Schmerling v. INJURED WORKERS'INS. FUND

• Decision Date: 08 April 2002
• Docket Number: No. 88,88
• Citation: 368 Md. 434,795 A.2d 715
• Parties: Jack J. SCHMERLING, et al., v. INJURED WORKERS' INSURANCE FUND.
• Court: Maryland Court of Appeals

795 A.2d 715

368 Md. 434

Jack J. SCHMERLING, et al., v. INJURED WORKERS' INSURANCE FUND.

No. 88, Sept. Term, 2001.

Court of Appeals of Maryland.

April 8, 2002.

Charles J. Piven and Marshall N. Perkins (Law Offices of Charles J. Piven, P.A.; Jeff E. Messing, all on brief) Baltimore, for Petitioner.

Alan I. Baron (Dorsey & Whitney LLP of Washington, D.C.; and Anthony J. Zaccagnini of Semmes, Bowen & Semmes, P.C., Baltimore), all on brief, for Respondent.

Kevin B. Bedell of Washington, D.C. (Pro Hac Vice), for Respondent.

BELL, C.J., ELDRIDGE, RAKER, WILNER, CATHELL, HARRELL and BATTAGLIA, JJ.

BATTAGLIA, Judge.

This case requires us to consider a novel question of law with respect to the Maryland Wiretap Act, Maryland Code (1974, 1998 Repl.Vol., 2000 Supp.), § 10-401, et. seq., of the Courts and Judicial Proceedings Article. Specifically, this Court is tasked to decide whether the recording equipment utilized by the respondent, Injured Workers' Insurance Fund ("IWIF"), to monitor and record incoming and outgoing calls constituted "telephone equipment... or a component thereof," within what is commonly known as the "telephone exemption" of the Maryland Wiretap Act. If IWIF's recording equipment falls within this exemption, then it is not a prohibited intercepting device under the Maryland Wiretap Act.

The exemption only applies if the equipment is "telephone equipment ... or a component thereof" and if the use of the telephone equipment is for a valid business purpose. Therefore, only upon a determination that respondent's recording equipment is "telephone equipment" as contemplated by the Wiretap Act, must we also consider whether the respondent's use of the recording equipment was for a "valid business purpose," thus rendering the utilization of such recording equipment unobjectionable under the Maryland Wiretap Act. Because we hold that respondent's recording equipment does not qualify as "telephone equipment" under the Wiretap Act, we need not consider whether the respondent had a valid business purpose for the use of the recording equipment.

We are asked also to determine whether the circuit court erred in failing to strike the respondent's answer to petitioners' second amended complaint when the respondent's answer failed to comply with the timeliness requirements of Maryland Rule 2-341. We hold that the circuit court did not abuse its discretion in accepting the respondent's belated answer and thus, no error occurred.

I. Factual Background and Legal History

The respondent, the Injured Workers' Insurance Fund, is an independent but statutorily-created insurance company that primarily provides workers' compensation insurance to Maryland businesses.¹ See Md.Code (1991, 1999 Repl.Vol.), § 10-104 of the Labor & Employment Article; Md. Code (1991, 1999 Repl.Vol., 2000 Supp.), § 10-105(a) of the Labor & Employment Article. An internal company-wide reorganization occurred in 1995 and 1996 during which the respondent upgraded its telecommunications system. Improvements to the telecommunications system were made at various times throughout the reorganization process and included a voice mail system, an automatic call distributor, digital announcers, and the monitoring capabilities presently at issue in this case.

The respondent utilized a Meridian² telephone system, technically known as a Private Branch Exchange ("PBX"), which directed incoming telephone calls to specific extensions, since its procurement in 1987. The monitoring system, manufactured by Racal, was purchased in 1996 from a distributor, Simko Office Systems. Simko representatives installed the equipment at IWIF to enable the recording of calls made to and from individual telephone lines. The equipment recorded the voices of both the IWIF employee and any party to the conversation. Each Racal unit was able to monitor and record sixtyfour separate lines at once; supervisors could then review calls at their convenience and retrieve calls either at random or about which complaints or problems had been reported. It is undisputed that the respondent's purpose for installing the Racal monitoring system was to evaluate and improve customer service.

