Finch v. LVNV Funding LLC

BERGER, J. This case arises out of an action filed in the Circuit Court for Baltimore City by co-appellants Larry Finch (“Finch”) and Kurt A. Dorsey (“Dorsey”) (collectively, “appellants”), against appellee, LVNV Funding, LLC (“LVNV”). In 2008, LVNV filed debt collection suits against Finch and Dorsey in the District Court for Baltimore City. Default judgments were entered against each appellant. Appellants thereafter filed a class action in the circuit court, alleging that LVNV was not licensed as a collection agency, as required by Maryland law, when it obtained the underlying district court judgments.

Appellants sought to represent a class comprised of all persons against whom LVNV had obtained a judgment for an alleged debt in Maryland state courts during the period of time in which LVNV was unlicensed. The class action complaint asserted five claims. Appellants sought declaratory and injunctive relief, damages for unjust enrichment, and damages for alleged violations of the Maryland Consumer Debt Collection Practices Act and the Maryland Consumer Protection Act. The circuit court dismissed appellants’ complaint on the ⁷⁵² basis that it constituted an impermissible collateral attack on the district court judgments.

This appeal followed. Appellants present three questions for review, which we have combined and rephrased as follows: 1. Whether the judgments entered in favor of LVNV in the district court are void because LVNV was not licensed as a collection agency when it filed the actions as required under Maryland law. 2. Whether a party may collaterally attack a judgment entered in favor of an unlicensed collection agency.

For the reasons set forth below, we reverse the decision of the Circuit Court for Baltimore City. FACTUAL AND PROCEDURAL BACKGROUND Finch and Dorsey are consumers who accumulated credit card debts. LVNV acquired appellants’ unpaid debts by assignment. In 2008, LVNV filed collection suits against Finch and Dorsey in the District Court of Maryland for Baltimore City.

Both Finch and Dorsey were served, and neither contested LVNV’s claims. The district court entered a default judgment against Finch on July 31, 2009 in the amount of $3,621.67. In 2011, LVNV obtained a writ of garnishment against Finch’s earnings. The district court also entered a default judgment against Dorsey on April 8, 2009 in the amount of $5,838.95.

Appellants filed a putative class action in the circuit court on November 11, 2009. Appellants sought to represent a class comprised of: Those persons sued by LVNV in Maryland state courts from October 30, 2007 through February 17, 2010 against whom LVNV obtained a judgment for an alleged debt, interest or costs, including attorneys fees in its favor in an attempt to collect a consumer debt. In their complaint, appellants alleged that LVNV engaged in illegal collection of debts because LVNV was not licensed as a collection agency in Maryland, as required by the Maryland ⁷⁵³ Collection Agency Licensing Act (“MCALA”), Md.Code Ann., Bus. Reg. § 7-301.

The complaint further alleged that LVNV’s unlicensed collection activities violated the Maryland Consumer Debt Collection Act (“MCDCA”), Md.Code Ann., Com. Law §§ 14-201 to 14-204, and the Maryland Consumer Protection Act (“MCPA”), Md.Code Ann., Com. Law § 13-301. Finally, the complaint alleged that the judgments against Finch and Dorsey were obtained based upon affidavits that were irregular in certain respects.

The appellants’ complaint asserted five causes of action. In the first three counts, appellants sought a declaratory judgment and injunctive relief, both individually and as a class, based on LVNV’s unlawful activities as an unlicensed collection agency. In Count IV, appellants alleged unjust enrichment and sought to recover from LVNV “all judgment sums, costs, and pre- and post-judgment interest it has collected.... ” In Count V, appellants asserted individual and class claims for damages under the MCDCA and the MCPA. LVNV filed a motion to dismiss appellants’ circuit court complaint on the basis that it constituted an impermissible collateral attack on the existing district court judgments.

After holding a hearing, the circuit court dismissed appellants’ complaint, explaining that “[a]ll of [appellants]’ claims are barred as an impermissible attempt to mount a collateral attack on the judgments entered by the District Court of Maryland for Baltimore City.” The circuit court elaborated that “if [appellants] wish to try to reopen those cases ... they must do so in the District Court, the only court that even possibly has revisory power over those judgments.” Appellants moved to alter, amend, or revise the order of dismissal. The circuit court denied the motion. This timely appeal followed. STANDARD OF REVIEW The standard of review of a grant of a motion to dismiss is de novo.

