U.S. Court of Appeals for the 4^th Circuit

Civil Practice; Good cause for untimely service: A court may excuse a plaintiff’s failure to serve defendants within the 90-day period required by Fed. R. Civ. P. 4(m) even where the plaintiff has not shown “good cause” for the delay. Gelin v. Shuman, No. 21-1498 (filed May 24, 2022).

Contract; Damages: Where a reasonable person would conclude a consultant was entitled to compensation after he fully performed under the parties’ contract, the court did not err in awarding damages using unjust enrichment principles. Martz v. Day Development Company LC, Nos. 19-2186, 19-2241 (filed May 24, 2022).

Maryland Court of Appeals

Attorneys; disbarment: Where an attorney admitted to violating several rules of professional conduct by borrowing funds from his trust account to cover expenses, he was disbarred. Attorney Grievance Commission of Maryland v. Silbiger, Misc. Docket AG No. 57, Sept. Term, 2020 (filed May 26, 2022).

Maryland Court of Special Appeals

Insurance; COVID-19 business losses: Where the Maryland governor issued an order closing restaurants for in-person dining during the early days of the COVID-19 pandemic, a restaurant’s property insurance policy did not cover its business-interruption losses because there was no direct physical loss or damage to the restaurant resulting from the governor’s order or the COVID-19 virus. GPL Enterprise LLC v. Certain Underwriters at Lloyd’s, No. 302, Sept. Term, 2021 (filed May 24, 2022).

U.S. Court of Appeals for the 4^th Circuit

Civil Practice

Good cause for untimely service

BOTTOM LINE: A court may excuse a plaintiff’s failure to serve defendants within the 90-day period required by Fed. R. Civ. P. 4(m) even where the plaintiff has not shown “good cause” for the delay. 

CASE: Gelin v. Shuman, No. 21-1498 (filed May 24, 2022) (Judges NIEMEYER, Diaz, Quattlebaum).

FACTS: The plaintiffs served process on several of the defendants roughly a year after filing their complaint, in violation of Federal Rule of Civil Procedure 4(m)’s 90-day time requirement for service. The district court found insufficient the plaintiffs’ efforts to establish “good cause” for the delay, and because the court understood that a showing of good cause was a condition for any extension, it dismissed the plaintiffs’ claims against these defendants.

LAW: In relevant part, Federal Rule of Civil Procedure 4(m) provides: If a defendant is not served within 90 days after the complaint is filed, the court — on motion or on its own after notice to the plaintiff — must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period.”

In this case, the district court, applying Fourth Circuit and district court precedents, read Rule 4(m) to require that a plaintiff show good cause to obtain an extension for serving a defendant. It noted that under those precedents, “courts do not have discretion to extend the Rule 4(m) deadline absent good cause.” After considering the Gelins’ explanation for delaying service of process for more than a year as to the health care providers, the court concluded that the explanation was insufficient to show good cause and dismissed their claims against those defendants.

The court sees no ground upon which to disturb the district court’s conclusion that the Gelins failed to establish “good cause” within the meaning of Rule 4(m). It accordingly affirms the district court’s holding that the Gelins did not demonstrate good cause for their failure to serve the five health care provider defendants within the 90-day service period provided by Rule 4(m).

The Gelins seek to marginalize the effect of the good-cause ruling by arguing that Rule 4(m) gives district courts discretion to grant an extension even without a showing of good cause. The court agrees. In its first sentence, Rule 4(m) provides, “If a defendant is not served within 90 days after the complaint is filed, the court . . . must” do one of two things — “[1] dismiss the action without prejudice against that defendant or [2] order that service be made within a specified time.” Fed. R. Civ. P. 4(m). These two options are authorized in the disjunctive without reference to whether the plaintiff has demonstrated good cause for the failure to serve the defendant.

It thus follows from the text that, even without a showing of good cause, the district court may “order that service be made within a specified time” rather than dismissing the action and that the choice between the two is left to the district court’s discretion. Only in its second sentence does Rule 4(m) mention good cause, providing that “if the plaintiff shows good cause for the failure” to serve the defendant within 90 days, then “the court must extend the time for service for an appropriate period.” Thus, under Rule 4(m), while a district court must extend the time for service when a plaintiff shows good cause, such a showing is not necessary for the court to grant an extension in its discretion.

