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Maryland High Court Rules Debtors’ Attempts to Void Judgments for Unlicensed Debt Collection Subject to 3-Year SOL

The Maryland Court of Appeals, the state’s highest court, recently held that judgments obtained by an unlicensed debt buyer were not void, and that the debtors’ claims for unjust enrichment and money damages under the Maryland Consumer Protection Act (MCPA) and the Maryland Consumer Debt Collection Act (MCDCA) were subject to Maryland’s general three-year statute of limitations.

The Court also held that:

  1. Maryland’s class action tolling doctrine applied only to subsequent individual claims, but not to successive putative class actions; and
  2. Putative class members should be permitted to file their individual claims without regard to whether the prior putative class action was pending in Maryland state court, federal court, or another jurisdiction.

Thus, the Court held, one of the debtors’ claims were timely brought due to cross-jurisdictional tolling of the statute of limitations. 

A copy of the opinion in Cain v. Midland Funding, LLC is available at:  Link to Opinion.

The case arose out of two separate putative class action cases (“Action 1” and “Action 2”) brought against a consumer debt buyer by consumer debtors. In both cases, the debtors alleged that debt buyer obtained judgements against them during a time period when the debt buyer did not have a license under the Maryland Collection Agency Licensing Act.

The cases both sought declarations that the judgments obtained by the debt buyer were void, injunctive relief to prevent the debt buyer from collecting on judgments in the future and money damages arising from claims for unjust enrichment and violations of the Maryland Consumer Debt Collection Act.

In Action 1, the trial court granted summary judgment to each party in part, and granted a separate declaratory judgment declaring the rights of the parties. In the second action, the trial court granted the debt buyer’s motion to dismiss against the debtor. Both debtors appealed.

Aside from a procedural issue unique to Action 1, the Court of Special Appeals resolved both claims in the same manner. The Court of Special Appeals held that the debtors’ declaratory judgment counts were resolved by the Court’s recent decision in LVNV Funding LLC v. Finch, 463 Md. 586 (2019) (“Finch III”), and thus, the judgments obtained when the debt buyer was not licensed were not void.

The Court of Special Appeals further held that because the judgments had been satisfied, the debtors were not entitled to injunctive relief as the debt buyer was no longer collecting on them.

Finally, the Court of Special Appeals held that debtors’ claims for unjust enrichment and money damages for statutory claims were barred by the general three-year statute of limitations codified at Maryland Code, Courts and Judicial Proceedings Article § 5-101.

The debtors both filed petitions for writ of certiorari which the Court of Appeals granted.

As to the question of whether the judgment was void, the Maryland Court of Appeals agreed with the intermediate appellate court that the recent ruling in Finch III, which held that a judgment in favor of an unlicensed agency was not void, resolved the issue. As the debtors did not seek review of the decision regarding injunctive relief, the Court focused its attention on determining whether or not the debtors’ claims were time barred.

In determining when accrual of a statute of limitations occurs, Maryland applies the discovery rule — i.e., a claim accrues when the plaintiff knew or should have known of the wrong.  Poffenberger v. Risser, 290 Md. 631, 636 (1981). The Court upheld the lower court’s determination that the accrual of the action began when the debtors made their first payments on their judgments. As such, absent a showing that (1) a different statute applied, (2) the time wasn’t extended under a continuing harm theory or (3) the time was tolled, the actions were barred.

The Court agreed with the intermediate appellate court that the applicable statute of limitations was the general three-year statute of limitations and not the 12-year statute of limitations applicable to specialties claims as the debtors argued.

The Court of Appeals found the debtors’ argument that they were subject to CJ § 5-102(a)(3) which provides for a 12-year statute of limitations for “actions on a judgment,” unpersuasive. After ascertaining the purpose and intent of the General Assembly in enacting the statute, a review of case law and the other specialties actions listed in the statute, the Court determined that “actions on a judgment” referred to actions enforcing a judgment not any action that involves the entry of a judgment as debtors argued.

The debtors also argued that the continuing harm doctrine applied, because they made payments to the debt buyer over a period of time. The Court again rejected the debtors’ argument, as the wrongful conduct at issue was the unlicensed status of the debt buyer when it filed the collection actions and obtained judgments against the debtors, and the collection activities that the debtors sought to extend their accrual date for limitations purposes occurred after the debt buyer became licensed.

The debtor in the Action 1 also argued that the statute of limitations should have been tolled because he was a putative member of a class action prior to the filing of Action 1.  However, the Court declined to expand the American Pipe class action tolling doctrine to extend to include successive class actions rather than just individual claims. The Court found tolling of successive class action suits to be inconsistent with the notions of judicial economy and efficiency that form the basis of the Maryland Rule 2-231 class certification process.

However, the Court did extend the doctrine to include cross-jurisdictional tolling, reasoning that once the trial court has decided that a putative class action cannot proceed as a class (including by dismissal, denial of class certification, or forum non conveniens), the putative class members should be permitted to file their individual claims without regard to whether the class action was pending in Maryland state court, federal court, or another jurisdiction.

After making these determinations, the Court found that the debtor in the Action 1’s individual claims were timely filed as the statute of limitations was tolled via cross-jurisdictional tolling and that the debtor from the Action 2’s claims were time barred as no applicable tolling applied to her claims.

Finally, the debtor from Action 1 argued that the intermediate appellate court did not have jurisdiction to review the trial court’s ruling because the trial court’s ruling and declaratory judgment did not constitute a final judgment. However, the Court of Appeals found that the trial court had rendered a final judgment in disposing of the debt buyer’s motion to dismiss and granting the debtors’ motion for summary judgment.

Thus, the Maryland Court of Appeals affirmed the decision of the Court of Special Appeals, except as to time barring of the debtors’ claims in the first action, as the Court found the statute of limitations was cross-jurisdictionally tolled as to those claims.

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Jenna Tersteegen is an Associate in Maurice Wutscher's New York City office, practicing in the firm’s Consumer Credit Litigation and Commercial Litigation groups. Prior to joining the firm, Jenna was an associate attorney at a litigation law firm in New York City. Her practice covered New York state labor and employment laws, premises liability and property damage cases. She conducted all pre-trial aspects of litigation, including preparing case strategy and evaluation reports, taking and defending depositions, and drafting dispositive pre- and post-trial motions. She is admitted to practice law in New York, and her Illinois admission on motion is pending.

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