FYI: Maryland High Court Rules CLEC Requires Forfeiture of Treble the Prohibited Interest and Fees Collected

The Maryland Court of Appeals, the state's highest court, recently held that under Maryland Commercial Law Article § 12-1018(b), a credit grantor that knowingly violates the Maryland Credit Grantor Closed End Credit Provisions is required to forfeit treble the amount of interest, fees, and charges collected in violation of the subtitle.

 

A copy of the opinion is available at:  Link to Opinion

 

The matter arose out of a borrower's ("Borrower") purchase of a motor vehicle which he financed by closed end credit pursuant to an agreement governed by the Credit Grantor Closed End Credit Provisions ("CLEC"). The Retail Installment Sales Contract ("RISC") entered into by Borrower for the purchase of his vehicle affirmatively invoked CLEC as the governing law.

 

Borrower instituted a class action suit against the auto finance company ("Lender") alleging that Lender violated CLEC by charging convenience fees for payments made over the phone, through an automated system or on the internet. Lender removed the matter to federal court, which requires an amount in controversy exceeding $5,000,000. Borrower filed a motion to remand back to state court. As the federal district court's subject matter jurisdiction was dependent on the minimal amount in controversy, the federal trial court certified a question of law to the Maryland Court of Appeals to determine the appropriate interpretation of CL § 12-1018(b).

 

The certified question certified was:

 

"If a credit grantor is found to have knowingly violated Credit Grantor Closed End Credit Provisions ("CLEC"), Maryland Code Annotated, Commercial Law §§ 12-1001, et seq., does [CL] § 12-1018(b) require the credit grantor to return three times: (1) all amounts collected by the credit grantor in excess of the principal amount financed; (2) only those amounts collected that the borrower contends violate CLEC (in this case, the convenience fees); or (3) some other amount?"

 

In answering the question, the Maryland Court of Appeals relied upon the caselaw regarding the CLEC, a plain language analysis of CL § 12-1018(b) and a review of the legislative history.

 

The Court noted that CLEC was enacted by the Maryland General Assembly as part of the Credit Deregulation Act of 1983 to enable Maryland banks "to compete more effectively with the banks in nearby states." Patton v. Wells Fargo Fin. Md., Inc., 437 Md. 83, 88-89 (2014). In addition to providing consumer protection to borrowers in transactions involving closed end credit, CLEC also establishes parameters and regulations with which credit grantors must comply. Patton, 437 Md. at 89. In addition, CLEC provides remedies to the borrower if the grantor fails to comply with its provisions. Id. at 90. However, it is only when a creditor grantor affirmatively elects CLEC to apply to a closed end credit loan that the protections, parameters, regulations and remedies apply. See CL § 12-1013, CL § 12-1013.1.

 

Borrower argued that when a credit grantor violates CLEC, then CL § 12-1018(b) requires the grantor to forfeit three times the amount of unauthorized charges.  Borrower additionally emphasized the legislative history indicating that the penalty provisions of CLEC are identical to those of the Maryland Secondary Mortgage Loan Law (Cl § 12-413) and thus, the case law and regulatory decisions interpreting CL § 12-413 provide the appropriate damages calculation under CL § 12-1018(b).

 

Lender argued that CL § 12-1018(b) would require a credit grantor to pay three times the amount collected in excess of the principal amount financed under the RISC. Lender further argued the opinion relied on by Borrower, Bolling v. Bay Country Consumer Finance, Inc., 251 Md. App. 575 (2021) was not properly before the court.

 

Maryland CL § 12-1018(a) provides "[e]xcept for a bona fide error of computation, if a creditor grantor violates any provision of this subtitle the creditor grantor may collect only the principal amount of the loan and may not collect any interest, costs, fees, or other charges with respect to the loan." CL § 12-1018(a)(2). In conducting its analysis, the Maryland Court of Appeals analyzed case law from various state and federal courts applying Maryland law.

 

The Maryland Court of Appeals noted that there is disagreement among the other courts as to when a borrower can bring a claim under CL § 12-1018(a)(2).  However, it noted that the other courts recognize that "CLEC does not provide for any fixed statutory damages beyond the [borrower's] actual loss[,]" and "that the penalty prescribed under CL § 12-1018(a)(2) confines the credit grantor to collection of the principal amount of the loan, thereby forfeiting any outstanding interest, charges, costs, and fees[.]" The Maryland Court of Appeals noted that the principle that CL § 12-1018(a)(2) limited a credit grantor's collection to the principal loan amount informed the its understanding of CL § 12-1018(b).