On February 25, 1999, petitioners commenced a class action against the respondent in the Circuit Court for Baltimore County for violations of the Maryland Wiretapping and Electronic Surveillance Act (hereinafter "Maryland Wiretap Act") alleging specifically that the monitoring and recording of business calls through the Racal devices was illegal. This class action complaint, however, was never served. Petitioners filed and served an Amended Class Action Complaint on April 12, 1999, seeking injunctive relief from the continuing monitoring and recording practices of the respondent and statutory liquidated and punitive damages pursuant to Maryland Code (1974, 1998 Repl.Vol.), § 10-410(a)(1) of the Courts and Judicial Proceedings Article.³

The parties identified the applicability of the Maryland Wiretap Act's "telephone exemption," which exempts from the definition of wiretapping devices telephone equipment used in the ordinary course of business, as a potentially dispositive issue. Therefore, the Circuit Court for Baltimore County entered a Preliminary Scheduling Order on May 26, 1999, which limited discovery to the telephone exemption issue and scheduled briefings and hearings on dispositive motions concerning this issue. Both parties moved for summary judgment on February 4, 2000—petitioners argued that the exemption did not apply while the respondent sought a judgment that the exemption did apply.

On January 18, 2000, a little more than two weeks before the scheduled deadlines for summary judgement motions, the petitioners filed another amendment to their complaint to pray for statutory liquidated damages which had been included in the initial Complaint but omitted in the First Amended Complaint. The respondent did not answer the Second Amended Complaint until February 17, 2000, and thereby failed to comply with the fifteen-day requirement of Maryland Rule 2-341.⁴ On this basis, petitioners moved to strike the Answer to the Second Amended Complaint.

On March 9, 2000, the Circuit Court held a hearing on the summary judgment motions as well as petitioners' motion to strike but reserved ruling on both these issues. At a subsequent hearing, which occurred on August 24, 2000, the Circuit Court denied petitioners' motion to strike because respondent's answer to the Second Amended Complaint was a general denial and not substantially different from its Answer to the First Amended Complaint; thus, the Circuit Court found that no prejudice resulted from the respondent's failure to meet the fifteen-day requirement of Rule 2-341.

The Circuit Court also denied the petitioners' motion for summary judgment, granted the respondent's motion for summary judgment and ultimately entered judgment in favor of the respondent on the basis that respondent's Racal recording and monitoring equipment fell under the telephone equipment exemption of the Maryland Wiretap Act. Because the court found that "the Racal system was designed and manufactured only to work with the telephone communication system, had no independent function outside of the telephone communication system, [and] is permanently wired into the PBX in the same fashion as voicemail," the trial court ruled that the Racal system qualified as telephone equipment pursuant to the statutory exemption. Furthermore, the lower court found that the respondent used the Racal equipment for a valid business purpose in its attempts to improve customer service.

The petitioners appealed the summary judgment in favor of respondent to the Court of Special Appeals asserting that the lower court erred in ruling that the monitoring equipment was telephone equipment within the exemption of the Maryland Wiretap Act and that the court erred in accepting the respondent's untimely Answer to the Second Amended Complaint on the basis of lack of prejudice to petitioners.⁵ See Schmerling v. Injured Workers' Ins. Fund, 139 Md.App. 470, 475, 776 A.2d 80, 83-84 (2001)

. The Court of Special Appeals affirmed the lower court's judgment, concluding that the Racal monitoring system was "telephone equipment" and that the use of the Racal monitoring system was in the "ordinary course of business." Id. at 491, 776 A.2d at 93. With respect to the respondent's belated answer in violation of Rule 2-341, the Court of Special Appeals affirmed the lower court finding no abuse of discretion in allowing the answer to be amended.

Petitioners sought and we granted a writ of certiorari to consider the question of first impression presented in this case: whether monitoring and recording equipment can be "telephone equipment" for purposes of the statutory exemption from the prohibitions of the Maryland Wiretap Act. See Schmerling v. Injured Workers' Ins. Fund, 366 Md. 246, 783 A.2d 221 (2001). The petition for writ of certiorari also requested review of whether the Circuit Court erred in ruling, as a matter of law, that the respondent had a valid business purpose to sustain its uniform recording of certain telephone lines, and whether the lower court's refusal to strike the belated answer filed by the respondent in violation of Maryland Rule 2-341 was erroneous.

II. Standard of Review

Appellate courts review a grant of summary judgment de novo. See Fister v. Allstate Life Ins. Co., 366 Md. 201, 210, 783 A.2d 194, 199 (2001)

. The underlying premise of a summary judgment motion is that no dispute as to material fact exists; thus, a trial court's grant of a summary judgment motion is strictly a matter of interpreting or applying the law. See A.J. Decoster Co. v. Westinghouse Elec. Corp., 333 Md. 245, 261, 634 A.2d 1330, 1338 (1994)(stating that "a trial court decides issues of law, not fact, when granting summary judgment"); Beatty v. Trailmaster Prods. Inc., 330 Md. 726, 737, 625 A.2d 1005, 1011 (1993)(st...