Franklin Credit Management Corp. v. Nefflen

GRAEFF, J. This appeal arises from a dispute between Franklin Credit Management Corporation (“Franklin”), appellant, and Fred Nefflen, appellee, regarding the enforcement of a settlement agreement. In April 2010, Mr. Nefflen filed a Complaint in the Circuit Court for Frederick County alleging that Franklin, the company servicing his mortgage, had violated the terms of a settlement agreement entered into by the parties in June 2009 pertaining to the mortgage. After Franklin failed to file responsive pleadings and a default hearing was held, which Franklin did not attend, the circuit court entered a default judgment in favor of Mr. Nefflen on all four counts in his complaint. The court found that Mr. Nefflen was entitled to $203,301.84 in damages.

The court subsequently denied ⁷¹⁵ Franklin’s Motion for New Trial or to Alter or Amend Judgment. On appeal, Franklin presents the following questions for our review: 1. Did the [cjircuit [cjourt err as a matter of law or abuse its discretion in granting [Mr.] Nefflen a default judgment for his defamation claim because the failure to correct a negative credit report does not constitute a viable claim for defamation or, alternatively, because the defamation claim was not viable in the absence of factual allegations to support that Franklin acted with malice or intent to harm [Mr.] Nefflen? 2. Did the [cjircuit [cjourt err as a matter of law or abuse its discretion in granting [Mr.] Nefflen a default judgment for violations of the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act because Franklin’s request for verification that [Mr.] Nefflen had flood insurance in accordance with federal requirements was not an attempt to collect a debt owed to Franklin or, alternatively, because Franklin’s request constituted a breach of a Settlement Agreement, not a tort under the Maryland Consumer Debt Collection Act? 3.

Did the trial court abuse its discretion in denying Franklin’s Motion to Alter or Amend the Judgment where Franklin’s Motion established that Nefflen did not plead viable claims and that the judgment was erroneous as a matter of law? 4. Did the trial court abuse its discretion in denying Franklin’s Motion to Alter or Amend the Judgment where Franklin’s failure to defend was the result of misunderstanding regarding the timing of the default judgment hearing and where Franklin’s Motion raised meritorious defenses? For the reasons set forth below, we shall affirm the judgment of the circuit court. ⁷¹⁶ FACTUAL AND PROCEDURAL BACKGROUND In 1997, Mr. Nefflen refinanced his mortgage with Silver Financial Group, Inc. for $134,036.50. He refinanced again in 1998, increasing his loan to $177,000.

The 1998 loan was originally payable to CIT, and in 1998, CIT assigned its interest in the loan to Bank One, who in turn, assigned the servicing rights of the loan to Franklin on September 1, 2004. Prior to the assignment to Franklin, Mr. Nefflen had modified his loan with Bank One, which resulted in a monthly payment amount of $1,059.36, effective May 2003. When Franklin began servicing the loan, it claimed that Mr. Nefflen’s monthly payment was $1,385.51. The monthly statements that it sent Mr. Nefflen alleged that he was behind on his payments after he paid the $1,059.36 due pursuant to his agreement with Bank One.

In October 2005, after ten months of correspondence between Mr. Nefflen and Franklin regarding the monthly payment amount, Franklin sent a letter to Mr. Nefflen “confirm[ing] that the payment due on the loan was the amount set forth in the loan modification.” Franklin, however, continued to send statements asserting that Mr. Nefflen’s loan account was overdue, and it reported to credit agencies that Mr. Nefflen was delinquent in his payments. Mr. Nefflen subsequently filed suit against Franklin. On June 2, 2009, the parties settled the case. Among other agreements, the settlement provided that “Franklin will delete all derogatory information from any Credit Reports and report the Nefflen Loan as current and paid as agreed,” and that “[t]he parties agree that there shall be no demand or requirement for flood insurance of any kind in connection with the Nefflen Loan.” On April 13, 2010, Mr. Nefflen filed another complaint against Franklin, contending that Franklin was in breach of these two provisions of the settlement agreement.

Specifically, he stated that Franklin “has not deleted the derogatory information from [his] credit reports,” and it “continued to make demands for flood insurance.” In his complaint, Mr. Nefflen alleged violations of the Maryland Consumer Debt ⁷¹⁷ Collection Act (“MCDCA”) and the Maryland Consumer Protection Act (“MCPA”), as well as counts for defamation and breach of the settlement agreement. A writ of summons dated April 19, 2010, was sent to Franklin, care of “CSC Lawyers Incorporating,” Franklin’s registered agent. On July 12, 2010, Mr. Nefflen submitted a proof of service and delivery receipt to the circuit court, stating that, on April 23, 2010, service was completed by “certified mail, return receipt requested, on [Franklin’s] registered agent.” On August 31, 2010, the court issued and sent to Franklin a Notice of Hearing/Trial, which stated that a Status Conference had been set for October 22, 2010. Franklin did not file an Answer.

