Please ensure Javascript is enabled for purposes of website accessibility

Opinions – U.S. District Court of Maryland: 8/22/11

Civil Procedure

Motion to unseal documents

BOTTOM LINE: Defendant’s motion to unseal the entire docket in a qui tam action filed against it was granted because the documents in the file did not contain confidential investigative techniques or substantive details regarding methods of investigation that could have jeopardized the prosecution of the case.

CASE: United States v. Omnicare, Inc., Civil No. CCB-07-1283 (decided July 28, 2011) (Judge Blake). RecordFax No. 11-0728-40, 6 pages.

FACTS: On May 5, 2007, Barry Rostholder, the realtor, filed a qui tam action against Omnicare, Inc. pursuant to the False Claims Act (FCA). The United States declined to intervene in the case.

On Nov. 9, 2010, the court ordered the partial lifting of the seal on the case, specifically unsealing the government’s notice of election to decline intervention, the second amended complaint, and all documents and pleadings filed after Nov. 9, 2010.

Omnicare filed a motion to unseal the entire docket. Rostholder consented to the unsealing of the original and first amended complaints and took no position on unsealing the other documents in the court file. The United States, however, opposed the unsealing of motions and accompanying memoranda it filed requesting extensions of time to elect to intervene (extensions).

The district court granted Omnicare’s motion.

LAW: Under the FCA, a realtor may file a complaint under seal while the government investigates whether it will intervene in a case. 31 U.S.C. §3730(b)(2). The complaint remains under seal for at least 60 days, but, for good cause, the government may request the court for more time to investigate a claim, during which the complaint remains under seal. Id. at §3730(b)(3).

Although the FCA explicitly contemplates that the complaint will be unsealed once the government has decided whether or not to intervene, it does not address whether the government’s motions for extensions of time and accompanying memoranda should remain under seal indefinitely. See id. at §3730(b)(2)-(3).

The 4th Circuit has not addressed whether anything beyond the qui tam complaint must be unsealed. It has emphasized, however, that “the presumption in favor of public disclosure of court records can only be overcome by a significant countervailing interest.” Under Seal v. Under Seal, 326 F.3d 479, 486 (4th Cir.2003) (citing Rushford v. New Yorker, 846 F.2d 249, 253 (4th Cir.1988)).

Courts have balanced a defendant’s interest in obtaining information normally available for public disclosure against the government’s interest in protecting confidential information disclosed in those motions. See ACLU v. Holder, — F.3d —-, 2011 WL 1108252, at *11 (4th Cir.2011).

Omnicare requested access to the government’s motions for extensions for two reasons: (1) to determine whether Rostholder disclosed any privileged attorney-client discussions to the government and (2) to determine whether Rostholder qualified as an original source under the FCA.

“Where disclosure of confidential investigative techniques, of information which could jeopardize an ongoing investigation, or of matters which could injure non-parties is requested,” courts have prevented the disclosure of sensitive documents. United States ex rel. Mikes v. Straus, 846 F.Supp. 21, 23 (S.D.N.Y.1994).

It is appropriate to unseal a document, however, that reveals only “routine investigative procedures which anyone with rudimentary knowledge of investigative processes would assume would be utilized in the regular course of business … [and] contains no information about specific techniques such as what items might be looked for in an audit, what types of employees of an entity should be contacted and how, what laboratory tests might be utilized, or the like.” United States ex rel. Health Outcomes Techs. v. Hallmark Health Sys., Inc., 349 F.Supp.2d 170, 173 (D. Mass 2004).

The motions for extensions of time to intervene and accompanying memoranda did not contain confidential investigative techniques or substantive details regarding the government’s methods of investigation that could have jeopardized the prosecution of this case or future cases. The motions merely described routine investigative procedures with as little detail as possible.

Moreover, Omnicare had a legitimate interest in obtaining documents that may have been helpful in establishing defenses, such as whether Rostholder would qualify as an original source under the FCA.

Accordingly, after balancing Omnicare’s interest in obtaining information with the government’s interest in continued confidentiality, the documents were unsealed.

COMMENTARY: The government also argued that the documents it sought to keep under seal contained information that was protected by the attorney work product doctrine. However, it failed to cite any authority making the work-product protection applicable to those documents, which the government chose to file with the court. See Health Outcomes Techs., 349 F.Supp.2d at 174.

