LVNV Funding LLC v. Finch

AMICUS CURIAE BRIEF OF RECEIVABLES MANAGEMENT ASSOCIATION INTERNATIONAL, INC.: Stephen H. Sherman, Esquire, Maurice Wutscher, LLP, 20 F. Street, NW, 7th Floor, Washington, DC 20001, Donald S. Maurice, Jr., Esquire, Thomas R. Dominczyk, Esquire, Maurice Wutscher LLP, 5 Walter E. Foran Blvd., Flemington, NJ 08822, Shannon P. Miller, Esquire, Maurice Wutscher LLP, 10 West Front St., Media, PA 19063, Jose' Felipe' Anderson, Esquire, Professor of Law, 1401 North Charles Street, Baltimore, MD 21201. AMICUS CURIAE BRIEF FOR THE MARYLAND-DC CREDITORS BAR ASSOCIATION: Nathan D. Willner, Esquire, Maryland-DC Creditors Bar Association, 10461 Mill Run Circle, Suite 825, Owings Mills, MD 21117, Steven D. Silverman, Esquire, William N. Sinclair, Esquire, Silverman Thompson Slutkin White LLC, 201 North Charles Street, Suite 2600, Baltimore, MD 21201. AMICUS CURIAE BRIEF FOR THE MIDLAND FUNDING, LLC: James P. Ulwick, Esquire, Amy E. Askew, Esquire, Steven M. Klepper, Esquire, Kramon & Graham, P.A., One South Street, Suite 2600, Baltimore, MD 21202. AMICUS CURIAE BRIEF FOR ATTORNEY GENERAL OF MARYLAND: W. Thomas Lawrie, Esquire, William D. Gruhn, Esquire, Assistant Attorneys General, Consumer Protection Division, Office of the Attorney General, 200 Saint Paul Place, 16th Floor, Baltimore, MD 21202.

AMICUS CURIAE BRIEF FOR THE PUBLIC JUSTICE CENTER, CASH CAMPAIGN OF MARYLAND AND THE MARYLAND CONSUMER RIGHTS COALITION, INC.: Ejaz H. Baluch, Jr., Murnaghan Appellate Advocacy Fellow, Public Justice Center, One North Charles Street, Suite 200 Baltimore, MD 21201. Argued before:Barbera, C.J., Greene, McDonald, Hotten, Getty, Sally D. Adkins (Senior Judge, Specially Assigned), Alan M. Wilner (Senior Judge, Specially Assigned) Wilner, J. *^{590 204} This is a class action lawsuit filed in the Circuit Court for Baltimore City against petitioner LVNV Funding LLC (LVNV) that resulted in (1) money judgments against LVNV in favor of two of the named representative plaintiffs, and (2) after a remittitur ordered by the court, a separate money judgment against LVNV in the amount of $ 25 million in favor *⁵⁹¹ of the class. In an unreported Opinion, the Court of Special Appeals affirmed the Circuit Court's rulings with respect to LVNV's liability under the Maryland Consumer Debt Collection Act (Md. Code, Title 14, Subtitle 2 of the Commercial Law Article) but remanded the case for retrial on the issue of damages. Neither side is entirely happy with the appellate decision, and we granted cross-petitions for certiorari to review it.

There are four principal issues before us, each encompassing sub-issues. To put it all in context, some background is necessary - the corporate structure within which LVNV operates, the nature of the business that LVNV conducts, how LVNV conducts its business, regulation of that business by ²⁰⁵ the State of Maryland, and the procedural history of what is now before us. LVNV AND ITS AFFILIATES LVNV is a limited liability company that was organized in Delaware in 2005, is headquartered in Las Vegas, Nevada, and appears to be managed from South Carolina. It claims to have no employees of its own.

Its only business is to purchase consumer debts that are in default, mostly from affiliated entities that purchased the debts from others, and attempt to collect those debts through litigation. As determined by the Maryland Commissioner of Financial Regulation in a 2011 enforcement action (and not contested by LVNV in this appeal), LVNV is part of an integrated conglomeration of affiliated entities that include: • Sherman Capital, LLC and Meeting Street Partners II, Inc., which own and operate Sherman Financial Group (SFG) and Sherman Capital Markets (SCM). SCM provides management services for SFG, which the Commissioner of Financial Regulation found to be "an integrated financial services company engaged in purchasing and servicing portfolios of consumer debt that it acquires at *⁵⁹² a large discount." 1 • Sherman Originator LLC (Originator), which is a wholly-owned subsidiary of SFG. Originator is headquartered in South Carolina.