 

The Maryland Court of Appeals next turned to interpretation of CL § 12-1018(b), which states in relevant part "In addition, a credit grantor who knowingly violates any provision of this subtitle shall forfeit to the borrower 3 times the amount of interest, fees, and charges collected in excess of that authorized by this subtitle."

 

The Court found that the provision provides the penalty for knowing violations of CL § 12-1018(b) and that the words "in addition" signal that this penalty is additional to the penalty set forth in CL § 12-1018(a)(2).

 

The Maryland Court of Appeals focused on the phrase "in excess of that authorized by this subtitle." The Court found this language identified the amount to be trebled as that which the credit grantor was not permitted to charge under CLEC. The Court further noted that if the intention of the Maryland General Assembly was to require the grantor to pay treble the amount collected in excess of the principal, the provision would have been written to read as such. See Peterson v. State, 467 Md. 713, 727 (2020).

 

Finally, as the Maryland Generally Assembly only expressly authorized forfeiture of "the amount of interest, fees, and charges" that are "collected in excess of that authorized by the subtitle" the Court found that the amount to be trebled under CL § 12-1018(b) are the amounts collected which are not authorized under CLEC.

 

Finally, the Maryland Court of Appeals analyzed the legislative history, noting that the history revealed that the language originated in CL § 12-413, the Maryland Secondary Mortgage Loan Law.  Although the original bill did not include the penalty provisions of CL § 12-1018(a) and (b), amendments were ultimately added that were "identical as to penalty, as to those now existing under the Maryland Secondary Mortgage Loan Law." See Senate Bill 594, Analysis of Proposed Amendments (March 28, 1983) in legislative bill file for Senate Bill 591.

 

The Court further noted that the only amendment to CL § 12-1018(b) since its enactment in 1983 was to include the word "fees" as an impermissible collection, and there was nothing in the legislative history to suggest the legislature intended CL § 12-1018(b) to not be interpreted consistently with its plain meaning. As such, the Court found that assuming the convenience fees charged by Lender in violation of CLEC were knowingly collected, the correct damages calculation under CL § 12-1018(b) was treble the amount of the convenience fees collected.

 

Therefore, the Maryland Court of Appeals held that "CL § 12-1018(b) requires a credit grantor that is found to have knowingly violated CLEC to forfeit three times the amount of interest, fees, and charges collected in violation of the subtitle."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Ohio Sup Ct Rejects Series of Challenges by Borrower to Foreclosure

The Supreme Court of Ohio recently rejected the latest in a serious of appeals and other challenges by a borrower to the validity of a judgment of foreclosure entered against the borrower.

 

In so ruling, the Court held that the law-of-the-case doctrine applied, where the Supreme Court in a prior appeal held that the borrower's arguments lacked merit or were waived.

 

A copy of the opinion is available at:  Link to Opinion

 

The appeal arose out of a foreclosure action brought against a borrower ("Borrower") by a bank mortgagee ("Bank"). A final judgment of foreclosure was entered in favor of Bank and Borrower appealed.

 

In the first appeal ("Appeal One"), Borrower argued that the trial court lacked jurisdiction because she had not been properly served. The Court of Appeals found that Borrower had waived this defense and the Supreme Court did not accept the discretionary appeal.

 

Two years later, Borrower filed a prohibition action in the Court of Appeals, which sought to prevent the foreclosure sale. The complaint was dismissed on the basis that the trial court had subject-matter jurisdiction and Borrower had an adequate legal remedy by way of the appeal.

 

A year later, Borrower filed a second prohibition action in the Court of Appeals, which again sought to prevent the foreclosure sale. The court again dismissed the complaint and denied Borrower's motion for reconsideration. The Court of Appeals again reasoned that Borrower's appeal in the foreclosure action was an adequate legal remedy.

 

Borrower then filed a motion for relief from judgment in the Court of Appeals and a notice of appeal in the Supreme Court.

