Service Transport, Inc. v. Hurricane Express, Inc.

ZARNOCH, Judge. In December 2005, appellant Service Transport, Inc. (“Service”) filed suit in the Circuit Court for Caroline County against former employees Neil I. Brooke and Alan D. Glessner, seeking a declaratory judgment, damages, and injunctive and other relief for alleged violations of the Maryland Uniform Trade Secrets Act, Md.Code (1975, 2005 Repl.Vol.), Commercial Law (CL) Article, §§ 11-1201 et seq. 1 Service alleged that former employees Brooke and Glessner misappropriated confidential information, diverted funds or accounts receivables from Service to other persons or entities, and caused damages and losses to Service. Service later amended its complaint to add Advanced Transport, Inc. and appellees Hurricane Express, Inc., Hurricane Express Logistics, Inc., Kaedon Steinert, president of the Hurricane entities and his brother, Sheldon Steinert (“the Hurricane defendants”). 2 On January 6, 2006, a temporary restraining order was issued to halt the alleged violations. The order was modified and later rescinded, when the court denied a request for a preliminary injunction.

In October 2007, just before the scheduled trial, Service filed a motion to permit an amendment to its complaint to add Kaedon Steinert, Inc. (“KSI”) as a previously undisclosed necessary party, which the trial court denied. 3 A ²⁹ motion for reconsideration was also filed and denied on October 29, 2007. This pre-trial appeal followed. Appellant presents the following issue for appeal: Did the trial court err in its denial of the Plaintiffs motions seeking to add Kaedon Steinert, Inc. (“KSI”), as a previously undisclosed indispensable party defendant? For reasons set forth below, we conclude that there was no error in the denial of these motions.

FACTS AND LEGAL PROCEEDINGS Service Transport, Inc. is a trucking brokerage business located in Hurlock, Maryland that ships frozen and fresh seafood. Through what it has described as its “employee brokers,” Service arranges for the transport of goods owned by a shipper to a consignee (such as a restaurant or distributor). Goods are transported in trucks owned by third parties, and the shipper pays Service a fee for arranging the transport of its goods. Brooke and Glessner were employee brokers assigned by appellant to manage the route from the New England area to the West Coast, and the route from the West Coast to the New England area.

According to Service, Brooke and Glessner were entrusted with important trade secrets and confidential information concerning the seafood transport business. On November 28, 2005, Glessner tendered his resignation, at about the same time Service had begun investigating facts allegedly indicating that Glessner and Brooke had been conspiring with the appellees to use trade secret and confidential information to transfer appellant’s customers to a new, competing seafood brokerage business in Seaford, Delaware, thereby damaging Service’s business and business prospects. During its investigation, Service claimed to have uncovered deleted email communications dating back to August 2005 between appellees and Brooke and Glessner, which discussed ³⁰ the details of establishing a competing track brokerage business. Hurricane Express Logistics, Inc. was established to handle the brokerage side of the business.

Hurricane Express, Inc. was set up to operate the carrier side. When Service became aware of the alleged involvement of the Hurricane defendants, it timely amended its complaint to add those parties: 4 The Hurricane defendants, all residents of Arkansas, were served with original process, interrogatories, and requests for production of documents. These interrogatories and requests asked the Hurricane defendants to fully identify and describe the activities and efforts to establish, operate, and fund the trucking brokerage business, and to identify and produce all records pertaining to the establishment and funding of the business. The Hurricane defendants filed a Motion to Dismiss for Lack of Personal Jurisdiction, which was denied on November 1, 2006.

On the same date, Service filed a set of motions to compel responses to the interrogatories and request for documents. Hurricane opposed the motions. Service also filed motions to compel discovery on January 3 and 5, 2007. On February 9, 2007, Service amended its complaint to increase the ad damnum to exceed the threshold for federal diversity jurisdiction under 28 U.S.C. § 1332 . ■ Hurricane filed a Notice of Removal of the action to federal court on February 15, 2007, thereby staying all proceedings in the circuit court.

On August 6, 2007, the United States District Court for the District of Maryland remanded the case to the circuit court. On the morning of October 9, 2007, just before a deposition, Hurricane provided faxed copies of documents to Service, including a copy of a check identified as that of “Hurricane Express” as payment of some of the expenses of setting up and operating the new Seaford brokerage business. During ³¹ 'deposition, Kaedon Steinert admitted that the check was written on an account owned by KSI, a corporation of which he was president and an entity not previously disclosed by Hurricane. 5 During the deposition of Sheldon Steinert on October 10, 2007, he stated in essence that Hurricane Express, Inc. was a corporate shell used to hold the federal operating authority issued by the Federal Motor Carrier Safety Administration to enable Hurricane’s trucks to haul interstate. He also said that Hurricane had no assets, no revenue or income, and paid no expenses to set up or operate the Seaford brokerage, which was actually owned and operated by KSI.