LVNV is a wholly owned subsidiary of Originator. LVNV's Board of Managers, which has day-to-day supervision over LVNV, also is based in South Carolina. • Sherman Acquisition Limited Partnership (SALP), Sherman Acquisition II Limited Partnership (SAIILP), Sherman Acquisition II General Partner LLC (SAIIGPLLC), and Sherman Acquisition LLC (SALLC), which also are subsidiaries of SFG. The first two are debt purchasers. SALLC is involved with the management of LVNV; SALP and SAIILP have traded as LVNV; and • Resurgent Capital Services Limited Partnership, a/k/a Resurgent Capital Services LP, f/k/a Alegis Group Limited Partnership (Resurgent), which acts as the master servicer for charged-off consumer debt owned by LVNV and is headquartered in South Carolina.

Resurgent is a limited partnership in which Alegis is the general partner that owns one percent, and SFG, which is a limited partner that owns 99 percent. Both Resurgent and Alegis are subsidiaries of SFG. Id. Though only a one percent owner, Alegis is responsible for the management of Resurgent. 2 What the Federal Trade Commission (FTC) referred to as "Sherman Financial" (presumably SFG) was the largest buyer of charged-off credit card debt directly from credit card issuers from 2005 to 2011, except for 2010, when it was the second largest buyer.

See The Structure and Practices of the Debt Buying Industry , Federal Trade Commission, January *⁵⁹³ 2013, at 16 and Table 5 (hereafter 2013 FTC Report ). During an overlapping period, LVNV played an active role in Maryland with respect to some of those accounts. In the LVNV Enforcement Action , the Commissioner ²⁰⁶ found that between 1996 and 2011, LVNV was the named plaintiff in nearly 26,000 actions in the District Court of Maryland seeking affidavit judgments. 3 In the great majority of those cases, no response was filed by the defendant, no trial was held, and judgments were entered on LVNV's affidavit. THE DEBT-BUYING INDUSTRY Traditionally, when a borrower or customer failed to pay a debt on time, the creditor would do what was needed to collect the debt either by engaging with the debtor directly or by employing an attorney or outside debt collector to do so.

That still occurs, of course, but a new business model that first developed in the late 1980s has become predominant in the debt collection universe, largely because (1) so much of the debt arrearage in the United States, and in Maryland, is credit card debt, and (2) Federal banking regulations require credit card companies that are bank-related to charge off credit card debt that has been delinquent for six months. 4 The new model, for those companies, and others, is to sell their delinquent accounts to debt buyers for pennies on the dollar - normally between four and five cents but less for older accounts - and thereby recoup at least something without having to bear the expense of further collection efforts. The sales are in bulk. A three-year study by FTC revealed the sale of more than 5,000 "portfolios" containing nearly 90 million consumer accounts with a face value of $ 143 billion at a cost of $ 6.5 billion. 2013 FTC Report at ii, 8, and Table 2. *⁵⁹⁴ While beneficial to the initial creditor in light of the charge-off requirement and lucrative to the debt buyer, the manner in which this new model developed and debt buyers carried on their business created significant consumer protection issues. In its 2013 Report, based in part on a 2009 Study, FTC observed that it received "more consumer complaints about debt collectors, including debt buyers, than about any other single industry." 2013 FTC Report at i.

See also Collecting Consumer Debts - The Challenges of Change, A Workshop Report . Federal Trade Commission, February 2009 (hereafter 2009 FTC Report ). In its 2013 Report, FTC noted that, in its 2009 Report, it had expressed concern that debt buyers "may have insufficient or inaccurate information when they collect on debts, which may result in collectors seeking to recover from the wrong consumer or recover the wrong amount." 2013 FTC Report. The Commission found that, although debt buyers normally receive from the initial creditor the information needed to be disclosed to the debtor under the Federal Debt Collection Practices Act ( 15 U.S.C. § 1692g ) they often do not receive data relating to disputes raised by the debtor or a breakdown of how much of the debt is for interest, fees, or penalties, and that they rarely disclose to the debtor other information, such as data indicating that collection may be barred by limitations, that may be relevant to whether the alleged debtor is the actual debtor or owes the money and, if so, how much. 2013 FTA Report at iii-iv.

