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Real Property – Retaliation Actions and Attorneys’ Fees 

Felicia Lockett v. Blue Ocean Bristol, LLC, No. 29, Sept. Term, 2015 (Md. Feb.  22, 2016).

Felicia Lockett is a tenant in an apartment building knowns as “Bristol House” in Baltimore City and had been since 2010.  Slip Op. at 1, 7.  Ms. Lockett, who actively and vigorously participated in the tenants association there, had a contentious relationship with the landlord, Blue Ocean Bristol, LLC (“Blue Ocean”).  Slip Op. at 1.  In 2014, Blue Ocean did not renew her lease. 

When she refused to vacate, Blue Ocean eventually initiated a tenant holding over action.  Slip Op. at 1, 10-11.  In response, Ms. Lockett claimed that Blue Ocean’s actions “were in retaliation for her advocacy on behalf of the tenants association” and also ultimately defended and filed a counterclaim alleging that the non-renewal of the lease and the filing of the tenant holding over action were retaliatory for her participation in the tenants association.  Slip Op. at 1, 10-11.  Ms. Lockett sought $5,022 in damages, which is three times her monthly rent for each act of alleged retaliation, as well as costs and attorneys’ fees.  Slip Op. at 11.

The lease required rent to be paid in “equal monthly installments,” which at the relevant time was $837 per month.  Slip Op. at 8.  The lease also included a provision defining “rent” as follows: “All payments from [Ms. Lockett] to [the landlord] required under the terms of this lease, including, but not limited to, Court costs, shall be deemed rent.”  Id. (alteration in original).  Also, a “utilities addendum provides for the landlord to pay for the monthly gas charge for the entire building, describes how the charge is to be allocated among the residents, and obligates the tenant to reimburse the landlord for the tenant’s pro rata share on a monthly basis. The utilities addendum characterizes this reimbursement by the tenant as ‘additional rent.’”  Id.

Upon a de novo appeal to the circuit court, the trial court ruled in Ms. Lockett’s favor in the tenant holding over action, finding that the non-renewal of the lease was an act of retaliation.  Slip Op. at 13.  At the time of the filing of the tenant holding over action, however, Ms. Lockett allegedly owed $244 for a filing fee, late fees, and gas charges – which Blue Ocean alleged constituted rent.  Slip Op. at 13.  The circuit court, therefore, concluded that it could not find that Ms. Lockett was current on her rent as of the date of the filing so it ruled in favor of Blue Ocean on that claim.  Slip Op. at 13-14.  The circuit court, denied the request for attorneys’ fees.  Slip Op. at 14.  Thus, a key question here is what constitutes “rent.” 

The Court initially observed that the term “rent” is not defined in the anti-retaliation statute, Real Property § 8-208.1(d), or elsewhere in Title 8 of the Real Property Article.  Slip Op. at 20.  The Court initially distinguished between commercial and residential leases.  The Court recognized that it has held, in the commercial context, “that ‘charges which may be definitely ascertained, paid by the tenant, going to [the tenant’s] use, possession, and enjoyment of rental commercial premises, are rent if such was the intention of the parties.’”  Slip Op. at 20 (alteration in original).  The Court observed that it explicitly limited that holding to commercial leases, which are more likely to be the product of arms-length negotiation rather than the typical take-it-or-leave-it leases in the residential context.  Id. at 21.

Turning to Ms. Lockett’s lease, as noted above, the Court found there to be many potential payments that a tenant could owe a landlord under the lease, including fixed monthly rent, a procedure for “higher rent,” a provision deeming all payments to the landlord being “deemed rent,” provisions for returned check charges, late fees, administrative and attorneys’ fees, indemnification of liability, repairs, and others.  Slip Op. at 22.  The utilities addendum also considered the utilities charges to be “additional rent.”  The Court summarized that the lease there provided “for ‘rent’ in a fixed monthly amount and for ‘deemed rent’ and ‘additional rent’ that may or may not exist in any particular month and that can vary wildly in amount, depending on what other payments the tenant may owe the landlord.”  Slip Op. at 22.  Blue Ocean’s internal records were notable in that they referred to “rent” as the fixed monthly charge, while it used different terms for the categories that may be characterized as “deemed rent” or “additional rent.”  Slip Op. at 23.  Therefore, even if the Court were to defer to the definition of “rent” in the lease, it would not be clear what to derive from it in any event.  Slip Op. at 23.

The Court next turned to the ordinary meaning of the term “rent.”  The Court observed that the typical dictionary definition of the term “rent” is the “periodic sum paid for the use or occupancy of property.”  Slip Op. at 23 (citing Merriam-Webster’s Collegiate Dictionary (11th ed.) and Black’s Law Dictionary (10th ed. 2014)).  The “context of the statutory scheme” also suggests that “RP §8-208.1 ordinarily means the periodic amount paid by a tenant for use or occupancy.”  Slip Op. at 24.  RP § 8-208.1(c) provides for an award to either the successful tenant or a landlord successful in avoiding a retaliation claim “’damages not to exceed the equivalent of 3 months’ rent’” as well as fees and costs.  Slip Op. at 24-25.  The statutory scheme also generally provides for “clarity and definiteness” in the construing of “rent.”  Slip Op. at 25 (citing RP §§ 8-203(b) (security deposits), 8-212.1 (tenant in active duty), 8-212.2 (limiting liability of certain tenants)).  Therefore, “rent” should be an amount readily ascertainable and trebled.  Slip Op. at 25.  If, on the other hand, “rent” under the statute were to include variable charges and figures that are uncertain and changeable from month to month, there would be inherent uncertainty in the statute, Slip Op. at 25 n. 10, which is unlikely General Assembly’s intent.  Slip Op. at 25.   