 

The Supreme Court denied relief in the direct appeal on the basis that Borrower had an adequate legal remedy to challenge the trial court's exercise of jurisdiction over the foreclosure action. In reaching its decision, the Supreme Court rejected Borrower's argument that the trial court lacked jurisdiction due to alleged insufficient service finding Borrower "voluntarily submitted to the jurisdiction of the common pleas court in the foreclosure action by filing an Ohio Civ. R.12(B) motion to dismiss without asserting insufficiency of service or lack of personal jurisdiction as a defense." Lundeen I,164 Ohio St. 3d 159, 2021-Ohio-1533, 172 N.E.3d 15 at ¶20. The Supreme Court also ruled that Borrower's reliance on Ohio Civ. R. 3(A) did not present a question which concerned the trial court's subject-matter jurisdiction.

 

The Court of Appeals later denied Borrower's Ohio Civ. R. 60(B) motion for relief finding the motion lacked merit as Borrower challenged personal jurisdiction and not subject matter jurisdiction, Borrower had an adequate legal remedy, and the defense of lack of service had been waived.

 

Here, in this latest action, Borrower appealed the Court of Appeals' denial of her motion for relief from judgment.

 

The Supreme Court found the appeal was based on two essential points: (1) there was no subject-matter jurisdiction over the foreclosure action as Bank supposedly failed to commence the action within Ohio Civ. R. 3(A)'s one-year limitations period; and (2) as the trial court lacked subject-matter jurisdiction, it also lacked personal jurisdiction over her.

 

In order to prevail, Borrower would have needed to establish (1) that she had a meritorious claim or defense in the event relief was granted, (2) that she was entitled to relief under one of the provisions of Ohio Civ. R . 60(B)(1) through (5), and (3) that the motion was timely.  Strack v. Pelton, 70 Ohio St.3d 172, 174, 637 N.E.2d 914 (1994).

 

Appellees argued that Borrower could not establish a meritorious claim or defense asserting that her motion failed under the law-of-the-case doctrine as the arguments were already decided by the court in Lundeen I.

 

The law-of-the-case doctrine is a "rule of practice rather than a binding rule of substantive law," which "provides that legal questions resolved by a reviewing court in a prior appeal remain the law of that case for any subsequent proceedings at both the trial and appellate levels."  Farmers State Bank v. Sponaugle, 157 Ohio St.3d 151, 2019-Ohio-2518, 133 N.E.3d 470, ¶ 22; see also State ex rel. Dannaher v. Crawford, 78 Ohio St.3d 391, 394, 678 N.E.2d 549 (1997) (recognizing that the doctrine applies to extraordinary-writ actions). In the absence of extraordinary circumstances, "an inferior court has no discretion to disregard the mandate of a superior court in a prior appeal in the same case." Nolan v.  Nolan, 11 OhioSt.3d 1, 462 N.E.2d 410 (1984), syllabus.

 

As the Supreme Court previously found Borrower's argument relating to the trial court's lack of subject matter jurisdiction under Civ.R.3(A) lacked merit and that Borrower had waived the argument of lack of personal jurisdiction for lack of service, the Supreme Court here held that Borrower could not establish a meritorious claim or defense.

 

The Supreme Court held that its prior resolutions remained the law of the case. The Court further found there was nothing "obviously unjust" in its decision which would promote not applying the doctrine. Thus, the Supreme Court held that Court of Appeals did not abuse its discretion in denying Borrower's motion for relief.

 

Borrower alternately requested the Court of Appeals grant her motion based on its inherent power to vacate a void judgment. "The authority to vacate a void judgment is not derived from Ohio Civ. R. 60(B) but rather constitutes an inherent power possessed by Ohio courts."  Patton  v.  Diemer,  35  Ohio  St.3d  68,  518  N.E.2d  941  (1988), paragraph four of the syllabus.  "The traditional rule long followed in Ohio is that a void judgment is one entered by a court lacking subject-matter jurisdiction over the case or personal jurisdiction over the parties."  State v. Hudson, 161 Ohio St.3d 166, 2020-Ohio-3849, 161 N.E.3d 608, ¶ 11 (collecting cases).

 

The Supreme Court found the judgment was not void. The Supreme Court noted the Court of Appeals was vested with subject-matter jurisdiction over the prohibition action by the Ohio Constitution. See Ohio Constitution, Article IV, Section 3(B)(1)(d). The Supreme Court further found that personal jurisdiction was conferred on the Court of Appeals to enter judgment against Borrower by Borrower when she filed her complaint seeking relief in prohibition. See Moore v. Mt. Carmel Health Sys., 162 Ohio St.3d 106, 2020-Ohio-4113, 164 N.E.3d 376, ¶ 34.

 

Thus, the Court affirmed the judgment of the Court of Appeals.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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