Injured Workers' Insurance Fund v. Orient Express Delivery Service, Inc.

WRIGHT, J. Appellant, Injured Workers’ Insurance Fund (“IWIF”), is an independent unit of the government of the State of Maryland that provides workers’ compensation coverage to employers. In March 2008, IWIF filed an action in the Circuit Court for Montgomery County against appellee, Orient Express Delivery Service, Inc. (“OEDS”) and its owners, James Follin and John McKenna, 1 seeking to recover premiums allegedly owed under the workers’ compensation policy issued by IWIF to OEDS. OEDS filed a motion for summary judgment, which the circuit court granted at the conclusion of a hearing held on November 19, 2008. The circuit court also denied, as moot, two discovery motions filed by IWIF: a motion to amend the court’s scheduling order and a motion to compel.

On Novem ⁴⁴⁴ ber 26, 2008, the circuit court entered orders denying the motions. IWIF then filed this timely appeal, presenting five issue 2 for our review, which we summarize as follows: I. Did the circuit court err in granting summary judgment?

II

Did the circuit court err in failing to substantively rule on the discovery motions? We hold that the circuit court erred in granting the motion for summary judgment and shall reverse. We need not address the second question because a new scheduling order will be entered upon remand. 3 Factual Background OEDS, a Maryland corporation, operates a local messenger delivery business in Maryland and the District of Columbia. As part of its business, OEDS has contracts with other companies to provide messenger or delivery persons to fulfill business needs.

Orient Express Services (“Orient Express”), a sister Maryland company, provides messenger and delivery personnel to delivery companies in the Washington, D.C. metropolitan area, and “provides centralized employment and ⁴⁴⁵ payroll services to OEDS.” OEDS and Orient Express are owned by the same two people, James Follín and John McKenna. OEDS uses Orient Express’s messengers almost exclusively. For example, in 2006, 99.8% of the total amount OEDS paid to messenger or delivery persons, was paid to Orient Express. The remaining 0.2% was paid to Contractor Management, Inc. (“CMI”).

Since 2005, the amount of work OEDS derived from other courier companies has fluctuated between less than 5 percent and twelve to fourteen percent. Conversely, with few exceptions, Orient Express messengers and delivery persons do not work for any courier company other than OEDS. Each individual performing delivery services for OEDS executed both an independent contractor agreement and a sole proprietor status form. The effect of these forms on the legal status of the individuals—whether they are “independent contractors/sole proprietors” or employees of OEDS—is the heart of this case.

Tn December 2003, OEDS submitted a signed application to IWIF for a workers’ compensation insurance policy. In the application, OEDS represented that it had six employees and that all of the company’s deliveries were performed by subcontractors, who had their own workers’ compensation insurance policies. In a signed addendum to the application, James Follin, an owner and officer of OEDS, acknowledged that payments to subcontractors would be included when TW1F determined the amount of the premium owed to OEDS, unless “certificates of workers’ compensation insurance are obtained” for those subcontractors, which would serve as proof that the subcontractors had their own insurance policies. IWIF issued a workers’ compensation and employers’ liability insurance policy (“Policy”) to OEDS, providing coverage for the period December 1, 2003 to December 1, 2004.

The Policy was renewed for the periods December 1, 2004 to December 1, 2005, December 1, 2005 to December 1, 2006, and December 1, 2006 to December 1, 2007. The premium owed by OEDS under the Policy is based on (1) the total remuneration OEDS paid to its officers and ⁴⁴⁶ employees, and (2) the amount of remuneration paid to subcontractors unless OEDS provides IWIF with proof that those subcontractors secured their own workers’ compensation insurance. The Policy states, in pertinent part: Premium for each work classification is determined by multiplying a rate times a premium basis. Remuneration is the most common basis.

The premium basis includes payroll and all other remuneration paid or payable during the policy period for the services of: 1. all your officers and employees engaged in work covered by this policy; and 2. all other persons engaged in work that could make us liable under Part One (Worker[s’] Compensation Insurance) of this policy. If you do not have payroll records for these persons, the contract price for their services and materials may be used as the premium basis. This paragraph 2 will not apply if you give us proof that the employers of these persons lawfully secured their workers’ compensation obligations. Because it is unknown at the beginning of a policy term how much remuneration will be paid to employees and uninsured contractors, IWIF charges an estimated premium based on the amount of payroll that OEDS estimates it will have for the policy period.