As the final step in its analysis, the Court looked to the legislative purpose of the statute.  RP § 8-208.1 “is designed to protect tenants in residential properties against retaliation by landlords.”  Slip Op. at 27.  This statute is a remedial statute, providing a remedy that was not available at common law.  Slip Op. at 27.  Because RP § 8-208.1(d) is an exception to the remedial purposes of the statute, the Court elected to construe the exception narrowly and utilize the more specific definition.  Slip Op. at 27.  The Court concluded that the term “rent” in RP § 8-208.1 “means the periodic sum owed by the tenant for use or occupancy of the premises,” Slip Op. at 27, “but not the various other payments that the tenant may owe to the landlord from time to time, even if the lease characterizes them as ‘deemed rent’ or ‘additional rent.’”  Slip Op. at 28.  Ms. Lockett was, therefore, current on her rent at that time and was not ineligible for relief on her second claim for retaliation.  Notably, the Court did not consider whether the two alleged acts of retaliation were actually a single act of retaliation because it was not raised in the petition for certiorari.  Slip Op. at 31-32 n. 12.

Finally, the Court considered the circuit court’s denial of Ms. Lockett’s request for attorneys’ fees.  The circuit court denied the request in the following manner: “’[T]hat request is denied. The statute indicates that it’s permissive. The Court may enter judgment and the Court may award attorneys’ fees. So that request is denied.’”  Slip Op. at 14.  Maryland Rule 2-703(g) provides that: “The court shall state on the record or in a memorandum filed in the record the basis for its grant or denial of” the fee award.  Slip Op. at 28.  On remand, if Ms. Lockett prevails, the court would be required to state on the record the basis for its grant or denial of the fee award.  Slip Op. at 31.

Business and Commercial Law – Successor Liability

Phillip Martin v. TWP Enterprises Inc., No. 1855, Sept. Term, 2014 (Md. Ct. Spec. App., Feb. 24, 2016).

Phillip Martin entered into an employment contract with Best & Brady Components, LLC (“Best & Brady”) in 2010.  Best & Brady encountered financial difficulties and ran out of funds in 2011.  TWP Enterprises purchased Best & Brady’s assets shortly thereafter.  Slip Op. at 1.  TWP acquired all of Best & Brady’s assets and assumed certain specific liabilities.  Slip Op. at 9.  “Ultimately, TWP assumed $1,162,160.00 in liabilities, including approximately $300,000.00 owed to Martin as a trade creditor.”  Slip Op. at 9.  Upon acquiring the assets, TWP paid the $300,000 in unpaid receivables to Martin as a trade creditor but was unable to pay Martin the outstanding compensation owed to him under his employment contract.  Slip Op. at 28.

Martin sued Best & Brady for unpaid wages and compensation under the employment contract and also sued TWP for successor liability, alleging that it was a mere continuation of Best & Brady.  Martin ultimately obtained a default judgment against Best & Brady for $278,490.00 in damages and $11,064.24 in interest.  Slip Op. at 1, 11.  The issue of successor liability proceeded to a trial before the circuit court.  Slip Op. at 11-12.  In a bench trial, the circuit court concluded that TWP was not a “mere continuation” of Best & Brady and would not affix liability to TWP.  Slip Op. at 13.

On appeal, the Court of Special Appeals recognized the general rule that, where transfers were made in good faith and for fair consideration, “a corporation which acquires the assets of another corporation is not liable for the debts and liabilities of the predecessor corporation.”  Slip Op. at 16 (internal quotation marks omitted).  However, there are four exceptions to this general rule: where “(1) there is an expressed or implied assumption of liability; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is a mere continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for debts.”  Slip Op. at 16-17.  “The gravamen of these exceptions is the protection of creditors’ rights upon a transfer of assets.”  Slip Op. at 17.  The issue here was the “mere continuation” exception.

The “mere continuation” exception serves to hold liable those acquiring corporations maintaining the same or similar management and ownership where it is “essentially the same corporate entity as the predecessor corporation.”  Slip Op. at 19-20.  “The exception is ‘designed to prevent a situation whereby the specific purpose of acquiring assets is to place those assets out of reach of the predecessor’s creditors.’”  Slip Op. at 20.  Upon analyzing the Maryland appellate decisions considering the “mere continuation” exception, the court distilled five factors to consider: “(1) any change in ownership and management, (2) the continued existence of the selling corporation, (3) the adequacy of consideration, (4) the transfer of any ‘instrumental’ employees from the predecessor to the successor, and (5) the purpose of the asset sale.”  Slip Op. at 27.  The courts consistently pay particular attention to the the adequacy of consideration but do not rely solely on it in their conclusions.  Slip Op. at 27-28.

