Finder’s Fee Act
BOTTOM LINE: An alleged violation of Maryland Finder’s Fee Act (“FFA”) was not an “other specialty” under Maryland statute providing for 12-year statute of limitations because, in an action for an alleged violation of the FFA, the duty sought to be enforced existed as a matter of common law, rather than having been created solely by the statute; therefore, the claim alleged was subject to the default three-year statute of limitations.
CASE: NVR Mortgage Finance, Inc. v. Carlsen, Misc. No. 11, Sept. Term, 2013 (filed July 21, 2014) (Judges Barbera, Harrell, Battaglia, Greene, Adkins, McDonald & WATTS). RecordFax No. 14-0721-28, 16 pages.
FACTS: In 2004, Soren Carlsen and NVR, Inc., entered into a contract under which NVR, Inc., would build a home for Carlsen, who would use NVR Mortgage Finance, Inc. to obtain financing for the home. Carlsen applied for a mortgage from NVR Mortgage, but Carlsen and NVR Mortgage did not close on the mortgage. Afterward, Carlsen used NVR Mortgage to apply for a mortgage from C&F Mortgage Corporation. In 2005, Carlsen and C&F Mortgage Corporation closed on the mortgage, and Carlsen paid NVR Mortgage a broker fee.
More than three but fewer than 12 years later, in the circuit court, Carlsen sued NVR Mortgage and NVR, Inc. (together, “NVR”), for allegedly violating Com. Law (“CL”) §12-805(d) by failing to make certain disclosures to Carlsen and similarly situated homebuyers before collecting finder’s fees for brokering mortgages. NVR removed this case to the federal court, in which NVR moved to certify a question of law to the Court of Appeals. The federal court granted the motion to certify and stayed proceedings in the federal court pending the Court’s response.
The Court of Appeals held that an alleged violation of the Maryland Finder’s Fee Act (“FFA”), CL §§12-801 to 12-809, was not an “other specialty” under Cts. & Jud. Proc. (“CJP”) §5-102(a)(6), which is a 12-year statute of limitations, and that the claim was therefore subject to the default three-year statute of limitations.
LAW: The Court of Appeals considered the question of whether an alleged violation of the FFA is an “other specialty” under CJP §5-102(a)(6), which is a 12-year statute of limitations. CL §12-805(d), which is part of the FFA, states that a finder’s fee may not be charged unless it is pursuant to a written agreement between the mortgage broker and the borrower which is separate and distinct from any other document. The statute further provides that the terms of the proposed agreement shall: (i) be disclosed to the borrower before the mortgage broker undertakes to assist the borrower in obtaining a loan or advance of money; (ii) specify the amount of the finder’s fee; and (iii) contain a representation by the mortgage broker that the mortgage broker is acting as a mortgage broker and not as a lender in the transaction. A copy of the agreement, dated and signed by the mortgage broker and the borrower, shall be provided to the borrower within 10 business days after the date the loan application is completed.
Any mortgage broker who violates any provision of the FFA shall forfeit to the borrower the greater of three times the amount of the finder’s fee collected, or the sum of $500. CL §12-807. The FFA does not contain a statute of limitations. CJP §5-101 provides that a civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced. CJP §5-102(a) states that an action on one of the following specialties shall be filed within 12 years after the cause of action accrues: (1) promissory note or other instrument under seal; (2) bond except a public officer’s bond; (3) judgment; (4) recognizance; (5) contract under seal; or (6) any other specialty. Whether an alleged violation of CL §12-805(d) was an “other specialty” under CJP §5-102(a)(6) was the basis of the reformulated certified question of law.
CJP §5-102(a)(6) is a relatively narrow catchall. AGV Sports Grp., Inc. v. Protus IP Solutions, Inc., 417 Md. 386, 399 (2010). An alleged violation of a statute is an “other specialty” under CJP §5-102(a)(6) if and only if: (1) the duty, obligation, prohibition, or right sought to be enforced is created or imposed solely by the statute, or a related statute, and does not otherwise exist as a matter of common law; (2) the remedy pursued in the action is authorized solely by the statute, or a related statute, and does not otherwise exist under the common law; and (3) if the action is one for civil damages or recompense in the nature of civil damages, those damages are liquidated, fixed, or, by applying clear statutory criteria, are readily ascertainable. Id. at 395-96.
In Master Fin., Inc. v. Crowder, the Court of Appeals held that certain alleged violations of the Maryland Secondary Mortgage Loan Law (“SMLL”), CL §§12-401 to 12-415, were “other specialties” under CJP §5-102(a)(6). Master Fin., Inc. v. Crowder, 409 Md. 51, 70 (2009).
The Court noted that the duties, obligations, prohibitions, and rights sought to be enforced by the plaintiffs were created and imposed solely by the SMLL. In addition, the remedy pursued (forfeiture of all interest and unlawfully assessed fees, or, in the class action cases, forfeiture of three times the amount of interest charged) was authorized solely by the SMLL. Finally, thos amounts were readily ascertainable. Id. at 72.
By contrast, in AGV Sports Grp., an alleged violation of the Maryland Telephone Consumer Protection Act (“MTCPA”), CL §§14-3201 to 14-3202, was deemed not to be an “other specialty” under CJP §5-102(a)(6) because, in an action for an alleged violation of the MTCPA, a plaintiff can seek actual damages instead of liquidated damages. AGV Sports Grp., 417 Md. at 400. The common law actions of trespass to chattel and conversion” “addressed” both the duty sought to be enforced in an action for an alleged violation of the MTCPA and the remedy pursued in an action for an alleged violation of the MTCPA. Id. at 400.
In the present case, an alleged violation of CL §12-805(d) was not an “other specialty” under CJP §5-102(a)(6) because, in an action for an alleged violation of CL §12-805(d), the duty sought to be enforced existed as a matter of common law, rather than having been created solely by CL §12-805(d). A mortgage broker owes to a borrower a common law duty to disclose all facts or information which may be relevant or material in influencing the judgment or action of the [borrower] in the matter. St. Paul at Chase Corp. v. Mfrs. Life Ins. Co., 262 Md. 192, 215-16, cert. denied, 404 U.S. 857 (1971). Under CL §12-805(d), a mortgage broker must disclose to a borrower in a prescribed manner a finder’s fee’s existence, which is information that may be relevant in influencing the borrower’s judgment in the matter.
