Md. App. Holds Collection Agency License Not Required for Insurance Company Pursuing Subrogation Rights Against Consumer

In Old Republic Insurance Company v. Gordon, the Court of Special Appeals of Maryland determined that an insurance company under a credit insurance policy was not required to hold a collection agency license when it sued a consumer to enforce its subrogation rights under the policy.   At issue was the interpretation of the Maryland Collection Agency Licensing Act, Md. Code, Bus Reg. § 7-101, et seq. (“MCALA”), which defined “collection agency” to include any person engaged directly or indirectly “in the business of” collecting a consumer claim if the claim was in default when the person acquired it.  See Md. Code, Bus. Reg. § 7-101(c).  The Court concluded that the term “in the business of” was ambiguous, and, relying upon the legislative history of MCALA, determined that an insurance company pursuing subrogation rights under its credit insurance policy did not fall under the definition of “collection agency.” 

A copy of the opinion is located here. 

Background

Insurance Company issued a credit insurance policy to Lender to insure payments due under a mortgage loan made to Borrower.  Following Borrower’s default, Insurance Company paid Lender pursuant to the policy.  Insurance Company then sought repayment from Borrower under subrogation rights provided in the policy.  After Borrower’s failure to pay, Insurance Company ultimately sued Borrower. 

Borrower challenged the lawsuit, claiming that Insurance Company could not obtain a judgment against her because it had acted as an unlicensed collection agency under § 7-101(c) of MCALA, rendering any possible judgment against her void pursuant to the Court of Special Appeals’ ruling in Finch v. LVNV Funding LLC, 212 Md. App. 748 (2013).  Borrower claimed that, because Insurance Company obtained the right to collect the debt after her default, it constituted a “collection agency,” which under Section 7-101(c).

The trial court agreed with Borrower, holding that under MCALA’s plain language, Insurance Company was acting as a collection agency because it was asserting a consumer claim related to a debt that it acquired while the debt was in default.  The trial court found immaterial that Insurance Company acquired the debt through a subrogation agreement rather than a debt purchase.  Consequently, the trial court granted summary judgment to Borrower and dismissed Insurance Company’s lawsuit with prejudice.  This appeal followed. 

Discussion

Noting its prior holding in Finch that “a judgment entered in favor of an unlicensed debt collector constitutes a void judgment,” the Court determined that resolution of the appeal hinged on whether Insurance Company, in pursuing its subrogation rights against borrower, was a ‘collection agency’ under MCALA and required to hold a license.  Op. at 13.  Notably, the exclusions under Section 7-102, were not applicable.  Op. at 13, n. 4 (“[MCALA” specifically excludes certain persons, such as a bank and a mortgage lender.  BR § 7-102. . . . “[A]n insurance company pursuing subrogation rights is not included in this list.”).

The Court considered the language of § 7-101(c), which defined “collection agency” to include persons engaging “in the business of” collecting a consumer claims if the claim was in default when the person acquired it.  Op. at 18.  The Court determined that § 7-101(c)’s phrase “in the business of” had been interpreted differently by courts:  some considered the nature and extent of the activity, while others interpreted the phrase more broadly.   Consequently, the appellate court concluded that the phrase was ambiguous.  Op. at 18-20. 

The Court then examined MCALA’s legislative history and determined that the Legislature did not intend § 7-101(c) to target insurance companies pursuing subrogation rights.  Op. at 22.  Specifically, the expansive definition of collection agency was the result of an amendment in 2007.  The Court observed that the 2007 amendments of MCALA were specifically intended to regulate debt purchasers, who purchase debts at a discount or are otherwise compensated on a contingent basis.  Op. at 20-21.  

Given that Insurance Company was not a “debt purchaser” that purchased Borrower’s debt at a discount, the Court determined that it did not constitute a “collection agency” under the purview of MCALA.  Moreover, the Court noted that “[b]ecause an insurance company pursuing subrogation claims does not qualify as a collection agency, there wasneed to include an insurance company in the list of exclusions [from the definition of ‘collection agency’] found in BR § 7-102.”  Op. at 22, n. 9.   Accordingly, the appellate court reversed the judgment of the trial court.

Md. App. Holds Judgment in Favor of Unlicensed Collection Agency Subject to Challenge "At Any Time"

In Jason v. National Loan Recoveries, LLC, the Court of Special Appeals of Maryland determined that a borrower could challenge a district court judgment as void beyond the catch-all three-year statute of limitations, where it was obtained against him by an unlicensed collection agency.  Noting that prior case law determined such judgments to be void, the intermediate appellate court held that a void judgment was subject to attack “at any time,” but an open question remained as to what remedies were available, including whether they were subject to the defenses of laches and waiver.