Contract Law

Limitation of liability

BOTTOM LINE: Plaintiff had actual notice of the limitation of liability provision in its contract with defendant and, therefore, defendant’s motion for declaratory judgment limiting its liability was granted.

CASE: Coutinho & Ferrostaal Inc., v. M/V Federal Rhine, Civil No. JFM-08-2222 (decided July 29, 2011) (Judge Motz). RecordFax No. 11-0729-40, 12 pages.

FACTS: Coutinho and Ferrostaal, Inc. (Ferrostaal) sued M/V Federal Rhine, Daewoo Logistics Corporation, Federal Atlantic Limited, Beacon Stevedoring Corporation, and the Rukert Terminals Corporation, pursuant to 28 U.S.C. § 1331, alleging negligent transportation, handling, and storage of the steel pipe cargo on board the vessel M/V Federal Rhine.

Rukert was responsible for storing the goods after they were stevedored. Although it denied responsibility for the shipment’s damage, Rukert filed a motion for declaratory judgment seeking to limit its potential liability, if any, to a maximum of $20,170.

The district court granted Rukert’s motion.

LAW: The Federal Declaratory Judgment Act, 28 U.S.C. §2201, authorizes a federal court to issue a declaratory judgment. “A district court should normally entertain a declaratory judgment action when it finds that the declaratory relief sought: (1) ‘will serve a useful purpose in clarifying and settling the legal relations in issue,’ and (2) ‘will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.’” Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422-23 (4th Cir.1998) (quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.1937)).

As a terminal operator, Rukert is a warehouseman and is therefore generally permitted to limit its liability. Ferrex Int’l, Inc. v. M/V Rico Chone, 718 F.Supp. 451, 456 (D.Md.1988). Under Maryland law, a warehouse receipt is defined as “a document of title issued by a person engaged in the business of storing goods for hire.” CL §1-201(45). In the event of loss or damage to stored goods, a warehouseman can limit its liability by a term in its warehouse receipt. §7-204(b); Phillips Bros. v. Locust Indus., Inc., 760 F.2d 523 (4th Cir.1985). Limited liability clauses carry a presumption of validity. See Cornell v. Council of Unit Owners Hawaiian Vill. Condo., Inc., 983 F.Supp. 640, 643 (D.Md.1997).

Rukert provided Ferrostaal with a copy of its monthly storage rates in a rate letter dated Dec. 15, 2006. Ferrostaal chose to do business with Rukert based on the rates contained in this letter. At the commencement of storage, a standard-form warehouse receipt was issued by Rukert containing a provision that limited liability to 10 times the provided, per ton, monthly storage rate.

If Ferrostaal had actual or constructive notice of the limitation clause, then Rukert’s liability must be limited pursuant to the receipt’s provision. See Ferrex Int’l, Inc. v. M/V Rico Chone, 718 F.Supp. 451 (D.Md.1988).

Ferrostaal is a multinational corporation that has been dealing in steel for decades. In contract, sophisticated parties like Ferrostaal are held to higher standards than members of the general public. See, e.g., Caterpillar Overseas, S.A. v. Marine Transp. Inc., 900 F.2d 714, 719 (4th Cir.1990).

A complete warehouse receipt from Rukert consists of multiple pages, the exact amount of pages depending on the particular transaction. In any transaction with Rukert, however, the limitation provision does not appear on the first page of the receipt. Ferrostaal argued that although they received the first page of some warehouse receipts, it is unlikely they ever received the entire warehouse receipt.

Under Maryland law, however, delivery and receipt are presumed if the material is properly mailed and the sender can show that it mails the document in question as part of its ordinary business practices. Benner v. Nationwide Mut. Ins. Co., 93 F.3d 1228, 1234 (4th Cir.1996).

Rukert declared by affidavit that it is their common practice to mail warehouse receipts to their customers. Ferrostaal denied possession of the portion of the warehouse receipt containing the limitation provision, but never denied that it received all or part of the receipt. Moreover, the first page of Rukert’s warehouse receipt indicates that the receipt continues on after the first page.

