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Maryland bad faith/legal malpractice action against individual defense attorneys dismissed

In Cook v. Nationwide Insurance Company, Case No. PWG-13-882 (D. Md. Aug. 23, 2013), the Court considered a "dizzying array" of motions in an insurance bad faith case arising out of an excess judgment in a motor vehicle accident case tried in Maryland state court.  The federal district court denied the plaintiff's motion to remand, dismissed the case as against the non-diverse insurance defense attorneys who tried the underlying case, and set a schedule for limited discovery relating to the issue of whether there had been a settlement demand arguably within policy limits prior to the trial verdict.

In the underlying auto accident case, the insured had been driving while intoxicated and on a suspended license when he struck and injured the plaintiff's car, causing severe injuries to the plaintiff.  The insured's policy only had limits of $50,000.  The plaintiff brought suit in the Circuit Court for Prince George's County, Maryland, which ultimately resulted in a judgment of $892,050.52.  On the first day of trial, the Plaintiff had offered to settle for $71,000, an amount consisting of the policy limits of $50,000 and $21,000 in "trial costs."  The insurer had countered with an offer of $50,000 plus $4,000 in trial costs.  After the judgment was returned, the insured driver executed an assignment to Plaintiff of any and all rights he had against the insurer and the defense counsel in any claims he had as a result of the handling of the claim and the trial.

The plaintiff subsequently filed suit against the insurer, against the individual defense attorneys, and against their law office in the Circuit Court for Prince George's County, asserting one count of bad faith/negligence.  The defendants then removed the case to federal court, asserting that the individual defense attorneys who were residents of Maryland were fraudulently joined.  Immediately after removal, the defendants moved to dismiss.  Plaintiff then filed a motion to remand, and moved for leave to file an amended complaint.

Judge Grimm denied the plaintiff's motion to remand, on the grounds that he had failed to state any colorable claims against any non-diverse defendants, specifically, the defense attorneys.  The Court noted that nowhere did the complaint even allege that the attorney defendants had control over any decisions as to whether to settle the Plaintiff's claims, or that the defendant attorneys were even aware of the $71,000 settlement demand until after the insurer had rejected it.  The Court also rejected plaintiff's argument that he had stated a viable claim for legal malpractice, ruling that under Maryland law, claims for legal malpractice are not assignable, citing Claggett v. Dacy, 420 A.2d 1285, 1288 (Md. App. 1980).  Accordingly, the Court held that the assignment of the insured's claims for legal malpractice was invalid as a matter of law and cannot support a claim against the defendant attorneys.

The Court granted the plaintiff's motion to amend with regard to the count of bad faith only, to allow the plaintiff to allege that the insurer had the authority to pay the $21,000 in trial costs either as an expense or as a cost under the policy, and thus had an obligation to do so under the terms of the policy.  Arguably, if the $21,000 represented trial costs, then together with the $50,000 in policy limits, the $71,000 settlement demand may have been within policy limits.

With regard to the defendants' motion to dismiss, the Court noted that the defendants argued that the plaintiff's lowest settlement demand was $71,000, and that the insurer had offered to settle for $54,000, consisting of the policy limits of $50,000 and $4000 in costs.  The Court noted that neither party has pointed out any case in which an insurance company was held liable for bad faith after offering to settle at, much less above, its policy limits.

The plaintiff argued that the $71,000 offer was within policy limits because the additional $21,000 constituted "trial costs."  The Court held that plaintiff therefore alleged, "by the narrowest of margins", a plausible ground for relief.  Noting that under Maryland law, "costs" do not include the prevailing party's counsel fees, the Court set a schedule for expedited and limited discovery on the issue of what expenses are included in the $21,000 of alleged costs, and any good faith basis Plaintiff may have for believing that attorney's fees or or any other expenses are "costs" under the policy.

Interestingly, while on a motion to dismiss such evidence could not be considered by the Court, the defendants' motion to dismiss noted that there were numerous settlement offers made of the policy limits, the first being made about 70 days after the accident at issue.  However, the insurance company defendants evidently opted to withhold policy limits information until the plaintiff provided his medical records, and that appears not to have occurred until after suit was already filed.  Reading between the lines, it appears that plaintiff's counsel may have been angered at having had to incur significant trial preparation expenses before being informed that the policy limits were only $50,000.

Posted by David B. Stratton on 08/27/2013 at 07:56 PM
InsuranceLegal MalpracticeMarylandPermalink

Partner Carol T. Stone selected for inclusion in 2014 edition of The Best Lawyers in America

Congratulations to Partner Carol T. Stone on having again been selected by her peers for inclusion in the 20th Edition of The Best Lawyers in America for in the practice areas of: Legal Malpractice Law - Defendants and Personal Injury Litigation - Defendants.

