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Opinions – U.S. District Court of Maryland: 5/2/11

Civil Procedure

Motion to close action

BOTTOM LINE: Defendant’s motion to administratively close plaintiffs’ action and terminate it with prejudice was granted; termination was not premature because the district court had resolved plaintiffs’ two pending motions.

CASE: In re Alger, Columbia, Janus, MFS, One Group, Putnam, and Allianz–Dresdner Carl Kircher v. Putnam Funds Trust, MDL No. 1586. Nos. 04–md–15863, JFM–10–1887 (decided April 20, 2011) (Judge Motz). RecordFax No. 11-0420-40, 11 pages.

FACTS: On September 16, 2003, Carl Kircher and Robert Brockway filed suit in Illinois state court against Putnam Funds Trust, Putnam Investment Management, LLC, and Evergreen International Trust and Evergreen Investment Management Company, LLC. Over the next four years, numerous removal and remand proceedings ensued, with the case eventually being remanded for a third time to the circuit court for Madison County, Illinois in July 2007.

Thereafter, Putnam and Evergreen jointly moved for judgment on the pleadings on the grounds that the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. §78bb(f)(1), precluded the claims. The circuit court denied this motion, and Putnam and Evergreen took an interlocutory appeal to the Appellate Court of Illinois, Fifth District. On January 6, 2010, the appellate court reversed and remanded with directions that the circuit court dismiss the action. Kircher v. Putnam Funds Trust, 922 N.E.2d 1164, 1173 (Ill.App.Ct.2010). On March 30, 2010, the appellate court issued a mandate implementing its decision, and the circuit court responded by dismissing Kircher with prejudice on April 5, 2010.

On April 15, 2010, Kircher and Brockway moved to modify the order so that the dismissal would be without prejudice and requested leave to file an amended complaint. While those motions were pending, Putnam and Evergreen removed the Kircher action to the United States District Court for the Southern District of Illinois 30 days after the Appellate Court of Illinois issued its mandate that the case should be dismissed in state court. Kircher and Brockway filed a motion to remand the case to state court on the grounds that the removal was untimely.

On July 14, 2010, while the motion to remand was still pending, the U.S. Judicial Panel on Multidistrict Litigation, acting pursuant to 28 U.S.C. §1407, transferred the Kircher action to the U.S. District Court as part of the ongoing Mutual Funds MDL.

On November 15, 2010, the district court issued an order and final judgment approving the class settlement in the Putnam Subtrack and settling claims as to Putnam. Kircher and Brockway also assented to an order granting Putnam’s motion for separate and final judgment pursuant to Rule 54(b).

Accordingly, Evergreen moved to administratively close the Kircher action. Kircher and Brockway opposed the motion on the grounds that their motion to remand the case to state court and a motion to modify the circuit court’s dismissal order and file an amended complaint were pending.

The district court granted Evergreen’s motion to terminate the Kircher action.

LAW: “[T]he law of the circuit where the transferee court sits governs questions of federal law in MDL proceedings.” In re Bridgestone/Firestone, Inc., 256 F.Supp.2d 884, 887 (S.D.Ind.2003). Accordingly, the law of the 4th Circuit governed the procedural questions presented in this action.

The federal removal statute states: “[A] notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” 28 U.S.C. §1446(b).

Kircher and Brockway argued that the “other paper” from which it could “first be ascertained that the case … has become removable” was the Jan. 6, 2010, opinion of the Illinois Appellate Court, holding that their claims were covered by SLUSA. Because Evergreen did not remove the case until April 29, 2010, more than thirty days later, Kircher and Brockway argued that the removal was untimely and required a remand to state court for further proceedings.

Although the Jan. 6 opinion held that Kircher’s and Brockway’s claims were covered by SLUSA (and therefore removable to federal court), Kircher and Brockway filed a petition for a rehearing in the Illinois Appellate Court soon after the opinion was issued, raising the possibility of a different outcome upon rehearing. Thus, it was not clear on Jan. 6, 2010, that the Kircher action ultimately would be removable.

Additionally, when the petition for rehearing eventually was denied, Kircher and Brockway had further opportunity to seek review in the Illinois Supreme Court, which also may have resulted in a different outcome. It was not until after the deadline for seeking further appellate review had passed — and not until the Illinois Appellate Court had issued the mandate implementing its opinion — that it became clear that the Kircher action was removable. Accordingly, because Putnam and Evergreen removed the case thirty days after the issuance of this mandate, the removal was timely under 28 U.S.C. §1446(b).

Even if the removal was untimely, Kircher and Brockway waived their right to object to the timeliness through their affirmative activity in federal court. See Moffit v. Baltimore Am. Mortg., 665 F.Supp.2d 515, 517 (D.Md.2009).

Although Kircher and Brockway filed a motion for remand on May 17, 2010, they spent the next six months actively participating in the MDL settlement in federal court instead of pressing their motion to remand. Kircher and Brockway even consented to the order and final judgment in the Putnam Subtrack, which states that the court “retains jurisdiction … over the parties and Class Members” regarding this case. Additionally, Kircher and Brockway assented to an order granting Putnam’s motion for separate and final judgment pursuant to Rule 54(b).

In light of this prolonged engagement in affirmative activity in federal court, Kircher and Brockway waived the right to object to any procedural removal defects.

