The Maryland Court of Special Appeals recently held that a borrower could not maintain a lawsuit asserting federal Fair Debt Collection Practices Act (“FDCPA”) and other related state-law claims because those claims were barred by collateral estoppel due to litigation in a prior collection action.
In so ruling, the Court held that the doctrine of res judicata did not necessarily bar the borrower from narrowly attacking the means used to collect the debt under the FDCPA and state law, rather than attacking the validity of the debt itself, because the FDCPA and related state-law allegations gave rise to new and different claims.
A copy of the opinion is available at: http://www.mdcourts.gov/opinions/cosa/2015/1084s14.pdf
At issue in this case were two separate, but related lawsuits: a collection action filed by a debt collector, and a subsequent lawsuit by the borrower attacking the judgment in the first action. In 2012, a debt collector filed a collection action against the borrower in small claims court in the District Court of Maryland for Montgomery County. In response, the borrower raised two defenses: (1) that the debt collector did not own the debt; and (2) that the debt collector did not have standing to sue. Following a hearing, the District Court entered judgment in favor of the debt collector. The borrower appealed.
On appeal to the Circuit Court for Montgomery County, the case was heard de novo. Again, the borrower challenged the debt collector’s ownership of the debt and standing. The debt collector presented voluminous documentary evidence documenting the debt and chain of ownership, and even cross-examined the borrower (who presented no evidence of his own). Ultimately, the Circuit Court held that the borrower’s testimony was not credible, and entered judgment in favor of the debt collector.
The borrower then moved to set aside that judgment. That motion was later denied and the judgment became final in 2014 (the borrower never appealed this judgment). However, before filing the motion to set aside that judgment, he also filed a second law suit against the debt collector and its attorneys.
In the second lawsuit, the borrower alleged that in collecting the debt and filing suit in the collection action, the debt collector and its attorneys violated the FDCPA, the Maryland Consumer Debt Collection Act (“MCDCA”) and the Maryland Consumer Protection Act (“MCPA”). Again, he alleged lack of standing and that the debt collector did not own the debt. Additionally, he alleged that the amount of the debt alleged in the collection action was false, and argued that the judgment in the collection action was “void” because he did not have an opportunity to cross-examine witnesses.
The defendant debt collectors moved to dismiss on res judicata and collateral estoppel grounds, and the Circuit Court granted that motion and dismissed the borrower’s Second Amended Complaint with prejudice. The borrower appealed.
On appeal, the Maryland Court of Special Appeals held that while not all of the borrower’s claims were barred by res judicata, they were all plainly barred by collateral estoppel.
For the purposes of this case, the Appellate Court simplified the distinction between these two doctrines. It held that “[i]n sum, claim preclusion [res judicata] bars litigation of claims, whereas issue preclusion [collateral estoppel] generally bars re-litigation of facts.”
The Appellate Court held that the borrower’s attempt to assert lack of standing and lack of ownership of the debt arguments were barred by res judicata/claim preclusion. It held that the borrower had a fair opportunity to litigate those claims before and lost in District Court and Circuit Court. Accordingly, the Court of Special Appeals held that the borrower could not have another “bite at the apple” in this second lawsuit, and affirmed the dismissal of those claims.
However, the Court of Special Appeals held that res judicata did not apply to the borrower’s FDCPA and related state-law claims. The Court held that, although res judicata barred the borrower from attacking the finality of the judgment in the collection action, it did not necessarily bar him from narrowly attacking the means used to collect the debt, rather than the validity of the debt itself, because those were different claims. The Appellate Court assumed for the sake of argument that the borrower only meant to assert his FDCPA and related claims in this very narrow manner.
Nevertheless, the Appellate Court held that, even under this assumption the FDCPA and related state-law claims were still barred under collateral estoppel.
The Appellate Court held that the alleged “facts” that formed the basis for those claims were the same facts already litigated and issues already decided in the first case. It held that while those claims were “asserted for the first time at trial in this case…[they] are all predicated on allegations decided against [the borrower] in the collection case.”
Accordingly, the Court of Special Appeals held that all of those issues were precluded from being litigated again under collateral estoppel, and affirmed the Circuit Court’s dismissal with prejudice of the FDCPA and related state-law claims.
Ralph T. Wutscher
Maurice Wutscher LLP
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