The Policy requires OEDS to maintain records and provide those records upon request so that, at the conclusion of the policy period, IWIF may conduct an audit and calculate the final premium owed. In January 2007, as part of this audit process, IWIF requested documentation from OEDS regarding payments made to any subcontractors. In response, OEDS produced documents which disclosed that it paid over $2 million during the 2005-2006 policy period to Orient Express. IWIF requested OEDS to provide a certificate of insurance or other proof of workers’ compensation coverage for Orient Express.

OEDS did not provide this proof. Additional facts will be provided in the relevant sections below. ⁴⁴⁷ Procedural History On March 25, 2008, IWIF filed a complaint against OEDS and its owners, James Follín and John McKenna, alleging breach of contract and fraud. The gravamen of the claim was that OEDS and its officers concealed information from IWIF relating to individuals who performed delivery services for OEDS and who, according to IWIF, should have been counted toward premium assessments under the Policy. On May 15, 2008, OEDS filed a motion to dismiss or for summary judgment (“first motion for summary judgment”).

OEDS argued that all of its messengers are “sole proprietors/independent contractors” that fall outside of Maryland workers’ compensation law, and therefore, IWIF had no obligation to include them in the determination of the premium. OEDS asserted that, when first hired, all messengers executed independent contractor agreements and sole proprietor forms. In support of its first motion for summary judgment, OEDS submitted the affidavit of one of its owners, John McKenna. The McKenna affidavit stated, in part: 6.

During [2003 to 2007], OEDS had between six and eight clerical employees and a payroll of approximately $150,000.... 11. All of the messenger/delivery persons retained by [Orient Express] .. . are sole proprietor/independent contractors. 12. Each of these messenger/delivery persons executes an independent contractor agreement with [Orient Express] .... 13. In addition to the independent contractor agreement, each messenger/delivery person executes a form provided by the Maryland Workers’ Compensation Commission entitled “Sole Proprietor Status As A Covered Employee Form”.... 15.

Each independent contractor utilized by OEDS through [Orient Express], to the best of my knowledge, completed and executed a Sole Proprietor Election Coverage Form by which the independent contractor ⁴⁴⁸ has indicated his or her status as a sole proprietorship and election NOT to become a covered contractor under the provisions of Maryland Workers’ Compensation .... (Emphasis in original). On July 14, 2008, the circuit court held a hearing on the first motion for summary judgment. The court entered an order on July 22, 2008, in which it granted the motion with respect to the fraud claims, and denied the motion “... without prejudice to renewing the motion for summary judgment at close of discovery as to [the breach of contract claims].” On August 6, 2008, IWIF filed a motion to amend the scheduling order, requesting time to conduct discovery until September 26, 2008.

IWIF argued that an extension was necessary because the day after the circuit court’s ruling on the first motion for summary judgment was the original discovery deadline. 4 Also, on August 6, 2008, OEDS filed a renewed motion for summary judgment (“first renewed motion for summary judgment”), noting that IWIF had not undertaken any discovery. OEDS again relied upon the McKenna affidavit, asserting that “there is no possible disputed issue of fact” that the messengers are independent contractors/sole proprietors. On August 27, 2008, the circuit court entered an order granting IWIF’s motion to amend scheduling order; extending the discovery deadline until September 26, 2008; and extending the dispositive motions deadline until October 10, 2008. The court also denied OEDS’s first renewed motion for summary judgment.

On October 7, 2008, OEDS produced approximately 4,500 documents. On October 9, 2008, OEDS produced additional documents, including tax returns, general ledgers, W-2 forms and 1099 forms. 5 IWIF then filed a ⁴⁴⁹ second motion to amend scheduling order. IWIF requested that the court amend the order to allow IWIF a brief period of time to review the documents and complete its deposition of McKenna, because OEDS produced the documents within days of the dispositive motions deadline. IWIF requested that the court set October 24, 2008, as the discovery deadline and October 31, 2008, as the dispositive motions deadline.