An alleged violation of a statute is not an “other specialty” under CJP §5-102(a)(6) where, in an action for an alleged violation of the statute, the duty sought to be enforced exists as a matter of common law, rather than having been created solely by the statute. AGV Sports Grp., 417 Md. at 395-96. Carlsen’s contention that an alleged violation of CL §12-805(d) was an “other specialty” under CJP § 5-102(a)(6) was without merit because, in an action for an alleged violation of CL §12-805(d), the duty sought to be enforced is created solely by CL §12-805(d), rather than existing as a matter of common law. Carlsen’s reliance on Crowder for the contention that an alleged violation of CL § 12-805(d) was an “other specialty” under CJP §5-102(a)(6) even if, in an action for an alleged violation of CL §12-805(d), the duty sought to be enforced exists as a matter of common law, rather than having been created solely by CL §12-805(d) was without merit. An alleged violation of a statute is an “other specialty” under CJP §5-102(a)(6) only if the statute creates both the duty sought to be enforced in an action for an alleged violation of the statute and the remedy pursued in an action for an alleged violation of the statute. AGV Sports Grp., 417 Md. at 395.
Carlsen’s reliance on Minter v. Wells Fargo Bank, N.A., was also unpersuasive. Minter v. Wells Fargo Bank, N.A., 274 F.R.D. 525, 553 (D. Md. 2011). In Minter, the federal court held that an alleged violation of the FFA was an “other specialty” under CJP §5-102(a)(6). Although the federal court stated that the FFA meets the Crowder requirements, the federal court did not address whether, in an action for an alleged violation of the FFA, the duty sought to be enforced exists as a matter of common law, rather than having been created solely by the FFA. The federal court addressed only the remedy pursued in an action for an alleged violation of the FFA, not the duty sought to be enforced in an action for an alleged violation of the FFA. Thus, Minter’s reasoning was not adopted insofar as it applied to CL §12-805(d).
Accordingly, the Court of Appeals answered “no” to the question of whether an alleged violation of the FFA is an “other specialty” under CJP §5-102(a)(6).
COMMENTARY: Carlsen pointed out that, during the General Assembly’s 2012 Regular Session (i.e., after the federal court issued Minter, members of the General Assembly sponsored House Bill 674 and Senate Bill 451, which would have added a three-year statute of limitations to the FFA. The House Economic Matters Committee gave an unfavorable report to House Bill 674, which its sponsors withdrew. Thus, Carlsen contended, the General Assembly intended an alleged violation of CL §12-805(d) to be an “other specialty” under CJP §5-102(a)(6).
Because a bill might fail for a myriad of reasons, the bill’s failure was a “weak reed” upon which to lean in ascertaining the General Assembly’s intent. City of Balt. Dev. Corp. v. Carmel Realty Assocs., 395 Md. 299, 329 (2006). This principle was especially true here, as the record indicated that House Bill 674 and Senate Bill 451 failed primarily because they would have amended the FFA to allow finder’s fees for “table funding.” Opposition to House Bill 674 was primarily based on amending the FFA to allow finder’s fees for table funding, not adding a three-year statute of limitations to the FFA. Thus, the failure of House Bill 674 and Senate Bill 451 did not indicate that the General Assembly intended an alleged violation of CL § 12-805(d) to be an “other specialty” under CJP §5-102(a)(6).
Indeed, there was evidence that the General Assembly intended an alleged violation of CL §12-805(d) not to be an “other specialty” under CJP §5-102(a)(6). The General Assembly enacted CJP § 5-101 (which is the default three-year statute of limitations) in 1973, and enacted CL § 12-805(d) in 1979. CJP §5-101’s predecessor (Md. Code Ann. Art. 57 §1 (1957)) listed multiple causes of action with a three-year limitations period. By contrast, CJP §5-101 is a blanket three-year provision, with exceptions for other limitations. Revisor’s Note, CJP §5-101. It was reasonable to infer that the General Assembly intended CJP §5-101 to generally apply to alleged violations of statutes that the General Assembly enacted after enacting CJP §5-101, whereas CJP §5-102(a)(6) (the statute of limitations for “other specialties”) would apply only to alleged violations of statutes that the General Assembly had enacted before enacting CJP §5-101.
PRACTICE TIPS: Although the purpose of the FFA is to protect borrowers, a court cannot create an “equitable exception” to a statute of limitations.
BOTTOM LINE: Disbarment was the appropriate sanction for a lawyer who represented her niece in an annulment/divorce matter in Virginia without having a license to practice there and despite a conflict of interest, and who, among other things, authorized co-counsel to sign settlement agreements without advising the niece, misrepresented niece’s ability to communicate in English, and concealed her role in niece’s representation from trial court, thereby violating multiple Maryland Lawyers’ Rules of Professional Conduct.
CASE: Attorney Grievance Commission v. Zhang, Misc. Docket AG No. 11, Sept. Term, 2013 (filed July 21, 2014) (Judges Barbera, Harrell, Battaglia, Greene, Adkins, McDonald & WATTS). RecordFax No. 14-0721-27, 54 pages.
FACTS: Maryland attorney Runan Zhang represented her niece, Yuxuan Zhang, in the niece’s annulment and subsequent divorce case in the Prince William County Circuit Court in Virginia, against the niece’s husband, Daji Song, whom Zhang represented in an immigration matter. Song filed a complaint against Zhang with the Attorney Grievance Commission of Maryland. On April 15, 2013, the Commission, through Bar Counsel, filed in the Court of Appeals a Petition for Disciplinary or Remedial Action, charging her with violating multiple Maryland Lawyers’ Rules of Professional Conduct. Bar Counsel subsequently filed an Amended Petition for Disciplinary or Remedial Action, adding several offenses.