Accordingly, even if Ferrostaal did not receive more than the first page of the warehouse receipt, courts nevertheless “often [hold] that the missing terms are incorporated by reference, or that the signee should have inquired about their absence.” JHF Vista USA, Ltd. v. John S. Connor, Inc., No. 09-30-CCB, 2010 WL 481327, at *4 (D.Md. Feb. 5, 2010).

Ferrostaal thus failed to defeat the presumption that the receipt’s limitation of liability provision was delivered and received. Since Ferrostaal had actual notice of the limitation of liability provision, therefore, Rukert’s motion for declaratory judgment, limiting its liability to the amount of $20,170, was granted.

COMMENTARY: Ferrostaal argued that Rukert’s liability limitation provision was ambiguous.

While a warehouse receipt can constitute a contract, it can also supplement an existing contract with limited liability terms. Phillips Bros., 760 F.2d at 525. Furthermore, limited liability clauses added by a warehouse receipt will govern unless they are unreasonable or the other party timely objects. Id.

The extent to which the receipt limits Rukert’s liability and the affordability of Rukert’s storage prices are related: the lower the storage price, the more reasonable a stringent liability limitation becomes. Ferrostaal knew they were getting a price below the market rate from Rukert, making a stringent liability provision more reasonable.

Accordingly, the receipt’s limited liability section is reasonable and became part of the parties’ contract when Ferrostaal failed to timely object to its inclusion.

Whether a contract is ambiguous is a question of law. Washington Metro. Area Transit Auth. v. Potomac Inv. Props., Inc., 476 F.3d 231, 234 (4th Cir.2007). A contract is ambiguous if a reasonably prudent person could interpret it more than one way. Calomiris v. Woods, 727 A .2d 358, 363 (Md.1999). In making its determination, courts consider “the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.” Calomiris, 727 A.2d at 363.

By federal regulation, a specific contract between a marine terminal operator and another party supersedes a generic tariff. 46 C.F.R. §525.2(a)(3). As such, inconsistency between Rukert’s tariff and the parties’ contract did not create ambiguity. Rukert and Beacon Stevedoring Corporation are affiliated companies responsible for storage and stevedoring, respectively. The rate letter limits Beacon’s stevedoring liability to $500.00 a package, while the warehouse receipt limits Rukert’s storage liability. A reasonably prudent person, especially a sophisticated entity like Ferrostaal, could only interpret the $500.00 per package limitation in the rate letter to apply to stevedoring. See, e.g., St. Paul Mercury Ins. Co. v. Honeywell Int’l, Inc., No. 05-3474-JFM, 2006 WL 2514008, at *3 (D.Md. Aug. 22, 2006).

On its own, the phrase “monthly storage rate” in the warehouse receipt might cause confusion. But the rate letter, which contained the per ton monthly storage rate that Rukert offered and Ferrostaal accepted, removed any ambiguity as to what amount is meant by the language of Rukert’s receipt.

When viewing the contract as a whole, the limited liability clause in the warehouse receipt could be interpreted only one way and was therefore unambiguous.

PRACTICE TIPS: “[A]n action against a terminal operator for loss of cargo is not within federal maritime jurisdiction, but is a state claim governed by state law.” See Ferrex Int’l, Inc. v. M/V Rico Chone, 718 F. Supp. 451, 456 (D.Md.1988).

Evidence

Wiretaps

BOTTOM LINE: Defendant’s motion to suppress evidence obtained by electronic surveillance was denied because the affidavit submitted in support of the wiretap order provided sufficient probable cause and the wiretaps satisfied relevant statutory requirements.

CASE: United States v. Fauntleroy, Criminal No. L-10-0336 (decided July 25, 2011) (Judge Legg). RecordFax No. 11-0725-40, 12 pages.

FACTS: On March 25, 2010, the circuit court approved an application for a wiretap on telephone numbers identified as the A-line and the B-line. The A-line was believed to be used by Roger Ford. The B-line was believed to be used by Travis Stanfield. Later in the investigation, subsequent wiretap orders were obtained for the C-line (believed to be used by Dione Fauntleroy), the D-line (believed to be used by Robert Campbell), the E-line (also believed to be used by Campbell), the F-line (believed to be used by Damian Jackson), and the G-line (believed to be used by Fauntleroy).

