Station Maint. Solutions, Inc. v. Two Farms, Inc.

209 Md.App. 464

60 A.3d 72

STATION MAINTENANCE SOLUTIONS, INC.

v.TWO FARMS, INC.

No. 2039, Sept. Term, 2011.

Court of Special Appeals of Maryland.

Jan. 24, 2013.

Patricia M. Thornton (Sean V. Werner, Bacon, Thornton & Palmer, LLP, on the brief) Greenbelt, MD, for appellant.

Howard Goldberg (Sharon K. Engelhard, Goldberg & Banks, PC, on the brief) Baltimore, MD, for appellee.

Panel: MEREDITH, WATTS, JAMES R. EYLER (Retired, Specially Assigned), JJ.

WATTS, J.

Appellant, Station Maintenance Solutions, Inc., appeals the Circuit Court for Baltimore County's entry of a default judgment in favor of appellee, Two Farms, Inc. d/b/a Royal Farms, as a sanction for an alleged violation of a scheduling order by appellant's insurer, Mid–Continent. Appellant noted an appeal raising five issues, which we rephrase as follows: ¹

I. Whether the circuit court had authority to enter sanctions against appellant for its insurer, Mid–Continent's, alleged violation of a scheduling order?

II. Whether the circuit court abused its discretion in entering the sanction?

For the reasons set forth below, we answer question I in the negative and question II in the affirmative. We shall vacate the default judgment and remand for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

On May 11, 2010, members of the Ratajczak family (the “Ratajczaks”), as individuals, filed suit against appellee in the circuit court, alleging that approximately 5,400 gallons of gasoline had leaked from appellee's underground storage tanks at its facility at 7950 Pulaski Highway, Baltimore, Maryland, and contaminated the Ratajczaks' adjacent single family home property. On June 28, 2010, the circuit court issued a Scheduling Order, scheduling a settlement conference for April 5, 2011.

On August 2, 2010, appellee filed a third party complaint against appellant. ² Appellee requested “judgment by way of contribution and/or indemnification [against appellant] for all sums for which [appellee] may be adjudged liable to the [Ratajczaks], plus attorneys' fees and all costs and expenses[,]” “plus One Million Dollars ($1,000,000)” for each count alleging appellant's negligence and breach of contract in failing to maintain and inspect the underground tank which was the source of the leak. On October 22, 2010, appellant filed an answer and a request for a jury trial. On December 3, 2010, the Ratajczaks filed an Amended Complaint adding all third party defendants named by appellee, including appellant, as defendants. On January 6, 2011, appellee filed an amended answer to the third party complaint. On March 24, 2011, appellee filed an Amended Third Party Complaint against appellant, repeating the pleas from the third party complaint.

On March 29, 2011, the parties filed a Consent Motion to change the date of the April 5, 2011, settlement conference to October 18, 2011. On March 30, 2011, the circuit court granted the motion.

The parties agree that, on August 2, 2011, the Ratajczaks and appellee participated in a mediation conference, at which they agreed to settle the Ratajczaks' claims against appellee for $2,700,000, and the Ratajczaks agreed to assign their claims against appellant to appellee.³ On August 4, 2011, appellant filed a Crossclaim against appellee, arguing that appellee's actions proximately caused the injury at issue in the underlying lawsuit, and that, as a result, appellant was “entitled to contribution and/or indemnification from [appellee] for all and/or part of any judgment entered against [appellant].” On August 22, 2011, appellee filed a Motion to Strike Crossclaim, asserting that the Ratajczaks were “in the process of assigning their claims against [appellant] to [appellee,]” and that, as a result, appellant “has no claims for contribution nor indemnity as the only claims being asserted against it are by [appellee].” On September 6, 2011, appellant filed an Opposition to Motion to Strike Crossclaim, arguing that, because it was unaware of the release language that would be used in the settlement agreements between appellee and other parties, and of whether appellee intended to pursue its assigned claim from the Ratajczaks, the Crossclaim/Counterclaim was a reasonable method to assert claims of contribution and indemnification against appellee.

On August 31, 2011, in response to a joint request by the parties, the circuit court issued a notice of hearing order moving the settlement conference from October 18, 2011, to September 27, 2011. On September 6, 2011, the circuit court issued a second order titled “Order to Attend Settlement Conference,” providing as follows:

[Appellee] and [appellant] are hereby ordered to attend a settlement conference before [the circuit court] on Tuesday, September 27, at 9:00 a.m. The following conditions are imposed:

A senior officer or employee of [appellant]'s insurance carrier [Mid–Continent] must be present, with binding settlement authority up to the full limits of its policy.