The hearing judge found that Zhang represented her niece in an annulment/divorce matter in Virginia even though she was not licensed to practice law in Virginia and even though a conflict of interest existed due to Zhang’s representation of her niece’s husband in an immigration matter. Specifically, in November 2010, Zhang assisted her niece in drafting a complaint for annulment that the niece could file pro se in a Virginia court. Because Zhang was not a member of the Bar of Virginia, she asked her colleague, Diana Metcalf, to serve as co-counsel. Metcalf was a member of both the Bar of Maryland and the Bar of Virginia, and had shared office space with Zhang since 2003. Zhang and Metcalf agreed that they would represent Yuxuan Zhang as co-counsel, and that Metcalf would move for Zhang’s admission to the Virginia court pro hac vice. An agreement memorializing those two points was drafted but not executed.
At the beginning of the representation, Zhang provided Metcalf with her niece’s e-mail address, but advised that Yuxuan did not fluently speak English, and that Metcalf would thus be unable to directly communicate with her. Zhang assumed the responsibility of directly communicating with her niece. Metcalf had no direct contact with Yuxuan Zhang from November 2010, when she was first retained, until March 1, 2011.
On November 15, 2010, Zhang recognized that she had a conflict of interest due to her representation of Song in the immigration matter, so she did not enter her appearance in the annulment matter. Instead of resolving the conflict, Zhang deliberately and consciously chose to continue to act as counsel in all matters except for entering her appearance in the annulment matter and disclosing the representation to the Virginia court. On November 18, 2010, Yuxuan Zhang, pro se, filed in the Virginia court a Complaint for Annulment, which had been prepared by Zhang on her behalf. Although Zhang had prepared the complaint for annulment, her niece filed the complaint for annulment pro se in an attempt to conceal from the Virginia court Zhang’s conflict of interest and role as her counsel.
In January 2011, Zhang and Metcalf negotiated a settlement agreement with Song. Based on Zhang’s assurances that her niece had consented to the January agreement’s terms, Metcalf signed the January agreement on the niece’s behalf. In actuality, Zhang had not discussed the terms of the January agreement with her niece before its execution. A second settlement agreement was negotiated in February 2011. This agreement, which contained a claim that Song was impotent, was subsequently set aside by the Virginia court after it was revealed that Yuxuan Zhang had not consented to the agreement and had advised Zhang that Song was not in fact impotent. In August 2011, the Virginia court denied the niece’s complaint for annulment. Song and the niece were subsequently granted a divorce based on mutual separation.
Based on these findings of fact, the hearing judge concluded that Zhang provided incompetent representation and advanced a ground for annulment without conducting adequate research or speaking to her niece. In addition, the hearing judge found that Zhang authorized co-counsel to sign settlement agreements on behalf of her niece despite failing to advise her niece of the agreements and to obtain her consent, and she misrepresented her niece’s ability to communicate in English and her consent to the terms of the settlement agreements. The hearing judge ultimately concluded that Zhang violated MLRPC 1.1 (Competence), 1.2(a) (Scope of Representation), 1.4(a) (Communication), 1.7(a) (Conflict of Interest), 3.7(a) (Lawyer as Witness), 4.1(a) (Truthfulness in Statements to Others), 8.4(c) (Dishonesty, Fraud, Deceit, or Misrepresentation), 8.4(d) (Conduct That Is Prejudicial to the Administration of Justice), and 8.4(a) (Violating the MLRPC).
Zhang filed in the Court of Appeals a motion to dismiss the attorney discipline proceeding. The Court denied the motion and ordered Zhang’s immediate disbarment.
LAW: Zhang moved to dismiss this attorney discipline proceeding on the grounds that the MLRPC did not apply to her conduct and that the Amended Petition for Disciplinary or Remedial Action was not sufficiently clear and specific to inform her of which rules of professional conduct applied. However, Zhang had a law office in Maryland, and shared with Metcalf a conference room in a building in which Metcalf rented law office space in Maryland. A substantial part of Zhang’s conduct occurred in Maryland. Generally, the rules of professional conduct to be applied shall be the rules of the jurisdiction in which the lawyer’s conduct occurred. MLRPC 8.5(b)(2). Therefore, the MLRPC did apply to Zhang’s conduct.
In addition, the Amended Petition for Disciplinary or Remedial Action was sufficiently clear and specific to inform Zhang of any professional misconduct charged. Md. R. 16-751(c). In the Amended Petition for Disciplinary or Remedial Action, Bar Counsel charged Zhang with violating rules of professional conduct that have substantively identical counterparts in the MLRPC, Virginia Rules of Professional Conduct, and District of Columbia Rules of Professional Conduct. Zhang failed to identify any material conflict among the MLRPC, VRPC, and DCRPC in question. For these reasons, the motion to dismiss was denied.
Zhang excepted to a multitude of the hearing judge’s findings of fact. Only one of these exceptions had merit. Zhang excepted to the hearing judge’s finding that in January 2011, Metcalf signed on Yuxuan Zhang’s behalf a settlement agreement based on Zhang’s assurances that her niece consented to the terms. The record indicated that Metcalf signed the agreement based on Zhang’s assurances that Metcalf was authorized to sign the agreement because Zhang had authority to speak for her niece. The hearing judge’s finding that Zhang assured Metcalf that her niece specifically consented to the terms of the January agreement was clearly erroneous. Accordingly, this exception was sustained.
Zhang also excepted to certain of the hearing judge’s conclusions of law. First, she excepted to the hearing judge’s determination that she violated MLRPC 1.1 (Competence), arguing that clear and convincing evidence did not establish she was incompetent because Metcalf was Yuxuan Zhang’s counsel. However, the record demonstrated that Zhang acted as counsel for her niece in the annulment/divorce matter in Virginia, despite not being licensed to practice law in Virginia, and without the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. MLRPC 1.1. As such, this exception was overruled.
