Maryland Business Litigation Lawyer Blog

Published on: January 4, 2021

The Statutory Right to Purchase Shareholder Stock in the Dissolution of a Close Corporation

The Statutory Right to Purchase Shareholder Stock in the Dissolution of a Close Corporation

In Bartenfelder v. Bartenfelder, 248 Md. App. 213 (2020), the Court of Special Appeals considered whether a complaint by a stockholder in a close corporation seeking the appointment of a receiver triggers the right of another stockholder to purchase the complainant’s stock in the company under § 4-603(a) of the Corporations and Associations Article (“CA”) of the Maryland Code. The Court held that “in the absence of a petition for dissolution, the request for a receiver does not trigger the statutory purchase right.” Id. at 219. In other words, the purchase right in CA § 4-603(a) applies only in the context of a dissolution proceeding.

The Facts and Procedural History

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Published on: October 1, 2020

WEIRD SCIENCE: MARYLAND’S NEW TEST FOR THE ADMISSIBILITY OF EXPERT TESTIMONY.

By William Sinclair

WEIRD SCIENCE: MARYLAND’S NEW TEST FOR THE ADMISSIBILITY OF EXPERT TESTIMONY.

For more than forty years, Frye-Reed endured as Maryland’s test for the admissibility of expert testimony based on novel scientific principles or techniques. Named after its near century-old progenitor, Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), and the Maryland case that adopted it, Reed v. State, 283 Md. 374 (1978), the test asks whether the scientific principle or technique at issue is “generally accepted” in the relevant scientific community. Before the Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), the Frye test was the predominant standard for the admissibility of scientific evidence in state and federal courts. Daubert, however, held that Frye was superseded by Federal Rule of Evidence 702. The Supreme Court interpreted Rule 702 as providing for a “flexible” inquiry focused on the reliability of evidence, under which “general acceptance” is only of several relevant factors. Id. at 594–95. In years following Daubert, the majority of states followed the federal courts and replaced the Frye test with Daubert. Maryland was one of the few hold outs, but no longer.

Out with the old . . .

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Published on: August 31, 2020

The Waiting Was the Hardest Part: The Court of Appeals Finally Makes Clear that a Breach of Fiduciary Duty Claim Exists Under Maryland Law

By William Sinclair

On July 14, 2020, the Maryland Court of Appeals issued its opinion in Plank v. Cherneski, (Misc. No. 3, Sept. Term 2019) (July 14, 2020), which finally harmonized Maryland case law as to the existence of a standalone “breach of fiduciary duty” claim. The Court held that such a claim exists under Maryland law and that its elements are: “(1) the existence of a fiduciary relationship; (2) breach of the duty owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary.” The Court stressed that the nature of the fiduciary relationship and available remedies are fact specific and considered on a case-by case basis. “If a plaintiff describes a fiduciary relationship, identifies a breach, and requests a remedy recognized by statute, contract, or common law applicable to the specific type of fiduciary relationship and the specific breach alleged, a court should permit the count to proceed.” The remedy available depends on the specific fiduciary relationship at issue.

Running Down a Dream: The Facts and Procedural History

In Plank, the defendant James Cherneski was “a former professional soccer player who invented and patented a non-slip athletic sock.” In April 2011, together with Sanford Fisher and Jeff Ring, Mr. Cherneski established Trusox, LLC to produce and distribute the patented sock. In October 2013, the plaintiff William H. Plank, II acquired a 20% membership interest in Trusox by investing $1.5 million in the company, leaving Cherneski with a 65% membership interest, and Fisher and Ring each owning 7.5% of the company. In late 2015, minority members of the company became dissatisfied with Cherneski’s management of Trusox, and in June 2016, “Messrs. Fisher and Plank, filed an action against Mr. Cherneski and Trusox, alleging, among other things, that Mr. Cherneski was violating the Operating Agreement, had engaged in unlawful conduct related to investors and employees, and had breached contractual and fiduciary duties.” The complaint alleged nine causes of action, one of which, as relevant hereto, was breach of fiduciary duty.

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Published on: June 14, 2018

Five Most Common Legal Pitfalls for Marketing Entrepreneurs

By Mark Edelson

Marketing entrepreneurs’ greatest strengths are their creativity and vision. It is this vision that drives many to take the leap to start their own agency/consultancy or join a start-up venture to market an exciting new product. Unfortunately, most marketers are not well-versed in the intricate legal issues involved with starting a business. This can lead to a variety of problems, especially as the venture begins to become successful. A common misconception is that good legal advice is often too expensive for the early stages of a business venture. This is not the case – provided the right counsel is selected. To ensure the success of any new venture, marketers should take steps to avoid the following common pitfalls:

Delaying discussion of legal issues until past the start-up phase. It’s all too common (and tempting) to ignore legal issues involved with starting a business. The instinct is to wait until your company receives additional funding or has a problem to hire an attorney. But having legal counsel during the start-up is essential to preventing large and costly problems that could ultimately derail your business.
Initial business formation. Entrepreneurs are often not aware of the different tax filing categories. LLC, S-corporation and C-corporation are the most common, but there are others. Each has a different structure and design, with different tax consequences. As the company founder, you should sit down with an attorney to determine which structure is best for your business. Failure to do so may result in higher taxes and expose you to additional liabilities. Choosing the correct structure can result in significant savings, a more robust investment platform and a more secure future.