COMMENTARY: Kircher and Brockway argued that even if their motion to remand was denied, the state court’s dismissal order should be modified so that they could obtain leave to file an amended complaint.

FRCP 15(a)(2) provides that leave to amend a complaint “should freely give leave when justice so requires.” The 4th Circuit has interpreted this statement to mean that “leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would have been futile.” Laber v. Harvey, 438 F.3d 404, 426 (4th Cir.2006).

Kircher and Brockway contended that their proposed amended complaint, which would allege “negligent failure to prevent market timing in the mutual funds as issue,” would not be precluded by the SLUSA because it would not allege a “misrepresentation or omission” and would therefore not trigger the SLUSA’s preclusion provision.

In an earlier case in this same MDL proceeding, a group of plaintiffs advanced a nearly identical argument in an attempt to make an end-run around the SLUSA’s limitations. Mehta v. AIG SunAmerica Life Assurance Co., 437 F.Supp.2d 439 (D.Md.2006). Instead of asserting explicit allegations of misrepresentation or fraud, the Mehta plaintiffs, “in an effort to avoid the preemptive scope of the [SLUSA], allege[d] only that the defendants negligently breached state common law duties.” Id. at 440.

In holding that these allegations were still precluded by the SLUSA, the court noted that “‘[t]he element of a misrepresentation or omission of a material fact is satisfied when a plaintiff alleges a misrepresentation concerning the value of the securities sold or the consideration received in return.’” Id. at 443 (quoting Araujo v. John Hancock Life Ins. Co., 206 F.Supp.2d 377, 382 (E.D.N.Y.2002)). The court further observed that although the Mehta plaintiffs’ market timing allegations were couched in terms of a negligence action, “at bottom the plaintiffs simply allege[d] that the defendants incorrectly priced certain investment options provided under the annuities.” Mehta, 437 F. Supp.2d at 443. Accordingly, these allegations satisfied the misrepresentation element of the SLUSA and were therefore precluded by the statute.

Similarly, at bottom, Kircher and Brockway ultimately contended only that Evergreen permitted market timing by using stale prices in valuing their fund shares. Because the SLUSA forbids the maintenance of class action suits based on allegations of incorrectly priced securities, see Mehta, 437 F.Supp.2d at 443, whether Kircher and Brockway alleged that the mispricing was intentional or merely negligent is of no moment: the action would be precluded by the SLUSA in either case. See Miller v. Nationwide Life Ins. Co., 391 F.3d 698, 702 (5th Cir.2004).

Thus, granting Kircher’s and Brockway’s request to file an amended complaint would be futile. Accordingly, their postjudgment motion to amend their complaint was denied.

PRACTICE TIPS: The Securities Litigation Uniform Standards Act precludes the maintenance of certain state-law claims regarding securities as class actions and provides for removable to federal court if the action is “(1) a covered class action, ‘(2) that is based on a state law, (3) alleging a misrepresentation or omission of a material fact or use of any manipulative or deceptive device or contrivance, (4) in connection with’ the purchase or sale of a covered security.” Dudley v. Putnam Int’l Equity Fund, GPM–10–328, 2010 U.S. Dist. LEXIS 43787, at *4 (S.D.Ill. May 5, 2010) (quoting 15 U.S.C. §78bb(f)(1)).

Constitutional Law

Classified Information Procedures Act

BOTTOM LINE: Federal statute imposing a criminal penalty on a person who “willfully retains” documents “relating to the national defense” was not unconstitutionally vague.

CASE: United States v. Drake, No. RDB 10-181 (decided April 13, 2011) (Judge Bennett). RecordFax No. 11-0413-40, 21 pages.

FACTS: In August, 2001, Thomas Drake joined the National Security Agency (NSA) as the Chief of the Change Leadership and Communications Office in the Signals Intelligence Directorate. In January of 2003, investigators from the Department of Defense Inspector General’s Office asked Drake to serve as a witness in an investigation into a complaint of fraud, waste and abuse at the NSA regarding the development of a program entitled Trailblazer. Drake agreed.

In 2004, the Inspector General issued an audit finding regarding its investigation, which concluded that the NSA had been inefficiently using its resources in developing the Trailblazer program. These findings were discussed in several newspaper articles written by a reporter, which formed the basis of the government’s subsequent allegations against Drake.

On April 14, 2010, Drake was charged, in a ten-count indictment, with retention of classified information in violation of the Classified Information Procedures Act (CIPA), 18 U.S.C. §793(e). Counts 1 through 5 of the indictment specified five classified documents that were found in Drake’s home, and alleged that Drake willfully retained these documents for the purpose of sharing them with the newspaper reporter.

Drake moved to dismiss Counts 1 through 5 on due process grounds, contending that multiple terms in §793(e) were unconstitutionally vague and overbroad. Drake also filed a motion for a declaration that Sections 5 and 6 of CIPA were unconstitutional.

The district court denied Drake’s motions.

LAW: Counts 1 through 5 of the indictment against Drake alleged that Drake violated The Espionage Act of 1917, 18 U.S.C. §793(e), by maintaining unauthorized possession of certain documents and willfully retaining them.