On September 29, 2010, Mr. Nefflen filed a Motion for Entry of Default, stating that Franklin “was served on April 23, 2010,” and “[t]he time has expired for [Franklin] to Answer the complaint.” The Certificate of Service attached to Mr. Nefflen’s motion indicated that the Motion for Entry of Default was mailed to Franklin. On October 6, 2010, the circuit court entered an Order of Default in favor of Mr. Nefflen and sent Franklin a Notice of Default Order. On January 18, 2011, a Hearing Notice was issued and sent to Franklin, advising that a default hearing had been set for March 8, 2011. On March 2, 2011, Mr. Nefflen filed a Motion to Postpone Hearing, which included a Certificate of Service indicating that the motion was sent to Franklin.

On March 7, 2011, the day before the hearing was scheduled, the circuit court granted Mr. Nefflen’s motion. Also on March 7, 2011, the day the Motion to Postpone Hearing was granted, a Hearing Notice changing the hearing date to April 7, 2011, was issued and sent to Franklin. The notice read as follows, under the heading of “Date and Time”: “04/07/11 02:00 PM—reset from 03/08/11.” On April 7, 2011, the court held a default hearing. Mr. Nefflen was the only witness to testify; Franklin was not present.

Mr. Nefflen explained that, pursuant to the June 2, 2009, settlement, which he introduced into evidence, Franklin ⁷¹⁸ had agreed that it would delete derogatory information from his credit report and would not require flood insurance on his property. On June 19, 2009, however, two weeks after the settlement date, he received a letter from Franklin about flood insurance. The letter stated: As you are aware your Mortgage ... requires you to maintain adequate Flood insurance coverage to protect our interest in the property. Our records show that your property is located in a Special Flood Hazard Area (SFHA) flood zone AE, and Flood Insurance is required under the Flood Disaster Protection Act of 1973, as amended, a Federal law.

However, we have reviewed our records and determined that we do not have a current Flood insurance policy on file for the period starting on 02/01/2009. This requires your immediate attention. On two subsequent dates, July 27, 2009, and October 23, 2009, Franklin sent Mr. Nefflen additional letters. These letters were similar to the one sent in June, but they additionally stated: If you wish to contest this Flood insurance requirement or the special Hazard Flood Area flood zone AE, you must provide a Letter of Map Amendment/Revision (LOMA/LOMR) from the Federal Emergency Management Agency (FEMA) indicating that the property does not require Flood insurance.

On November 13, 2009, and February 22, 2010, Franklin sent additional letters regarding flood insurance. These letters stated, in pertinent part, as follows: We wrote you previously to let you know that we had not received a current Flood Insurance policy for your property for the period starting on 02/01/2009. Since we did not receive a response from you or your agent, we have purchased Flood coverage in the amount of $146,589.00. The annual cost of $1,650.92, which includes applicable taxes and fees, will be charged to your account in monthly increments, and your mortgage payment will increase accordingly. ⁷¹⁹ Mr. Nefflen then testified regarding his monthly mortgage payments to Franklin, specifically in reference to his escrow balance, which was increased to reflect the charges incurred for Franklin’s purchase of flood insurance on Mr. Nefflen’s behalf.

In January 2010, six months after the June 2009 settlement agreement, Mr. Nefflen obtained a copy of his credit report from Transunion. The report, dated January 18, 2010, listed Mr. Nefflen’s account with Franklin under the “Adverse Accounts” heading; the remaining accounts on Mr. Nefflen’s report were listed as “Satisfactory Accounts.” The statement reflected that 18 late payments were made on Mr. Nefflen’s account with Franklin, all of which occurred prior to June 2007. Mr. Nefflen also introduced a credit report from Equifax, and a second report, dated January 26, 2011, from Transunion, which also reported that he had been late on his payments to Franklin dating back from May 2007. Mr. Nefflen testified that he was “physically ... just a wreck sometimes,” due to his credit report and the bills regarding flood insurance.

