DC Metropolitan Business Law Alert - Updates on Important Legal Developments that Impact the Business Community in DC, Md and Va.

The United States District Court for the District of Maryland recently reaffirmed the rule that an agent who discloses his or her principal cannot be held personally liable for any representations made on behalf of that principal.

In Sears, Roebuck and Co. v. Riggs Distler & Co., Inc., 2012 WL 1391838 (D. Md. Apr. 20, 2012), Sears sued Riggs, a utility service company, for damage caused when Riggs hit an underground water line while performing drilling activities on Sears’ property at the White Marsh Mall. Riggs then sued a White Marsh Mall manager individually for indemnification and contribution, claiming that the manager had agreed that the Mall would assume any liability if the Riggs crew struck an unmarked water line during its drilling activities. Riggs’ Complaint specifically alleged that “the Mall was owned and managed by General Growth Properties (GGP)” and that, in her capacity as a Mall manager, the third-party defendant was “an employee and agent of GGP.”

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The Maryland State Senate and House of Delegates have approved the 2012 budget bill that included provisions that require the application of the state recordation tax at the time of recording on all indemnity deeds of trust (and indemnity mortgages) (IDOTs) securing the guaranty to repay loans of $1 million or more. The budget is now with a conference committee that will propose revisions to resolve the differences between the House and Senate versions, which may allow for additional changes to the bill. Assuming that the current language is included in the final budget bill, the new tax on IDOTs shall apply starting on July 1, 2012. We will keep you posted on further developments.

Maryland is working hard to actively develop new business and investments in India. Late last year, more than 100 state officials and business leaders, accompanied by Maryland Governor Martin O’Malley, traveled to India for six days to foster new commercial relationships. This, the largest Maryland trade mission to India and the only one headed by a sitting Maryland governor, was primarily self-funded by the participants. O’Malley cites upwards of ten Maryland businesses that signed term sheets or actually entered into joint ventures with India business partners during the trade mission for a touted $60 million in investments to date. The business deals signed ranged from consulting and engineering transactions to biotech and pharmaceuticals and should aid in continuing to fuel increased trade to and from India evident in the Port of Baltimore trade statistics, registering a 49% increase in India trade from 2010. This Maryland initiative comes at an opportune moment in India’s business development as India’s Securities and Exchange Board recently liberalized the Indian securities market regulations to permit certain investors meeting specified requirements (“Qualified Foreign Investors” or “QFIs”) to directly invest in India public companies. While there are still protocols to follow, an individual QFI can now hold up to 5% of the share equity in an Indian company and can sell such shares and receive bonus shares and dividends. For further details on this developing opportunity, see a Client Advisory Note from our affliate Mumbai office, "Qualified Foreign Investors Can Now Invest Directly in Public Companies." Maryland has opened a trade office in India to support its states’ entrepreneurs in utilizing the momentum instigated by the recent trade mission and expects the positive outcome from the mission to continue to develop, aided by the facilitating changes in the Indian equity markets. Kelley Drye & Warren welcomes the opportunity to partner with Maryland business owners to expand their reach into India, take advantage of the more permissive Indian securities regulations and offer our firm’s already well-established ties to India and our colleagues resident there.

A recent decision by the Maryland Court of Appeals underscores the importance of paying careful attention to detail when drafting a contract.  In Weichert Co. of Maryland, Inc. v. Dorothy Crago Faust (Md. Apr. 27, 2011), a real estate agency, Weichert, sued its former vice president, Faust, alleging that she had violated the terms of her employment agreement by (1) breaching her duty of loyalty, and (2) breaching a non-solicitation clause included in the contract.  Specifically, Weichert claimed that Faust, after leaving the company, recruited several Weichert employees to work at her new company.  A jury found that Faust had indeed breached her duty of loyalty to Weichert, but found that there was no breach of the non-solicitation clause.  Even though the real estate agency prevailed on one of the two claims, the court ordered Weichert to pay Faust’s attorney fees, which totaled nearly one million dollars.  What happened?

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Under the foreclosure rules in Maryland, interest may accrue on the unpaid balance of the foreclosure purchase price from the date of the foreclosure sale until final settlement.  The Court of Special Appeals of Maryland recently held in Zorzit v 915 W. 36th Street, LLC that a court may abate the accrued foreclosure sale interest only when third parties cause delays in the final settlement.  A court does not have discretion to abate accrued interest due to delays resulting from the judicial process or caused by the purchaser when the "Terms of Sale" set out in the foreclosure advertisement provide that the purchaser will pay interest through the date of final settlement.

On January 6, 2011 a business law committee of the Maryland State Bar Association released a report  detailing its proposed revisions to the Maryland Limited Liability Company Act (the “LLC Act”).  The proposed revisions are intended to strengthen the LLC Act to ensure that "the maximum effect [is given] to the principle of freedom to contract and to the enforceability of operating agreements."  (See § 4A-102 of the Maryland Limited Liability Company Revision Act of 2011).  Additionally, the proposed revisions provide clarification of certain default rules governing the operation of a limited liability company when the members have not adopted an operating agreement.

The committee has not yet set a timeframe to submit a bill covering the proposed revisions for consideration by the Maryland General Assembly.  Moreover, before adoption of any revisions to the LLC Act, we expect additional modifications and refinements to address input from other interested parties.

The Circuit Court for Baltimore City recently concluded on November 22, 2010 that a residential sales contract prepared by a homebuilder (for new construction) violated the Maryland Consumer Protection Act (the “CPA”) by not properly preserving the buyer’s right to obtain consequential damages. The CPA provides that no “seller … of consumer realty [may use] … a clause limiting or precluding the buyer’s right to obtain consequential damages as a result of the seller’s breach or cancellation of the contract.” The facts of the case indicate that the contract used for the sale in this particular instance was a form contract for which little adjustment of inconsistent boilerplate was made. Although form contracts are attractive options since they may be cost effective, by choosing to use a boilerplate contract, one may risk serious damages. Homebuilders, and their real estate developer affiliates, should audit the contracts they use in connection with home sales to ensure that such contracts comply with, among other things, the Maryland CPA.

For more information, please contact Jennifer Kasman at jkasman@kelleydrye.com.

Lender liability law, which gained prominence during the savings and loan crisis of the 1980s, has again become an active area of litigation in recent years. Lenders in Maryland traditionally have had at least two ways to protect against plaintiffs seeking to challenge the enforceability of a commercial loan. First, lenders often include a confession of judgment clause in the agreement, permitting the lender to seek default judgment against a defaulting borrower immediately without trial. Second, the Maryland Credit Agreement Act, Md. Code, Cts. & Jud. Proc. § 5-408, requires all commercial (not personal) loan agreements to be in writing. By extension, the Credit Agreement Act prohibits the use of alleged oral promises to modify the terms of the commercial loan agreement.

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