Section 793(e) imposes a criminal penalty on “whoever having unauthorized possession of, access to, or control over any document…relating to the national defense, or information relating to the national defense which information the possessor has reason to believe could be used to the injury of the United States or to the advantage of any foreign nation,…willfully retains the same and fails to deliver it to the officer or employee of the United States entitled to receive it.” 18 U.S.C. § 793(e).

Drake contended that: (1) prosecuting him under the Espionage Act violated the fair notice requirements of the Due Process clause because multiple terms in §793(e) were so vague that they failed to provide notice of what conduct is criminal and what conduct is not; and (2) §793(e) was unconstitutionally overbroad. Specifically, Drake took issue with the clauses “willfully retains,” “relating to the national defense,” and “reason to believe could be used to the injury of the United States.”

Although §793(e) does not define its terms, the meaning of its essential terms is well-settled within the 4th Circuit. See United States v. Morison, 844 F.2d 1057 (4th Cir.1988).

First, the term “willfully” as used in §793(e) is not unconstitutionally vague but rather has a consistent meaning.

In cases alleging wrongful disclosure of information, the 4th Circuit has interpreted the term “willfully” as requiring proof of “a bad faith purpose to either harm the United States or to aid a foreign government.” United States v. Rosen, 445 F.Supp.2d 602, 625 (E.D.Va.2006). Thus, the Rosen court concluded that §793(e) imposes an additional and significant scienter requirement. Id. at 625.

Drake asserted that including this additional scienter requirement makes §793(e) impermissibly vague, necessitating rewriting the statute to add omitted terms.

However, in cases involving merely the possession of documents rather than the disclosure of “information,” the defendant need only have acted “willfully,” as a defendant will more readily recognize a document relating to the national defense based on its content, markings or design than it would intangible or oral “information” that may not share such attributes. Thus, in prosecuting for communicating or withholding a “document” as contrasted with similar action with respect to “information,” the government need not prove an intent to injure the United States or to benefit a foreign nation, but need only prove willful and knowing conduct. New York Times Company v. United States, 403 U.S. 713, 738 n. 9 (1971).

Given that the present case against Drake involved solely the willful retention of classified documents, there was no heightened mens rea requirement, and the government was required to prove only simple willfulness on the part of Drake.

When used in the criminal context, a “willful” act is one undertaken with a “bad purpose.” Bryan v. United States, 524 U.S. 184, 191 (1998). In order to establish a willful violation of a statute, the government must prove that the defendant acted with knowledge that his conduct was unlawful. Id. at 192. This definition of willfulness is confirmed by 4th Circuit precedent, and the meaning of “willfulness” in Section 793(e) is not unconstitutionally vague. . See Morison, 844 F.2d 1057.

A review of Supreme Court and 4th Circuit precedent reveals that the phrase “relating to the national defense” likewise gives fair notice of what documents an individual may not disclose or unlawfully retain. In Gorin v. United States, the Supreme Court considered the constitutionality of the phrase “relating to the national defense” in the statute that preceded §793(e), and declined to find this phrase to be unconstitutionally vague. Gorin v. United States, 312 U.S. 19, 29 (1941). The Supreme Court held that the words “national defense” have a well understood connotation, and that a plain understanding of the phrase is sufficiently definite to apprise the public of prohibited activities and is consonant with due process. Id. at 28. Thus, the meaning of “relating to the national defense” in § 793(e) is not unconstitutionally vague.

Finally, the phrase “to the injury of the United States, or to the advantage of any foreign nation” relates only to cases based on disclosure of information, and does not apply to prosecutions of individuals, such as Drake, charged with providing documents relating to the national defense. As such, none of the various terms in §793(e) with which Drake took issue were unconstitutionally vague, and Drake was provided fair warning of what constitutes a crime under Section 793(e) as required under the Due Process Clause.

The district court next addressed Drake’s contention that §793(e) was overbroad under the First Amendment. A statute is overbroad when it infringes on expression to a degree greater than justified by the legitimate governmental need’ which is the valid purpose of the statute. Morison, 844 F.2d at 1070. While Drake conceded that the 4th Circuit concluded in Morison that §793(e) was not overbroad, Drake contended that Morison was factually distinguishable from the present case because Morison did not address a whistleblower defense.

However, regardless of whether Drake was acting as a whistleblower, §793(e) would not have prevented him from contacting the press about the NSA; rather, Drake was charged because he was alleged to have retained classified documents. As such, Drake’s alleged status as a whistleblower does not distinguish the present case from Morison, and the Morison holding controls and directs the analysis of the present case. The additional recent Supreme Court decisions cited by Drake, United States v. Stevens, ––– U.S. ––––, 130 S.Ct. 1577 (2010), and Garcetti v. Ceballos, 547 U.S. 410 (2006), did alter the clear precedent in the 4th Circuit that §793(e) is not unconstitutionally overbroad.

Accordingly, the district court denied Drake’s motion to dismiss Counts 1 through 5 on the grounds that §793(e) was unconstitutionally vague or overbroad.