Based on evidence discovered through the wiretap, on June 16, 2010, a federal grand jury returned an indictment that charged 22 defendants, including Fauntleroy, with conspiring to distribute controlled substances.

On June 17, 2010, police executed a search warrant on an apartment in Woodlawn, Maryland. The apartment was believed to be the residence of Fauntleroy and his girlfriend, Taii Speaks. Police recovered a .45 caliber pistol with an obliterated serial number.

Fauntleroy filed a motion to suppress evidence obtained by electronic surveillance and interception by wire and fruits of wiretapping. He also moved to sever his case and for a separate trial or, in the alternative, dismissal of count one of the indictment against him, and that the Government be required to file a bill of particulars. Speaks also filed a motion to suppress evidence.

The district court denied all of Fauntleroy’s motions and Speaks’ motion.

LAW: CJ §10-408(c), which governs the issuance of wiretaps, requires that the issuing court find: “probable cause for belief that an individual is committing, has committed or is about to commit a particular offense enumerated in § 10-406 of this subtitle; … probable cause for belief that particular communications concerning that offense will be obtained through the interception of communications over the targeted communication device; [and] probable cause for belief that the facilities from which, or the place where, the wire, oral or electronic communications are to be intercepted are being used, or are about to be used, in connection with the commission of such offense.”

The affidavit presented to the judge contained more than ample probable cause. The fact that not all of the evidence was directly relevant to Fauntleroy, Jr., himself was immaterial because there was more than enough evidence that drug crimes were being committed, that evidence of those crimes was likely to be obtained through the wiretap, and that the A- and B-lines were being used to facilitate the offenses.

Fauntleroy, the alleged principal user of the C-line, was a party to numerous phone calls to and from the A-line, in which he was recorded discussing drug transactions with Ford. The two talked about types and quantities of drugs, potential sources of supply, and the manufacture of crack from powder cocaine. The contents of these calls, combined with the affiant agents’ interpretations of the often coded language used by Ford and Fauntleroy, were more than enough to support a determination that probable cause existed sufficient to warrant a wiretap on the C-line. By virtue of the same analysis, the wiretaps on the D, E, F, and G-lines were also valid.

Under 18 U.S.C. §2518(1)(c), a wiretap application must contain “a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous.” See CJ §10-408; United States v. Bullock, No. 95-5983, 2000 WL 84449, at *4 (4th Cir.2000).

The A/B-line affidavit discussed at length other investigative techniques that police either utilized or considered using. Specifically, it analyzed the past and probable future results of using confidential sources and informants, undercover officers, co-conspirator cooperation, search warrants, physical surveillance, tracking devices, CCTV cameras, grand jury investigations and witness interviews, pen registers, and review of criminal histories. It was clear from the affidavit that none of these techniques, alone or in concert, would have led to the unraveling of the conspiracy.

When, as in this case, probable cause has been established and the flow of information from traditional investigative techniques begins to run dry, investigators are entitled to a wiretap.

Finally, 18 U.S.C. §2518(5) requires wiretap orders to include a directive that the order be executed “in such a way as to minimize the interception of communications not otherwise subject to interception.” The minimization requirement is satisfied if the reviewing court finds that, in light of all of the facts and circumstances, “the agents have shown a high regard for the right of privacy and have done all they reasonably could to avoid unnecessary intrusion.” United States v. Tortello, 480 F.2d 764, 784 (2d Cir.1973).

The wiretap orders issued by the judge contained a directive of the type required by 18 U.S.C. §2518(5), and enumerated with specificity the subject matter that was fair game for interception. The instructions issued to all monitoring agents repeated the standard contained in the wiretap orders, and instructed the agents that all intercepted calls could be monitored for an initial period of two minutes “for the purpose of identifying the parties to the conversation and determining whether said conversation is criminal in nature or constitutes evidence of the offenses under investigation.” If, after the initial two-minute period, the monitoring agent designated the conversation as non-pertinent to the investigation, interception would have to be terminated.

The instructions further authorized spot monitoring or spot checking, meaning that the monitoring agent would be permitted to reactivate the interception of a call initially designated non-pertinent every thirty to sixty seconds to determine if the parties or the nature of the conversation changed to those covered in the order. The agent was instructed to use his or her judgment as to when and for how long to spot check, based on several factors.