Those concerns, and others, were relayed to this Court by its Standing Committee on Rules of Practice and Procedure ²⁰⁷ in the Committee's 171 st Report dated July 1, 2011, which led the Court to adopt amendments to Md. Rules 3-306, 3-308, and 3-509 dealing with judgments entered on affidavit rather than trial. The Rules Committee noted that "[b]oth nationally and in Maryland, there have been a multitude of cases in which the ultimate owner of the account sues the person it believes to be the debtor, knowing from experience that the defendant often does not file a notice of intention to defend or appear for trial," that it had been well-documented that the plaintiff often *⁵⁹⁵ has insufficient reliable information regarding the debt or the debtor, and "had the debtor challenged the action, he or she would have prevailed." 171 st Report at 7. Indeed, the Committee added that "[i]n many instances, when a challenge is presented, the case is dismissed or judgment is denied. Id.

STATUTORY REGULATION Three Maryland consumer protection statutes govern debt collection activity - the Maryland Collection Agency Licensing Act (MCALA) (Md. Code, Business Regulation Article (BR), §§ 7-101 through 7-502 ); the Maryland Consumer Debt Collection Act (MCDCA) (Md. Code, Commercial Law Article (CL), §§ 14-201 through 14-204 ); and the State Consumer Protection Act (CPA) ( Md. Code, CL §§ 13-101 through 13-501 ). MCALA is the most direct. With two exceptions not relevant here, BR § 7-301(a) provides that "a person must have a license [issued by the State Collection Agency Licensing Board] whenever the person does business as a collection agency in the State." Section 7-401 adds that, except as provided in that title, "a person may not knowingly and willfully do business as a collection agency in the State unless the person has a license." Section 7-101(c) defines "collection agency" as including "collecting for, or soliciting from another, a consumer claim" and "collecting a consumer claim the person owns, if the claim was in default when the person acquired it." Although LVNV began its debt collecting activity upon its founding in 2005, it did not obtain a collection agency license until February 18, 2010. MCDCA also deals with consumer debt collection.

CL § 14-202(8) provides that, in attempting to collect an alleged debt, a collector may not "[c]laim, attempt, or threaten to enforce a right with knowledge that the right does not exist." Section 14-203 provides that "a collector who violates any provision of this 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." Section 14-201(b) defines "collector" as "a person *⁵⁹⁶ collecting or attempting to collect an alleged debt arising out of a consumer transaction." CL § 13-303, which is part of the CPA, prohibits a person from engaging in an "unfair or deceptive trade practice" in "the collection of consumer debts." Section 13-301 defines "unfair or deceptive trade practice" as including any violation of "Title 14, Subtitle 2 of this Article, the Maryland Consumer Debt Collection Act." Section 13-408 permits a person to bring an action to recover for injury or loss sustained as the result of a practice prohibited by CPA and, if the person prevails, to be awarded attorneys' fees. PROCEDURAL HISTORY OF THIS CASE This case was preceded by another class action suit filed against LVNV by Jason Hauk and Freddy Velazquez in the Circuit Court for Frederick County in October 2009. The gravamen of that action was largely the same as the one now before us, ²⁰⁸ namely that LVNV, acting as an unlicensed debt collector, had pursued consumer debt collection actions against the defendants in the District Court of Maryland in violation of MCALA ( BR § 7-301 ) and that it threatened or took action it had no right to take in violation of MCDCA and its Federal counterpart, the Federal Debt Collection Practices Act ( 15 U.S.C. § 1692 ). One difference was that LVNV never recovered a judgment against Hauk or Velazquez; the action against Hauk ended with a verdict for Hauk, and LVNV dismissed the action against Velazquez when he filed a notice of intent to defend.

The Complaint contained four counts: for declaratory and injunctive relief ordering LVNV to disgorge all amounts it obtained while acting illegally as a collection agency (Count I); for money damages and attorneys' fees for violation of MCDCA (Count II); for money damages and attorneys' fees for violation of CPA; and for statutory damages under the Federal Debt Collection Practices Act (Count IV). The alleged class in that action included all persons in the State of Maryland who, within three years prior to the filing of *⁵⁹⁷ the complaint, "were contacted by the Defendant in connection with any effort to collect a debt." That action was removed to Federal court by LVNV, where, after the court granted a motion to dismiss Count I but denied the motion to dismiss the State law claims in Counts II, III, and IV, it eventually was settled. See Hauk v. LVNV Funding , 749 F.Supp.2d 358 (D. Md. 2010). The settlement agreement narrowed the class to persons who, from October 1, 2007 through February 17, 2010, were sued by LVNV in Maryland to collect on a debt, but excluded persons against whom a judgment had been entered or who had filed for bankruptcy protection.