Reichs Ford Road Joint Venture v. State Roads Com’n of the State Highway Admin., 388 Md. 500, 509 , 880 A.2d 307 (2005). The Court of Appeals has explained: ⁷⁵⁴ On appeal from a dismissal for failure to state a claim [the Court] must assume the truth of, and view in a light most favorable to the non-moving party, all well-pleaded facts and allegations contained in the complaint, as well as all inferences that may be reasonably drawn from them, and order of dismissal only if the allegations and permissible inferences, if true, would not afford relief to the plaintiff, ie., the allegations do not state a cause of action for which relief may be granted. Shailendra Kumar, P.A. v. Dhanda, 426 Md. 185, 192 , 48 A.3d 1029 (2012). DISCUSSION Appellants argue that the circuit court erred by dismissing appellants’ claims as an impermissible collateral attack on the district court judgments.

In support, appellants contend that the district court judgments are void because LVNV was not licensed as a collection agency in Maryland when it filed the district court actions against Dorsey, Finch, and other class members. Appellants posit that the collateral attack doctrine does not apply because the district court judgments are void. LVNV asserts that the district court judgments are valid, and, therefore, the circuit court properly dismissed appellants’ action as an impermissible collateral attack. We hold that judgments entered in favor of an unlicensed collection agency are void.

We further hold that the collateral attack doctrine does not apply to void judgments. Accordingly, the circuit court erred by dismissing appellants’ complaint. I. THE VALIDITY OF DISTRICT COURT JUDGMENTS We first consider whether the district court judgments are void, as urged by appellants. It appears from the record that the circuit court did not expressly consider the validity of the judgments.

Rather, the circuit court analyzed whether, among other things, the request for a declaration that the judgments are void constitutes an impermissible collateral attack. In our view, the requisite analysis first requires a determination as to whether the underlying judg ⁷⁵⁵ merits are void, and only then can we consider the implications of the collateral attack doctrine. To be sure, “a void judgment is subject to attack either directly by appeal or collaterally----It does not constitute res judicata.” State v. Ambrose, 191 Md. 353, 369 , 62 A.2d 359 (1948). 1 See also Green v. Ford Motor Credit Co., 152 Md.App. 32, 52 , 828 A.2d 821 (2003) (first deciding whether district court judgments were void, and then holding that circuit court action was barred because it constituted an impermissible collateral attack on a valid district court judgment). A. Void Judgments Our analysis must necessarily begin by examining the distinction between a void and voidable judgment.

A void judgment “is a mere nullity, which [is] disregarded entirely, and could [be] attacked collaterally, and ... could [be] discharged by any other court of competent jurisdiction.... ” Smith v. State, 240 Md. 464, 474 , 214 A.2d 563 (1965). A voidable judgment “is not a mere nullity, but only liable to be avoided by a direct attack and the taking of proper steps to have its invalidity declared. Until annulled, it has all the ordinary consequences of a legal judgment.” Id. Judgments are void as a matter of law in various circumstances.

For example, a judgment is void if it was obtained by a “non-lawyer” through the unauthorized practice of law. 2 Turkey Point Prop. Owners’ Ass’n, Inc. v. Anderson, 106 Md.App. 710 , 666 A.2d 904 (1995). Similarly, a judgment is void in proceedings where a corporation was not represented by a lawyer. 3 Id. A complaint filed in the name of a corporation that has forfeited its corporate charter is a nullity.

Stein v. Smith, 358 Md. 670 , 751 A.2d 504 (2000). ⁷⁵⁶ In Turkey Point, we held that a non-lawyer’s representation of an association rendered the complaint, and the trial proceedings, a nullity. Id. at 718-20 , 666 A.2d 904 . In so holding, we adopted the rationale of other jurisdictions, which have held that: Proceedings in a suit by a person not entitled to practice [law] are a nullity____If the cause has proceeded to judgment, the judgment is void____ Turkey Point Prop. Owners’ Ass’n, Inc., 106 Md.App. at 718 , 666 A.2d 904 .

We explained that this “drastic remedy” was called for by “[t]he totality of the circumstances, including the long history of rules and legislation aimed at preventing the practice of law by nonlawyers[.]” Id. at 719 , 666 A.2d 904 . In Stein , the Court of Appeals held that a complaint filed in the name of a corporation that had forfeited its corporate charter was a nullity. Stein, 358 Md. at 675 , 751 A.2d 504 . The Stein Court explained that, “[o]ne of the powers of [the company] that became ‘inoperative, null, and void’ upon forfeiture of its charter was the power to sue.” Id. at 675 , 751 A.2d 504 (citing the Maryland Code provisions governing corporate charters).

