Articles Posted in Contracts

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Concern regarding “waste, fraud and abuse” in government spending is everywhere these days, it seems.  Even in 2017, it is a solidly bi-partisan concern.  A quick internet search reveals that think tanks from the progressive Center for American Progress to the libertarian Cato Institute have published on the topic, and politicians as ideologically diverse as Rep. Elijah Cummings (D-Md.) and Rep. Paul Gosar (R-Az.) host pages on the official House of Representatives domain, house.gov, addressing wasteful or fraudulent government spending.

It may be more accurate to call the issue “non-partisan” rather than “bi-partisan” – relatively apolitical groups like AARP have weighed in, as has nearly every federal executive agency, including the Office of Personal Management, the Government Accountability Office, and the Department of Health and Human Services (which oversees Medicare and Medicaid – more about those two programs in a future post).

Even the Pentagon, long the butt of many anecdotes about $30,000 toilet seats and the like, apocryphal or not, maintains a suite of online resources dedicated to informing and empowering the public regarding safeguards against waste fraud and abuse.  In fact, the Office of Inspector General for the Department of Defense provides definitions, drawn from several sources, that defense what each of these terms – waste, fraud, and abuse – is understood to mean:

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Omni Imaging, LLC (“Omni”), a Maryland limited liability company, filed its lawsuit against our clients, Blue Ridge X-Ray Co., Inc. (“Blue Ridge”) and Richard A. Wilson, in the U.S. District Court for the District of Maryland, on or about October 12, 2016, alleging breach of contract, tortious interference with contract and tortious interference with prospective business advantage.  Omni is an LLC in the business of selling and maintaining x-ray facilities and radiology products, accessories, supplies and services in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia.  Mr. Wilson was formerly employed by Omni prior to joining Blue Ridge X-Ray Co., Inc.  Blue Ridge is a North Carolina corporation and a national supplier of x-ray imaging equipment, service and supplies.  Omni sued our clients over a dispute concerning a non-compete agreement signed by Mr. Wilson prior to leaving his employ with Omni.  STSW was able to defend Blue Ridge and Mr. Wilson and reach a fair and reasonable settlement with the assistance of the Honorable Beth P. Gesner, U.S. Magistrate Judge for the U.S. District Court for the District of Maryland.

Omni hired Mr. Wilson in February 2010 to conduct sales and perform services on traditional and digital x-ray imaging equipment.  As a condition of his initial employment, Omni required that Mr. Wilson sign a non-compete agreement, as well as provide a list of accounts that Mr. Wilson could bring from Kane X-ray, his previous employer.  Mr. Wilson, under the encouragement of Omni and its president Bill Wills, compiled such a list and brought over several clients, with whom he had pre-existing longstanding personal relationships, from Kane X-ray to Omni.  Omni relied heavily on the business that Mr. Wilson brought with him, as the medical imaging industry is highly competitive.  And during the course of his employment with Omni, Mr. Wilson was dedicated to Omni’s business and maintained a strong work ethic.  While working for Omni, Mr. Wilson noticed that its main competitor had started providing biomedical services, which generated a significant profit.  Mr. Wilson thereafter began to research equipment sales and training programs pertaining to selling and servicing such equipment.  After conducting individualized research and independent training on his own time, Mr. Wilson approached Bill Wills with the idea of initiating sales and service of biomedical equipment through Omni.  As a precondition to receiving the training for implementing Mr. Wilson’s own idea, Bill Wills required that Mr. Wilson sign a second non-compete agreement.  On March 18, 2015, Mr. Wilson, without the benefit of independent counsel, signed the Employee Non-Compete Agreement.  That Agreement contained non-compete, non-solicitation, and confidentiality clauses.  The Non-Compete Agreement specified that it would “survive the termination” of Mr. Wilson’s employment.  In May of 2016, despite Mr. Wilson’s best efforts in his new sales region, Bill Wills informed Mr. Wilson that, unless he could meet a minimum threshold of $30,000.00 in quarterly sales, Omni would need either to reduce Mr. Wilson’s employment status to part-time, or to part ways with Mr. Wilson completely.  Out of concern for himself and his family’s well-being, and having grown increasingly dissatisfied with his experience working with Omni, Mr. Wilson initiated an interview with Bill Lee, president of Defendant Blue Ridge X-ray (“Blue Ridge”).  Blue Ridge hired Mr. Wilson, for a start in the month of July, 2016.