In requiring a showing of good cause as a condition for exercising discretion, the district court recognized that “[t]here is a split in authority regarding whether Rule 4(m) gives courts discretion to extend deadlines for service without a showing of good cause,” and it followed those decisions that had “concluded that courts do not have discretion to extend the Rule 4(m) deadline absent good cause.” The “split in authority” identified by the district court has its roots in this court’s prior decision in Mendez v. Elliot, 45 F.3d 75 (4th Cir. 1995), and whether it remained good law after Henderson v. United States, 517 U.S. 654 (1996). Today the court brings its jurisprudence on this issue in line with Henderson and confirms that the statements in Mendez indicating that a plaintiff must establish good cause to obtain an extension of time to serve the defendant are no longer good law.

Affirmed in part and vacated in part.

Contract

Damages

BOTTOM LINE: Where a reasonable person would conclude a consultant was entitled to compensation after he fully performed under the parties’ contract, the court did not err in awarding damages using unjust enrichment principles.

CASE: Martz v. Day Development Company LC, Nos. 19-2186, 19-2241 (filed May 24, 2022) (Judges NIEMEYER, Diaz) (Judge Quattlebaum, dissents).

FACTS: In connection with two undeveloped parcels of land in Frederick, Maryland, the owner and developer, Day Development Company LC, entered into a consulting services agreement with Byron Martz. Under the agreements, Martz agreed, as to one parcel, to obtain City of Frederick approvals to allow the developer to construct multi-story residential condominium units and, as to the other parcel, to perform unspecified services.

Each agreement provided for how the compensation amount for Martz’s services was to be calculated in the event that (1) the developer were to sell the parcel or (2) the developer were to elect to build on the parcel and obtain permits for doing so. After Martz obtained the necessary approvals and otherwise performed the services he was hired to do, the developer refused payment because it had neither sold the parcels nor elected to build on them, which, it claimed, were conditions precedent to payment.

The district court found that Day Development had breached the agreements in refusing payment. It filled the gap for the calculation of the amount of compensation by applying principles of unjust enrichment and awarded Martz $1,941,250.

LAW: Day Development contends first that the district court erred in failing to recognize that contractual conditions precedent to Martz’s compensation had never been satisfied. The court disagrees. A reasonably prudent person would read the provisions to mean that Martz was to be compensated for his “obtaining the Approvals for the Proposed Use,” and that there were no other conditions precedent for earning compensation. The paragraphs of the agreements addressing the sale or development of the parcels were included solely to distinguish between two methods for calculating the amount of Martz’s compensation.

Day Development contends next that “it was never possible” for Day Development to develop the commercial parcel before Jan. 1, 2015, when payment became due to Martz. The district court ruled that the impossibility doctrine did not apply because the plain language of the agreements “obligated the development company to pay Martz no later than January 1, 2015, irrespective of the progress of any infrastructure on the Parcels.” The court agrees. Martz’s obligation was to obtain “approvals,” not to develop the property, and Day Development’s obligation to pay Martz arose when the approvals were obtained.

Day Development contends next that the district court erred in awarding Martz restitution under principles of unjust enrichment, because the relationship between the parties was fully and unambiguously governed by existing contracts. Day Development is correct in noting that when a contract exists, awarding restitution for unjust enrichment is, as a general rule, barred.

But the Maryland courts also provide several exceptions, one of which allows restitution for unjust enrichment “when the express contract does not fully address a subject matter.” The two agreements failed to address how Martz was to be compensated if Day Development neither sold the parcels nor developed them but simply continued to hold them, and denying any payment because there was this gap in the agreements would unjustly enrich Day Development, which received the benefit of Martz’s services.

Finally, Day Development challenges the amount of the district court’s award, claiming that it was untethered to any facts and simply constituted “a combination of contract damages and pure conjecture unsupported by any evidence.” The court concludes that the district court did not abuse its broad discretion in determining the measure of gain in the value of the parcels attributable to Martz’s services, and therefore rejects Day Development’s challenges to the court’s computations.