IWIF subsequently filed a motion to compel, requesting that, if the court granted IWIF’s second motion to amend scheduling order, it should also enter an order compelling McKenna to appear for deposition. On October 7, 2008, OEDS filed a second renewed motion for summary judgment. OEDS, once again, relied upon the McKenna affidavit previously filed with its first motion for summary judgment. OEDS argued that, based on the “dis-positive, undisputed facts,” all of its messengers were “independent contractors/sole proprietors” and not employees of OEDS.

On October 27, 2008, IWIF filed a response to the second renewed motion for summary judgment, arguing that, even if the court considered the incomplete factual record before it, there were disputes of material fact regarding whether the messengers were employees or “independent contractors/sole proprietors.” IWIF attached 17 exhibits and several hundred documents to its response. On November 19, 2008, the circuit court held a hearing on OEDS’s second renewed motion for summary judgment. The court was unable to locate the 17 exhibits that were filed with the motion. The court continued with the hearing and inquired whether there was an affidavit from IWIF specifically stating that the messengers are employees and not independent contractors.

Counsel for IWIF responded, “[n]o, there’s no affidavit that says these folks are employees, that’s eor ⁴⁵⁰ rect....” The court then granted the motion for summary judgment in a ruling from the bench, stating in part: There’s been no affidavits filed, which are required by the rule to controvert the material facts in dispute. There are in the motion ... assertions, there are references to a deposition transcript that set forth facts. But even in looking at those facts, I don’t believe that those facts, even if they were under affidavit, I don’t believe those facts show that these people were not independent contractors or were not sole proprietors. So, at this point it seems clear to me, based upon the information contained in the motion, that there is no dispute as to the material fact that these people were independent contractors or sole employees that had opted out of this.

They were not the employees of OEDS and, therefore, I’m going to grant the motion for summary judgment. With respect to IWIF’s second motion to amend scheduling order, the court stated: [A]t this point the motion for summary judgment having been granted there’s no pending claims. There’s no pending action. So I would deny the motion to amend the scheduling order.

The court similarly disposed of IWIF’s motion to compel, stating that “[the motion] is moot at this point, given the ruling [on] the motion for summary judgment.” Discussion The standard of review applied in reviewing a grant of a motion for summary judgment is well-established in Maryland. “Summary judgment is appropriate where ‘there is no genuine dispute as to any material fact’ and ‘the party in whose favor judgment is entered is entitled to judgment as a matter of law.’ ” Hill v. Cross Country Settlements, LLC, 402 Md. 281, 294 , 936 A.2d 343 (2007) (quoting Md. Rule 2-501(f)). The reviewing court is obliged to conduct an independent ⁴⁵¹ review of the record to determine if there is a dispute of material fact. Id. (citing Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705, 714 , 922 A.2d 538 (2007)) (additional citations omitted). “A material fact is one that will alter the outcome of the case, depending upon how the fact-finder resolves the dispute.” Berringer v. Steele, 133 Md.App. 442, 470-71 , 758 A.2d 574 (2000) (citations omitted).

Mere general allegations of conclusory assertions will not suffice. Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 738 , 625 A.2d 1005 (1993); accord Gunby v. Olde Severna Park Improvement Ass’n, Inc., 174 Md.App. 189, 235 , 921 A.2d 292 , aff'd, 402 Md. 317 , 936 A.2d 365 (2007). Because the reviewing court “has the same information from the record and decides the same issues of law as the trial court, its review of an order granting summary judgment is de novo.” ABC Imaging of Wash., Inc. v. Travelers Indem. Co. of Am., 150 Md.App. 390, 394 , 820 A.2d 628 (2003) (internal quotation marks omitted) (citations omitted).

When conducting its de novo review, all reasonable inferences must be resolved in favor of the non-moving party. Conaway v. Deane, 401 Md. 219, 243 , 932 A.2d 571 (2007) (citations omitted). “Even when the underlying facts are undisputed, if the undisputed facts are susceptible of more than one permissible factual inference, the choice between those inferences should not be made as a matter of law, and summary judgment should not be granted.” Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990) (citation omitted). The standard applied by the Court is not whether the trial court was clearly erroneous but whether the trial court was legally correct. Id.

