Schmerling v. Injured Workers' Insurance Fund

RAYMOND G. THIEME, Jr., Judge, Retired, Specially Assigned. This is an appeal from summary judgment granted in the Circuit Court for Baltimore County in favor of appellee, the Injured Workers’ Insurance Fund (“IWIF”). 1 Appellants Jack J. Schmerling and others alleged that appellee violated the Maryland Wiretapping and Electronic Surveillance Act (the “Maryland Wiretap Act” or the “Act”), Md.Code (1973, 1998 Repl.Vol., 2000 Cum.Supp.), § HMDl et seq. of the Courts & Judicial Proceedings Article. They allege that IWIF, which records calls for the purposes of quality assurance, did so by using parts of its telecommunications system in the ordinary course of business to monitor and record business calls, allegedly without the prior consent of other parties. ⁴⁷⁵ The court below found that, based upon the undisputed facts, IWIF had used its equipment in the ordinary course of its business and within the telephone equipment exception contained in section 10-401(4). 2 Appellants filed timely notice of appeal and ask: 1. Did the court below err when it found that IWIF’s use of certain add-on recording equipment was within the telephone equipment exception of the Maryland Wiretap Act, when that recording equipment had been integrated into IWIF’s telephone system for the undisputed purpose of improving its communications with customers, claimants and others in the ordinary course of business? 2.

Did the court below err by accepting IWIF’s Answer to appellants’ Second Amended Complaint, when IWIF had previously denied the substance of appellants’ allegations and appellants suffered no prejudice? 3. Did the court below err when it allowed IWIF to amend several affidavits to cure alleged format deficiencies that did not change the substance of the affidavits? To these questions, we answer “no” and explain. Facts IWIF is the legislatively established successor to the Maryland State Accident Fund.

See supra note 1. It provides ⁴⁷⁶ workers’ compensation insurance and associated services to Maryland businesses. IWIF does not produce tangible products like motor vehicles or cans of soup. Instead, a service relationship — with its customers, claimants and the public at large — is IWIF’s only product, and that tenuous relationship can be destroyed though poor communications and customer service.

Like any other business, IWIF must control the quality of its product offering. Unlike other businesses, however, IWIF’s products may not be readily observed by persons other than the parties to the oral communications its representatives conduct — its customers, claimants, and members of the general public. Recording these communications allows IWIF managers to take quality control measures and so determine whether representatives are handling inquiries and requests with courtesy and dispatch. During 1995 and 1996, IWIF upgraded its telecommunications system as part of a company-wide effort to improve operations.

New hardware and software added to the system included voice mail, automatic call distribution, and monitoring capabilities. A modem business telecommunications system may be assembled from various components, each of which is designed to perform certain functions and to provide specific features. Experts might liken such a process of systems integration to designing a sophisticated multi-component stereo system or building a home computer. Some music lovers or home “hackers” might prefer to visit a single vendor, plan the ideal system, purchase all the component parts during one shopping trip — perhaps even components made by a single manufacturer — and allow the manufacturer or vendor to handle assembly and set-up.

Others, whether staying within a budget or seeking out the best new technology, buy a new .ZIP drive here or new DVD player there and build an ideal system over time. For businesses to self-design and assemble telecommunications systems is a relatively new trend. Forty years ago, Ma Bell held both service and the supply of equipment in her ⁴⁷⁷ ironclad grip, and the choices available to businesses were limited indeed. Between deregulation and advancing technology, the market is now wide open, and business owners can contract for or even self-assemble any combination of equipment and services from multiple vendors. 3 Thus, like a music lover wiring Bose speakers to a Sony tuner and a Bang and Olufson CD player, IWIF set about in the late 1980’s to assemble a telecommunications system.

It started with the purchase of a Meridian Private Branch Exchange (“PBX”) in 1987. 4 A PBX is a modem private switching system that directs telephone calls received through Verizon’s “trunk line” into the facility to specific individual extensions. It replaces the operator-run switchboards of old and forms the backbone of a modem business telecommunications system. It is not, however, the sum and substance of that system, any more than a “motherboard” comprises an entire personal computer. Over time, IWIF added many capabilities to its basic telecommunications system, consisting in part of the PBX, handsets, and wiring.

