Every shareholder of Under Armour was notified in shareholder communications that the company was facing a lawsuit filed in the Circuit Court for Baltimore City. The lawsuit, filed in mid 2015, was filed by a few stockholderws, and the Maryland case search database reveals that it was a derivative suit. While publicly traded companies are often times no stranger to the inside of a courtroom, such reports wouldn’t be considered particularly newsworthy to a non stockholder. While congratulations are in order for all parties in reaching a settlement, the case reveals a serious problem that every Maryland LLC or stock corporation could potentially face. From the looks of the case details, Under Armour was on track to potentially face it.
Derivative lawsuits can be filed in Maryland under section 4A-801 of the Maryland Code. It’s a very specific type of lawsuit that is filed by a shareholder(s) in order to recover for a harm that is alleged to have been done to the LLC/Company. It is a lawsuit that is done for the benefit of the LLC or company, which is different than one that is done to benefit a shareholder. One claims is for recovery to the company (derivative), and the other is for the shareholder (direct). Action is derivative because it is brought by one or more shareholders on behalf of the corporation, instead of by the corporation itself.
There have been derivative lawsuits filed in Maryland, but they are more often filed in federal court. They are not always easily found when reviewing electronic court records. A few have been identified as having derivative components:
Bennett v. Damascus Community Bank, et al
Aramtel v. Fadul, Dynacorp, Tektel (the countersuit)
John Price, et al v. Upper Chesapeake Health
Ramirez v. Under Armour, Kevin Plank, etc
As an example, in the countersuit for case 13C08072145 in the Howard County Circuit Court, the court found in favor of the counterplaintiff on seven (7) derivative counts. $45,089,392 in damages was awarded to Aramtel Ltd, the counterplaintiff. The first count of the eight count complaint was a direct claim for Aramtel Ltd, and the other seven were derivative on behalf of “Moutiny Limited”. Moutiny was not going to see that money, because no judgment was indexed by the court to read that it had prevailed. The case was appealed to the Maryland Court of Special Appeals (for various reasons). COSA ordered that ALL of the derivative portion of the monetary award as to Moutiny Ltd be vacated, which it was. Why? Essentially, it was because the judge at the lower court (Howard County Circuit) did not clearly articulate the damages that he “found” for the counterplaintiff. While the $45 million judgment remained, it became attributed ONLY to the direct claim (count 1 of complaint) that the court heard and also found in favor of the counterplaintiff. Due to the clerk’s entry of the lawsuit party names, it wasn’t going to get to the derivative plaintiff anyway.
Any recovery in a derivative action could go only to the corporation, since the corporation is the real party in interest in whose name a derivative suit is prosecuted. In reviewing the electronic case records, you can see how the clerk entering the information handled the original complaint as well as the countercomplaint. In the record, “Aramtel, Ltd” is listed as the counterplaintiff. There is NO entry listing “Moutiny Ltd” as a counterplaintiff. Consequently, there is NO judgment award listed in the judgment index that did or was going to read it was “for” Moutiny Ltd.
This problem was reported to the Administrative Judge Kiessling who handles the 5th judicial circuit, Thomas Barnickel III (Legislative Auditor), Thomas Miller (President of Maryland Senate), Michael Busch (Speaker of House of Delegates), and various members of the Joint Audit Committee. In other words, it was sent to the very people who are supposed to have oversight over (and therefore care about) matters involving Maryland courts and the clerk’s office specifically who are charged with the task of correctly inputting information that affects the integrity and reliability of court case data and Land Records information. A copy of that letter can be found here:
Copies were sent via email, to expedite the process, and Senator Guzzone’s office replied back (a testament to at least one elected official who WILL take the time to respond to a constituent’s concerns). Chief of Staff, Deanna Peel, reported that their inquiries revealed that there was no issue regarding the recording of case data into the Judiciary’s Uniform Case System. A copy of that email can be found here:
I’m going to venture a guess that someone relied upon the quick answer of someone at the Office of Legislative Audits, and that someone wanted it to be quickly dismissed instead of doing due diligence in order to ascertain whether there was or wasn’t merit to the report. Is $45 million dollars in a different case, but the SAME county courthouse, big enough to get anyone’s attention? And will someone take a look at how the Under Armour case details were entered, and conclude that there wasn’t going to be a problem there either? Case 24C15003240. Ramirez v. Under Armour (there are related cases but this one was designated as the lead). A derivative lawsuit, reported by the Baltimore Sun, filed 6/18/15 as a class action suit with several shareholders. Does it look like a direct or derivative complaint? You can thank a CLERK for it. Mr. Guzzone, you may want to check into those alleged “processes to independently check case data”, and see for yourself if judicial decisions are matching up with case records.
Or, you can wait until the outcome of the derivative mess in front of the Maryland Court of Special Appeals that is “Marlena Jareaux v. Gail R. Proctor, et al”. It was known in the lower court as “Gail R. Proctor, On Behalf of Proceaux Properties, LLC v. Marlena Jareaux”. I’ll come talk to you afterwards, so you can propose something that can help make it that Under Armour (or any other Maryland company) won’t have to go through the same to make things right. You are the ONLY ONE who bothered to respond. It is preventable error.