In its Complaint, Omni alleged that Mr. Wilson solicited Omni’s customers and employees in breach of the non-compete, non-solicitation, confidentiality and non-disparagement clauses in the Non-Compete Agreement.  While disputing liability in this matter, we were able to secure a release of all claims and an agreement concerning the future interaction between our clients and any Omni customers.  If you want more information, please feel free to contact William Sinclair at (410) 385-9116 or Anna Schultz Kelly at (443) 909-7505.

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It’s no secret that the Court of Special Appeals has been increasingly overwhelmed with cases, nor is it a secret that the Court would like to see a lot of these cases resolved or otherwise cleaned up before having to spend time on them. Those concerns led to the creation of the Court’s ADR Division and accompanying procedures for steering the parties toward settlement or streamlining of the appellate process. After trying those out for a while, however, the Maryland Courts’ Standing Committee on Rules of Practice and Procedure identified some kinks, inefficiencies, and redundancies in the overall system, and proposed some related rules changes that were adopted by the Court of Appeals this month.
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Have you obtained a judgment for recovery of money? Lucky you! Is that judgment unsecured? Ouch.

Well, at least you have some protection should your opponent decide to appeal: Under the Maryland Rules (and unless the parties agree otherwise), the appellant has to file a supersedeas bond covering the whole amount of the judgment that remains unsatisfied, plus interest. Of course, the court can always reduce the bond amount, but it can still be a pretty big deterrent to weak or frivolous appeals that just delay payment and increase the chance that some other creditor will snatch up the debtor’s funds in the meantime. As proposed in the 188th Report of the Maryland Standing Committee on Rules of Practice and Procedure, however, the bond isn’t without limits.
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Courts across the country haven’t taken too kindly to insurers using technicalities or blaming their insureds to deny coverage and Maryland is no exception. Legislatures’ displeasure with insurers’ knack for finding devils in details sharpens where insurers deny coverage even though the insured’s mistakes caused no real problems. The Maryland General Assembly has therefore encoded (and the state courts have adopted) the so-called “prejudice rule” – an insurer can’t deny coverage without showing it was actually prejudiced by whatever the insured supposedly didn’t do.
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Liability insurance policies sold to businesses, and individuals, are often “occurrence”-based policies that provide coverage for specific events, or “occurrences,” that take place during a covered period (regardless of when a lawsuit based on those events is filed). This seems easy enough on the surface, but “occurrence” policies have given rise to legions of legal opinions concerning arguments as to whether a coverage-triggering “occurrence” or “occurrences” took place, and if so, when the “occurrence(s)” took place. As most businesses purchase commercial policies of relatively short duration, one or two years, policyholders oftentimes argue that separate occurrences took place over multiple consecutive policy periods – in order to “trigger” coverage under multiple policies. Insurers typically respond, if the facts support such a response, that there was no “occurrence” at all, and therefore coverage is not triggered under any of the potentially applicable policies – or alternatively, that there was only one “occurrence,” triggering coverage under only one policy.

Time and again courts have been asked to identify whether one or more “occurrence(s)” have transpired, and then to place those occurrence(s), should they be found to exist, into one or more policy periods. These tend to be thorny issues in commercial insurance cases, particularly when construction companies or related entities are seeking insurance coverage. The kaleidoscope of caselaw interpreting “occurrence”-based liability policies in the construction context has been built brick by brick (my apologies), or opinion by opinion. Just last month, the Fifth Circuit laid additional foundation for certain of these claims, holding that protection for “ongoing operations” does not cover defects that cause damage after work is completed.
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When an injured party has insurance coverage, it’s a tricky thing figuring out what a jury should know about that insurance during trial. It can be even trickier when the insurer is an actual party, standing there fully represented in the courtroom. At least in Maryland, however, where insurance isn’t an issue in the case, the jury doesn’t have to know why the insurer’s involved.