When he tried to buy a new car, “Franklin came up on [his credit report] and they said there’s no way they could do it.” His situation with Franklin had “caused a lot of damage to my family,” due to “the medications my wife and son are on because of it,” and because he and his wife were unable to go out because Mr. Nefflen paid cash for everything. At the conclusion of Mr. Nefflen’s testimony, Mr. Nefflen’s counsel argued that “the credit reports before the Court show that to this day [Franklin] continue[s] to report false information about Mr. Nefflen.” Regarding Franklin’s liability, as well as the amount of damages, Mr. Nefflen’s counsel argued as follows: [A]nd we’re asking this Court, we don’t know what the exact amount of damages should be, but this is just wrong behavior on their part and I don’t know if the empty seats here today are because they decided it might just be easier on them not to be here or not. But they were served. They ⁷²⁰ know about it.

So we would ask the Court to award damages to Mr. Nefflen on each of his causes of action and the three, the three main causes of action. With respect to the claim under the Maryland Consumer Debt Collection Act, Md.Code (2005 Repl. Vol) § 14-203 of the Commercial Law Article (“C.L.”), counsel argued that “[a] collector who violates any provision of the subtitle is liable for any damages proximately caused by the violation including damages for emotional distress or mental anguish suffered with or without accompanying physical injury,” noting that the damages allowed were “pretty broad” and included “frustration or embarrassment or ... humiliation.” With respect to the claim for defamation, counsel argued that a statement regarding “someone’s creditworthiness is slander per se so there’s no requirement of special damages,” asserting that “emotional damages for that type of claim is appropriate.” With respect to the claim pursuant to the Maryland Consumer Protection Act, counsel asserted that “the violation of the Maryland Consumer Debt Collection Act is a per se violation of the Maryland Consumer Protection Act,” noting, however, that “the Consumer Protection Act provides for attorneys’ fees. The Consumer Debt Collection Act by itself does not.” After Mr. Nefflen concluded his case, the court found that Franklin had breached the terms of the settlement agreement by requesting that Mr. Nefflen obtain flood insurance on the property and “ultimately ... tax[ing] his account with $1,650.92 on two different occasions representing flood insurance, which by their agreement they indicated that [Mr. Nefflen] did not owe.” The court found that “the damages for breach of contract are [$]3301.84.” The court continued: I also find that it is a clear violation of count one of the ...

Maryland Consumer Credit Reporting Act and that [Mr. Nefflen] has suffered damage in mental anguish, sleepless nights, anxiety, and the ability, inability to get appropriate credit merely because of the negative credit reporting by ⁷²¹ Franklin, which they agreed to remove from his credit reports, and that ... [Mr. Nefflen] is entitled to damages under that count in the amount of $100,000. I also find that [it] has slandered Mr. Nefflen’s good name. In looking at these reports, again, the only information to a negative account is Franklin Credit and that is quite frankly because of them not providing the necessary assurances to the credit reporting agencies which they agreed to do, and by putting negative references on for non-payment I’m assuming of the obligations that they agreed he didn’t owe in the first place, and quite frankly that’s outrageous and I find that [Mr. Nefflen] is entitled to damages in that instance to $100,000. So, and I think on count three, which is the Consumer Protection, that’s really covered for the damages in count one and with respect to attorney’s fees those were authorized under count four pursuant to the settlement agreement.

So total damages are ... $203,301.84, plus attorneys’ fees to be submitted, plus costs of this suit. On April 29, 2011, the court issued a default judgment, which was entered on May 2, 2011. The order reflected the court’s ruling at the April 7, 2011, hearing, and it indicated that Mr. Nefflen was present at the hearing with counsel, but “[t]here was no appearance by the Defendant.” On May 2, 2011, the court issued notices of judgment, which were sent to Franklin. On May 12, 2011, Franklin filed a Motion for New Trial or to Alter or Amend Judgment pursuant to Maryland Rules 2-534 and 2-535. 1 The motion stated that: 2.

On or about May 26, 2010, undersigned counsel wrote to [Mr. Nefflen’s] counsel and provided copies of the credit reporting by Franklin from September 2009 and April 2010, which showed that in compliance with the settlement agreement Franklin had not been reporting any negative credit ⁷²² information regarding Mr. Nefflen. With regards to the flood insurance issue, undersigned counsel advised [Mr. Nefflen’s] counsel that [the Federal Emergency Management Agency] had declared Mr. Nefflen’s property to be in a special hazard flood area and that Franklin had requested a waiver; however, Franklin needed Mr. Nefflen to request the waiver as he owned the property. [ 3.] On or about March 9, 2011, Franklin received a notice of hearing from the Court which indicated that a hearing on damages was scheduled for April 7, 2011. The next day, on March 10, 2011, Franklin received the Order entered March 8, 2011 which ordered the damages hearing to be postponed. Due to the order of receipt of the notice and order, Franklin was under the impression that the April 7, 2011 hearing was postponed.