Taking into consideration the complexity of the alleged conspiracy, the number of individuals involved, and the coded language, two minutes is a reasonable time in which to make an initial determination as to pertinence. See United States v. Quintana, 508 F.2d 867, 874 (7th Cir.1975).

Fauntleroy turned to statistical analysis of the call logs for the A, B, and C-lines in an attempt to show that the monitoring agents intercepted more of the conversations than necessary or permissible. However, the statistics did not establish such. Furthermore, Fauntleroy did not identify a single discrete call that he contended was monitored more than necessary.

Based on the evidence presented, such monitoring did not constitute a failure to minimize as required by the issuing court’s order. Accordingly, the motion to suppress evidence obtained by electronic surveillance and interception by wire and fruits of wiretapping was denied.

Additionally, because neither Fauntleroy nor any of his co-defendants would be prejudiced either by the broad language of count one, the conspiracy count, or by a joint trial, Fauntleroy’s motion to sever his case and for a separate trial or, in the alternative, dismissal of count one, was denied.

COMMENTARY: A district court has a limited role in reviewing an issuing magistrate’s probable cause determination and must only “‘ensure that the magistrate had a substantial basis for concluding that probable cause existed.’” United States v. Bynum, 293 F.3d 192, 202 (4th Cir.2002) (quoting Illinois v. Gates, 462 U.S. 213, 238-39 (1983)).

Direct evidence linking the place to be searched to the crime is not required for the issuance of a search warrant. United States v. Williams, 548 F.3d 311 (4th Cir.2008). In drug cases, it is reasonable to infer that evidence of the drug trade will be found where drug dealers reside. See, e.g., United States v. Whitner, 219 F.3d 289, 297-98 (3d Cir.2000).

The issuing judge is entitled to rely on the affiant’s training and experience on the issue whether those involved in certain types of illegality customarily store evidence in their homes. Once such a permissible inference has been drawn, the affidavit need only establish probable cause to believe that (1) the individual in question is involved in the drug trade and (2) the individual resides at the address for which the warrant is sought.

Both prongs were satisfied in this case. First, through the wiretap on the C-line police intercepted numerous conversations in which Fauntleroy discussed and arranged for drug transactions.

As to Taii Speaks, calls intercepted on the C-line between Fauntleroy and his father suggested that Fauntleroy was sending Speaks to his father’s house to pick up drugs that had been left there.

Further evidence suggested that, despite being in the name of Fauntleroy’s mother, the apartment was the residence of Fauntleroy and Speaks. In addition to physical surveillance of the apartment tending to establish that both Fauntleroy and Speaks resided there, police intercepted a call in which Fauntleroy asked his mother to call the rental office and have them fix the air conditioning. She agreed to do so, but had to ask her son for the address.

Thus, there was more than sufficient probable cause for the issuance of a search warrant for the apartment. Accordingly, Speaks’s motion to suppress evidence recovered during the search was denied.

PRACTICE TIPS: A decision to stop an automobile is reasonable where a police officer has probable cause to believe a traffic violation has occurred, no matter how minor the traffic offense may be, Whren v. United States, 517 U.S. 806, 810 (1996), and in determining whether the length of a detention is reasonable, courts may consider whether police officers “diligently pursued a means of investigation that was likely to confirm or dispel their suspicions quickly, during which time it was necessary to detain the defendant.” United States v. Sharpe, 470 U.S. 675, 686 (1985).

Insurance Law

Attorney’s fees

BOTTOM LINE: The insurance policy between plaintiff and defendant did not authorize fee shifting and, therefore, defendant was not entitled to recover attorney fees in an action for breach of the insurance policy.

CASE: National Casualty Company v. Lockheed Martin Corporation, Civil Action No. AW-05-1992 (decided July 28, 2011) (Judge Williams). RecordFax No. 11-0728-41, 13 pages.

FACTS: This longstanding action arose out of the alleged breach of a marine insurance policy between National Casualty Company (NCC), the insurer, and Lockheed Martin, the insured. A jury returned a verdict in favor of Lockheed. The case involved the interpretation of a provision of the insurance policy: General Condition 2(a) (GC 2(a)). Lockheed claimed that GC 2(a) enabled it to recover the attorney fees it incurred in vindicating its insurance claim against NCC. NCC countered that GC 2(a) did not authorize fee shifting under the circumstances of this case.