Zhang excepted to the hearing judge’s conclusion that she violated MLRPC 1.2(a). The record demonstrated that Zhang authorized Metcalf to sign both the January 2011 agreement and another settlement agreement in February 2011, even though her niece did not know of the terms of the agreements and had not consented to the agreements. Thus, there were two occasions on which Zhang instructed Metcalf to execute settlement agreements on her niece’s behalf despite not having discussed the terms with the niece and not securing the niece’s consent to enter into the settlement agreements. Therefore, this exception was overruled.
Clear and convincing evidence also supported the hearing judge’s conclusion that Zhang violated MLRPC 1.4(a) (Communication), as the record showed that there were at least two occasions where Zhang failed to communicate with her niece. Likewise, clear and convincing evidence supported the hearing judge’s conclusion that Zhang violated MLRPC 1.7(a) (Conflict of Interest), as Zhang’s representation of her niece and her representation of Song overlapped, and the record did not indicate that Zhang attempted to comply with MLRPC 1.7(b) and obtain the informed consent, confirmed in writing, from both Song and the niece. Therefore, Zhang’s exceptions to the hearing judge’s conclusion that she violated these Rules were overruled.
Zhang excepted to the hearing judge’s conclusion that she Zhang violated MLRPC 8.4(d) (Conduct That Is Prejudicial to the Administration of Justice). Zhang engaged in dishonest conduct, making false statements and misrepresentations to Metcalf and concealing her role in her niece’s representation from the Virginia court. Moreover, Zhang’s conduct resulted in the February 2011 settlement agreement being set aside. Considered in its entirety, Zhang’s conduct negatively reflected on attorneys and the legal profession, and had the effect of bringing the legal profession into disrepute. Finally, Zhang’s exception to the hearing judge’s conclusion that she violated MLRPC 8.4(a) (Violating the MLRPC) was overruled, since, as discussed, Zhang violated MLRPC 1.1, 1.2(a), 1.4(a), 1.7(a), 1.16(a), 3.1, 3.7(a), 4.1(a), 5.5(a), 7.4(a), 8.4(c), and 8.4(d).
Accordingly, the appropriate sanction for Zhang was disbarment.
COMMENTARY: The record demonstrated that Zhang purposefully engaged in misconduct to assist her niece in a personal matter. Zhang’s misconduct negatively impacted the public’s perception of the legal profession, and necessitated that the February agreement be set aside. There existed two aggravating factors: Zhang engaged in a pattern of misconduct and violated several MLRPC. Attorney Grievance Comm’n v. Davy, 435 Md. 674, 710 (2013). The only mitigating factor was the absence of prior attorney discipline. Disbarment was the appropriate sanction for Zhang’s violations of MLRPC 1.1, 1.2(a), 1.4(a), 1.7(a), 1.16(a), 3.1, 3.7(a), 4.1(a), 5.5(a), 7.4(a), 8.4(c), 8.4(d), and 8.4(a). See Attorney Grievance Comm’n v. Keiner, 421 Md. 492, 521-22, 527 (2011).
Zhang’s conduct involved a series of intentional dishonest acts committed over a sustained period of time. Her dishonest conduct ranged from misleading Metcalf about her niece’s ability to speak English to deceiving the Virginia Court. Zhang’s abandonment of her ethical obligation to be honest on multiple occasions over such a significant period of time, combined with her involvement in sponsoring the false February agreement to the Virginia Court, and her efforts to conceal her own misconduct, made disbarment the appropriate sanction.
PRACTICE TIPS: In an attorney disciplinary proceeding, when a party files exceptions to the hearing judge’s findings of fact, those exceptions will be overruled so long as the findings are not clearly erroneous. When a party takes exception to the hearing judge’s conclusions of law, those exceptions will be overruled so long as the conclusions are supported by the facts found.
Local Government Tort Claims Act
BOTTOM LINE: A used-car business which filed tort claims against police officers who seized vehicles from its lot did not substantially comply with the notice requirement of the Local Government Tort Claims Act by filing, more than two years earlier, an action for replevin seeking return of the vehicles and loss-of-use damages; the replevin action did not forewarn, either explicitly or implicitly, that a suit for unliquidated damages would follow.
CASE: Dehn Motor Sales, LLC v. Schultz, No. 94, Sept. Term, 2013 (filed July 22, 2014) (Judges Barbera, Harrell, BATTAGLIA, Greene, Adkins, McDonald & Rodowsky (Retired, Specially Assigned). RecordFax No. 14-0722-21, 41 pages.
FACTS: In 2005, Dehn Motor Sales, LLC, filed an action for replevin in the district court against certain members of the Baltimore City Department of Transportation and the Mayor and City Council of Baltimore. The complaint alleged that on April 1, 2005, Baltimore City police officers entered Dehn Motor’s lots and initiated the towing of 67 vehicles that Dehn Motor lawfully owned as part of the used car sales business, without a court order or warrant. The complaint further averred that the City would not return the vehicles unless Dehn Motor agreed to pay $6,600 for the cost of towing. As a result of the alleged unlawful detention of the vehicles, Dehn Motor sought return of the cars, as well as $60,000 to cover loss of use. Subsequently, the district court judge entered an order that the vehicles be returned to Dehn Motor, on the condition that they not be stored where the cars originally had been.
On March 28, 2008, almost three years after the vehicles were towed, Dehn Motor initiated another action in the circuit court, this time against Baltimore City police officers Joseph Schultz and Anthony Proctor, identifying them as the officers who allegedly initiated the towing of the vehicles. The complaint alleged that the impetus for the towing occurred when the Police Department received complaints from Brooklyn & Curtis Bay Coalition, a local neighborhood improvement association, leading Officer Schultz to conduct his own inspection and observation of the used car business. The complaint alleged that Officer Schultz, with the knowledge of his supervisor, Sergeant Proctor, planned to have the vehicles towed days prior to April 1, 2005 and, on April 1, 2005, executed that plan.