Affirmed.

DISSENT: The agreements are circular. They indicate Martz is due compensation once he obtained the approvals, which he did. They provide that he shall be compensated on either the date the property is sold, the date the property is developed or Jan. 1, 2015. But the only two methods to calculate Martz’s compensation in the agreements are based on either the sale or the development of the property. In my view, it is not unreasonable to interpret the agreements to mean Martz was not to be paid until the property was either sold or developed.

Thus, we have two reasonable interpretations of the agreements. Under Maryland law, that means the agreements are ambiguous. Accordingly, I would vacate the order granting Martz summary judgment and remand to the district court to take evidence, including extrinsic evidence, to determine the parties’ intent and to resolve the ambiguity in accordance with Maryland law.

Maryland Court of Appeals

Attorneys

Disbarment

BOTTOM LINE: Where an attorney admitted to violating several rules of professional conduct by borrowing funds from his trust account to cover expenses, he was disbarred.

CASE: Attorney Grievance Commission of Maryland v. Silbiger, Misc. Docket AG No. 57, Sept. Term, 2020 (filed May 26, 2022) (Judges Watts, Hotten, BOOTH, Biran, Gould, Glenn, McDonald) (Judge Harrel joins in judgment only).

FACTS: Clifford Baer Silbiger admits to borrowing funds from his attorney trust account to cover expenses related to his law firm—in essence, taking an interest-free loan from his client without her knowledge or consent.

The hearing judge concluded, by clear and convincing evidence, that Mr. Silbiger violated Maryland Attorneys’ Rules of Professional Conduct, or MARPC, 1.1, 1.4, 1.15, 8.1, 8.4(a)-(d), Md. Rule 19-407, Md. Rule 19-408, Md. Rule 19-410 as well as Maryland Code, Business Occupations & Professions Article §10-306. Neither Mr. Silbiger nor the commission filed exceptions. Based upon the court’s independent review of the record, it agrees with the hearing judge’s conclusions that bar counsel established a violation of these rules by clear and convincing evidence.

The only issue in dispute is the appropriate sanction to be imposed for the misconduct. Bar counsel recommends that Mr. Silbiger be disbarred from the practice of law. In support of this recommendation, bar counsel cites to Mr. Silbiger’s multiple violations of the MARPC and this court’s well-established case law, which sets forth that when an attorney engages in knowing and intentional conduct that involves the misappropriation of funds, disbarment is warranted.

Although Mr. Silbiger acknowledges the serious nature of his misconduct, he argues that disbarment is not warranted in his case, because he contends that the substantial number of mitigating factors outweigh the aggravating factors.

LAW: When imposing a sanction, the court considers the individual facts and circumstances of each particular case—including the nature of the specific ethical rule or rules that have been violated, as well as the aggravating and mitigating factors established. That said in the two decades since this court decided Attorney Grievance Comm’n v. Vanderlinde, 364 Md. 376 (2001)—the seminal case that established the standard for determining the sanction in cases involving dishonest conduct—it has not imposed a sanction less than disbarment where the underlying conduct involves theft or misappropriation of funds, and we decline to do so here.

The court’s unwillingness to impose a sanction less than disbarment here is not based upon the application of a bright-line rule, and it has carefully considered the presence of the aggravating and mitigating circumstances established. Some of the most difficult attorney discipline cases for the court are those in which the attorney, like Mr. Silbiger, has had a long and distinguished career. The court has considered the credible testimony of the character witnesses who, to quote the hearing judge, all attested to Mr. Silbiger’s “unblemished record and reputation as an otherwise competent, careful attorney who is always attentive to and respectful of others and with an excellent reputation as an ethical practitioner with this subject episode being the only black mark against him in over 50 years of practice.”

The court has also considered Mr. Silbiger’s reputation, the genuine remorse found by the hearing judge, the candor and responsibility that he has taken and the fact that no clients were harmed by his actions— which in essence, amount to taking a short term, interest-free loan from the client without her knowledge or consent. However, the court cannot ignore that Mr. Silbiger violated one of the most sacred obligations of an attorney. The court does not find that Mr. Silbiger’s significant mitigating factors justify imposing a sanction less than disbarment here.