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Published on: May 1, 2018

SECURITIES LITIGATION UPDATE: CYAN V. BEAVER COUNTY EMPLOYEES RETIREMENT FUND

By William Sinclair

In the midst of the Great Depression, Congress enacted two laws to shore up practices that were considered to have led in part to the Market Crash of 1929: the Securities Act of 1933 (“1933 Act”), which governs initial securities offerings; and the Securities and Exchange Act of 1934 (“1934 Act”), which governs all subsequent trading. The 1933 Act permits both state and federal courts to hear claims brought under that Act, and bars defendants from removing such claims to federal court. The 1934 Act, however, grants federal court exclusive jurisdiction to hear claims brought under that Act.

In 1995, Congress passed the Private Securities Litigation Reform Act (“Reform Act”) to curb apparent abuses of plaintiff’s use of the class action vehicle in litigation involving nationally traded securities. The Reform Act included substantive reforms in both state and federal court, and procedural reforms only in federal court. The Reform Act fell prey to the law of unintended consequences, and, following its passage, plaintiffs began circumventing the obstacles imposed by the Reform Act by filing securities class actions in state court. To prevent the run-around of the Reform Act, Congress responded in 1998 with the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In relevant part, SLUSA provided an exception to the 1933 Act’s general rule that state and federal courts exercise concurrent jurisdiction over claims brought under that Act. Following the passage of SLUSA, a split developed between state and federal courts as to whether SLUSA deprived state courts of subject matter jurisdiction over cases involving “covered class actions” (actions in which damage are sought on behalf of 50 of more people) asserting only 1933 Act claims.

On March 20, 2018, in Cyan v. Beaver County Employees Retirement Fund, No. 15-1439, the Supreme Court resolved the split and issued a unanimous opinion authored by Justice Kagan. The Cyan case arose out of the purchase of shares of stock in Cyan, a telecommunications company, by three pension funds and one individual in an initial public offering. After the stock declined in value, the plaintiffs brought a damages class action in California Superior Court against Cyan. The allegations stemmed from material misstatements contained Cyan’s offering documents. The plaintiffs alleged that Cyan violated the 1933 Act, but did not allege any violations of California state law claims. Cyan moved to dismiss the case alleging that SLUSA stripped state courts of subject matter jurisdiction over class actions arising solely under the 1933 Act. The California Superior Court denied the dismissal, and the state appellate courts denied review of that ruling. The Supreme Court granted certiorari to resolve the split among state and federal courts. The Supreme Court also addressed a related removal question raised by the federal government as amicus curiae.

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Published on: October 24, 2017

STSW’s Ned Parent Publishes Article on Undue Influence in MSBA Bar Bulletin

By William Sinclair

Ned Parent, a member of STSW’s Business Litigation Group, published an article in the September 2017 issue of the Maryland State Bar Association’s “Bar Bulletin” publication. Mr. Parent’s article discussed the “undue influence” standard used in Caveat proceedings (the formal term used for proceedings challenging the validity of a Will). Specifically, the article discussed the challenges in successfully proving undue influence in such proceedings, and suggested possible solutions to address those challenges.

Mr. Parent leads STSW’s fiduciary litigation practice, handling disputes related to estates, trusts, and guardianships. If you have any questions about this article, or would like to discuss a potential matter related to an estates and trusts dispute, Mr. Parent may be reached at nparent@silvermanthompson.com or at (443) 909-7500.

Published on: March 28, 2017

Waste Fraud and Abuse Part 1, What It Is and Who Is Concerned

By William Sinclair

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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Published on: March 21, 2017

Settlement of Dispute Over Non-Compete Agreement

By William Sinclair

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.

Published on: June 23, 2016

Federal Court Dismisses ADA Complaint

By William Sinclair

Businesses are obliged to ensure that their facilities comply with the Americans With Disabilities Act. But can anyone who believes he has found a violation somewhere sue to remedy it? The U.S. District Court for the District of Maryland recently considered what types of plaintiffs may initiate such litigation, and excluded out-of-state persons that merely “test” faraway properties for ADA compliance.

The plaintiff in Nanni v. Aberdeen Marketplace, Case 1:15-cv-02570-WMN (D. Md. May 4, 2016), was a Delaware resident with a disability who said that he traveled along Interstate 95 into Maryland to visit with family and friends and attend various events. He alleged that he had stopped at Aberdeen Marketplace up to four times to rest and take a bathroom break. During those visits, he contended, he encountered various barriers to accessing the stores and services, defects that he believed ran afoul of the ADA. Asserting an intention to patronize to the shopping center up to three times a year and also test the facility’s compliance with the ADA, Plaintiff sought declaratory and injunctive relief. Represented by Silverman|Thompson|Slutkin|White, Aberdeen Marketplace moved to dismiss the lawsuit.

First, a little background on “standing”: To be able to bring a lawsuit, a plaintiff has to demonstrate that he suffered an injury in fact – that is, an actual or imminent invasion of a legally protected interest that can be remedied by a judicial decision. When a plaintiff requests injunctive relief, he also has to show a “real and immediate threat” of being wronged in the future, a likelihood that is greater than a “mere possibility.” Applied in the context of Plaintiff’s lawsuit, he had to describe “specific concrete plans” to return to Aberdeen Marketplace and how he would be similarly injured during those future visits.

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Published on: February 25, 2016

Apple v. DOJ/FBI – Is Justice Scalia Rolling Over in His Grave?

By Anne T. McKenna

Long a consistent and ardent judicial champion of the constitutional protections afforded citizens under the Fourth and Sixth Amendments, one cannot help but wonder how Justice Scalia would have viewed the showdown between Apple and the Department of Justice.
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