The next event that preceded the filing of the instant complaint was the LVNV Enforcement Action commenced by the Commissioner of Financial Regulation against LVNV and its various affiliates in July 2011. On October 25, 2011, a Summary Order was entered requiring LVNV to cease its collection activities and suspending LVNV's belatedly obtained collection agency license. A year earlier, on May 5, 2010, the State Collection Agency Licensing Board had issued an Advisory to purchasers of consumer claims in default clarifying that it had been the Board's "consistent position that 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," citing BR § 7-101(c). As noted, in the LVNV Enforcement Action , the Commissioner found that, since 2005, LVNV had been acting as an unlicensed debt collection agency in violation of MCALA and MCDCA, that "tens of thousands" of actions brought by LVNV in the District Court of Maryland requesting judgment on affidavit "knowingly contained false, deceptive, or deficient complaints and supporting affidavits," and that, in some of those actions, LVNV had claimed and received pre-judgment interest amounts that included compound interest, which is prohibited by Maryland law.

The Summary Order directed LVNV to cease and desist its efforts and suspended the collection agency license that it had obtained in 2010. *⁵⁹⁸ The Enforcement Action ended on June 28, 2012 with a Settlement Agreement in which, without acknowledging any wrongdoing, LVNV agreed to pay a penalty of one million dollars, dismiss with prejudice all collection cases filed in a Maryland court prior to the date of the agreement, and, with certain exceptions, provide restitution ²⁰⁹ to all consumer debtors against whom a judgment had been obtained or whose case had been settled prior to the date of the agreement by crediting their accounts for prejudgment interest and attorneys' fees awarded by the court or that were part of the settlement. This action, initially by Larry Finch and Kurt Dorsey as representative plaintiffs, was filed on November 9, 2011. LVNV had filed collection suits against Finch and Dorsey in the District Court in 2008 - prior to obtaining a collection agency license. It obtained default judgments against them and had garnished Finch's wages.

The class consisted of those persons sued by LVNV in Maryland courts from October 30, 2007 through February 17, 2010 against whom LVNV obtained a judgment in its favor in an attempt to collect a consumer debt. 5 The complaint sought the disgorgement of all sums LVNV received as a result of the judgments it improperly obtained and an injunction against any attempt to collect further amounts on those judgments. On LVNV's motion, the Circuit Court dismissed that complaint on the ground that it amounted to an impermissible collateral attack on enrolled District Court judgments. In a reported Opinion, the Court of Special Appeals reversed that judgment and remanded the case for further proceedings. Finch v. LVNV Funding , 212 Md. App. 748 , 71 A.3d 193 (2013).

LVNV conceded that it did not have a collection agency license when it obtained its judgments against Finch and *⁵⁹⁹ Dorsey but claimed that, as a "passive" debt buyer, it was "confused" as to whether it needed one. Relying in part on Bradshaw v. Hilco Receivables, LLC , 765 F.Supp.2d 719 (D. Md. 2011), the appellate court rejected that defense. The issue then became whether the violation of MCALA made the District Court judgments void or merely voidable and, if void, whether those judgments could be collaterally attacked. Following the view of an intermediate appellate court in Illinois ( LVNV Funding , LLC v. Trice , 352 Ill.Dec. 6 , 952 N.E.2d 1232 (Ill.

App. 2011) ), the Court of Special Appeals reached the conclusion that proceeding to collect a consumer debt without a license constituted an attempt to enforce a right that did not exist and made the resulting judgments void and not merely voidable. A judgment that is void, it continued, may be collaterally attacked at any time in any court. Upon that ruling and the denial of certiorari by this Court ( 435 Md. 266 , 77 A.3d 1084 (2013) ), the case returned to the Circuit Court, where a six-count amended complaint was filed. Ronald Jackson was added as a representative plaintiff.

LVNV had sued Jackson in 2008. A judgment on affidavit that included pre-judgment interest and attorneys' fees was entered against him, and his wages were garnished. The amended class action complaint proposed a class consisting of those persons sued by LVNV in a Maryland court between October 30, 2007 through February 17, 2010 against whom LVNV obtained a judgment in its favor in an attempt to collect a consumer debt, and a subclass consisting of all members of the class who had paid any amounts to LVNV. Count I sought a declaratory judgment that the District Court judgments against the class members were void because they were obtained when LVNV was acting unlawfully as an unlicensed collection agency.