A senior representative of [appellant] must be present with full settlement authority.

A senior representative of [appellee] must be present with full settlement authority.

On September 27, 2011, the settlement conference was conducted in the judge's chambers, not on-the-record in open court. It is undisputed that both parties and a representative of Mid–Continent attended the settlement conference, and that the representative of Mid–Continent was an independent third-party adjuster, not a “senior officer or employee ... with binding settlement authority up to the full limits of [the] policy” as ordered by the circuit court. On brief, appellant contends that a senior officer of Mid–Continent was not available to attend the settlement conference, and that appellant's counsel contacted appellee's counsel prior to the conferenceto request a continuance, but that appellee's counsel “would not consent.” Appellant contends that the following occurred at the settlement conference:

[The circuit court] asked counsel for [appellee] what sanction he would like the [circuit] court to enter for Mid[-]Continent's “violation” of the September 6 Order. [Appellee's counsel] initially requested that the [circuit c]ourt award him attorney's fees and costs, but then withdrew this request, instead orally moving for a default judgment against [appellant] in favor of [appellee] in the amount of one million dollars ($1,000,000.00). Before granting [appellee's counsel]'s oral motion, [the circuit court] requested that counsel for [appellant] contact Mid[-]Continent to inform them that she would be imposing the requested sanction against [appellant]. While [appellant's counsel] was speaking to a representative from Mid[-]Continent by phone, [the circuit court] granted [appellee's] oral request for a default judgment against [appellant], entering judgment against [appellant]in favor of [appellee] for one million dollars ($1,000,000.00).

In contrast, appellee contends that the following occurred at the settlement conference:

At the settlement conference, [the circuit court] questioned [appellant]'s counsel of record about whether she had, in fact, notified [Mid–Continent] of the court's order requiring its attendance. After confirming that Mid–Continent had indeed received a copy of the order; that it knew it was required to be in attendance; and that it had nevertheless decided it would not send a senior officer or employee to attend the settlement conference, [the circuit court] considered entering a default judgment against [appellant] in the amount of its available insurance. Counsel for [appellee] moved for a default judgment and advised the court that if it could resolve the case on that basis, [appellee] would be willing to accept judgment in the amount of $1 million. The [circuit] court then granted a default judgment against [appellant] in the amount of $1 million, the limits of [appellant]'s policy with Mid–Continent. [Appellant's] counsel of record was present at the time the default judgment was entered by [the circuit court]. However, [appellant's] counsel of record never requested to place the settlement conference “on[-]the[-]record” by having a court reporter attend or by using a mechanical recording system[.] ... Despite the fact that [appellant's] counsel was present when [the circuit court] entered the default judgment against [appellant], [appellant's] counsel never requested to argue “on[-]the[-]record” that the default judgment should not be entered.

(Record citations omitted). The circuit court docket entries contain the following information as to the entry of judgment by default in favor of appellee:

Sept. 27, 2011 [ ] Settlement Conference Held Today on (Sept 6, 2011) This Court Signed an Order to Attend Settlement Conference. Attorney [ ] Who Represented [appellant] Provided a Copy of The Court Orders to [appellant] and [appellant's] Insurance Company [Mid–Continent], and Advises That She Has Spoken To [appellant and Mid–Continent] By Telephone and Represents To [the circuit court] That They Are Aware That They Are Requested to be Present Today. [Appellant] Has a Representative Available Here Today [ ]. A Senior Officer [and] Employee of [Mid–Continent] is Not Present With Binding Settlement Authority Up To The Full Amount of Its Policy. Judgment is Hereby Entered in Favor of [appellee and against appellant] in The Amount of One Million ($1,000,000.00) By Default, [and] Interest At The Legal Rate of Interest And All Open Court Costs. [Appellee] Waives All Claims in Excess of ($1,000,000.00) For Its Claim Against [appellant].

The circuit court did not issue a written order or opinion.⁴

On September 27, 2011, appellant filed a Motion to Strike Order of Default and to Recuse. On October 6, 2011, appellantwithdrew the motion. On the same day, appellant filed a Notice of Appeal of the default judgment.

On October 10, 2011, appellee's counsel took the deposition of Robert L. Ferguson, Jr., an attorney...