The Court further observed that: There is [] a strong analogy between the problem in the case before us and the purported filing of an action against a person who is deceased at that time. In Burket v. Aldridge, 241 Md. 423, 430 , 216 A.2d 910, 913 (1966), we said that “the action filed by Burket against Smith, a few days before the expiration of the three year period from the date of the injuries, had no legal effect. Smith was dead, and an action brought against a dead man is a nullity.”.... We perceive no reason why an action purportedly brought by a defunct corporation has any more efficacy than an action brought against a deceased individual defendant.

Stein, 358 Md. at 682 , 751 A.2d 504 . B. Unenforceable Judgments Generally, a party that lacks a required license may not file an action in a Maryland court to enforce rights related ⁷⁵⁷ to its unlicensed activities. See, e.g., Harry Berenter, Inc. v. Berman, 258 Md. 290, 293 , 265 A.2d 759 (1970). The Court of Appeals explained that: [I]f a statute requiring a license for conducting a trade, business or profession is regulatory in nature for the protection of the public, rather than merely to raise revenue, an unlicensed person will not be given the assistance of the courts in enforcing contracts within the provisions of the regulatory statute because such enforcement is against public policy.

Id. See also McDaniel v. Baranowski, 419 Md. 560, 583-87 , 19 A.3d 927 (2011) (reversing summary ejectment judgment entered against a tenant and in favor of an unlicensed landlord because “the purpose of the [landlord licensing] statute was to eliminate a perceived harm, rather than to build the public fisc....”). 4 In McDaniel, the Court of Appeals concluded that the lack of a license implicated the landlord’s “status as a claimant” in Maryland courts, rather than constituting an affirmative defense. 5 McDaniel, 419 Md. at 587 , 19 A.3d 927 . The district court had awarded possession of leased premises to an unlicensed landlord, and entered a money judgment in favor of the landlord for rent and late fees. McDaniel, 419 Md. at 567 , 19 A.3d 927 .

On appeal, the Court of Appeals considered the effect of the licensure requirement on the validity of the district court judgment. Id. at 574 , 19 A.3d 927 . The Court noted that the relevant statutory provision contained no explicit requirement that a landlord be licensed in order to maintain an action in court. Id.

Accordingly, the Court ob ⁷⁵⁸ served that, “[w]hether [ ] the landlord must establish his bona fides regarding licensure at the time of filing, as a matter of law, or whether the tenant should plead the lack of a license as an affirmative defense remains an issue.” Id. The Court ultimately held that licensure impacted the landlord’s “status as a claimant” in Maryland courts, rather than constituting an affirmative defense: Licensure under local ordinances in order to operate rental dwelling units is an integral part of a landlord’s status as claimant in those jurisdictions that require licensure. As a result, in order to invoke the facile process of summary ejectment, a landlord in those jurisdictions requiring licensure, must affirmatively plead and demonstrate that he is licensed at the time of the filing of the complaint for summary ejectment in order to initiate the summary ejectment process. Id. at 587 , 19 A.3d 927 .

C. The MCALA Licensure Requirement Maryland law requires a debt collector to obtain a license. See MCALA, Md.Code Ann., Bus. Reg. § 7-301(a) (“a person must have a license whenever the person does business as a collection agency in the State.”). The MCALA defines a “collection agency” as a “person who engages directly or indirectly in the business of: ...

(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it.” Id. at § 7-101(c). “[A] Consumer Debt Purchaser that collects consumer claims through civil litigation is a ‘collection agency’ under Maryland law and required to be licensed as such regardless of whether an attorney representing the Consumer Debt Purchaser in the litigation is a licensed collection agency.” Md. State Collection Agency Licensing Bd. Advisory Notice 05-10, May 5, 2010. Acting without a license is also a misdemeanor under Maryland law. See MCALA § 7-401(b).

LVNV concedes that it was not licensed at the time it filed actions against Dorsey and Finch. Moreover, LVNV seemingly does not dispute that it was ⁷⁵⁹ required to obtain a license under The MCALA prior to filing actions against Finch and Dorsey. 6 D. Lack of MCALA License and Validity of District Court Judgments It appears to be a question of first impression in Maryland whether a collection agency’s failure to obtain a license, as required by the MCALA, renders any judgment entered in favor of an unlicensed collection agency void or voidable. We conclude that a judgment obtained by an unlicensed collection agency is void. At least one other jurisdiction has considered this issue, and held that judgments entered in favor of an unlicensed debt collection agency are void.