Specifically, IWIF added: i. a voice mail system to provide common voice messaging capabilities; ii. an Automatic Call Distributor (“ACD”) to enable the even distribution of incoming calls to representatives at IWIF’s customer service center; ⁴⁷⁸ iii. two multichannel digital announcers, which' automatically give certain announcements to callers, e.g., when the office is closed or when all representatives are assisting other callers; iv. a battery back-up power supply to protect the PBX from electrical problems; and v. the monitoring system in question, which allows IWIF supervisors to monitor telephone calls between its representative and the public. Northern Telecom and its successors did not make or sell much of the foregoing equipment; in fact, Racal manufactured the monitoring system, which IWIF procured in 1996. Various components of IWIF’s telecommunications system are located throughout its building. The location of specific equipment is determined by many factors, including the degree of regular physical access required for IWIF employees and others.

Those components of the system connecting to Verizon’s incoming lines are located in the garage. The PBX and other equipment requiring only occasional maintenance by a few persons is located in a switching room on the second floor of the building. Some 600 telephone handsets are located throughout the building for the convenience of users. All the telecommunications devices at IWIF are linked by literally miles of wiring.

Some pieces of equipment, e.g., handsets for individual extensions, plug into wall ports, which in turn connect to the wiring. Other equipment connects to the system via “punch blocks,” which are the multi-circuit connectors commonly used in the switching rooms of commercial telecommunications systems. 5 IWIF bought the Rácal equipment in question in 1996 from Simko Office Systems, a distributor of such hardware. Representatives from Simko worked with IWIF employees to install the equipment and integrate it into the larger on-site telecom ⁴⁷⁹ munications system. The Racal hardware is physically separate from the PBX, just as, we note, the voice mail and ACD modules are separate.

For the convenience of those IWIF employees who must service the equipment and retrieve recordings, to ensure physical security, and to preserve the limited space in the switching room, the Racal recording equipment is located in a locked area on the first floor of IWIF’s facility. The equipment for reproduction of stored calls is located on the third floor. All Racal recording equipment is integrated with the rest of the telecommunications system via punch block connections. To enable the recording of calls made to and from digital handsets, the signal is converted to analog in the handset and routed through the Racal system via a second analog line.

Each Racal recording unit can monitor sixty-four separate telephone lines at one time and store the conversations digitally. IWIF collects input from all parties participating in each telephone call made to and fi*om the monitored extensions; without hearing all sides of each conversation, it would be impossible for management to determine the quality of service rendered. To function properly, the Racal units must be integrated into a larger telecommunications system, as they are at IWIF’s facility. Unlike, e.g., a cassette tape recorder, the Racal hardware has no stand-alone functionality.

Its sole purpose is to monitor telephone calls as part of an integrated telecommunications system. Without dispute, IWIF’s entire purpose in installing the Racal hardware has been to improve its customer service. Monitoring calls allows IWIF management to evaluate its level of service, identify instructional needs on an individual and a group basis, and gauge the effectiveness of its training measures. This practice also allows IWIF to review calls when disputes later arose and enabled claims representatives to take recorded statements more efficiently. 6 These are the only uses of the system to surface in testimony. ⁴⁸⁰ Prior to installing the system, IWIF trained all of its employees slated to use monitored lines and their supervisors as well.

The training informed employees about the general characteristics of the system and the goals and procedures for the monitoring program. Among other things, employees learned that unmonitored lines were available for personal calls. To ensure that the system would not be misused, IWIF limited physical access to a small group of employees, including supervisors and those responsible for retrieving the messages and maintaining the system. No non-business uses of the system surfaced in depositions; and, indeed, appellants claim none, as their calls to the fund related entirely to business transactions.