COMMENTARY: Drake additionally contended that Sections 5 and 6 of CIPA were unconstitutional as applied in this case. Section 5 requires a defendant to provide notice to the United States and this Court if he “reasonably expects to disclose or cause the disclosure of classified information.” Section 6 provides for a pre-trial hearing on the classified evidence during which determinations will be made regarding the use, relevance or admissibility of the classified information that would otherwise be made during the trial or pretrial proceedings. Drake contended that these provisions violated his Fifth Amendment right not to be penalized for his pretrial silence, his Fifth and Sixth Amendment rights to testify in his own defense, his Sixth Amendment right to confront and cross-examine witnesses against him, and his Fifth Amendment right to due process of law.

The requirement that Drake disclose certain classified information or risk the possibility of preclusion of such information at trial did not violate Drake’s constitutional right to remain silent or testify in his own defense. Defendants in criminal cases are frequently required to disclose elements of their defense prior to trial, and such requirements have consistently been upheld as constitutional. See, e.g., Fed.R.Crim.P. 12.1. Likewise, the requirement that Drake disclose certain classified information he reasonably expected to obtain from witnesses did not violate his constitutional right to confront witnesses against him, because CIPA does not mandate that Drake reveal his trial strategy, but only that he identify whatever classified information he plans to use. Such a tactical disadvantage did not amount to an infringement of Drake’s constitutional rights. See Lee, 90 F.Supp.2d at 1328.

Finally, because CIPA carefully balances the burdens between the defendant and the prosecution, Drake’s argument that Sections 5 and 6 required him to disclose significant aspects of his case without imposing a mandatory reciprocal duty on the prosecution was unpersuasive. See, e.g., Lee, 90 F.Supp.2d at 1329. Thus, Sections 5 and 6 of CIPA did not violate Mr. Drake’s fundamental right to due process under the Fifth Amendment or his right to confront and cross-examine witnesses against him under the Sixth Amendment.

PRACTICE TIPS: The Classified Information Procedures Act (CIPA) was a legislative response to the problem of “graymail,” whereby a defendant threatens to reveal classified information during the course of his trial in the hope of forcing the government to drop the criminal charge against him. CIPA was designed to reconcile a criminal defendant’s right to obtain classified information prior to trial and to introduce such material at trial with the government’s duty to protect from disclosure sensitive information that could compromise national security. Thus, the statute is a procedural tool allowing a court to make rulings on admissibility and relevance before the commencement of trial.

Contract Law

Equitable relief

BOTTOM LINE: Defendant was entitled to summary judgment on plaintiff’s equitable theory of money had and received because plaintiff failed to establish that defendant received money as a mistake of law or fact and did not have a right to it.

CASE: Smith v. Alacrity Services, LLC, Civil No. JKB–10–3064 (decided April 20, 2011) (Judge Bredar). RecordFax No. 11-0420-41, 8 pages.

FACTS: After a fire damaged her home in October 2007, Amy Smith filed a claim with Allstate Insurance Company, her insurer, and the damage was assessed at approximately $36,000.

Alacrity Services, LLC operates an insurance services business from its principal place of business in Oregon. Alacrity maintains a network of contractors, called “AlacNet,” consisting of roughly 1,400 contractors across the country. Allstate turns to AlacNet when in need of a local contractor to perform repair work under a home insurance contract. The local contractor selected through AlacNet is directed to contact the homeowner, and if the insured agrees to use the contractor’s services, then the contractor prepares an estimate to be submitted to Allstate for approval. If Allstate approves the estimate, then it deposits the agreed-upon amount into an account to be managed on Allstate’s behalf by Alacrity. Alacrity supervises the contractor’s “draws” on the account and confirms completion of the work to Allstate; the insured is asked to sign a Certificate of Satisfaction.

The AlacNet contractor utilized for the repairs to Smith’s home was Mid–Atlantic Restoration, LLC, t/a Paul Davis Restoration-Chesapeake Bay (PDRCB). PDRCB is a franchise of Paul Davis Restoration, a national company engaged in construction work, focusing primarily on restoration from fire, floods, and other damage to real property. Smith signed a “Work Authorization / Repair Contract” with PDRCB.

Smith was not charged anything by PDRCB. Allstate paid for all repairs to her home. Smith did not pay any monies to Alacrity. On October 18, 2008, Smith executed a Certificate of Satisfaction.

Alacrity was not a party to the contract between Smith and Allstate. Smith was not a party to any contract between Alacrity and any of its member contractors. Nor was she a party to the contract between Alacrity and Allstate. Contractors who are members of AlacNet pay Alacrity for their membership; during the time of the events in Smith’s case, this payment was computed to be 2.8% of any monies received by a member contractor resulting from referrals received through AlacNet. It is this payment to Alacrity that was at issue here.

Smith filed a putative class-action lawsuit against Alacrity, asserting in count one a claim under the equitable theory of money had and received and in Count Two a claim under the equitable theory of unjust enrichment.

The district court granted Alacrity’s motion for summary judgment.

LAW: In count one of Smith’s complaint, she alleged that Alacrity “withheld for itself 2.8% of the total insurance claim owed by Allstate to Smith and the other members of the Class without their knowledge and/or consent.” Moreover, Smith asserted that Alacrity, “by keeping a portion of the funds for its own benefit, breached its standard of care and fiduciary duties to the Class members, who were thus injured by losing, without their knowledge or consent, 2.8% of the insurance proceeds to which they were entitled.”

