Md. Holds Garageman’s Lien Does Not Include Lien Enforcement Costs Where Owner Redeems Vehicle Prior to Sale

In Allstate Lien & Recovery Corp. v. Stansbury, the Court of Appeals of Maryland determined that a “garageman’s lien” on a vehicle does not include “lien enforcement costs” or “costs of process” if the lien is redeemed prior to the non-judicial sale of the vehicle. 

Rather, the Court determined that the plain language of the applicable statute, Maryland Code, Comm. Law § 16-202(c), only provides for a garageman’s lien to include costs for repairs, rebuilding, storage, and tires or accessories.   Recovery of such costs was only appropriate after the vehicle was actually sold, where they could be authenticated, or alternatively, in a replevin proceeding or other judicial action, where the amount owed for enforcement costs would be subject to judicial scrutiny.

A copy of this opinion is available here.

Background

Following an automobile accident, Owner left his vehicle to a Repair Shop for servicing and repairs.  Four months later, due to a delay in obtaining certain parts, Repair Shop notified Owner that the repairs were complete and presented a bill.  Upon Owners failure to retrieve the vehicle and pay the bill, Repair Shop sent Owner a notice that the vehicle would be sold, listing $6,630.37 in repair charges as well as a $1,000 “cost of process” fee. Ultimately, the vehicle was sold at auction.

Owner sued Repair Shop, and several other parties, alleging violation of several consumer protection laws and common law theories challenging, among other things, the right to collect the amounts claimed by the Repair Shop. 

Owner argued that the text of Maryland Code, Comm. Law § 16-202(c), which provided for the Repair Shop’s “garageman’s lien” on the vehicle, did not permit recovery of the $1,000 processing fee where the vehicle was redeemed prior to the sale.  The trial court agreed, and after it instructed the jury as a matter of law that the “$1,000 processing fee is not an appropriate part of the lien,” the jury returned a verdict for Owner.

The intermediate appellate court affirmed, and the Court of Appeals granted certiorari to consider whether a lien and recovery company hired to execute a garageman’s lien could include its lien "enforcement costs and expenses for executing the lien" as part of the amount necessary to redeem the vehicle.  Op. at 1 n.2.

Discussion

As an initial matter, the Court explained that a garageman’s lien is “an ex parte, prejudgment creditor’s remedy”, Op. at 15, which is provided for under Maryland Code, Comm. Law § 16-202(c).   Based upon the plain language of the statute, the Court determined that “[a] processing fee is not included as part of the lien.”  Op. at 18 (quotations omitted).  Rather, Section 16-202(c) provides:

(c)  Motor vehicle lien. – (1)  Any person who, with the consent of the owner, has custody of a motor vehicle and who, at the request of the owner, provides a service to or materials for the motor vehicle, has a lien on the motor vehicle for any charge incurred for any:

(i)  Repair or rebuilding;
(ii)  Storage; or
(iii)  Tires or other parts or accessories.

(2)  A lien is created under this subsection when any charges set out under paragraph (1) of this subsection giving rise to the lien are incurred.

Md. Code, Comm. Law § 16-202(c).

Consequently, the Court explained “the basic premise presented in our garageman’s lien statutory scheme is that costs incurred by the repair company to sell the vehicle subject to a garageman’s lien, can only be recovered from the proceeds of the actual sale of the vehicle, when actual expenses for lien enforcement costs were known and could be authenticated.” Op. at 22. 

The Court noted that alternatively, such costs may be recovered where an owner filed a replevin action to recover possession of the vehicle or posted a bond to stay a sale, subject to a judicial action.  However, in either circumstance, “the amount owed for enforcement costs incurred, not the subject of a lien established under Section 16-202(c), would be subject to judicial scrutiny for reasonableness, at the least.”  Op. at 22.

The Court posited that a different interpretation of the statute would permit a repair company to demand any amount for lien enforcement costs prior to an ex parte sale, thereby inhibit vehicle owners from redeeming their vehicles.  Op. at 22-23. 

Accordingly, the Court concluded that “a garageman’s lien includes charges incurred for ‘repair or rebuilding, storage, or tires or other parts or accessories’, but does not encompass lien enforcement costs or expenses or cost of process fees prior to sale, should the owner attempt to redeem the vehicle before sale.”  Op. at 23.  

Md. App. Ct. Rejects Per Se Rule Establishing Debtor's Ownership of Joint Bank Account in Garnishment Proceeding; Non-Debtor Can Rebut Presumption of Ownership

In Morgan Stanley & Co., Inc. v. Andrews, the Court of Special Appeals of Maryland addressed a non-debtor’s defense to a garnishment proceeding against funds in a bank account jointly owned with the judgment debtor, who was not his spouse.   The Court determined that while there is a prima facie presumption of ownership by each named account owner, that presumption can be rebutted by clear and convincing evidence as to which portion of the account funds belong to which owner.  Thus, in this case, the Court agreed that the trial court correctly determined that the funds in an account jointly held by a father and son were not subject to garnishment, where the father successfully proved that he was the sole contributor and owner of all of the funds.