Dehn Motor sought $500,000 in compensatory damages and $1 million in punitive damages, alleging that the warrantless towing of the vehicles without a prior hearing violated Articles 19, 24, and 26 of the Maryland Declaration of Rights as well as Section 1983 of Title 42 of the United States Code based on violations of the Fourth and Fourteenth Amendments to the United States Constitution. Officer Schultz and Sergeant Proctor generally denied the allegations and asserted, as affirmative defenses, that their actions were privileged because they were performing lawful duties as members of the Baltimore Police Department and were thus entitled to qualified immunity. The officers alleged that they towed the vehicles in question to remedy fire and environmental hazards, thereby carrying out their community caretaking function.
After discovery was completed, the parties filed cross-motions for summary judgment. The circuit court denied Dehn Motor’s motion for summary judgment, but granted Sergeant Proctor’s and Officer Schultz’s joint motion for summary judgment, finding that Dehn Motor’s State constitutional claims were barred by the Local Government Tort Claims Act (“LGTCA”) because Dehn Motor failed to comply with the LGTCA’s notice requirement. Dehn Motor appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court.
Dehn Motor then appealed to the Court of Appeals, which affirmed the judgment of the Court of Special Appeals.
LAW: On appeal, Dehn Motor first argued that the Court of Special Appeals erred in affirming the dismissal of the state law claims against the defendants based on lack of adequate notice under the LGTCA because the replevin action filed by Dehn Motor gave notice of constitutional violations by the police. Under §5-304 of the LGTCA, a written notice detailing the time, place, and cause of the injury must be sent by certified mail or “in person” to the appropriate person identified in §5-304(c) within 180 days of the alleged injury. The notice requirement serves the purpose of apprising a local government of its possible liability at a time when it could conduct its own investigation, i.e., while the evidence was still fresh and the recollection of the witnesses was undiminished by time, sufficient to ascertain the character and extent of the injury and its responsibility in connection with it. Rios v. Montgomery Cnty., 386 Md. 104, 126 (2005).
Filing notice is a “condition precedent” to suit so that failure to comply with notice bars the subsequent action. Id. at 127. However, the failure to precisely conform to the statutory rubric has not necessarily barred a claimant’s action. “Substantial compliance” with the notice requirement is adequate to enable suit against the local government to proceed. Jackson v. Board of County Commissioners of Anne Arundel County, 233 Md. 164 (1963). Thus, where the purpose of the notice requirement has been satisfied, an action may be proceed despite lack of complete compliance with the LGTCA notice provision. Faulk v. Ewing, 371 Md. 284 (2002).
In the present case, Dehn Motor did not contest that it did not send a letter by certified mail to the Baltimore City Solicitor’s office advising the City of its claims against Sergeant Proctor and Officer Schultz, but contended that the filing of its replevin action in the district court fulfilled the purpose of the LGTCA notice requirement. Not only did the City Solicitor defend the replevin claim, Dehn Motor argued, but it further asserted that the replevin action set forth “the time, place and cause of injury”, and was litigated for almost three years. Dehn Motor concluded, therefore, that the City had ample time to do the normal investigatory work to protect its interests and those of its employees.
In fact, the replevin action did not forewarn the City of the constitutional claims. The replevin action filed in the district court differed substantially from the constitutional tort claims filed against Officer Schultz and Sergeant Proctor in the circuit court. In a replevin action, a party seeks basically to recover specific goods and chattels to which he or she asserts an entitlement to possession. See Wallander v. Barnes, 341 Md. 553, 561 (1996).
To prevail under any claim alleging violations of Maryland constitutional rights, however, proof must be adduced: (1) that the defendant-officer engaged in activity that violated a right protected under the Maryland Constitution; and (2) the defendant-officer engaged in such activity with actual malice toward the plaintiff. Paul Mark Sandler and James K. Archibald, Pleading Causes of Action in Maryland 538 (5th ed. 2013).
Under Article 24 of the Maryland Declaration of Rights, a plaintiff must demonstrate that he or she: (1) had a protected property interest; (2) was deprived of that interest by the state; and (3) was afforded less procedure than was due. Id. at 533. A violation of Article 26 occurs when the state engages in an unreasonable search or seizure of a person’s property. See Liichow v. State, 288 Md. 502, 509 n.1 (1980). To substantially comply with the notice requirement, a claimant must provide some indication, either explicitly or implicitly, that a subsequent suit for unliquidated damages will follow.
The replevin action filed by Dehn Motor did not do so. Rather, by filing a replevin complaint, Dehn Motor communicated to the City that it sought return of the vehicles and loss-of-use damages. The replevin action, thus, was much like the threat of a landlord-tenant action seeking remediation of chipping paint that was deemed inadequate to constitute substantial compliance. See Ellis v. Housing Authority of Baltimore City, 436 Md. 331, 345 (2013). Effectively, by filing the replevin complaint, Dehn Motor demanded that the local government fix a problem by returning the vehicles and making it whole through loss-of-use damages.
Due to the narrow relief sought through the replevin action, the City had only reason to research the fact that cars had been removed and what use had been lost. It did not have any reason to investigate whether “actual malice” was in issue as well as the process afforded to Dehn Motor, all of which were crucial aspects of the constitutional tort claims asserted in the circuit court. In sum, only asking for return of the vehicles did not put the City on notice to start an investigation into the nature and extent of the actual injuries sustained, the causal relationship of the injuries to the alleged misconduct, the likelihood of an award of compensatory and/or punitive damages, and litigation strategy that would be later in issue in the second case. Halloran v. Montgomery County Department of Public Works, 185 Md. App. 171, 187-88 (2009). As such, the circuit court judge correctly concluded that Dehn Motor’s state constitutional claims asserted in the second suit were barred for failure to comply with the notice provision of the LGTCA.
Accordingly, the judgment of the Court of Special Appeals was affirmed.
COMMENTARY: Dehn Motor also challenged the circuit court’s grant of summary judgment in favor of the defendant officers with regard to Dehn Motor’s federal constitutional claims, based on a finding that the defendant officers were entitled to qualified immunity. The qualified immunity doctrine protects public officials from personal monetary liability so long as their actions do not violate clearly established federal statutory or constitutional rights of which a reasonable person would have known and its application turns on the objective legal reasonableness of the official’s conduct. Martin A. Schwartz & John E. Kirklin, Section 1983 Litigation: Claims and Defenses, 338 (3d ed. 1997). The gravamen of a qualified immunity analysis is whether the government official’s conduct is reasonable in light of the state of the law in existence at the time of the conduct. See, e.g., Pearson v. Callahan, 555 U.S. 223, 244 (2009).
