By Patrick Southern

Today, in Marks v. Dann, the Fourth Circuit affirmed the dismissal of the plaintiff’s claims against the defendant, who was employed as director of a Maryland state agency, the Maryland Venture Fund (“MVF”).

The United States District Court for the District of Maryland previously held that the plaintiff’s claims were barred under the Maryland Tort Claims Act (“MTCA”), and the Fourth Circuit affirmed the plaintiff had failed to meet either possible exception to that law.

Dispute Arises from Conflict With Former Business Partners

The underlying dispute in this case revolves around a company called Maxtena, which manufactures custom antennas. Plaintiff Marks was a co-founder of the company, as well as a former officer and employee of it. He engaged in litigation with Maxtena’s board of directors regarding his departure from the company. While that litigation was pending, Maxtena’s board sold interest in the company to the MVF, which was directed by defendant Dann.

Marks alleged his former colleagues entered into a sweetheart deal with MVF to dilute his stake in the company at an artificially low valuation. Marks then named Maxtena’s board members and Dann as defendants in his lawsuit, alleging Dann colluded with Maxtena’s board and aided and abetted the board in breaching its fiduciary duties to the company by accepting a low valuation for the stake in the company.

Plaintiff Failed to Plausibly Allege Defendant’s Actions Were Malicious or Outside the Scope of Employment

The District Court dismissed Marks’s claims against Dann, holding that he was entitled to immunity from personal liability under the MTCA.  That law couples a waiver of the state’s sovereign immunity from civil suits in state court with protection for state officials who act: (1) without malice and (2) within the scope of their official duties.

The District Court found that Marks’s complaint failed to plausibly allege that Dann’s actions either resulted from malice or were outside the scope of his official duties. It held that Marks failed to show Dann’s negotiations for a low price on MVF’s investment in Maxtena resulted from an improper motive instead of in order to advance MVF’s legitimate commercial interests. It further said Marks’ argument that Dann’s actions were beyond his role at MVF was completely without factual support; indeed, the fact Dann sought to secure stake in Maxtena at below-market value directly contradicts that contention.

Thus, the complaint was dismissed under Federal Rule of Civil Procedure 12(b)(6). Marks then moved for certification of the dismissal as a final and appealable order under Rule 54(b). The motion was granted, and Marks appealed.

Plaintiff Failed to Meet High Bar For Malice and Showed No Activity Outside the Scope of Employment

On appeal, the Fourth Circuit affirmed the judgment of the District of Maryland, holding that Marks’s complaint failed to plausibly allege that Dann’s actions were malicious or outside the scope of his public duties as managing director of the MVF.

The ordinary effect of the MTCA and related waiver of immunity for tort actions is to substitute the liability of the state for the liability of the state employee. Under the MTCA, state officials enjoy immunity even for intentional torts. Marks argued his remedy here should still be against Dann because, in his view, Dann designed the transaction to specifically cause Marks harm, which he said was malicious conduct and outside the scope of Dann’s employment. Dann responded that there was nothing improper about his desire to get the best economic outcome for MVF, and that there was no support in the complaint for Marks’s theory that he colluded with the Maxtena board to harm Marks.

The Fourth Circuit first addressed Marks’ argument related to the “malice” exception to the MTCA. A state official’s conduct is “malicious” if it is “characterized by evil or wrongful motive, intent to injure, knowing and deliberate wrongdoing, ill-will or fraud.” Intent and motive are critical. This is a high bar to meet, requiring more than just reckless or wanton conduct. Instead, it requires “evil motive” to “deliberately and willfully injure” a plaintiff.

The court noted this is difficult to prove in a commercial context, where behavior that may be intended to harm is often equally consistent with permissible financial self-interest. But there must be more to support the inference of malice than the allegation a plaintiff suffered economic injury as a result of a state official’s actions which advance the economic interests of his/her state employer. Marks offered only the allegation he suffered economic injury as a result of Dann’s activities, and there was nothing to infer the conduct was driven by anything but ordinary economic concerns. The complaint included no indication Dann sought terms unrelated to the economics of the transaction, or that the terms were out of the ordinary for such transactions, or that his stance in negotiations was inconsistent with MVF’s commercial interests.

Finally, the court turned to Marks’ argument that Dann’s conduct was outside the scope of his employment as director of the MVF. Under the MTCA, conduct is outside the scope of public duties if it is undertaken for reasons of personal ambition or unauthorized by the state employer.

The court noted the complaint offered no information that allows an inference Dann was acting in his own self-interest instead of the interests of MVF. Instead, the complaint actually showed Dann secured an extremely advantageous deal for the MVF. The most that cold be inferred from the complaint was that Dann was overzealous in attempts to get a good deal for MVF, not that he advanced an agenda to harm Marks or derive some personal benefit.

The Judgment Dismissing Plaintiff’s Claims Against Dann is Affirmed

The Fourth Circuit did not rule on whether any tortious conduct was committed. Instead, it merely affirmed the District Court’s ruling that Marks failed to meet either of the exceptions to Dann’s personal immunity under the MTCA, and noted that if Marks has any remedy for the MVF’s alleged misconduct, it is against the state, not against Dann in his personal capacity.