IWIF produced testimony showing that the system has helped the organization accomplish the purposes for which it was obtained. Supervisors have been able to select for review, at their convenience, calls from different dates and times, and thus no longer have to monitor “live” calls. The system allows them to ascertain quickly any quality concerns about specific employees and to avoid listening to calls that are irrelevant for the purpose of quality control. Conversely, supervisors can also retrieve the specific calls about which they have received complaints or problem reports, and this practice has helped reduce the overall number of complaints.

Appellants commenced the action sub judice on February 23, 1999, by filing a Complaint putatively, as a class action, with the court below. That pleading was never served. Appellants amended their complaint on April 12, and it was served. The parties identified the issue of the applicability “of the telephone exemption provided in the Definitions Section 10-401 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland” as potentially dispositive.

That exemption excludes from the definition of wiretapping the use of telephone equipment to monitor or record calls in the ordinary course of business. See supra note 2. The parties agreed to a scheduling order. On February 4, 2000, both ⁴⁸¹ parties moved for summary judgment — appellants for judgment that the exception did not apply; IWIF for a judgment that it did.

The court heard oral arguments on March 9, and there decided some collateral issues without resolving the dispositive issue. Two weeks and three days before summary judgment briefs were due, however, appellants amended their complaint again to restore their prayer for statutory liquidated damages that had been omitted in the First Amended Complaint. IWIF answered on February 17, as it had for previous complaints, denying any violation of the Act. The next day, appellants moved to strike the Answer as untimely under Maryland Rule 2-341(a). 7 The court denied that motion at the March 9 hearing, finding that IWIF had generally denied any allegations that it had violated the Act, and appellants had not been prejudiced by the delay.

Additionally, within a few days of the March 9 hearing, appellants moved to strike four affidavits submitted by IWIF with its summary judgment motions, asserting that those affidavits failed to comply with Maryland Rule 2-501(c). 8 At the hearing, the court granted appellants’ motion to strike, but allowed IWIF the opportunity to add language curing the ⁴⁸² defects without changing the substance of the statements. It did so successfully. After the March 9 hearing, both parties filed supplemental briefs to address questions raised at the hearing. The court held a second hearing on the summary judgment motions on August 24, at which it ruled that the undisputed facts showed that IWIF used its telecommunications system, including the Racal components, within the exception of section 10-401(4).

Appellants timely appealed. Discussion This court reviews grants of summary judgment “de novo under a simple standard: whether the trial court’s legal conclusions were correct.” McCoy v. Hatmaker, 135 Md.App. 693, 704 , 763 A.2d 1233 (2000); see also Goodwich v. Sinai Hosp., 343 Md. 185, 204 , 680 A.2d 1067 (1996); Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993); Barnett v. Sara Lee Corp., 97 Md.App. 140, 146 , 627 A.2d 86 (1993). Our analysis of whether the circuit court was correct invokes the well-established standard for summary judgment, whether “the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Md. Rule 2-501(e); see also Southland Corp. v. Griffith, 332 Md. 704, 712 , 633 A.2d 84 (1993). The court’s review also considers whether a dispute of material fact calling for trial actually exists, Lombardi v. Montgomery County, 108 Md.App. 695, 709-10 , 673 A.2d 762 (1996), or whether that so-called dispute is mere wishful thinking on the part of the party seeking to block summary judgment.

Once the moving party has provided the court with sufficient grounds to sustain summary judgment, the non-movant must have demonstrated that there exists no genuine dispute of material fact in order for the court below to have blocked summary judgment. Here, the non-movants would have done so by presenting facts that would be admissible in evidence. Id. at 710 , 673 A.2d 762 ; see also Goodwich, 343 Md. at 206 , 680 A.2d 1067 . ⁴⁸³ A genuine issue of material fact is a factual dispute that is real and not imagined. “Neither general allegations of facts in dispute nor a mere scintilla of evidence will suffice to support the non-movant’s position; there must be evidence upon which the jury could reasonably find for the moving party.” Fearnow v. Chesapeake & Potomac Tel. Co., 104 Md.App. 1, 48 , 655 A.2d 1 (1995), aff'd in part, rev’d in part, 342 Md. 363 , 676 A.2d 65 (1996).