When statutory law expressly authorizes the government actor’s conduct, qualified immunity is generally appropriate. Pierson v. Ray, 386 U.S. 547, 555 (1967). Here, Dehn Motor cited no judicial opinion or statute that would affirmatively prohibit the towing of the vehicles leaking fluids that the officers believed created fire or environmental hazards. Taking into consideration the circumstances about which the officers testified that they confronted and the absence of statutory and case law prohibiting their actions without a warrant when they ordered the towing of vehicles leaking fluids that they believed constituted environmental and fire hazards, the threshold for qualified immunity was met, and they were entitled to its protection.
PRACTICE TIPS: One of the goals of the qualified immunity defense is to limit the financial and time burdens attendant to a law suit. For that reason, the Supreme Court has stressed the importance of resolving immunity questions at the earliest possible stage in litigation, such as summary judgment.
Calculation of benefits
BOTTOM LINE: Because the Workers’ Compensation Act clearly defines “compensation” as money, an employer/insurer should be credited for the total dollars previously paid under an award when that award is modified on appeal, differing from the credit given in a reopening case, which is measured by weeks.
CASE: W. R. Grace & Co. v. Swedo, No. 82, Sept. Term, 2013; Florida Rock Industries, Inc. v. Owens, No. 91, Sept. Term, 2013; and Coffee v. Rent-A-Center, Inc., No. 92, (filed July 22, 2014) (Barbera, Harrell, Battaglia, Greene, ADKINS, McDonald & Cathell (Retired, Specially Assigned)). RecordFax No. 14-0722-20, 20 pages.
FACTS: These three cases considered the appropriate method for crediting payments made under a workers’ compensation award when that award is increased on appeal. Specifically, the issue was whether the credits should be computed on the basis of the number of weeks paid or the amount of money expended. The calculation method used could significantly affect the amount paid and received.
In Case No. 82, W. R. Grace & Co. v. Swedo, Andrew Swedo was injured on November 3, 2002 while working for W.R. Grace & Co. Swedo filed a claim with the Workers’ Compensation Commission seeking permanent total disability benefits, or, in the alternative, permanent partial disability benefits. The Commission found that Swedo had sustained a 70% permanent partial disability and awarded him $234 per week for 200 weeks. The disability was apportioned as follows: 40% permanent disability due to the workplace accident, and 30% permanent disability due to preexisting conditions.
Swedo appealed this decision to the circuit court. The jury agreed that Swedo suffered a 70% permanent partial disability, but found that he was 50% disabled due to the accident, and 20% disabled due to preexisting conditions. The circuit court subsequently vacated and remanded the award on appeal. The Commission then amended its order to $525 per week for 333 weeks. At the time of this amended award, W. R. Grace had already paid under the initial award for 148 weeks.
Swedo filed Issues with the Commission requesting clarification as to whether W. R. Grace was entitled to a credit based on the total number of weeks it had paid under the initial award, or total dollars paid. The Commission ordered that W. R. Grace be credited for the weeks paid. Swedo appealed this determination to the circuit court, which affirmed the Commission’s decision. Swedo then appealed to the Court of Special Appeals, which reversed, holding that employers should receive credit based on the total dollars paid. W. R. Grace appealed to the Court of Appeals, which affirmed the judgment of the Court of Special Appeals.
In the second case, Florida Rock Industries v. Owens, Case No. 91, Jeffrey Owens sustained an accidental lower back injury in May 2005 while working for Florida Rock Industries, Inc. On February 26, 2010, the Commission issued an order finding that Owens had sustained a permanent partial disability resulting in a 30% industrial loss of the use of his body as a result of the accident, and ordered Florida Rock to make weekly payments of $257 for 150 weeks, retroactive to July 15, 2008. On judicial review in the circuit court, a jury reversed the Commission’s decision, finding that Owens had suffered a permanent partial disability amounting to a 50% industrial loss of the use of his body.
On remand from the circuit court, the Commission amended its order to an award of $401 per week for 333 weeks. This order did not credit Florida Rock for the weeks of benefits already paid. Florida Rock petitioned the circuit court for judicial review of the Commission’s order, and filed a motion for summary judgment requesting credit for the 150 weeks of benefits already paid. The court found that Florida Rock was entitled to a credit for the dollar amount of benefits already paid to Owens under the Commission’s February 26, 2010 award. Florida Rock appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court. Florida Rock appealed to the Court of Appeals, which affirmed the judgment of the Court of Special Appeals.
In the third case, Coffee v. Rent-A-Center, Inc., Case No. 92, Robert Coffee was injured while working as an account manager for Rent-A-Center in December of 2007. After Coffee filed a workers’ compensation claim, the Commission determined that he sustained a permanent partial disability equating to a 12% industrial loss of the use of his back, and awarded Coffee 60 payments of $114 retroactive to March 21, 2009. Coffee petitioned the circuit court for review of this award. The jury found that Coffee’s permanent partial disability amounted to a 16% industrial loss, and consequently, the Commission’s award was reversed in part.
The Commission issued an amended award on January 18, 2012, granting Coffee an award of $283 per week for 80 weeks, retroactive to March 21, 2009. During the pendency of this appeal, Rent-A-Center paid Coffee all 60 installments of his weekly award. As a result, the initial award of $6,840 was paid in full by the time the Commission issued its amended award. Rent-A-Center did not appeal the amended award or request an accounting as to its prior payments. However, Rent-A-Center did not pay the amended award in full but rather deducted the 60 weeks already paid from the award, and sent Coffee a check for $5,660, representing the 20 week increase at $283 per week.
Coffee filed Issues with the Commission to compel payment of the difference between the total awards computed according to the total dollars paid, rather than according to the total weeks paid. The Commission determined that a weeks-paid standard was the appropriate standard, pursuant to the holding in Ametek, Inc. v. O’Connor, 364 Md. 143 (2001). Coffee sought judicial review of this decision in the circuit court, which affirmed the ruling of the Commission.