See LVNV Funding, LLC v. Trice, 352 Ill.Dec. 6 , 952 N.E.2d 1232 (Ill.App.2011). 7 There, an intermediate appellate court in Illinois held that judgments obtained by LVNV in Illinois district courts were void because LVNV was unlicensed, as required by the Illinois Collection Agency Act, when it filed the district court actions. Id. In so holding, the Trice court rejected the trial court’s conclusion that the lack of licensure “made the judgment merely voidable[.]” Id. at 1233. Rather, the Trice court held that the “legislature’s criminalization of an unregistered collection agency’s collection of a debt establishes an intent to void any judgment entered in favor of an unregistered collection agency.” Id. at 1234.

The Trice court also observed that the ⁷⁶⁰ “Illinois General Assembly adopted legislation to license and regulate collection agencies ... [on the basis that] practice as a collection agency ... affeet[s] the public health, safety, and welfare....” Id. at 1236. In reaching its decision, the Trice court explained that “[w]e find this case similar to cases in which a person practices law without a license.” Id. at 1237. Under Illinois law, “[a] complaint drafted by a nonattorney on behalf of a corporation constitutes the unauthorized practice of law rendering the pleading a nullity and any judgment entered on it void.” Id. (citations omitted).

Consequently, the Trice court held that “a complaint filed by an unregistered collection agency is similarly a nullity, and any judgment entered on such a complaint is void.” Id. Although there is no Maryland case directly on point, the United States District Court for the District of Maryland has held that filing a collection action without a license, as required under the MCALA, constitutes an attempt to “enforce a right ... that does not exist.” Hilco, supra, 765 F.Supp.2d at 732 (applying Maryland law). Similarly, in the context of federal law, the Hilco court held that filing a collection action without a license under the MCALA constitutes an “action that cannot legally be taken.” Id. at 731. In so holding, the Hilco court relied upon various cases from other jurisdictions holding that “violations of parallel state laws that mandate licensure by collection agencies” amounted to actions “that cannot legally be taken.” Id. at 728 (citing Sibley v. Firstcollect, Inc., 913 F.Supp. 469, 471-72 (M.D.La.1995); Russey v. Rankin, 911 F.Supp. 1449, 1459 (D.N.M.1995); Kuhn v. Account Control Tech., Inc., 865 F.Supp. 1443, 1452 (D.Nev. 1994)).

In our view, the Maryland precedent on void judgments weighs in favor of adopting the analysis set forth in Trice. 8 ⁷⁶¹ The definition of a void judgment in Maryland mirrors the definition under Illinois law. See Smith, 240 Md. at 474 , 214 A.2d 563 (A void judgment “is a mere nullity, which [is] disregarded entirely____”); see also Trice, 952 N.E.2d at 1237 (“A void judgment is from its inception a complete nullity and without legal effect.”). A judgment is void under both Maryland law and Illinois law if the judgment was obtained by an unlicensed attorney, or by a corporation not represented by an attorney. See Turkey Point Prop.

Owners’ Ass’n, Inc., 106 Md.App. at 718-20 , 666 A.2d 904 . The laws of both Maryland and Illinois also require collection agencies to be licensed in order to file collection actions in court, and impose criminal penalties for parties that engage in unlicensed collection activities. See MCALA §§ 4-301(a) and 7-401(b). 9 Consequently, we adopt the logical and well-reasoned conclusion of Trice. Much like a complaint filed by a non-lawyer, “a complaint filed by an unregistered collection agency is [ ] a nullity, and any judgment entered on such a complaint is void.” Trice, supra, 952 N.E.2d at 1236 .

We are further persuaded by the Trice court’s rationale that the imposition of criminal penalties for engaging in unlicensed collection activities establishes an intent by the legislature to void any judgment entered in favor of an unregistered collection agency. Our holding in Turkey Point supports this rationale. See supra, 106 Md.App. at 719 , 666 A.2d 904 (holding that the “drastic remedy” of deeming a judgment void because it was obtained by a nonlawyer was called for by “[t]he totality of the circumstances, including the long history of rules and legislation aimed at preventing the practice of