack of sufficient insurance, there never will be an uninsured or underinsured motorist claim arising out of the matter. Id. Consequently, if the insured chooses the second option, whether there will be an uninsured or underinsured motorist claim is not certain; it is only a possibility depending upon future events. Id. When the insured informs his or her uninsured/underinsured motorist carrier of the tort suit, the carrier thereby receives notice of the possibility of a future uninsured or underinsured motorist claim. Id. at 462-63.

Kponve elected not to bring a breach of contract action against Allstate but instead to pursue this second option, at which point Allstate intervened in the lawsuit to protect its interest. In a tort case, a defendant never has the burden of proving the damages caused by injuring the plaintiff. As an intervening party, Allstate did not have the burden of proving the amount of its policy limits or the amount of the credit to which it was entitled based on Mendoza’s settlement, because Allstate was never alleged to have committed any tort against Kponve. See Allstate Ins. v. Miller, 315 Md. 182 (1989). The verdict in Kponve’s tort action established only that: 1) Mendoza’s negligence caused the accident; 2) Kponve was not contributorily negligent; and 3) Kponve suffered $374,000 damages as a result of that accident. The judgment did not, as Kponve contended, establish how much money Allstate owed Kponve under her insurance contract.

Accordingly, the judgment of the circuit court was vacated and the case remanded to the circuit court.

COMMENTARY: Under ordinary circumstances, the judgment entered against Allstate would be vacated in its entirety, without prejudice to Kponve’s right to bring a separate breach of contract action against Allstate. In this case, however, such a resolution would almost certainly result in a waste of time and effort. Allstate consistently took the position that the underinsured motorist limits were $50,000 and that Mendoza’s insurer settled with Kponve for $25,000 and therefore it owed $25,000 to Kponve.

It was virtually certain that, upon remand, counsel for Kponve will agree with Allstate’s figures, because competent counsel would certainly have known, prior to trial in the tort action, the amount of underinsured motorist coverage and the amount of money the client received when she settled with Mendoza’s carrier. If, on remand, Kponve were to admit that Allstate was correct as to the amount of coverage and as to the amount of her settlement with Mendoza, a judgment in the amount of $25,000 should be entered in favor of Kponve and against Allstate. On the other hand, if Kponve were to disagree as to one or both of the aforementioned figures, the judgment against Allstate should be stricken in its entirety, without prejudice to Kponve’s right to file a contract action against Allstate in which she would be required to prove the amount she was owed under her Allstate insurance policy.