A material fact is one that would “affect the outcome of the case.” King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985). Summary judgment may not be defeated by a dispute as to a fact that is immaterial. Scroggins v. Dahne, 335 Md. 688, 690-91 , 645 A.2d 1160 (1994). As for the procedural issues, the court’s decisions to accept an untimely Answer and to permit IWIF to amend its affidavits are matters within its sound discretion.

Mattvidi Associates Ltd. Pshp. v. NationsBank of Virginia, N.A., 100 Md.App. 71, 83 , 639 A.2d 228 (1994) (quoting Robertson v. Davis, 271 Md. 708, 710 , 319 A.2d 816 (1974)); see also Ski Roundtop, Inc. v. Wagerman, 79 Md.App. 357, 371 , 556 A.2d 1144 (1989). We review decisions such as these for abuse of discretion. Appellants’ arguments related to the dispositive issue fail because they are based upon a faulty notion of how a modern business telecommunications system is assembled. Appellants seek to prove that IWIF’s recording equipment was not integral to its telecommunications system, because that equipment was purchased later than the main system and from a different vendor.

Appellants assume, however, an outdated paradigm of business telephony dating from the time that a single monopoly telephone company controlled the market and, thus, dictated the choices available to consumers. More modern mainstays of commercial telephony, consumer choice, and competition are beyond appellants’ field of vision. 9 If the ⁴⁸⁴ Act were to require that all components had been purchased at one time from one vendor, few companies would meet the exception set forth in section 10-401(4). Moreover, appellants provide no rationale as to why we should treat the Racai recording and reproduction equipment any differently from similar equipment found by other courts to be within the exemption. Neither do they adduce any facts that would show that IWIF was not acting in the ordinary course of business, and, in fact, they plead otherwise.

The judgment of the trial court thus stands on its merits. As for the procedural issues, we hold that appellants failed to establish any abuse of discretion and we affirm. I Subject to certain exceptions, the Maryland Wiretap Act makes it unlawful to “[wjilfully intercept, endeavor to intercept, or procure any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication.” Md. Code (1973, 1998 Repl.VoL., 2000 Cum.Supp.), § 10-402(a)(l) of the Courts & Judicial Proceedings Article. To intercept such communication, one must acquire aurally or otherwise “the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device.” § 10-401(3).

Certain interceptions, however, are legal and covered under the Act’s exceptions. For example, interceptions captured using [a]ny telephone or telegraph instrument, equipment or other facility for the transmission of electronic communications, or any component thereof, ... furnished to the subscriber or user by a provider of wire or electronic communication service in the ordinary course of its business and being used by the subscriber or user in the ordinary course of its business or furnished by the subscriber or user for connection to the facilities of the service and used in the ordinary course of its business, ⁴⁸⁵ do not violate the Act. § 10-401(4)(a). Instead, they fall under what is commonly called the “telephone equipment exception,” “telephone extension exception,” or “business extension exception.” The telephone equipment exception has two prongs. T.B. Proprietary Corp. v. Sposato Builders Inc., No. 94-6745, 1996 WL 290036 at ³, 1996 U.S. Dist.

Lexis 7464, at ⁹-10 (E.D.Pa. May 31, 1996). To be within the exception, the equipment must be a “telephone ... [instrument, equipment or other facility for the transmission of electronic communications, or any component thereof ... furnished by the subscriber or user for connection to the facilities of the service.” § 10-401(4)(i)(a). Second, the equipment must be “used in the ordinary course of [the user’s] business.” Id.

We note that the case sub judice is one of first impression for Maryland courts. The only reported case dealing with the telephone equipment exception examined whether police officers could allow a crime victim to listen in on an extension telephone in order to identify a suspect by voice. See Adams v. State, 43 Md.App. 528 , 406 A.2d 637 (1979), aff'd 289 Md. 221 , 424 A.2d 344 (1981). The instant case is the first time an appellate court in this State has examined the use of add-on recording equipment in the workplace to monitor service personnel who interact with customers by telephone.

