Looking for the Next Big Case, Part II: The Court of Appeals Decides B.J.’s Wholesale Club, Inc. v. Rosen

By Brad McCullough

Four months ago, as part of looking for “the next big case,” I previewed two cases that were scheduled for argument in the Court of Appeals in September and October. One of those cases was BJ’s Wholesale Club, Inc. v. Rosen, No. 99, September Term, 2012. About six weeks ago, the Court decided that case, reversed the Court of Special Appeals, and held that a parent’s pre-injury waiver of a minor child’s negligence claim against a commercial enterprise does not violate public policy.

Russell and Beily Rosen were members of BJ’s Wholesale Club, which is a membership warehouse club that provides a play center for members’ children. But a member’s child may use that center only if the member signs an agreement releasing BJ’s from any claims arising from the child’s use of the play center and indemnifying BJ’s against such claims. The Rosens’ five-year-old son was severely injured while playing at the play center. The Rosens sued BJ’s and the circuit court granted BJ’s motion for summary judgment, concluding that the release precluded the Rosens’ claim.

Following a majority of other jurisdictions that have considered the issue, the Court of Special Appeals reversed, holding that a parent may not waive by agreement a minor child’s future negligence claim against a “commercial enterprise,” i.e. a for-profit, commercial entity that principally serves private interests. The court also struck down the indemnification clause, holding that it obviated the public policy considerations that supported the court’s rejection of the exculpatory clause of the release agreement.

In a 5-2 decision, the Court of Appeals reversed the intermediate court. Writing for the majority, Judge Battaglia observed that while exculpatory clauses are generally valid and enforceable, there are situations where “enforcement of an exculpatory clause could be precluded.” BJ Wholesale Club, Inc. v. Rosen, Slip Op. at 10 (citing Wolf v. Ford, 335 Md. 525, 644 A.2d 522 (1994)). For example, exculpatory clauses will not be enforced in transactions affecting the “public interest.” Such transactions include “public service obligations” as well as transactions that are so important to the public good that enforcement of “‘an exculpatory clause would be patently offensive.’” Id. at 11 (quoting and citing Wolf, 335 Md. at 532, 644 A.2d at 526). Neither category was relevant to the Court’s analysis, “because they were not relied upon by” the trial judge. Id. There is also a third “catch-all category of the public interest exception,” however, that was relied on by the trial judge. When applying that “catch-all” exception, courts assess the public interest by “‘considering the totality of the circumstances of any given case against the backdrop of current societal expectations.’” Id. at 13 (quoting Wolf, 335 Md. at 535, 644 A.2d at 527).

In applying the exception to the case before it, the majority cited the clear societal expectation “that parents should make decisions pertaining to their children’s welfare” and recognized “that those decisions are generally in the child’s best interest.” Id. at 14. After citing several statutes that authorize parents to act on behalf of their children, Judge Battaglia wrote: “From this brief survey of various pieces of legislation, it is clear that parents are empowered to make significant decisions on behalf of their children.” Id. at 16.

The Court also relied heavily on Md. Code Ann., Cts. & Jud. Proc. § 6-405(a)A, “which permits a parent to settle a child’s existing claim without judicial interference.” Slip Op. at 19. Many of the cases relied on by the Rosens came from jurisdictions that do not permit a parent to settle a minor child’s claim without court approval. As Judge Battaglia stated, Section 6-405 (a) “is in stark contrast to other states’ statutes and rules that require judicial oversight to settle a child’s claim, which form the foundation for cases upon which the cases posited by the Rosens rely.” Slip Op. at 19 (citations and footnote omitted). As a result, those cases were “inapposite, because parents in Maryland, rather than courts, are authorized to make decisions to terminate tort claims on behalf of their children pursuant to Section 6-405.” Id. at 21 (footnote omitted). The majority rejected the Rosens’ argument “that a prospective waiver of a negligence claim as exculpation is ‘fundamentally different’ from a release of an existing claim,” requiring a different policy approach. Id. at 22. According to the majority, drawing such a distinction is a policy matter best addressed by the legislature. “The policy dichotomy proscribed … by the Rosens and the Court of Special Appeals has at its core stereotypes that warrant further exploration by the Legislature, rather than that which should be relied upon in judicial rule-making.” Id. at 22-23.

Finally, Judge Battaglia addressed the two other considerations that had been relied on by the Court of Special Appeals. Id. at 25. First, the majority rejected the intermediate appellate court’s “perceived distinction between commercial and non-commercial enterprises,” noting that the distinction “is without support in our jurisprudence.” Id. at 25, 26. The majority likewise rejected the reliance on the State’s parens patriae authority, explaining that application of that “doctrine has generally been invoked only in proceedings where parental rights have been abrogated, pursuant to a statutory scheme, as in CINA [‘child in need of assistance’] cases,” or in the juvenile delinquency context. Id. at 29, 30 (footnote omitted). Consequently, the doctrine was inapplicable and the Court of Special Appeals erred in relying on it.

Judge Adkins wrote a dissenting opinion that Judge McDonald joined. Judge Adkins wrote: “In adopting a position held by a minority of states, the Majority has ignored the significant public policy interests in invalidating these prospective exculpatory agreements when a commercial entity contracts with a consumer.” Slip Op. 1. While agreeing with the majority’s conclusion that parents enjoy the authority to make significant decisions for their children, Judge Adkins stressed “that circuit courts act as parens patriae, and parental authority is subject to judicial determinations of public policy affecting the welfare of minor children.” Id. at 2 (footnote omitted). She also noted that a majority of the jurisdictions that have considered the enforceability of exculpatory agreements “have held then unenforceable.” Id. (citations omitted).

Judge Adkins agreed with the Court of Special Appeals that exculpatory clauses promote a “‘misalignment of incentives’” and that “commercial enterprises are in a better position not only to control their premises and employees, but also to carry insurance against liability for negligence.’” Id. at 3 (citation omitted).

The dissent took issue with the majority’s heavy reliance on the “statute that authorizes a parent to terminate litigation on behalf of their minor children.’” Id. at 4. According to Judge Adkins, “a pre-injury waiver of a negligence claim is ‘fundamentally different’ from a release of a claim post-injury.” Id. A pre-injury release immunizes a business from the effects of its future negligence and could “foster negligent practices which are injurious to children.” Id. A post-injury release or settlement, however, “does not foster negligent practices because the negligent act has already occurred.” Id. Furthermore, in the case of a post-injury release, “the parent is informed of the nature of the negligence, the extent of the child’s injury, and is in a position to negotiate.” Id. at 4-5.

The dissent discounted the majority’s concern “that holding this exculpatory clause unenforceable would negatively impact non-profit entities who provide services for children,” and that creating an exception for commercial entities would require difficult judicial line drawing. Id. at 7. Judge Adkins did “not share these misgivings,” as she believes that judges “sit to draw such lines” and can “do so in a principled manner.” Id. Finally, she also agreed “with the Court of Special Appeals that the same public policy interest that render such exculpatory clauses unenforceable apply with equal force to the indemnification clause.” Id.