The issue was first presented in NCC’s motion for summary judgment, which the court denied. NCC moved for reconsideration on that issue. Prior to trial, NCC filed a motion in limine to exclude evidence pertaining to Lockheed’s attorney fees. However, this motion was a de facto motion for reconsideration of the court’s summary-judgment rulings, dressed in the garb of an evidentiary motion. The court denied it accordingly, but indicated that it was open to hearing the parties’ arguments for and against reconsideration during the trial and/or after.

Thus, NCC filed a motion for judgment notwithstanding the verdict (JNOV) or, in the alternative, to amend the judgment, and Lockheed filed a cross-motion to recover the attorney fees it incurred in responding to NCC’s JNOV motion.

The district court granted NCC’s motion, denied Lockheed’s motion, and modified the judgment accordingly.

LAW: Because the jury returned a verdict and judgment was entered in favor of Lockheed, relief pursuant to Rule 54 — or relief that looks suspiciously like relief under Rule 54, as does the JNOV portion of NCC’s motion — was inappropriate. See FRCP 54(b). Reconsideration of the court’s prior decisions was still available, but only if NCC could satisfy the standard of review provided by Rule 59.

Rule 59(e) is the appropriate device for litigants seeking reconsideration of a judgment where JNOV is inapplicable. “While the Rule itself provides no standard for when a district court may grant such a motion, courts interpreting Rule 59(e) have recognized three grounds for amending an earlier judgment: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice.” Hutchinson v. Staton, 994 F .2d 1076, 1081 (4th Cir.1993). The relevant ground here was the third: “to correct a clear error of law or prevent manifest injustice.” Id.

On the subject of attorney fees, “Maryland follows the common law ‘American Rule,’ which states that, generally, a prevailing party is not entitled to recover its attorney fees.” Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 952 A.2d 275, 281 (Md.2008). Courts make an exception where “the parties to a contract have an agreement to that effect” that authorizes recovery of attorney fees. Thomas v. Gladstone, 874 A.2d 434, 437 (Md.2005). The Court must apply ordinary principles of contract interpretation to determine whether the agreement authorizes the recovery of attorney fees. Nova, 952 A.2d at 287 (quoting Rossi, Attorneys’ Fees §9:18 (3d ed.2002, Cum.Supp.2007)). “Where the contract provides no express provision for recovering attorney’s fees in a first party action establishing the right to indemnity, … we decline to extend this exception to the American rule, which generally does not allow for prevailing parties to recover attorney’s fees.” Id. at 285.

Under Maryland law, insurance policies are “construed in the same manner as contracts generally.” Collier v. MD-Individual Practice Ass’n, 607 A.2d 537, 539 (Md.1992). As with all contracts, a court must attempt to “ascertain the intent of the parties from the words used.” Levy v. Am. Mut. Liab. Ins. Co., 73 A.2d 892, 894 (Md.1995).

If a court determines that the plain meaning of the contract is “clear and unambiguous,” then “there is no room for construction, and it must be presumed that the parties meant what they expressed.” Bd. of Trustees of State Colls. v. Sherman, 373 A.2d 626, 629 (Md.1977). A contract is ambiguous if its language “suggests more than one meaning to a reasonably prudent layperson Sullins v. Allstate Ins. Co., 667 A.2d 617, 619 (Md.1995). If the language is ambiguous, a court may consult “extrinsic and parol evidence … to ascertain the intentions of the parties.” Id.

The insurance policy (Policy) between NCC and Lockheed was a hybrid that rolled multiple types of insurance coverage — property protection and third-party liability indemnification — into a single contract. The structure of the Policy was comprised of three sections. Section I — which contains the provision that formed the basis for liability in this case — indicates that the General Conditions “shall apply to all vessels insured under this Section I and shall prevail if inconsistent with the following conditions.”

Under GC 2(a), the Policy covered: “Costs, charges and expenses reasonably incurred by the Assured in defense and/or investigation of any claim coming within the scope of this policy, subject to the agreed deductibles applicable, and subject to the conditions and limitation hereinafter provided.”