“The action for money had and received is a common count used to bring a restitution claim under the common law writ of assumpsit.” Benson v. State of Maryland, 887 A.2d 525, 547 (Md.2005). This count “lies whenever the defendant has obtained possession of money which, in equity and good conscience, he ought not to be allowed to retain. A money had and received count may lie where the defendant receives the money as a mistake of law or fact and did not have a right to it.” Benson, 887 A.2d at 547.

Thus, it was incumbent upon Smith to provide evidence that Alacrity received money as a mistake of law or fact and did not have a right to it. She did not provide any evidence to this effect. Her theory seemed to be that the money received by Alacrity from Allstate was money to which she was entitled. Such entitlement would arise only from the insurance contract between Smith and Allstate, but that contract was not before the court. If she was in fact owed a particular amount of money by Allstate, then her complaint was really against Allstate, not Alacrity. But Smith did not establish that Allstate owed her a sum certain.

Accordingly, Alacrity’s motion for summary judgment was granted.

COMMENTARY: The elements of an unjust-enrichment claim are: “(1) The plaintiff confers a benefit upon the defendant; (2) The defendant knows or appreciates the benefit; and (3) The defendant’s acceptance or retention of the benefit under the circumstances is such that it would be inequitable to allow the defendant to retain the benefit without the paying of value in return.” Benson, 887 A.2d at 546.

The Maryland Court of Appeals discussed the nature of an unjust-enrichment claim in Ver Brycke v. Ver Brycke, 843 A.2d 758 (Md.2004), and noted that a restitution claim for money is usually considered a claim “at law.” Id. at 775. See also Berry & Gould, P.A. v. Berry, 757 A.2d 108, 113 (Md.2000) (“‘A person who receives a benefit by reason of an infringement of another person’s interest, or of loss suffered by the other, owes restitution to him in the manner and amount necessary to prevent unjust enrichment.’” (citing Restatement (Second) of Restitution §1 (Tentative Draft No. 1, 1983).

The court already concluded that Smith failed to establish an entitlement to a particular amount of money from Allstate. Alacrity, therefore, did not infringe any interest of Smith.

Smith alleged that, because she did not know about Alacrity’s arrangement with Allstate and PDRCB, she received significantly less in services and products from PDRCB than the amount of her insurance claim. To support that allegation, she produced the affidavit of Christopher Bruneau, in which he stated that to account for the “insurance proceeds shortfall,” he adjusted the material and labor allowances previously approved by Allstate. He then stated that Smith “received 2.75% less materials, in terms of quantity, quality, or both, than that which she was entitled to receive.” This statement did not establish a proper claim of unjust enrichment.

No doubt existed that Smith was entitled to have Allstate pay for repairs to her property. Allstate did so. But she did not establish that she was entitled to a certain amount of money for those repairs. If her contractor used unsatisfactory materials, then her complaint is more properly directed against PDRCB. However, Smith executed a certificate of satisfaction that indicated her home, in the portion repaired by PDRCB, was as good as or better than it was before the fire. Alacrity was entitled to rely upon that certificate.

Criminal Procedure

Right to counsel

BOTTOM LINE: Where court-appointed attorney consistently and zealously represented criminal defendant prior to trial, defendant’s filing of a complaint about the attorney with the Maryland Bar did not constitute a conflict of interest sufficient to grant defendant’s request that the court replace the attorney.

CASE: United States v. Kemache-Webster, Criminal No. RWT 10cr0654 (filed April 12, 2011) (Judge Titus). RecordFax No. 11-0412-40, 8 pages.

FACTS: On September 14, 2010, Franesiour Kemache–Webster was charged with using the mail and means of interstate commerce to coerce and entice a minor to engage in criminal sexual activity in violation of 18 U.S.C. §2422. ECF No. 1. The alleged victim was Kemache-Webster’s daughter, and the alleged underlying criminal conduct was incest. Kemache-Webster was indicted on this charge on October 25, 2010.

On October 18, 2010, the district court appointed an Assistant Federal Public Defender to represent Kemache-Webster. On November 22, 2010, Kemache-Webster sent a letter to the trial judge requesting that the attorney be removed as his counsel. The trial judge granted the request to appoint new counsel, and subsequently appointed another attorney, Gary Proctor, to represent Kemache-Webster.

Proctor requested funds in order to employ an investigator, reviewed thousands of pages of discovery materials and requested additional court-approved funds to employ a psychologist to examine Kemache-Webster. Despite Proctor’s efforts in preparing for Kemache-Webster’s defense, Kemache-Webster moved for Proctor’s withdrawal from the case, asserting irreconcilable differences of opinion and disagreements. However, Kemache-Webster’s primary complaint about Proctor was that Proctor was male, and Kemache-Webster felt that a female attorney would be more effective in representing him in a sex crimes prosecution. The district court judge denied Kemache-Webster’s request to remove Proctor as counsel.

Proctor continued to provide Kemache-Webster with zealous representation after the case was set for trial. At the same time that Proctor was filing pretrial motions on Kemache-Webster’s behalf, Kemache-Webster was filing pro se pretrial motions, including another motion seeking Proctor’s withdrawal as counsel and appointment of a new attorney.

The district court judge held a second attorney inquiry hearing, where Kemache-Webster protested that he could not be given a fair trial unless he was represented by female counsel. The judge reiterated to Kemache-Webster that attorneys are not appointed on the basis of their gender, but nonetheless enlisted a female attorney, Gwendolyn Waters, to serve as co-counsel in the case. Waters entered her appearance the next day.