Because scant Maryland authority on this issue exists, we must turn to federal cases and those from other state courts. The Maryland Wiretap Act is substantially identical to the federal statute and the statutes of many other states. Compare, e.g., § 10-401(4) (defining “electronic, mechanical, or other device”), with 18 U.S.C. § 2510 (5) (same). In fact, the only significant difference between the Maryland Act and the federal statute is the number of parties that must consent to an otherwise prohibited interception.

Compare § 10-402(c)(3) (“It is lawful under this subtitle for a person to intercept a wire, oral, or electronic communication where the person is a party to the communication and where all of the parties to the communication have given prior consent to the intercep ⁴⁸⁶ tion....”), with 18 U.S.C. § 2511 (2)(d) (2000) (“It shall not be unlawful under this chapter for a person not acting under color of law to intercept a wire, oral, or electronic communication where such person is a party to the communication or where one of the parties to the communication has given prior consent to such interception....”) (emphasis added). The issue sub judice relates not to the number of consenting parties involved, but instead to whether IWIF’s use of aftermarket add-on recording equipment for quality control falls within the exception. Thus, any differences between the Maryland Act and its counterparts do not come into play. Accordingly, we may look to other courts’ interpretations of those other acts.

See State v. Bailey, 289 Md. 143, 151-52 , 422 A.2d 1021 (1980) (“The Maryland ‘Wiretapping and Electronic Surveillance’ law is an offspring of the Omnibus Crime Control and Safe Streets Act of 1968, ... commonly called Title III. Title III provides federally mandated minimum guidelines for the use of wiretaps. The states are required to apply a standard no more lenient than the federal law, and may opt for a more restrictive policy if they so choose.... In construing the Maryland statute, therefore, we must ensure that our interpretation does not fall below federal guidelines.”); Adams, 43 Md.App. at 536 , 406 A.2d 637 (relying on federal cases, explaining, “[ajlthough the federal and Maryland acts differ in ... two respects, in the section which is dispositive of the issue before us, the federal and the Maryland acts are identical”).

We also note that, as part of the definition of “[electronic, mechanical, or other device,” the telephone equipment exception is not an affirmative defense, see Md. Code (1973, 1998 Repl.Vol., 2000 Cum.Supp.), § 10 410(b) of the Courts & Judicial Proceedings Article (setting forth affirmative defenses), but instead must be an element of any claim that the Act has been violated. See, e.g., Arias v. Mutual Cent. Alarm Serv., 182 F.R.D. 407 , 413 n. 42 (S.D.N.Y.1998) (“The relevant portion of 18 U.S.C. § 2510 (5) often has been referred to as the telephone extension/business use defense. ⁴⁸⁷ That, however, is a misnomer. It is plaintiffs’ burden to make out the elements on their claim .... ”), aff'd, 202 F.3d 553 (2d Cir.2000).

Appellants thus bore the burden of proving that the recording equipment in question met the statutory definition of an “electronic, mechanical, or other device.” Id. at 414. The court below could have reached that conclusion, and denied summary judgment, only if appellants had presented any evidence at all tending to show that the Racal recording equipment would not fall under the exception. See T.B. Proprietary Corp., 1996 WL 290036 at ³-4, 1996 U.S. Dist. Lexis 7464, at ⁹-10 (applying the federal telephone equipment exception at summary judgment); see also United States v. Christman, 375 F.Supp. 1354, 1356 (N.D.Cal.1974).

They failed to do so. In seeking to establish that the recording equipment falls outside of the statutory definition, and thus the exemption, appellants try to show that the recorders were not telephone equipment and were not used in the ordinary course of business. They point out that the recorders were attached as an afterthought long after the original telecommunications system was in place and bear a different brand label from the original system. They also note that the recorders cannot stand alone as telephones, i.e., it would be impossible to place a call using this equipment.