CONCUR: Judge Harrell joins in the judgment only.

Judgment is entered in favor of the Attorney Grievance Commission against Clifford Baer Silbiger

Maryland Court of Special Appeals

Insurance

COVID-19 business losses

BOTTOM LINE: Where the Maryland governor issued an order closing restaurants for in-person dining during the early days of the COVID-19 pandemic, a restaurant’s property insurance policy did not cover its business-interruption losses because there was no direct physical loss or damage to the restaurant resulting from the governor’s order or the COVID-19 virus.

CASE: GPL Enterprise LLC v. Certain Underwriters at Lloyd’s, No. 302, Sept. Term, 2021 (filed May 24, 2022) (Judges Graeff, ARTHUR, Eyler).

FACTS: A restaurant was ordered to close its business for in-person dining during the early days of the COVID-19 pandemic. The restaurant made a claim against its property insurer, claiming to have suffered business-interruption losses as a result of the shut- down order and the virus. The insurer denied the claim, the restaurant filed suit and the Circuit Court for Frederick County concluded that the policy did not cover the restaurant’s losses.

LAW: Subject to the terms, conditions, and exclusions in the policy, the insuring agreement obligates the underwriters to “pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations.” The central question is whether the governor’s order or the COVID-19 virus resulted in “direct physical loss of or damage to” GPL’s property.

No Maryland appellate court has decided this specific question, but hundreds of courts throughout the United States have decided it in interpreting policies that are substantially identical to the policy in this case. Those courts have held, almost unanimously, that the phrase “physical loss of or damage to” property is unambiguous and that the policies afford no coverage in circumstances such as those of this case.

The requirement of physical loss or damage “‘is widely held to exclude alleged losses that are intangible and incorporeal, and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.’”

In this case, the governor’s order “did not create a direct physical loss of property or direct physical damage to it.” The order “simply prohibited one use of the property.” GPL lost one use of its property as the result of a legal prohibition on that use, not because of any “‘actual or tangible harm to or intrusion on the property itself.’”

Nor has GPL alleged facts sufficient to establish that the COVID-19 virus somehow physically altered the structure of the restaurant so as to trigger coverage under the policy. Other terms in the policy reinforce the conclusion that GPL did not suffer a direct physical loss of property or damage to its property.

GPL argues that the civil authority coverage obligates the underwriters to cover its losses. A necessary condition of that coverage is that the authorities are responding to dangerous physical conditions or securing their unimpeded access to the damaged property. GPL, however, does not allege that its losses occurred because the civil authorities prohibited access to its restaurant in order to respond to dangerous conditions at a damaged property in the vicinity or to secure unimpeded access to the damaged property. Therefore, GPL has no right to coverage under this policy provision.

GPL cites a number of cases that hold that an insured may suffer direct physical loss even in the absence of physical damage to its property, provided that the property is rendered unhabitable or unusable because of some form of physical contamination. Here, however, GPL’s restaurant did not become unusable for in-person dining because of the harmful effects of a noxious gas or of some physical form of physical contamination; it became unusable for in-person dining because the governor entered an order prohibiting in-person dining.

GPL argues that “loss” must mean something other than “damage,” or else “loss” would be superfluous. GPL’s argument “skates over the unrelenting imperative that the policy covers only ‘physical’ losses.” GPL also argues that Berry v. Queen, 469 Md. 674 (2020), stands for the proposition that “damage to property” includes damages for the loss of use of property. Berry is inapposite.

GPL observes that some commercial property insurance policies contain a so-called virus exclusion, but that its policies do not. GPL argues that the absence of the virus exclusion implies that the policy covers losses attributable to COVID-19. GPL’s argument misapprehends some of the basic principles pertaining to the interpretation of an insurance policy.

In Count Two of its amended complaint, GPL requested that the court declare the parties’ rights under the policy. The court, however, dismissed the amended complaint, including the count for declaratory relief, without declaring the parties’ rights. In so doing, the court erred. As such, the court remands the case to the circuit court for entry of judgment consistent with this opinion.

Judgment of the Circuit Court for Frederick County affirmed in part, vacated in part.