On March 23, 2011, Proctor filed a motion to continue Kemache-Webster’s trial to allow time for DNA paternity testing of the minor victim and Kemache-Webster, in an attempt to uncover any possible evidence that Kemache-Webster and the victim were not related, which could potentially negate an element of the alleged incest attempt. The trial was eventually continued until April 19, 2011. In April of 2011, it was revealed that Kemache-Webster had filed a complaint against Proctor with the Maryland Bar Counsel.

On April 11, 2011, the court received in chambers a letter from Kemache-Webster requesting that a new attorney be appointed for him, arguing that a conflict of interest existed as a result of the pending complaint against Proctor with the Maryland Bar.

The court found that any concern of a conflict of interest in Proctor’s continued representation of Kemache-Webster was unfounded, and that Kemache-Webster’s complaints about Proctor to the Maryland Bar Counsel were merely an effort to use the vehicle of a frivolous bar complaint in an effort to overturn a decision of the district court judge. Accordingly, Kemache-Webster’s request for new counsel was denied.

LAW: Although an indigent defendant has an absolute right to have counsel appointed to represent him, the Sixth Amendment does not guarantee representation by a lawyer in whom the defendant reposes special confidence or with whom the defendant is able to establish a “meaningful relationship.” See United States v. Burns, 990 F.2d 1426, 1437 (4th Cir.1993). The 4th Circuit has held that a defendant’s filing of a state bar grievance did not create a presumption of a conflict of interest between the defendant and his counsel. Id. Thus, a conflict arising between a lawyer and his client in an entirely separate proceeding, which has no bearing on the lawyer’s ability to zealously represent the client at trial, does not give rise to an ineffective assistance of counsel claim. Id. at 1438.

In this case, Proctor, a distinguished and highly respected member of the Maryland bar, provided zealous representation to Kemache-Webster throughout several months of criminal proceedings. Proctor and his defense team interviewed witnesses, reviewed voluminous discovery materials, prepared and filed multiple, substantive pretrial motions, and argued those motions vigorously before the Court. In addition, Proctor sought and obtained the DNA testing of the minor victim and Kemache-Webster, the results of which could arguably provide Kemache-Webster his strongest defense at trial. Proctor took all of these actions on Kemache-Webster’s behalf, even while Kemache-Webster was actively seeking to have him removed as counsel.

Given Proctor’s consistently zealous representation of and advocacy for Kemache-Webster, the district court found that there was no doubt that Proctor would continue to zealously represent Kemache-Webster at his impending trial. Therefore, Kemache-Webster was afforded his Sixth Amendment right to counsel, and there existed no basis for replacing Proctor as Kemache-Webster’s counsel.

Accordingly, Kemache-Webster’s motion for Proctor’s withdrawal as counsel was denied.

COMMENTARY: The court found no reason to disclose to the government Kemache-Webster’s bar complaint or his letters to counsel and to the district court requesting Proctor’s withdrawal. Complaints to the Maryland Bar Counsel are confidential, and Kemache-Webster’s letter to counsel is covered by the attorney-client privilege.

Accordingly, the Government’s Motion to Compel Disclosure of Complaint Against Counsel was denied.

PRACTICE TIPS: Under the Sixth Amendment, a criminal defendant is entitled to competent counsel who will provide zealous representation. Thus, where a criminal defendant repeatedly requests new court-appointed counsel, the court will not inquire into Kemache-Webster’s motivation for seeking new counsel, but will based its decision simply on whether the defendant’s existing counsel is competent. If a defendant is not satisfied with competent counsel appointed by the court, the defendant is always free to retain private counsel.

Labor & Employment

Wrongful termination

BOTTOM LINE: Professor’s claim that university violated his right to free speech when it terminated his employment was rejected because, where his speech was not made as a citizen on a matter of public concern and, it was not entitled to First Amendment protection.

CASE: McReady v. O’Malley, No. RWT 08cv2347 (decided March 31, 2011) (Judge Titus). RecordFax No. 11-0331-40, 29 pages.

FACTS: On December 11, 2005, Edward McReady began employment with University of Maryland University College (UMUC) as a Collegiate Associate Professor with initial duties as the Assistant Academic Director of Accounting. In the spring of 2006, he applied for the Academic Director of Accounting position, but was not selected. He then asked to be removed from the Assistant Academic Director of Accounting position and be appointed as a 12–month Collegiate Associate Professor, which is primarily a teaching position. Dr. McReady was assigned to teach in the Accounting Department beginning in August of 2006. Dr. Rhea Reed was the Academic Director of Accounting.

During the fall of 2006, UMUC instituted a search to fill the vacant Assistant Academic Director of Accounting position that had been vacated by Dr. McReady. Prior to making that selection, Dr. Reed asked Dr. McReady if he wanted to be inserted into the search for that position, but he declined.

On January 14, 2007, Dr. McReady e-mailed Dr. Reed indicating he would be interested in returning to the Assistant Director position, but he requested either a higher salary or a three year contract as a condition accompanying his possible reappointment as the Assistant Director. The administration denied both requests.