A copy of the opinion is available here.

 Background

In this case, after obtaining a judgment against the judgment debtor (“Son”), Creditor sought to garnish funds held in an account jointly titled in both Son’s name and Father’s name.  Father asserted his claim to the garnished funds under Maryland Rules 2-645(i) and 2-643(e), and after his claim was initially denied on the papers, following an appeal, the case was remanded to the trial court for an evidentiary hearing.  

Thereafter, on remand, the trial court held an evidentiary hearing to determine Father’s claim to the funds in the joint bank account, and determined that Father had established that all of the funds in the joint account belonged solely to him, and that Son had not deposited any of his own funds into the account.  Creditor then filed the present appeal.

Discussion

On appeal, Creditor argued that funds in the joint account were per se subject to garnishment because the judgment debtor was a named owner, regardless of whether co-owners of the account were also judgment debtors.  The appellate court disagreed, determining instead that, while there is a presumption that a bank deposit belongs to a named owner of the account, “a co-owner of a joint account can rebut the presumption of ownership by proving, by clear and convincing evidence, which portion of the account belongs to each co-owner.”  Op. at 14.

Notably, the Court differentiated between legal title to a joint account and equitable title to the funds within the account.  Op. at 11.  The Court adopted the majority rule followed by at least 23 other states, which provides that a judgment creditor of one joint account holder may execute against the joint account only to the extent of the debtor’s equitable interest in the account.  Op. at 11. 

In determining the debtor’s equitable interest, the Court identified two primary factors: (1) control over the funds; and (2) original contribution of the funds.  Op. at 13.  Other relevant factors include whether a party’s social security number appears on the account, which party’s name appears on checks, which party signs checks, which party pays taxes on interest from the account, and which party possesses the passbook and other related documents.  Op. at 13.  The Court cautioned that the titling of the account, and the right to withdraw from the account, do not necessarily indicate equitable ownership.  Op. at 18.

Consequently, the Court agreed with the trial court’s determination that Father was the sole owner of all funds in the account, observing that the most important factor was that it was undisputed that Father was the original contributing source of all the funds.  Op. at 20-21. 

Although the Court described how the prima facie presumption of ownership can be rebutted, it left unanswered what type of prima facie presumption applied.  The Court observed that some jurisdictions use an “equal share” approach, imposing a rebuttable presumption that account holders own equal shares, while others use a “full share” approach, presuming that each co-owner beneficially owns the entire account.  Op. at 13. 

In addition, the Court noted that its opinion did not affect the existing restriction upon garnishment of property owned jointly by spouses.  See Maryland Code, Courts and Judicial Proceedings § 11- 603(a) (“[A] garnishment against property held jointly by [spouses], in a bank, trust company, credit union, savings bank, or savings and loan association or any of their affiliates or subsidiaries is not valid unless both owners of the property are judgment debtors.”).

Md. App. Ct. Holds Debtor Cannot Attack Prior Collection Judgment as Void, Where Defense Previously Rejected; Rejects “Meaningful Review” Allegations Under FDCPA

In Mostofi v. Midland Funding, LLC, et al., the Maryland Court of Special Appeals held that a debtor could not collaterally attack a credit card judgment on jurisdictional grounds, where he raised and lost on the same issues in the prior collection case.  The Court distinguished a prior decision – which held that judgments in favor of an unlicensed debt collector are void – because, unlike the present case, the judgments at issue in the prior decision were uncontested. 

The Court further rejected the Debtor’s claims under the Fair Debt Collection Practices Act, 15 U.S.C. §1692, et seq. (FDCPA), including claims that the Creditor’s attorney failed to engage in meaningful review prior to filing suit, and expressly rejected the rationale of Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014).

A copy of the opinion is available here.

In Mostofi, Debtor had incurred credit card debt that had ultimately been assigned to Creditor.  In a prior collection case, Debtor claimed that Creditor lacked standing, because he claimed it lacked a proper chain of assignment for the debt and challenged the count owed.  Ultimately, after exhausting his appeals, a final judgment was rendered in favor of Creditor. 

Separately, Debtor filed a lawsuit in state court, which was ultimately amended to assert that because Creditor “did not own the debt, [it] lacked standing to sue him and the judgment in the collection case was void.”  Slip Op. at 4.  Debtor also asserted claims against Creditor and its attorneys under the FDCPA and related state statutes premised upon his theory that Creditor’s claim of ownership and the amount of the debt constituted “false, deceptive, or misleading statements,”  Slip Op. at 5, and alleged that the attorneys failed to engage in meaningful review of the lawsuit before filing, asserting this conduct also violated the FDCPA as articulated in Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014).