Coffee appealed to the Court of Special Appeals, but before the intermediate appellate court could rule, the Court of Appeals granted Rent-A-Center’s Petition for Writ of Certiorari. The Court of Appeals subsequently reversed the judgment of the circuit court.
LAW: Each of the three cases presented the issue of whether, when crediting an employer/insurer for payments made under a workers’ compensation award that is subsequently amended, credit should be given for the number of weeks paid under the initial award or for the total dollar amount paid under the initial award. It was first necessary to determine whether the use of the term “compensation,” as employed in Labor and Employment Article (“LE”) §9-633, was ambiguous. It was clear from the statutory language that the General Assembly intended LE §9-633 to employ terminology in concert with the definitional provisions laid out in LE §9-101. As such, the term as unabmiguious.
Because the Legislature intended “compensation” to mean “money” in LE §9-633, the statute requires a total dollars-paid crediting system. Incorporating the statutory definition of compensation from LE §9-101 into LE § 9-633, the statute explains that payment under an amended award shall be made subject to a credit for money payable under this title to a covered employee or the dependents of a covered employee previously awarded and paid. LE §9-633. Because the statute clearly contemplates crediting employers for money previously awarded and paid, this crediting should be measured in terms of total dollars paid.
In support of their argument that the crediting should be based on the weeks paid, the employers in the present appeal relied upon the holdings in Philip Electronics North America v. Wright and Ametek, Inc. v. O’Connor. In Philip Electronics, the Court of Appeals held that the language of the Act as it then existed clearly and unambiguously demonstrated a legislative commitment to the payment of permanent partial disability benefits within a weekly framework. Philip Electronics North America v. Wright, 348 Md. 209 (1997), superseded by statute as stated in Plein v. Department of Labor, 369 Md. 421 (2002). In Ametek, Inc. v. O’Connor, the Court of Appeals considered whether the rule from Philip Electronics extended to situations in which a worker’s award was increased. Ametek, Inc. v. O’Connor, 364 Md. 143 (2001). The Court held that that the weeks-paid calculation rule announced in Philip Electronics also applies when an award is adjusted upward. Id. at 159.
However, Philip Electronics and Ametek were both filed before LE §9-633 took effect. LE §9-633 expressly overrides the rule announced in Philip Electronics and Ametek. Thus, the statute abrogated previous holdings that crediting is to be done on the basis of weeks paid. In sum, under the plain meaning of LE §9-633, the employer shall be credited with “compensation previously awarded and paid.” The word “compensation” means “money payable” as defined in LE §9-101. Therefore, when crediting an employer/insurer for payments made under an award after the award is modified on appeal, credit should be given for the total dollars paid, not the total weeks paid.
Accordingly, in Cases 82 and 91, the judgment of the Court of Special Appeals was affirmed. In Case No. 92, the judgment of the circuit court was reversed, with instructions to reverse the Commission’s decision and compel crediting based on total dollars paid.
COMMENTARY: Recently, in Del Marr v. Montgomery County, the Court of Appeals addressed the question of how credit is to be applied when a new compensation award is entered. Del Marr v. Montgomery County, 397 Md. 308 (2007). The employers here pointed to the holding in Del Marr in which the Court stated that a modification that serves to increase or decrease compensation, whether occasioned by judicial review or a reopening, may have prospective effect only, achieved by allowing a credit for compensation previously paid calculated on a weekly basis. Id. at 320. The employers explained that Del Marr rejected the argument that the enactment of LE §9-633 overturned Philip Electronics and Ametek. Id. at 317.
However, Del Marr was distinguishable from Philip Electronics and Ametek because, unlike the modification at issue in the present case, it involved a reopening of the case due to a worsening of Del Marr’s condition after the award had been set. Id. at 313–14. The question of the meaning of “compensation” under §9-633 was not before the Court in Del Marr. Therefore, Del Marr was inapposite.
PRACTICE TIPS: Ambiguity is present in statutory language where there exist two or more reasonable alternative interpretations of the statute. It is only when faced with this ambiguity that a court will inquire beyond the literal meaning of the statutory language, and delve into legislative history.
BOTTOM LINE: Given the level of control exercised by the construction company over the claimant’s schedule, training, clothing and the manner in which the work was to be performed, the Workers’ Compensation Commission misconstrued the law as applied to the facts when it concluded that the claimant, who was injured while installing windows and doors for the construction company, was an independent contractor and not a covered employee.
CASE: Elms v. Renewal By Andersen, No. 89, Sept. Term, 2013 (filed July 21, 2014) (Judges Barbera, Harrell, Battaglia, GREENE, Adkins, McDonald & Watts). RecordFax No. 14-0721-22, 25 pages.
FACTS: Richard Elms was a licensed home improvement contractor, who owned and operated an unincorporated home improvement business, Elms Construction Company. Elms, trading as Elms Construction, provided general construction services such as window and door installations, roofing, and carpentry. In 2006, Elms began installing windows and doors for Renewal By Andersen, a business that sold and installed windows and doors.
Some years prior to entering into a relationship with Renewal By Andersen, Elms secured workers’ compensation insurance as a sole proprietor. However, Elms did not elect to include himself on the policy. Although Elms had additional unidentified employees, the only named employee on Elms Construction’s insurance policy was Elms’ son, Richard W. Elms.
Elms certified to Renewal that Elms Construction carried workers’ compensation insurance. Renewal provided Elms with a document titled “Installation Job Expectations.” Among other things, the instructions contained in the document required Elms and his workers to wear shirts bearing Renewal’s logo, to place Renewal signs in customers’ yards, and to be courteous while completing jobs for Renewal’s customers.
On the first two installation jobs that Elms Construction performed for Renewal, Renewal’s employees trained Elms Construction’s employees in the methods and materials to be used. Subsequently, Renewal spot-checked installations completed by Elms Construction and occasionally required Elms to make corrections. Renewal also gave report cards to homeowners to rate Elms Construction installations, and Renewal then gave feedback to Elms. Elms believed that he was required to maintain a score of at least 90 percent from customer ratings.