Martin claimed that TWP was the “mere continuation” of Best & Brady because:

  • TWP’s subsidiary, Truss, held 80% of the company’s stock;
  • TWP continued to use the same trade name, “Best & Brady”;
  • TWP continued to manufacture at the same plant;
  • TWP retained the same employees and sold to the same customers;
  • TWP increased its ownership in the company from 80% to 100%; and
  • TWP retained the same management.

Slip Op. at 29.  The circuit court concluded that TWP was not a “mere continuation,” finding that:

Mr. Brady became an employee of TWP but not an owner; TWP continued to provide “back office” support; TWP no longer had an in-house sales staff for the roof truss business and relied on independent salesmen of which [Martin] was one; and Mr. Butcher no longer supervised the independent salesmen. The court concluded that, because both “before and after the asset sale” Best & Brady and TWP had “substantial overlap” in management, control, and ownership, such overlap was not determinative because “this is not an instance in which management of one stand-alone entity uses its authority merely to change ‘hats’ and manage a new stand-alone entity.”

Slip Op. at 29-30 (alteration in original).  Further, and importantly, the court concluded that the purpose of the asset sale was not to place them beyond Martin’s reach, but rather an attempt to salvage a failing business.  Slip Op. at 30.  Moreover, Best & Brady was never profitable, considered bankruptcy, attempted to increase revenues in various ways, cut salaries, and engaged in other attempts to improve before selling its assets to TWP.  Slip Op. at 30.  In fact, Martin himself benefited here because “TWP assumed nearly $1.2 million dollars of Best & Brady’s liabilities, including approximately $300,000.00 owed to Martin as a trade creditor.”  Slip Op. at 30.  Indeed, the court noted that the purpose of the “mere continuation” exception to the general rule against successor liability is to protect creditors.  Slip Op. at 31.  Although the asset transfer did not cover his employment contract, it did facilitate an approximately $300,000 payment to Martin as a trade creditor thereby affording him some level of protection.  Slip Op. at 31.  Importantly, the Court of Special Appeals also agreed with the trial court that assuming nearly $1.2 million dollars in liabilities for the assets acquired was “adequate consideration for the asset transfer.”  Slip Op. at 30-31.  Under the circumstances, the court concluded that TWP was not a “mere continuation” of Best & Brady to trigger the exception to the general rule against successor liability.

Civil Procedure – Spoliation of Evidence

Cumberland Insurance Group v. Delmarva Power, No. 72, Sept. Term, 2015 (Md. Ct. Spec. App., Feb. 1, 2016).

On May 5, 2013 a fire broke out in the home of David Wickwire, which was insured by Cumberland Insurance Group (“Cumberland”).  Delmarva Power (“Delmarva”) was Wickwire’s electric company.  The local fire department put out the fire and Delmarva sent a lineman to disconnect the power to the house.  Cumberland inspected the property three days later, on May 8, 2013.  Cumberland again inspected the property on May 24, 2013.  The house and its contents were demolished on July 3, 2013.  It was undisputed that Delmarva knew of the fire on May 5, 2013 and that by May 29, 2013 it was aware that a claim may, at some point, be made against it.  After paying Wickwire’s claim, Cumberland sought subrogation from Delmarva.  However, due the destruction of the fire scene, Delmarva moved for summary judgment, which the trial court ultimately granted.

The court recognized that the Maryland Rules inherently provide the courts with authority to sanction a litigant for the destruction of discoverable evidence.  Slip Op. at 10.  The courts maintain that power, whether that authority is derived from the discovery sanctions rule or from their inherent powers.  The court has broad discretion to regulate this.  Slip Op. at 15.  Maryland Courts employ a four part test to determine whether spoliation occurred:

(1) An act of destruction;

(2) Discoverability of the evidence;

(3) An intent to destroy the evidence;

(4) Occurrence of the act at a time after suit has been filed, or, if before, at a time when the filing is fairly perceived as imminent.

Slip Op. at 11.

The Court of Special Appeals analyzed each part of the test and observed that in this case there was an act of destruction, the evidence was clearly discoverable, there was an intent to destroy the evidence (noting that demolishing the house was no mistake), and the demolition took place while suit was fairly perceived as imminent.  Slip Op. at 16.  In determining the appropriate sanction, the court noted the degree of fault to the spoliating party.  Where the fault on the part of the spoliator is greater, prejudice is less necessary to be shown.  On the other end of the spectrum, even where there is a lack of intent, if there is a high degree of prejudice, a more serious sanction is warranted.  Slip Op. at 12-13.  The court concluded that Delmarva, “and especially its experts, never had the opportunity affirmatively to rule in or rule out the other parts of the house as the area of origin, which irreparably prejudiced their ability to defend, and which made dismissal altogether appropriate.”  Slip Op. at 23.

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