Appellants grasp at straws, however, in terms of both the realities of modern telecommunications equipment and the statutory interpretation they espouse. A At the outset, we note that other courts routinely find that equipment similar to the Racal recorders, integrated and used in similar fashion, falls within the statutory exceptions for telephone equipment. See, e.g., Arias, 182 F.R.D. at 407 (routine recording of all calls at alarm monitoring company using attached Dictaphone equipment within telephone equipment exception); Jandak v. Brookfield, 520 F.Supp. 815 (N.D.Ill.1981) (recording of personal call made at police station on line intended for use in investigations within telephone ⁴⁸⁸ equipment exception); O’Sullivan v. NYNEX Corp., 426 Mass. 261 , 687 N.E.2d 1241 (1997) (telemarketing calls made by common carrier to customers ■within telephone equipment exception); Dillon v. Massachusetts Bay Transp. Auth., 49 Mass.App.Ct. 309 , 729 N.E.2d 329 (2000) (routine recording of calls made at public transit authority operations center within telephone equipment exception).

Appellants simply ignored these well-known cases in their opening brief, then failed to distinguish them meaningfully in their reply brief. These cases, however, are thoroughly on-point. The characteristics of the Racal recorders used here and their function within IWIF’s telecommunications system establish that they fall within the telephone equipment exception, as it was intended by the legislature. The recorders were designed and manufactured to be used in the way that IWIF uses themas integrated components of a larger system, providing call monitoring capabilities for that system.

See O’Sullivan, 687 N.E.2d at 1245 (“The ‘AutoQuality!’ system utilized by NYNEX is ‘telephone equipment’ within the meaning of the Massachusetts wiretap statute, because ... the system was designed for and used by the telephone company randomly to monitor and record telephone conversations in the ordinary course of business to manage the quality of services it provided to its customers.”); Dillon, 729 N.E.2d at 335 (“Similarly [to the ‘AutoQuality5 system in NYNEX], the MBTA devices, commercially designed, were purchased by the defendant for routine business, were directly integrated into phone lines on which they depended in order to function, and recorded conversations for possible future listening.”). IWIF purchased the equipment for integration with its telecommunications system. Cf. Williams v. Poulos, 11 F.3d 271, 280 (1st Cir. 1993) (“we are at a loss to see how the monitoring system used here, consisting as it did of ‘alligator clips attached to a microphone cable at one end’ and an ‘interface connecting [a] microphone cable to a VCR and a video camera’ on the other, can be considéred to be a ‘telephone or telegraph instrument, equipment or facility, or a[ ] component thereof ”); Pascale v. Carolina Freight Carriers Corp., 898 F.Supp. 276, 279 (D.N.J. ⁴⁸⁹ 1995) (three Radio Shack voice-activated tape recorders “placed next to, or connected with, a telephone receiver cannot itself be the ‘acquiring’ mechanism.

It is the receiver which serves this function — the recorder is a mere accessory____”). Unlike off-the-shelf recording devices available at retail outlets and useful for other stand-alone recording applications, the Racal recorders are highly specialized, expensive hardware designed to add monitoring functions to a commercial telephone system, much like a turntable component is designed to be integrated into a stereo system or a hard drive is designed to be installed in a personal computer. The recorders, moreover, were designed to support a function related to the effectiveness of the telecommunications system, namely, monitoring of the use of that system to interact with customers and the public, and they were actually used for that purpose. Whether courts consider add-on equipment part of a telecommunications system and thus apply the telephone equipment exception often, in fact, turns upon “whether the equipment ‘had a positive impact on efficiency, clarity, cost, or any other factor by which one would measure the effects on a communication system.’ ” See T.B. Proprietary Corp., 1996 WL 290036 , at ⁴, 1996 U.S. Dist.

Lexis 7464, at ¹¹ (quoting Pascale, 898 F.Supp. at 281 ). The Racal recorders, moreover, have no use outside of their integrated functioning in IWIF’s system, nor can they be accurately described as stand-alone recording equipment — to wit, one cannot dictate letters using the recorders or bring a recorder into a meeting to capture what transpires. Appellants here make no claim that the Racal equipment can function in standalone capacity, as likely could the standard videocassette recorder and video camera in Williams. See 11 F.3d at 280 .

Instead, they make weak arguments regarding the timing of the installation of the recorders — years after the initial system was installed — and the fact that the recorders came from a different