However, the Court determined that a three-year statute of limitations applied to Borrower’s claims for unjust enrichment relating to amounts received in satisfaction of the judgment through garnishment of his bank account, as well as Maryland statutory consumer protection claims relating to unlicensed collection activity.  Because the record was not clear as to when Creditor had been allegedly unjustly enriched, i.e., the date it received the garnished funds, the Court reversed the dismissal of the unjust enrichment claim for further proceedings.   However, the Court affirmed the dismissal of the statutory consumer protection claims on limitations grounds, noting that the Borrower was on inquiry notice of the alleged unlicensed collection activity more than three years before filing suit.

A copy of this opinion is available here.

Background

After acquiring a debt in default, Creditor sued Borrower, and subsequently obtained a judgment against him.   Thereafter, a writ of garnishment was served upon Borrower’s bank, and ultimately the judgment was satisfied through the garnishment proceedings. 

Three years after the original collection suit had been filed, Borrower filed a lawsuit seeking a declaration that the prior judgment against him was void because Creditor lacked a collection agency license, asserting a claim for unjust enrichment, and further asserting that Creditor’s unlicensed collection activity violated the Maryland Consumer Debt Collection Act, Md. Code, Comm. Law § 14-201 (“MCDCA”), and Maryland Consumer Protection Act, Md. Code, Comm. Law § 13-101 (“MCPA”).

Notably, Borrower alleged that Creditor constituted a collection agency because it acquired the loan when it was in default.  See Md. Code, Bus. Reg. § 7-101(c)(1)(ii) (defining a “collection agency” to include “a person who engages directly or indirectly in the business of . . . collecting a consumer claim the person owns, if the claim was in default when the person acquired it; . . .”).  Further, for purposes of the appeal, it was undisputed that at the time Creditor had filed suit against Borrower, it did not hold a Maryland Collection Agency license, nor did it obtain a license until after the writ of garnishment was issued.

Creditor moved to dismiss Borrower’s claims, which the trial court granted, determining that all of Borrower’s claims were barred by the three-year statute of limitations under Maryland Code, Courts and Judicial Proceedings (“CJP”) § 5-101.  This appeal followed.

Discussion

Addressing Borrower’s claims for declaratory relief, the Court noted that in Finch v. LVNV Funding, LLC, 212 Md. App. 748 (2013), it previously held that “a judgment entered in favor of an unlicensed debt collector constitutes a void judgment as a matter of law.”  Op. at 6.  Recognizing that Finch did not address the applicability of the statute of limitations, the Court nevertheless concluded that although “it is possible that the passage of time could limit the remedies available to the judgment debtor who is subject to a void judgment, there appears no time limit for asserting that a judgment is void.” Op. at 8 (Emphasis in original). 

Thus, although the Court reversed the dismissal of the claims for declaratory relief, it explicitly expressed no opinion regarding the remedial relief that the Borrower could ultimately obtain, and whether such relief was subject to defenses of laches or waiver.  Further, the Court noted that comments to the Restatement (Third) of Restitution and Unjust Enrichment indicated that payment on an invalid judgment resulting from valid debt does not create unjust enrichment.  See Op. at 8-9 n. 4.

The Court then determined that “a claim for unjust enrichment that seeks the remedy of restitution of money is subject to the general three-year statute of limitations” set forth in Maryland Code, CJP § 5-101.  Op. at 13.  Applying the discovery rule to Borrower’s unjust enrichment claim, the Court noted that it could not ascertain when Creditor obtained the funds from its judgment against Borrower.  Op. at 15.  Therefore, the Court could not determine whether the unjust enrichment claim was timely filed, and accordingly reversed the trial court’s dismissal of such claim for further proceedings.  Op. at 17.

Finally, the Court held that the three-year statute of limitations also applied to Borrower’s statutory consumer protection claims under the MCDCA and MCPA.  Op. at 18.  The Court rejected Borrower’s assertion that Creditor had a duty to disclose its lack of licensure.   Rather, the Court determined that Borrower was on inquiry notice of Creditor’s collection activities against him at least three years prior to filing his lawsuit, and was on inquiry notice to investigate potential claims against Creditor when it sought and obtained the judgment against him.  Thus, the Court held that Borrower’s statutory claims under the MCDCA and MCPA were time-barred, and affirmed the dismissal of such claims.  Op. at 18.  