(citations omitted). A. A response to a motion for summary judgment is not required to be supported by affidavit. The circuit court erred as a matter of law in concluding that the Maryland Rules require a response to a motion for summary judgment to be supported by affidavit. Maryland Rule 2-501(b) identifies the requirements of a response to a motion for summary judgment: ⁴⁵² A response to a written motion for summary judgment shall be in writing and shall (1) identify with particularity each material fact as to which it is contended that there is a genuine dispute and (2) as to each such fact, identify and attach the relevant portion of the specific document, discovery response, transcript of testimony (by page and line), or other statement under oath that demonstrates the dispute.

A response asserting the existence of a material fact or controverting any fact contained in the record shall be supported by an affidavit, or other written statement under oath. (Emphasis added). Thus, the Rule contemplates that an affidavit -will not be the exclusive means to oppose a motion for summary judgment. Hartford Accident & Indem.

Co. v. Scarlett Harbor Assocs. Ltd. P’ship, 109 Md.App. 217, 263 (1996) (citations omitted), aff'd, 346 Md. 122 , 695 A.2d 153 (1996). Indeed, a response to a motion for summary judgment may be supported by “any type of evidence that is admissible at trial.” Id. at 263 , 674 A.2d 106 (citation omitted). Deposition testimony, for example, constitutes a “statement under oath” and “qualifies under Rule 2-501 as evidence that can controvert facts submitted under oath by the moving-party.” Shipley v. Perlberg, 140 Md.App. 257, 269 , 780 A.2d 396 (2001); see also Educ.

Testing Serv. v. Hildebrant, 399 Md. 128, 144 , 923 A.2d 34 (2007) (deposition testimony or answers to interrogatories may constitute “other statements] under oath”); Imbraguglio v. Great Atl. & Pac. Tea Co., Inc., 358 Md. 194, 207 , 747 A.2d 662 (2000) (“A transcript of former testimony possesses the same indicia of reliability as an affidavit in the summary judgment context.”). In the present case, IWIF argued that McKenna’s deposition testimony supported that the messengers were employees of OEDS and not independent contractors. The court, however, asked IWIF several times whether it had an affidavit which “state[s] that these people are not independent contractors or sole proprietors^]” At another point in the hearing, the court stated: ⁴⁵³ [OEDS] filed a motion for summary judgment, which is under the law required to be supported by an affidavit.

In those affidavits it says all these people are independent contractors or sole proprietors.... So, in order to contest that, to put it into a position of equipoise there needs to be not just a motion filed, but an affidavit showing that these material facts are truly in dispute.... That’s what I’m looking for. In granting the motion, the court again stated that an affidavit from IWIF “is required by the rule to controvert the material facts in dispute.” OEDS argues that the court’s misunderstanding with regard to affidavits is a red herring, for two reasons: 1) IWIF submitted two affidavits, and 2) the court stated that, “even if [the deposition testimony] was under affidavit, I don’t believe those facts show that these people were not independent contractors or were not sole proprietors.” We disagree.

The two affidavits 6 that IWIF filed as exhibits to its opposition and handed to the court for its consideration during the hearing did not specifically state that the messengers were employees, as the court believed was required. Also, the court rendered its decision without the benefit of reviewing each of the 17 exhibits. Nothing in the court’s ruling indicates that the deposition testimony was seriously considered. Rather, the court made clear that its primary basis for granting the motion was the absence of an affidavit specifically stating that the messengers were employees of OEDS.

This misapplication of the summary judgment rule constitutes legal error. B. Summary judgment was inappropriate because there are disputes of material fact. This case is not appropriate for disposition on summary judgment because there are disputes of material fact. We ⁴⁵⁴ provide some background on workers’ compensation law to illustrate.

The Maryland Workers’ Compensation Act (“Act”) requires all employers to obtain workers’ compensation insurance for “covered employees.” Md.Code (1991, 2008 Repl.Vol), Labor & Employment Article (“LE”), § 9-402(a). Employers must pay workers’ compensation benefits to any “covered employee” who suffers accidental personal injury arising out of and during the course of employment. LE § 9-501. In determining who is a “covered employee,” courts and the Workers’ Compensation Commission apply the common law