Best Lawyers is based on an exhaustive peer-review survey in which attorneys submit confidential evaluations on the legal abilities of other lawyers in their practice areas. Additional information regarding the Best Lawyers selection methodology is available here. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Posted by David B. Stratton on 08/18/2013 at 01:23 PM
Jordan Coyne LLP newsPermalink

DC CPPA:  Complaint based on bank’s undisclosed use of overseas call centers is dismissed

By David B. Stratton

In Floyd v. Bank of America Corporation, No. 12-CV-591 (D.C. July 11, 2013), the D.C. Court of Appeals affirmed the dismissal of a complaint under the District of Columbia Consumer Protection Procedures Act (the "CPPA"), addressing the issues of standing and failure to state a claim upon which relief could be granted.

The Complaint, filed by and on behalf of customers of Bank of America, alleged that the Bank's use of telephone call centers in India resulted in the transmission of digitized financial records and passwords so that overseas personnel can provide service.  Thus, the Complaint alleged that such transmissions were exposed to surveillance, interception or seizure by the U.S. government.  The Complaint further alleged that the Bank gave customers a ten-digit customer-service telephone number, which gave customers a reasonable expectation that the telephone call would be within the United States and subject to the privacy protections of U.S. laws, and that customers are not notified that their electronic data is being transmitted to a foreign country.

The Bank first moved to dismiss for lack of subject matter jurisdiction, arguing that the plaintiffs alleged no concrete injury and therefore lacked standing.  Alternatively, the Bank moved to dismiss on the ground that the Complaint failed to state a claim under the CPPA.  The Superior Court dismissed the Complaint for lack of standing.

On appeal, the D.C. Court of Appeals disagreed as to the dismissal due to lack of standing.  Citing to the Grayson decision, the Court stated that while a lawsuit under the CPPA does not relieve a plaintiff of the requirement to show a concrete injury-in-fact to herself, she may make a showing of concrete injury in fact by alleging that she is a consumer of the defendant's services and that the defendant has misrepresented material facts about the service or has failed to inform the plaintiff of material information about the service.  Thus, it was enough in Grayson that the plaintiff had asserted an invasion of his statutory legal right created by the CPPA to truthful and non-misleading information regarding the fate of the value of unused minutes on the calling cards he had purchased.

Thus, what mattered for standing under the CPPA in this case was that the plaintiffs alleged that they are Bank customers and that the Bank made misrepresentations and omissions in providing them information about its services they utilized.

The Court then proceeded to consider the legal sufficiency of the plaintiffs' claims under the CPPA.  The Court agreed with the Bank that the fatal defect in plaintiffs' CPPA claims about the call centers was that the plaintiffs failed to point to any representations that the Bank made to the effect that, in providing customer service, every Bank call center representative can "invoke the protection of the laws of the United States to exclude the U.S. Government from unfettered access to customers' financial records."   Therefore, the Court held that the Complaint failed to state a legally viable claim under section 28-3904(a) of the CPPA.

The Court reasoned that the CPPA's reference to representations about the "characteristics" and "standard" of the Bank's "services", refers to misrepresentations about the Bank's "economic output."  Yet, the Complaint did not allege misrepresentations about the Bank's economic output, but instead alleges a misrepresentation about other matters, i.e., the legal environment and the climate of surveillance.  Therefore, the allegations about the use of the ten-digit telephone number did not state a claim under the CPPA's section 28-3904(a) and (d).

The Court also found that the Complaint failed to state a claim under section 28-3904(f) of the CPPA, because there was no allegation of a misrepresentation of a "material fact."  Rather, what was not disclosed was a legal assessment of the implications of the Bank's use of overseas call centers.  Further, there was no allegation that a significant number of consumers would find that information important in determining a course of action.  Thus, the omitted information was not "material" within the meaning of section 28-3904(f).

The Court also concluded as a matter of law that merely by providing the plaintiffs with a ten-digit domestic-looking telephone number for customer service, the Bank did not use deceptive or representations or designations of geographic origin in connection with goods or services.  In a footnote, the Court took judicial notice of the fact that since calls can be made to Canada and most Caribbean nations by dialing a ten-digit number without dialing an 011 exchange, it is not true that the indispensable feature of an international call is a number with more than ten digits.  Further, the Court noted that with VOIP telephone services, a telephone number is no longer tied to a specific geographic area. 

In sum, the Court of Appeals affirmed the Superior Court's Order dismissing the case.

As this case illustrates, because a claim under the CPPA can result in enhanced damages, plus an award of attorney's fees and costs, it is a common practice to challenge the legal sufficiency of such claims with an early dispositive motion, whenever possible -- as the Bank successfully did here.  No doubt it was also important to the Bank in this case to knock these claims out early, rather than become mired in extensive electronic discovery concerning its use of overseas calling centers. 

Posted by David B. Stratton on 08/01/2013 at 02:50 PM
D.C. Consumer Protection Procedures ActDistrict of ColumbiaPermalink