Elms testified that by 2008 Elms Construction received eighty to 85 percent of its income from Renewal. At the same time, Elms Construction performed similar work for another home improvement business, Chandler Remodeling. On average, Elms worked for Renewal four days per week. Renewal scheduled all installations and provided Elms with a monthly calendar that listed the customers’ names and addresses, the number of windows and doors to be installed at each location, and a time frame for each installation. Elms had no input as to the days scheduled or time allotted for each job.
While working on Renewal installations, Elms Construction used its own trucks and, usually, its own tools, but Elms always obtained the supplies and materials for installations from Renewal’s warehouse. Renewal paid Elms Construction directly and did not withhold taxes. Renewal also did not subsidize or reimburse Elms for travel expenses, including gas. Elms Construction then paid its employees, including Elms.
On August 6, 2008, while installing a window at a Renewal customer’s home, Elms fell from a ladder and injured his right foot. He filed a claim with the Workers’ Compensation Commission, alleging that he was Renewal’s common law employee and was working for Renewal at the time of the injury. The Commission concluded that Elms was an independent contractor, rather than a common law employee of Renewal, and, therefore, not entitled to collect workers’ compensation benefits under Renewal’s insurance policy.
Elms filed a petition for judicial review in the circuit court, which reversed the decision of the Commission, concluding that Elms was Renewal’s common law employee and, therefore, entitled to collect workers’ compensation benefits through Renewal. Renewal appealed to the Court of Special Appeals, which vacated the judgment of the circuit court.
Elms appealed to the Court of Appeals, which vacated the judgment of the Court of Special Appeals.
LAW: Elms argued that the Commission misconstrued the law as it applied to the facts under §9-745 of the Workers’ Compensation Act when it determined that Elms was an independent contractor. The Act applies to “covered employers and employees.” Thus, the first inquiry in a workers’ compensation case is whether there exists an employment relationship that qualifies under the Act. See W.M. Schlosser Co. v. Uninsured Employers’ Fund, 414 Md. 195 (2010).
Under the statute, there is a “presumption” that an individual is a covered employee. See §9-202. As such, a worker will be deemed a “covered employee” unless it is established that he or she is an “independent contractor” under the common law rules. Accordingly, it is necessary to look to the common law “master” and “servant” relationship to determine whether an individual is a “covered employee.” See Sun Cab Co. v. Powell, 196 Md. 572, 577 (1951). This analysis considers five factors: (1) the power to select and hire the employee; (2) the payment of wages; (3) the power to discharge; (4) the power to control the employee’s conduct; and (5) whether the work is part of the regular business of the employer. Whitehead v. Safway Steel Products, Inc., 304 Md. 67, 77-78 (1985).
Although all five factors are relevant in determining whether there is an employer/employee relationship, the power to control the employee’s conduct is the most important factor. Id. at 78. In this context, “control” is demonstrated in a number of ways. For instance, where a company that instructed the worker on his tasks, could assign him to other duties, and supervised and directed his actions and rate of work was determined to be his employer. Whitehead, 304 Md. at 81-82. In addition, the level of control necessary to be deemed an employer may be evidenced by the amount and type of employee rules and regulations that are imposed upon an individual. See Mackall v. Zayre Corp., 293 Md. 221, 225-26 (1982).
In this case, the facts demonstrated Renewal’s exercise of control over Elms. Renewal controlled and directed Elms in the performance of the work and in the manner in which the work was to be done. Whitehead, 304 Md. at 78. Renewal provided detailed training and instructions to Elms regarding how to complete the installations, including how to install the insulation and the types of shims, screws, caulking, and molding to use around the windows. And, although Renewal did not directly supervise Elms in the performance of the work, Renewal did engage in “spot checking” of Elms’ work. Renewal also required Elms to wear clothing bearing the “Renewal” logo and place a Renewal sign in the customer’s yard at job sites. Elms had no control over the dates and times the jobs were scheduled.
Based on these facts as established before the Commission, as a matter of law, the Commission misconstrued the law as applied to the facts when it determined that Elms was an independent contractor. The circuit court was correct in holding that Elms, as a common law employee of Renewal, was entitled to recover workers’ compensation benefits under Renewal’s policy.
Accordingly, the judgment of the Court of Special Appeals was vacated and the case remanded with instructions to affirm the judgment of the circuit court.
COMMENTARY: The Court of Special Appeals was also incorrect in holding that §9-508 abrogates the common law definitions of employer and employee. When certain conditions are met, §9-508 broadens the definition of employer to cover principal contractors that ordinarily would not be considered the worker’s employer under the common law rules of “master” and “servant.” Rodrigues-Novo v. Recchi America, Inc., 381 Md. 49, 57 (2004). Accordingly, by its terms, §9-508 operates to make a principal contractor liable only when an employee is unable to recover from his direct employer, the subcontractor. The statute does not, however, “abrogate” the common law employment relationship; instead, it creates a potential alternate relationship where the common law employer/employee relationship does not exist between the injured worker and the principal contractor.
In sum, the initial determination in any workers’ compensation case is whether the injured worker maintains a common law employer/employee relationship with an alleged employer. If the injured worker does not maintain a common law employer/employee relationship with the alleged employer, the inquiry is over, and the worker is not entitled to recover compensation benefits through the alleged employer. By contrast, when a common law employer/employee relationship exists between the injured worker and his or her direct employer (e.g., a subcontractor), but the injured worker is unable to recover compensation benefits through that employer, only then is it appropriate to analyze the constructs of the relationship of the injured worker and the principal contractor under §9-508. As such, the Court of Special Appeals erred when it concluded that §9-508 “abrogates the common law definitions of employer and employee.”
PRACTICE TIPS: Under the Workers’ Compensation Act, partners and sole proprietors are not “covered employees” unless they make an affirmative election under the Act. By contrast, corporate officers are covered under the Act unless they affirmatively elect not to be covered.