Furthermore, Sheldon Steinert said that the checks used to fund operations indicated on their faces that the checks were from “Hurricane Express”, with no indication that the checking accounts were actually those of KSI. On October 12, 2007, following its claimed discovery that KSI was the entity which set up and operated the Seaford business, Service filed its motion to add KSI as a previously undisclosed necessary party. 6 The amended complaint (“comparative copy”) was not actually filed until October 26, 2007. On the afternoon of October 26, 2007, the parties were advised by telephone that the circuit court had denied Service’s motion. Service filed its Motion for Reconsideration, asking the court again to allow the amendment, to shorten the time for a response to the amended complaint and to grant a limited continuance to permit limited discovery with respect to KSI.

On the scheduled trial date, with the jury waiting to be called ³² for voir dire, this motion was heard in open court and denied. 7 Service filed this appeal. DISCUSSION 1. Appealability Because the case below has not concluded, the issue naturally arises whether Service has a right to appeal at this time. Appellees have not contested the issue.

However, that does not dispose of the matter, because we have an independent obligation to determine whether appellate jurisdiction is properly invoked. Service’s terse and singular reliance for its right to appeal on The Great Atlantic & Pacific Tea Co., Inc. v. Royal Crown Bottling Co. ("A & P"), 243 Md. 280 , 220 A.2d 598 (1966), does not resolve our concerns. That case involved a defendant’s attempt to assert a cross-claim against an alleged wrongdoer. Concluding that a pre-trial denial of the right to bring the cross-claim was immediately appealable, the Court of Appeals relied primarily on what is now Md. Rule 2-331 (Counterclaim and cross-claim), federal precedent, and its prior decision in Northwestern Nat.

Ins. Co. v. Samuel R. Rosoff, Ltd., 195 Md. 421 , 73 A.2d 461 (1950). A & P, 243 Md. at 284-85 , 220 A.2d 598 . Rosoff held immediately appealable as a final judgment the denial of a defendant’s attempt to implead third party defendants.

The decision cited for support a specific Maryland Rule, now Md. Rule 2-332, and federal cases. 195 Md. at 426-33 , 73 A.2d 461 . ³³ Aside from the fact that this is neither a cross-claim nor an impleader ease under the cited rules 8 , the federal decisions cited in these old cases no longer provide unequivocal support for an immediate appeal in such cases. See 6 Wright, Miller & Kane, Federal Practice & Procedure § 1408 (1990)(“In general, the dismissal of either a compulsory or permissive counterclaim or a cross-claim, or the refusal to dismiss one of these claims is interlocutory and cannot be appealed in advance of the final judgment in the main action.”) and § 1463 (“Viewed from the perspective of appealability, the most important characteristic of an order allowing or rejecting impleader is that it does not terminate the action and therefore does not satisfy the final judgment rule.”). 9 Perhaps more on point and more helpful to Service’s claim of appealability are Kloze v. Provident Savings Bank of Baltimore, 220 Md. 469 , 154 A.2d 711 (1959) and South Down Liquors, Inc. v. Hayes, 80 Md.App. 464 , 564 A.2d 119 (1989), aff'd 323 Md. 4 , 590 A.2d 161 (1991). Kloze presented the opposite of the present case. A debtor sued a bank to invalidate an allegedly unlicensed transaction.

He also unsuccessfully petitioned to have the Bank Commissioner “made a party” to the proceeding. Id. at 471 , 154 A.2d 711 . When he appealed an adverse judgment, the issue regarding the joinder of the Bank Commissioner was rejected on the basis of Rosoff, because “the order in question was filed and appealable forthwith, and ... here the appeal from the subsequent order was not in time.” Detracting somewhat from the weight of the case are the facts that it was argued pro se and the Court’s opinion is so short (two pages) that we are not told whether ³⁴ the Commissioner was sought to be joined as a plaintiff or defendant and on what theory. Moreover, the Court could not have refused to consider the joinder issue if the contention was that the Commissioner was a necessary party.

See p. 34-35, 968 A.2d 626 , infra. In South Down Liquors, there is a more thorough analysis. There, a defendant in a negligence action sought to join as a party-plaintiff the employee/plaintiffs workers compensation insurer. When joinder was denied, an appeal was taken before trial.