Attached hereto are the receipts from the Corporation Service Company which demonstrate when the notice are [sic] order were received. [ 4.] As Franklin did intend on attending the damages hearing, but was under the impression that the April 7, 2011 hearing had been postponed, pursuant to Rule 2-533 Franklin is requesting that a new damages hearing be set. Additionally, Franklin submits that a new damages hearing be set as it does not appear [Mr. Nefflen] was forthcoming with facts concerning the credit report by Franklin and the flood insurance issues. [ 5.] Franklin also submits that the judgment in this matter should be altered or amended pursuant to Rule 2-534. [ 6.] While the facts in the complaint may be deemed admitted due to default, the Court must still make a determination as to liability and there must be satisfactory proof of damages. Rule 2—613(f); Banegura v. Taylor, 312 Md. 609 [ 541 A.2d 969 ] (1988). The remainder of the motion set forth Franklin’s arguments that there was no basis to find liability for the counts for defamation, violation of the MCPA, and violation of the MCDCA.

Franklin did not challenge the court’s finding on the count for breach of the settlement agreement. ⁷²³ On June 1, 2011, Mr. Nefflen filed a motion opposing Franklin’s Motion for New Trial or to Alter or Amend Judgment. He argued that Franklin’s assertion “that it did not understand the date of the hearing because it received a notice and an order” was meritless, and Franklin’s legal arguments were unpersuasive. On June 6, 2011, the circuit court denied Franklin’s “Motion to Vacate or for other relief.” This timely appeal followed. DISCUSSION I. Motion to Dismiss/Strike Portions of the Appendix Mr. Nefflen first asserts that Franklin’s arguments are not properly before this Court, and the appeal should be dismissed.

In support, he incorporates the arguments he makes in his Motion to Dismiss Appellant’s Appeal or in the Alternative to Strike Appellant’s Brief and Appendix. In that motion, Mr. Nefflen contends that: (1) Franklin “has included documents not in the record”; (2) “[t]he provisions of Rule 2-535(a) do not apply to liability issues for a default judgment pursuant to Rule 2-613(g)”; (3) Franklin’s “arguments were not presented to the circuit court”; and (4) Franklin “never moved to vacate the order of default or default judgment.” In its motion opposing Mr. Nefflen’s motion to dismiss or strike, Franklin responds in several ways. Initially, it argues that this Court may take judicial notice of the documents included in its appendix that were not part of the record below. Alternatively, it argues that, if this Court decides not to consider the documents contained in its appendix, the proper remedy is to strike those documents, not to dismiss the appeal or strike its briefs.

Finally, Franklin argues that the grounds raised do not warrant dismissal, but rather, they are substantive arguments relating to the merits of the issues on appeal. We agree with Franklin that the issues raised in the motion, other than to strike the documents included in Frank ⁷²⁴ lin’s brief that were not presented to the circuit court, go to the substance of the appeal, and any impropriety due to adding documents not included in the record below should be addressed by striking those documents, not dismissing the appeal. Thus, we will deny the motion to dismiss. We will address, however, the motion to strike two documents in the appendix that were not presented to the circuit court, i.e., a letter and the complaint in the prior case.

With respect to the letter, Franklin contends that, because “[t]he letter was specifically referred to in Franklin’s Motion to Vacate, which is part of the Record,” it is appropriate for this Court “to take judicial notice of the letter.” Regarding the complaint, Franklin argues that “[Mr.] Nefflen’s Complaint in this action references the filing of the first Nefflen lawsuit and attaches the Settlement Agreement from that case,” and therefore, “[t]his Court may properly take judicial notice” of these court documents. We disagree. Maryland Rule 8-413 provides in pertinent part, as follows: The record on appeal shall include (1) a certified copy of the docket entries in the lower court, (2) the transcript required by Rule 8-411, and (3) all original papers filed in the action in the lower court except a supersedeas bond or alternative security and those other items that the parties stipulate may be omitted. Md. Rule 8-413(a) (“Contents of record”).

As this Court has noted, “an appellate court must confine its review to the evidence actually before the trial court when it reached its decision.” Cochran v. Griffith Energy Service Inc., 191 Md.App. 625, 663 , 993 A.2d