Count II sought a declaration on behalf of ²¹⁰ the named plaintiffs and the subclass that LVNV is liable for prejudgment interest on the amounts of interest and attorneys' fees it refunded to class members. Count III sought a money judgment in favor of the subclass for all judgment sum interest it had collected from the subclass. Count IV *⁶⁰⁰ asserted that LVNV's conduct was in violation of MCDCA and CPA and sought a money judgment in favor of Finch, Jackson, and the subclass for violations of MCDCA. Count V sought a money judgment in favor of Finch, Jackson, and the subclass for money had and received by LVNV plus interest and costs.

Finally, Count VI sought money damages for the named plaintiffs and the class for the cost of proceeding to have the District Court judgments against them declared void. Through interlocutory rulings, the court ruled, consistent with the Court of Special Appeals Opinion, that judgments obtained by LVNV in a Maryland court between October 30, 2007 and February 17, 2010 in an attempt to collect a consumer debt were void, and certified the class and subclass, the latter consisting of all members of the class who paid any amounts to LVNV. The case was submitted for trial by a jury, but it is not entirely clear whether the trial, verdict, and judgment involved the claims of all members of the class or only the claims of members of the subclass. 6 In accordance with the court's instructions, the jury was asked to determine, separately, (1) whether Finch and Jackson proved that LVNV was unjustly enriched (money had and received) by its collection of monies from them, (2) whether they proved that LVNV violated MCDCA, 7 (3), if the answer to (1) or (2) was "yes," what damages should be awarded and whether they were entitled to prejudgment interest, and (4) what sum of restitution the class *⁶⁰¹ should recover from LVNV for monies obtained or received from the class. 8 The jury said "no" to prejudgment interest but awarded specific amounts of damages to Finch and Jackson and $ 38,630,344 to the class. Judgments were entered in accordance with those verdicts, but, pursuant to a motion for judgment NOV, the court granted a remittitur and reduced the judgment in favor of the class (or subclass) to $ 25 million.

That produced another appeal, which challenged the Circuit Court's rulings (1) that LVNV was a collection agency subject to MCALA, (2) that the District Court judgments obtained by LVNV during the period it was not licensed were void and therefore subject to collateral attack, (3) that there was sufficient evidence to support the jury's verdict of liability, (4) that excluded evidence proffered by LVNV regarding its liability for violating MCDCA and for unjust enrichment, (5) that omitted an instruction on the proper method for determining a monetary award for unjust ²¹¹ enrichment, (6) that certified the class and subclass, (7) regarding the appropriate limitations period in defining the class and subclass, and (8) that granted a remittitur and reduced the judgment in favor of the class to $ 25 million. The Court of Special Appeals considered all but the last of those challenges. As noted, it affirmed the finding of liability on the part of LVNV for violating MCDCA but remanded the case for a new trial on damages. The Court declined to revisit its holdings in the first appeal that LVNV was required to be licensed, that its pursuit of collection cases without a license constituted a violation of both MCALA and MCDCA, and that, as a result, the judgments it obtained in the District Court were void.

It concluded that there was sufficient evidence of unjust enrichment to submit that issue to the jury but that the Circuit Court's instructions on the calculation of damages were too imprecise to give sufficient guidance to the jury on *⁶⁰² the appropriate method of calculating a monetary award under the theory of unjust enrichment. LVNV raised three issues in its petition for certiorari - whether a judgment in favor of an unlicensed collection agency is void; whether the lower courts erred in finding a private right of action in MCALA or MCDCA; and whether MCALA was intended to apply to entities such as LVNV that "passively" own consumer debt but retain licensed collection agencies to collect it. In their cross petition, the plaintiffs complain only about LVNV's limitations defense, which is relevant only to the scope of the class. We shall deal with these issues in a different order.

WAS LVNV REQUIRED TO BE LICENSED DURING THE RELEVANT PERIOD LVNV continues to argue that, because it is a "passive" debt buyer and owner, because it has no employees, and because it does nothing more than refer debts to Resurgent for collection, it does not constitute a collection agency for purposes of MCALA and therefore was never required to obtain a collection agency license, even though it eventually did so in 2010. That claim was rejected twice by the Court of Special Appeals and three times by the Commissioner of Financial Regulation, but it has yet to be considered on its merits by this Court. We shall reject it as well. The issue hinges on a