U.S. Supreme Ct. Holds Unaccepted Rule 68 Offer of Judgment Does Not Moot Case

In Campbell-Ewald Co. v. Gomez, the U.S. Supreme Court held that an unaccepted Rule 68 offer of judgment does not moot a plaintiff’s case.  Relying on contract law principles, the Court concluded that “[a]n unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect.”  Although the Defendant’s offer purported to provide complete relief to the Plaintiff, given that the Defendant continued to deny liability and Plaintiff remained “emptyhanded,” the parties remained adverse and the district court retained jurisdiction under Article III’s “case or controversy” requirement.  The Court also held that Defendant’s status as a government contractor did not entitle it to sovereign immunity from such litigation.

A copy of this opinion is available here.

Background

Defendant (the Petitioner on appeal) contracted with the U.S. Navy to conduct a marketing campaign involving sending text messages for recruiting purposes.  The Navy required that Defendant only send messages to those persons who had “opted in” to receive such texts, and within a specified age demographic.  Defendant’s subcontractor transmitted the text message to over 100,000 recipients, including Plaintiff. 

Plaintiff asserted that he had not given prior express consent for such messages, and filed a class action lawsuit on behalf of a nationwide class of individuals who had received the text message without their consent.  Plaintiff alleged that Defendant violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227(b)(1)(A)(iii), which prohibits “using any automatic telephone dialing system” to send a text message to a cell phone absent the recipient’s prior express consent.  Plaintiff sought treble statutory damages, costs, attorney’s fees, and an injunction against further unsolicited messaging.

Defendant made an offer of judgment pursuant to Federal Rule of Civil Procedure 68, which offered to pay Plaintiff’s costs (excluding attorney’s fees, which Defendant asserted were not provided for under the statute), the treble damages claim, and proposed a stipulated injunction agreeing not send text messages in violation of the TCPA.  However, the proposed injunction denied liability and disclaimed the existence of grounds for the imposition of an injunction.  Plaintiff did not accept the offer, and allowed it to lapse.  Defendant thereafter moved to dismiss the case for lack of subject matter jurisdiction, arguing that no Article III case or controversy remained because the Rule 68 offer had mooted Plaintiff’s individual claim.  Defendant further argued that the putative class claims were moot because Plaintiff had not yet moved for class certification.  The district court denied Defendant’s motion to dismiss, but granted it summary judgment on the grounds that, as a contractor acting on the Navy’s behalf, it was protected by sovereign immunity.

The U.S. Court of Appeals for the Ninth Circuit reversed summary judgment for Defendant, holding that it was not entitled to sovereign immunity.  The Ninth Circuit further held that the unaccepted Rule 68 offer did not moot Plaintiff’s individual claim.  The Supreme Court granted certiorari to resolve a circuit split over the Rule 68 issue, as well as to address the sovereign immunity issue.  Justice Ginsberg authored the Court’s majority opinion, which affirmed the decision of the Ninth Circuit.

Discussion

The Court first noted that, pursuant to Article III’s “case or controversy” requirement for federal jurisdiction, if the plaintiff is deprived of a “personal stake in the outcome of the lawsuit . . . the action can no longer proceed and must be dismissed as moot.”  Op. at 6.  “A case becomes moot, however, ‘only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.’” Op. at 6.  The Court then considered whether a Rule 68 offer of complete relief could deprive a plaintiff of a “personal stake” and moot his claim, even if the offer was unaccepted.  The Court concluded that it could not, and that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.”  Op. at 11.

Relying on contract principles, the Court explained that “[a]n unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect.”  Op. at 7.  Thus, the Court determined that “[Plaintiff’s] complaint was not effaced by [Defendant’s] unaccepted offer to satisfy his individual claim.”  Op. at 8.  Given that Defendant continued to deny liability, and with no settlement offer still operative, the parties remained adverse and retained the same stake in the litigation they had at its outset.  Op. at 9.  According to the Court, this conclusion was consistent with the language of Rule 68, which provides that an offer of judgment “is considered withdrawn” if not accepted within 14 days.  Op. at 9.  Thus, when the Rule 68 offer expired, Plaintiff “remained emptyhanded; his TCPA complaint, which [Defendant] opposed on the merits, stood wholly unsatisfied.”  Op. at 11.

The Court distinguished several cases cited by Defendant (and highlighted in a dissenting opinion).  Those cases involved a dispute over state taxes that had been mooted because the defendant railroads had actually paid disputed amounts, and not merely offered to pay them.  Op at 9-10.  In contrast, when the Defendant’s settlement offer expired, Plaintiff remained “emptyhanded.”  Op. at 11.  However, the Court declined to decide “whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”  Op. at 11.