Creditor moved to dismiss, contending that Debtors claims were barred by res judicata, and collateral estoppel, and otherwise failed to state a viable claim for relief.  After determining that the law firm had not been properly served, the trial court granted Creditor’s motion to dismiss, and Debtor appealed.

Affirming, the Maryland intermediate appellate court held that Debtor’s attack on the judgment was barred under the doctrine of res judicata due to the prior judgment in the collection action.  The Court explained that under Maryland’s permissive counterclaim rules, a defendant “is not required to ‘raise or waive’ that counterclaim unless successful prosecution of it would nullify the other party’s claim  . . . .”  Slip Op. at 9 (Emphasis added). 

The Court observed that Debtor’s “explicit purpose” in arguing that Creditor lacked standing to sue him, was to render the collection case’s judgment a nullity.  Slip Op. at 12.  “Having failed to convince one trial court that jurisdiction was a problem, and having failed to appeal, [Debtor] does not get another bite at the apple, even if we were to assume that he was right (and we do not) about who owned his debt.  His collateral attack on the underlying debt judgment, then, is barred under res judicata.”  Slip Op. at 14-15.

Relying on Finch v. LVNV Funding LLC, 212 Md. App. 748 (2013), involving an alleged unlicensed debt collection agency, Debtor argued that “a void judgment ‘may be assailed at all times,’ and ‘[i]t does not constitute res judicata.’”  Slip Op. at 12.   Notably, the Finch Court held that “[a] complaint filed by an unregistered collection agency is a nullity, and any judgment entered on such a complaint is void.”  Slip Op. at 13 (citing Finch, 212 Md. App. at 761).

However, the Court found Finch inapposite, because Finch involved uncontested default judgments, whereas here, it was undisputed that Debtor raised his lack of standing argument in the collection case.  Slip Op. at 14.  Because Debtor had raised the issue in the collection case, he could not use that same issue to collaterally attack the judgment in a subsequent lawsuit.  See Op. at 14  (“[W]here the issue of jurisdiction is raised and determined in favor of the jurisdiction, the ensuing judgment on the merits is not open to later collateral attack on the jurisdictional issue, whether or not the determination therein was erroneous.”) (citation omitted).

As to the FDCPA and state law consumer protection claims, the Court determined that such claims “are not necessarily barred by the doctrine of res judicata/claim preclusion if they are not asserted [in the collection action], because they do not attack a debt collection judgment per se.”  Slip Op. at 18.  However, “[w]hen a party tries to use one of these statutes to attack a judgment against him or her collaterally . . . res judicata/claim preclusion normally bars the attack.”  Slip Op. at 17.  Nevertheless, assuming without deciding that the FDCPA and related claims were not barred by res judicata (i.e., claim preclusion) the Court determined that they were, in any event, barred by collateral estoppel (i.e., issue preclusion).

“[W]hen [an] issue of fact . . . is actually litigated and determined by a valid final judgment, and that determination is essential to the judgment, the determination is conclusive in a later action between the parties, whether the same or different claim is asserted.”  Slip Op. at 18 (citations omitted).  Because Debtor’s FDCPA and related claims were predicated on allegations decided against him in the collection case--i.e., a judgment for a sum certain in favor of Creditor, despite his challenge to its ownership--those claims could not be re-litigated. 

Finally, the Court rejected Debtor’s claim that Creditor’s counsel (also a defendant) “could not establish that a meaningful review of [Debtor]’s file occurred before filing suit.”  Slip Op. at 19.  Notably, the Court expressly declined to adopt the New Jersey federal court’s interpretation of the FDCPA in Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014), which held that a lawyer violated the FDCPA by filing a lawsuit without meaningful review by an attorney, where the attorney had conceded that he only spent four seconds reviewing the complaint against a debtor. 

In this case, Debtor asserted that Creditor’s counsel had signed thousands of other complaints filed in the same month as the complaint filed against him.  Slip Op. at 19.  Rejecting Bock, the Court explained that such allegation “is not conclusive of the question of meaningful attorney involvement.”  Slip Op. at 20.  Notably, Creditor’s counsel “could have worked every day that month at twelve hours a day, and turned out 2000 complaints, giving him a full eleven minutes per complaint on average, compared to Bock’s four seconds.  Counsel could have short-shifted every other complaint filed that month and spent hours working on [Debtor]’s, and that would still be consistent with the facts [Debtor] has alleged. On a Bock theory—which again, we have not adopted—it is still [Debtor]’s burden to allege actual facts that, if believed, would demonstrate a lack of meaningful attorney involvement in his case. . . .  He has failed to do so.  And this case is hardly rocket science—the appellees alleged, and proved in the collection case, that they acquired a credit-card debt that remained unpaid, and it did not require complicated pleadings or cutting-edge research to prepare the case for filing or trial.”   Slip Op. at 20-21.

Accordingly, the intermediate appellate court affirmed the dismissal of the complaint with prejudice.