Even if it were unambiguous that some types of costs and expenses incurred by Lockheed were covered by GC 2(a), Maryland law holds attorney-fee-shifting provisions to a much higher level of scrutiny. The court must “strictly construe[ ]” fee-shifting clauses and only authorize the recovery of attorney fees when “express provision” is made for them. Nova, 952 A.2d at 285, 287.

Maryland courts do not require fee-shifting clauses to use the magic words “attorney fees,” and the phrase “costs, charges, and expenses” can, in some circumstances, authorize recovery of attorney fees. See, e.g., see Atl. Contracting & Material Co. v. Ulico Cas. Co., 844 A.2d 460, 478 (Md.2004). Furthermore, pairing the phrase “[c]osts, charges, and expenses” with the phrase “defense … of [a] claim” strongly suggests that fee-shifting is appropriate for some types of defenses of some types of claims.

However, the crucial ambiguity in GC 2(a) emerged in defining what sort of “defense” of what sort of “claim” allows for fee shifting. If the Policy were a pure third-party liability contract and Lockheed were sued by a third party for damages covered by the policy, Lockheed’s defense would undoubtedly be a “defense … of [a] claim within the scope of the policy.”

However, in this case, Lockheed was defending a declaratory-judgment action in which it filed a counter-claim covering the exact same topics as NCC’s declaratory-judgment complaint. Lockheed was therefore a nominal defendant, as it fully recognized when it filed a motion requesting realignment of the parties such that it would be the plaintiff and NCC the defendant.

These considerations brought the court close to the point of holding that GC 2(a) unambiguously does not authorize fee shifting in the circumstances here. However, where the inquiry was restricted to the language and structure of the Policy, there were several facts left unanswered. Thus, the question was whether extrinsic evidence clarified the ambiguity of GC 2(a).

The only category of extrinsic evidence that was helpful was comparable language from other insurance policies that reveals a clear industry convention regarding the function and meaning of provisions such as GC 2(a). The evidence identified by NCC overwhelmingly established that language strikingly similar to that found in GC 2(a) is commonplace in third-party-liability policies, but is never found in policies that only provide property-insurance coverage. Section I of the Policy, which contained both property insurance and liability protection, contained no language comparable to GC 2(a), nor did the two hull form policies that Lockheed and NCC incorporated into Section I.

NCC referenced eight other hull policy forms, as well as three non-marine property coverage forms, none of which include provisions resembling GC 2(a). NCC also referenced four marine forms that include both property and third-party-liability coverage (like the Policy), all of which provide coverage for costs and expenses incurred in defending against liabilities covered by the policy, but none of which cover the costs of “defending” a property claim.

Conversely, third-party-liability policies routinely contain provisions akin to GC 2(a). In fact, Section III of the Policy includes language virtually identical to GC 2(a), including the phrase that is so crucial to Lockheed’s argument: “claims coming within the scope of the policy.” Form SP-23, which is incorporated in Section II of the Policy, similarly covers “[c]osts, charges, and expenses, reasonably incurred and paid by the Assured in defense against any liabilities insured against hereunder.”

NCC documented three other marine liability forms, as well as four non-marine liability forms, that included language bearing a striking resemblance to GC 2(a). NCC also found eight cases dealing with liability policies containing language parallel to GC 2(a). Lockheed, by contrast, did not reference even a single counter-example, i.e. a property-insurance policy with fee-shifting language comparable to that of GC 2(a).

Accordingly, the district court’s previous decision regarding the construction of GC 2(a) was a clear error of law. Lockheed, therefore, was not entitled to recover the attorney fees that it incurred during the course of this litigation.

COMMENTARY: Lockheed urged the court not to reconsider its former decision on the basis of the law-of-the-case doctrine, which provides that “when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.” United States v. Aramony, 166 F.3d 655, 661 (4th Cir.1999).

The law-of-the-case doctrine admits of exceptions, and one of these exceptions — when a prior decision is “clearly erroneous and would work manifest injustice,” — is identical to the third prong of the Hutchinson test for amending judgment pursuant to Rule 59(e). See Hutchinson, 994 F.2d at 1081.

PRACTICE TIPS: Motions for reconsideration of interlocutory orders are “not subject to the strict standards applicable to motions for reconsideration of a final judgment,” but are instead “committed to the discretion of the district court.” Am. Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (4th Cir.2003).