In the recent case of Keller v. Serio & GEICO Ins. Co., Court of Appeals of Maryland, Case No. 48, September Term 2013, the plaintiff, Ms. Keller, got into a fender-bender and then went home. After talking to her attorney, Ms. Keller decided to check herself into the hospital. Five years, and more than $27,000 in medical bills later, she sued the other driver, Mr. Serio, in the Circuit Court for Baltimore County and notified her insurer, GEICO of a claim for underinsured-motorist coverage (“UM” in common insurance parlance) under that policy. GEICO then intervened in the lawsuit on the chance that an award might trigger the UM coverage.
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Reinsurance is a great way for insurance companies to manage their risk. An insurer issues a policy with a million dollars in liability limits, and then cedes, by way of example, 75% of that risk, or $750,000 to a “reinsurer.” The reinsurer charges a small premium based on its actuarial bet that most claims will never exceed $250,000. The insurer is likewise pleased to pass of the majority of the risk for a small portion of the premium it collected. It is critical to remember, however, that the fundamental tenet of all insurance transactions, including reinsurance transactions, is risk transfer. If no risk of loss is transferred from the insurer to the reinsurer, there is no reinsurance transaction.

This precise problem was addressed recently by a federal district court in Menichino v. Citibank, N.A., 2014 WL 462622 (W.D. Pa., Feb. 4, 2014). By this opinion, a claimant was found to have successfully articulated a RESPA (“Real Estate Settlement and Procedures Act (“RESPA,” for short)) cause of action against Citibank by alleging that Citibank charged fees for reinsurance but did not accept any risk. Citibank is also facing claims for unjust enrichment. While these are merely allegations, and none of these facts have been proven, the claimant’s lawsuit survived the preliminary motions stage, and provided all reinsurers a reminder to carefully consider risk transfer in structuring its transactions.
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As governments get increasingly involved in regulating telecommunications advertising, it is more important than ever for companies to be legally savvy about their mass-marketing techniques. Insurers are well aware that violations of mass-marketing laws have the potential to result in huge class action verdicts, so carriers tend to be vigilant in defending against claims for insurance coverage for these suits. A recent case from Illinois provides insurers with additional ammunition to use in effectively disclaiming such coverage.

In Windmill Nursing Pavilion v. Cincinnati Ins. Co., 2013 IL App (1st) 122431, Unitherm, Inc., a company selling a garment-labeling system, sent nearly 75,000 unsolicited faxed advertisements that allegedly violated the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. Because the TCPA provides for $500 in liquidated damages for each unsolicited faxed advertisement, Unitherm faced more than $37 million in liability for its ill-advised marketing strategy.
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Plaintiffs rarely enjoy having their case jettisoned from court and onto the arbitration table – whether right or wrong, arbitration has a decidedly pro-defense rep that makes plaintiffs’ attorneys do just about anything to avoid it. But as shown in the recent Court of Special Appeals of Maryland case of Gordon v. Lewis, No. 1505, Sept. Term 2011, arbitration isn’t always a graveyard for meritorious claims, and plaintiffs can even score punitive damages that are quite hard to overturn. Simply put, courts are loath to revise an arbitrator’s decision, even when it involves an exemplary award.

In Gordon, appellant Kathy Gordon, a financial advisor, advised the appellees, her clients, to invest a quarter of a million dollars in a Somerset County real-estate venture that, coincidentally, just happened to be owned by her son. The clients received supposedly secured promissory notes that assured repayment, but that never actually happened, even while Gordon repeatedly stated that high rates of interest were being earned. Meanwhile, unbeknownst to the investors, the development company had actually gone belly-up into bankruptcy. When the clients eventually discovered this important little detail, they weren’t too pleased that their notes were – despite what they had been told – completely unsecured. In other words, it was nice knowing you, 250 grand.
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