On May 18, 2007, Dr. Reed informed Dr. McReady of the need to reassign him from a face-to-face section of ACCT 311 to an online section of ACCT 310, so that she could staff a new faculty member, Ira Holmes, to the face-to-face course. Dr. Reed explained that Ira Holmes needed to be staffed to the face-to-face course because he had not yet taken the computer training necessary to teach the online course. Between May 21st and May 24th, Dr. McReady wrote several hostile emails to Dr. Reed challenging her decision to assign Professor Holmes to the face-to-face course.

Dr. McReady’s emails grew increasingly hostile. Dr. McReady also challenged the decision-making authority of others in the administration in hostile emails, including Dr. Greg von Lehmen, Interim Dean of the School of Undergraduate Studies and Interim Provost of Academic Affairs, and Dr. John Volpe, Assistant Dean of the School of Undergraduate Studies and head of UMUC’s Business and Professional Programs Department. Consequently, in June 2007, Dr. McReady was informed that his contract would not be renewed when it expired on June 30, 2008. Dr. McReady filed a grievance related to the non-renewal decision.

Even after he was informed of UMUC’s decision not to renew his contract, Dr. McReady persisted in his complaints about Dr. Reed’s decision-making. Dr. Reed announced that the Accounting department was adopting WileyPlus, a software program and collection of online teaching resources for use in accounting courses, and that the use of that program for intermediate accounting courses would be mandatory. Dr. McReady sent an email to Dr. Lehmen inquiring if he would be fired for not using WileyPlus. Dr. McReady informed Dr. von Lehmen stating that he would not have time to incorporate WileyPlus into his fall courses. At the same time, Dr. McReady continued to complain about his assignment to teach the online intermediate accounting course in emails which

Dr. McReady’s contract was terminated for cause in August 2007 because of his willful neglect of duties and insubordination. Dr. McReady’s faculty grievance regarding the nonrenewal of his contract proceeded, with the grievance committee concluding that Dr. McReady did not present evidence to support his claim that the nonrenewal of his appointment was in retaliation for expressing his views on and objections to academic and employment related actions and omissions during the time period May 8 through June 20, 2007. The UMUC President upheld the findings of the committee, which was final and not appealable.

McReady sued UMUC and various university officials, asserting claims for violations his First Amendment right to free speech and, inter alia, defamation.

The district court granted summary judgment for UMUC on all claims.

LAW: Though “public employees do not surrender all their First Amendment rights by reason of their employment,” the First Amendment only protects an employee’s speech if the “employee spoke as a citizen on a matter of public concern.” Garcetti v. Ceballos, 547 U.S. 410, 418 (2006). Whether a public employee’s speech addresses matters of public concern must be determined by the content, form and context in which the statements were made. Connick v. Myers, 461 U.S. 138, 147–48 (1983). The inquiry is not whether the subject of an employee’s speech is on a matter that “could be of concern to the public” but rather whether the employee’s speech was made “primarily in his role as an employee.” DeMiglio v. Haines, 45 F.3d 790, 805 (4th Cir.1995). An employee’s speech contesting managerial decisions does not touch on a matter of public concern. Connick, 461 U.S. at 146.

Dr. McReady’s complaints about the course chair duties he was asked to perform, Dr. Reed’s decision to staff him to an online course, and Dr. Reed’s decision to make use of WileyPlus mandatory expressed his displeasure with managerial decisions, and therefore were made in his role as an employee, not as a citizen.

Similarly, Dr. McReady challenged Professor Holmes’ qualifications after Holmes was staffed to a course Dr. McReady wanted to teach, indicating that his speech was primarily geared at reversing a managerial decision with which he disagreed. See Harris v. Merwin, 901 F.Supp. 509 (N.D.N.Y.1995).

Dr. McReady’s accusation that members of the faculty had “conflicts of interest” associated with the adoption of WileyPlus was also not speech on a matter of public concern. An employee’s allegations that other employees engaged in misconduct is speech made as an employee, not as a citizen. See, e.g. Barnes v. Small, 840 F.2d 972, 982 (D.C.Cir.1988).

The record revealed that Dr. McReady made increasingly hostile statements about managerial decisions he found disagreeable or unwise. Such speech was not entitled to First Amendment protection.

Moreover, if an employee’s speech “impairs discipline by superiors or harmony among coworkers, has a detrimental impact on close working relationships for which personal loyalty and confidence are necessary, or impedes the performance of the speaker’s duties or interferes with the regular operation of the enterprise,” the employee’s speech interests will likely be outweighed by the employer’s interests in maintaining order and efficiency. Rankin v. McPherson, 483 U.S. 378, 388 (1987).

Dr. McReady’s constant challenging of Dr. Reed’s decision-making authority spanned months and grew increasingly hostile. Dr. McReady’s persistent refusal to accept the curricular and staffing decisions made by his superiors clearly undermined UMUC’s ability to maintain discipline in the accounting department. Dr. McReady’s conduct left Dr. Reed feeling threatened and harassed, a result that clearly impaired her ability to effectively run the accounting department.

Moreover, Dr. McReady’s habit of copying multiple members of the accounting department on his lengthy, insubordinate emails surely interfered with other professors’ abilities to do their jobs. Finally, Dr. McReady’s refusal to accept the adoption of WileyPlus threatened the accounting department’s interest in maintaining a uniform curriculum. See Scallet v. Rosenblum, 911 F.Supp. 999, 1016 (W.D.Va.1996). Accordingly, UMUC’s interest in maintaining discipline and efficiently administering the accounting department clearly outweighed Dr. McReady’s speech interests.