Citing Rosoff, supra 195 Md. at 423 , 73 A.2d 461 , this Court, in essence, held that the denial was appealable as a “final” determination, 80 Md.App. at 466, n. 1 , 564 A.2d 119 , and went on to consider and reject the notion that the insurer was a necessary party. Id. at 480 , 564 A.2d 119 . While neither case may be directly on point, viz., involving the denial of a plaintiffs motion to join a party-defendant as a necessary party, in our view they are sufficiently supportive of the appellant’s contention that we find that the pre-trial appeal here is proper as an appeal of a decision finally determining Service’s right to proceed against the purported necessary party. We recognize that the federal rule is to the contrary.

See, e.g., Michelson v. Citicorp National Services, Inc., 138 F.3d 508, 512 (3rd Cir.1998) (Order refusing or permitting the filing of an amended complaint joining an additional party is not final and “not appealable in isolation.”). However, we also note that in Maryland a necessary parties issue may be raised for the first time on appeal, Bodnar v. Brinsfield, 60 Md.App. 524, 532 , 483 A.2d 1290 (1984), or even sua sponte by the appellate court. Chairman of Board v. Waldron, 285 Md. 175, 179-80 , 401 A.2d 172 (1979). As an omnipresent question, there is some justification for allowing its rejection to be raised on appeal in a pretrial setting. 2.

A Question of Terminology In its motion in the circuit court, Service sought to join KSI as a “necessary” party. In this Court, appellant characterizes KSI as an “indispensable” party. ³⁵ It is not uncommon for Maryland courts to use the term “necessary party” in describing state procedure under Maryland Rule 2-211 and the term “indispensable party” when referring to the federal practice under Rule 19 of the Federal Rules of Civil Procedure. See, e.g., Cooper v. Bikle, 334 Md. 608, 618-19 , 640 A.2d 1120 (1994). Now that the State rule mirrors, in many respects, the federal rule, it has been suggested that federal terminology should be used.

See Lynch & Bourne, Modern Maryland Civil Procedure § 4.6 (2d Ed.2004). Thus, when a court determines whether a party should be joined on the basis of the factors stated in Md. Rule 2-211(a), it determines whether the party is necessary. 10 However, if the court finds that an absent necessary party cannot be joined, it must determine under Rule 2-211(c) whether the case should continue or be dismissed. 11 If the court concludes that the case must be dismissed, the party is ³⁶ labeled “indispensable.” See Owens—Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir.1999). Clearly, appellant did not ask the circuit court to determine whether its own case should possibly be dismissed for absence of an indispensable party under Rule 2-211(c). 12 Rather, it argued that under Rule 2-211(a), KSI should be joined as a defendant. Thus, we will use the term “necessary party” in describing appellant’s contentions. 3.

Standard of Review The parties disagree over the standard of review applicable to the present case. Appellant argues that the scope of review is expansive because it is a legal determination of the trial court that is being reviewed and cites In re Michael G., 107 Md.App. 257, 265 , 667 A.2d 956 (1995), for that proposition. Appellees argue, on the other hand, that this case is reviewable under an abuse of discretion standard. Without hesitation, we would agree with appellees if the issue were simply whether Service had the right to amend its complaint, Schmerling v. Injured Workers’ Ins.

Fund, 368 Md. 434, 443-44 , 795 A.2d 715 (2002), or whether it was entitled to permissive joinder, Swanigan v. Amadeo Rossi, S.A., 617 F.Supp. 66 (D.Mich.1985). 13 However, “[njecessary parties must be made parties to the proceeding.” Bender v. Secretary, Maryland Dept. of Personnel, 290 Md. 345, 350 , 430 A.2d 66 (1981). The federal circuits are divided on the appropriate standard of appellate review of necessary and indispensable party determinations. For example, the Fourth Circuit applies the abuse of discretion standard to both issues. National Union Fire Ins.

Co. v. Rite Aid, Inc., 210 F.3d 246, 250, n. 7 (4th Cir.2000). On the other hand, the Third Circuit applies de ³⁷ novo review to the necessary party issue, but abuse of discretion to the indispensable party question. Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 158 F.3d 170, 174 (3rd Cir.1998).

The Sixth Circuit reviews the former issue under abuse of discretion and the latter de novo. Keweenaw Bay Indian Community v. Michigan, 11 F.3d 1341, 1346 (6th Cir.1993). The District of Columbia Circuit reviews just one component of the necessary party determination de novo. Western M.R. Co. v. Harbor Ins.

Co., 910 F.2d 960, 963 (D.C.Cir.1990). The Seventh Circuit has refused to decide the issue. Thomas v. U.S., 189 F.3d 662, 666 (7th Cir.1999).