However, even if Dr. McReady’s speech interests outweighed the university’s interests in maintaining discipline and order in the accounting department, UMUC was entitled to qualified immunity. Government officials are protected by qualified immunity and shielded from liability “as long as their actions could reasonably have been thought consistent with the rights they are alleged to have violated.” DiMeglio v. Haines, 45 F.3d 790, 794 (4th Cir.1995).

Where the free speech rights UMUC allegedly violated were not clearly established at the time their challenged actions were taken, they were entitled to qualified immunity. Id. at 805.

Accordingly, UMUC was entitled to summary judgment on Dr. McReady’s free speech claims.

COMMENTARY: “To establish a prima facie case of defamation when the plaintiff is not a public figure, the plaintiff must prove: (1) that the defendant made a defamatory communication to a third person; (2) that the statement was false; (3) that the defendant was at fault in communicating the statement; and (4) that the plaintiff suffered harm.” Samuels v. Tschechtelin, 135 Md.App. 483 (Md.App.2000). An individual cannot be held liable in defamation for a statement of opinion. Gertz v. Robert Welch, Inc., 418 U.S. 323, 339–40 (1974).

Certain of the allegedly defamatory statements made by UMUC were statements of opinion, and hence could not form the basis of a defamation claim. The remainder of the statements Dr. McReady alleged to be defamatory were statements of fact, but were not defamatory, as Dr. McReady did not show that they were false.

Further, Dr. McReady did not present any evidence that UMUC’s statements harmed him. A plaintiff suffers harm where defamatory statements led to lost present or future job opportunities. Tschectelin, 763 A.2d at 241. However, there was no support in the record for Dr. McReady’s claim that Dr. Reed’s statements — rather than his emails to Dr. Reed, on which numerous members of the faculty were copied, and the insubordinate emails he sent to other faculty members questioning Dr. Reed’s decision-making — were the reason for Dr. McReady’s termination. Dr. McReady was terminated also because he refused to follow a directive from his supervisors to use WileyPlus.

Maryland state employees “are immune … from liability in tort for a tortious act or omission that is within the scope of the public duties of the State personnel … and is made without malice or gross negligence.” CJ §5–522(b). State employees are entitled to this statutory immunity when sued for making defamatory remarks within the scope of their employment. Larsen v. Chinwuba, 377 Md. 92 (Md.2003).

The email communications between members of the UMUC faculty regarding Dr. McReady’s hostile behavior and insubordination were clearly made within the scope of their employment. Thus, even if the comments made by members of the UMUC faculty were defamatory, their communications to each other in this case were clearly entitled to statutory immunity.

Similarly, communications made to students regarding their final grades in Dr. McReady’s course were made within the scope of UMUC personnel’s employment. Accordingly, UMUC was entitled to qualified immunity with respect to each and every communication Dr. McReady claimed was defamatory.

A defendant may escape liability for a defamatory statement if publication of the utterance enjoyed a qualified privilege. McDermott v. Hughley, 317 Md. 12 (Md.1989). A statement is accorded a qualified privilege “when the occasion shows that the communicating party and the recipient have a mutual interest in the subject matter, or some duty with respect thereto.” Id. Statements made within the employer-employee relationship share a well-settled qualified privilege. Happy 40 Inc. v. Miller, 63 Md.App. 24 (Md.1985).

A qualified privilege is lost only where it is abused, that is, where the defamatory statement is made with malice; where the statement was not made in furtherance of the mutual interest for which the privilege exists; where the statement is made to a third party other than those whose hearing is reasonably necessary or useful to the protection of the mutual interest; or where the statement contains defamatory material not reasonably believed to be in line with the purpose for which the privilege exists. Carter v. Aramark Sports and Entertainment Svcs., Inc., 153 Md.App. 210 (Md.App.2003).

The communications between Dr. Reed and other members of the department regarding Dr. McReady’s increasingly hostile communications with Dr. Reed and insubordination in the face of her decision-making are clearly entitled to a qualified privilege. These statements were made within the scope of the parties’ employment relationship. Dr. Reed and her supervisors had a mutual interest in ensuring the effective functioning of the accounting department — an interest undermined by Dr. McReady’s persistent insubordination. Moreover, there was no evidence that this privilege was abused.

Dr. McReady also failed to demonstrate that a genuine dispute as to any material fact existed with respect to his claims for intentional interference contractual relations, abusive discharge from public employment and breach of contract. Accordingly, UMUC was entitled to summary judgment on each of those claims as well.

PRACTICE TIPS: Abusive discharge claims should be limited “to situations involving the actual refusal to engage in illegal activity, or the intention to fulfill a statutorily prescribed duty,” Adler v. American Standard Corp., 830 F.2d 1303, 1307 (4th Cir.1987), and since Adler, the Maryland appellate courts have not found an abusive discharge claim to be stated “absent a discharge which violates a public policy set forth in the constitution, a statute, or the common law.” discharge.” Lee v. Denro, Inc., 605 A.2d 1017, 1021 (1992).