Lyles v. Santander Consumer USA Inc.

Jabari Morese Lyles v. Santander Consumer USA Inc., Misc. No. 3, September Term, 2021. Opinion by Getty, C.J. COMMERCIAL LAW — CREDIT GRANTOR CLOSED END CREDIT PROVISIONS — PENALTY FOR KNOWING VIOLATION — CALCULATION OF DAMAGES Answering a certified question from the United States District Court for the District of Maryland, the Court of Appeals held that Maryland Code (1983, 2013 Repl. Vol., 2021 Supp.), Commercial Law Article § 12-1018(b) requires a credit grantor that knowingly violates the Credit Grantor Closed End Credit Provisions to forfeit to the borrower treble the amount of interest, fees, and charges collected in violation of the subtitle.

United States District Court For the District of Maryland Case No. 1:21-cv-00566-CCB Argued: October 4, 2021 IN THE COURT OF APPEALS OF MARYLAND Misc. No. 3 September Term, 2021 JABARI MORESE LYLES v. SANTANDER CONSUMER USA INC. *Getty, C.J. *McDonald, Watts, Hotten, Booth, Biran, Wilner, Alan M. (Senior Judge, Specially Assigned) JJ. Opinion by Getty, C.J. Filed: May 13, 2022 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. *Getty, C.J., and McDonald, J., now Senior Judges, participated in the hearing and conference of this case while active members of this Court; 2022-05-13 after being recalled pursuant to Maryland Constitution, Article IV, Section 3A, they also Suzanne C. Johnson, Clerk 13:46-04:00 participated in the decision and adoption of this opinion.

Consumers may use “closed end credit” and “revolving credit” in making purchases for a variety of consumer goods by borrowing funds through a credit plan. “Closed end credit” requires a borrower to repay the amount owed in multiple installments, generally of an equal amount, over a fixed period of time. “Revolving credit” enables a borrower to purchase goods or secure loans on a continuing basis as long as the borrower’s total balance does not exceed a specified limit. The borrower has the option of paying the minimum required monthly payment, paying any amount above the minimum payment each month, or paying off the entire balance. Borrowers frequently access closed end credit to finance the purchase of a motor vehicle. In Maryland, if the purchase of a motor vehicle is financed by an installment sale, the lender may elect for the contract to be governed by either of two statutes located in Title 12 of the Commercial Law Article (“CL”) of the Maryland Code—the Credit Grantor Closed End Credit Provisions (“CLEC”), CL §§ 12-1001 et seq., or the Maryland Retail Installment Sales Act, CL §§ 12-601 et seq.

See Patton v. Wells Fargo Fin. Md., Inc., 437 Md. 83 , 88–89 (2014). The present matter involves a borrower who purchased a motor vehicle and financed it by closed end credit pursuant to an agreement governed by CLEC. Before this Court is a certified question of law from the United States District Court for the District of Maryland (“federal district court”) regarding the calculation of damages under Maryland Code (“Md. Code”), (1983, 2013 Repl.

Vol., 2021 Supp.), Commercial Law Article § 12-1018(b). Appellant Jabari Morese Lyles (“Mr. Lyles”) initiated the underlying class action against Appellee Santander Consumer USA, Inc. (“Santander”) for alleged violations of CLEC. This matter comes before the Court with unique posturing. The question posed to this Court will inform the federal district court’s analysis of its subject matter jurisdiction after resolution of the certified question.

Mr. Lyles, the Plaintiff in the federal district court, advocates for a damages calculation that would entitle him to lesser monetary relief than the interpretation Santander argued before the federal district court. We hold that, based upon prior caselaw regarding CLEC, a plain language analysis of CL § 12-1018(b), and a review of the pertinent legislative history, CL § 12-1018(b) requires a credit grantor who knowingly violates CLEC to forfeit three times the amounts of interest, fees, and charges collected in violation of CLEC. BACKGROUND Pursuant to the Maryland Uniform Certification of Questions of Law Act, Md. Code (1996, 2020 Repl. Vol.), Courts & Judicial Proceedings Article (“CJ”) §§ 12-601 et seq., this Court has the power to certify questions of law to another court and answer questions of law presented to it. “[I]f the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision, or statute of this State[,]” this Court may “answer a question of law certified to it by a court of the United States[.]” CJ § 12-603; see also United Bank v. Buckingham, 472 Md. 407, 411 (2021).

In answering a certified question of law, this Court resolves only issues of Maryland law, not questions of fact. Parler & Wobber v. Miles & Stockbridge, 359 Md. 671, 681 (2000). As such, this Court accepts the statement of facts submitted to it by the certifying court and will not “evaluate or weigh the evidence[.]” Reed 2 v. Campagnolo, 332 Md. 226, 228 (1993) (quoting Food Fair Stores v. Joy, 283 Md. 205 , 219 n.7 (1978)). The Maryland General Assembly enacted CLEC and other legislation as a part of the Credit Deregulation Act of 1983 “to entice creditors to do business in the State[.]” Ford Motor Credit Co., LLC v. Roberson, 420 Md. 649, 662 (2011); see also 1983 Md. Laws, ch. 143.

The General Assembly intended to enable Maryland banks “to compete more effectively with banks in nearby states.” Patton, 437 Md. at 105 . As this Court has previously explained: Prior to the 1983 session of the General Assembly, four Maryland banks transferred certain of their operations to Delaware where the banking laws were more favorable. These included the credit card operations of two major banks based in Baltimore. Some 1,000 jobs were lost in the Baltimore area.

The response by the General Assembly was Chapter 143 of the Acts of 1983, the enactment of which was urged by then Mayor Schaefer of Baltimore and others. Chapter 143 has become known as the Credit Deregulation Act of 1983. Biggus v. Ford Motor Credit Co., 328 Md. 188, 197 (1992). CLEC provides consumer protection to borrowers in transactions involving closed end credit, as well as establishes parameters and requirements with which credit grantors must comply.

Patton, 437 Md. at 89 . The subtitle also establishes various remedies to a borrower if the credit grantor fails to comply with CLEC. Id. at 90 . Notably, these protections, parameters, requirements, and remedies only apply if a credit grantor affirmatively elects CLEC to apply to a closed end credit loan.

See CL § 12-1013; CL § 12-1013.1. 3 The following facts are provided in the federal district court’s Certification Order. On or about January 11, 2021, Mr. Lyles initiated the underlying class action in the Circuit Court for Baltimore City alleging that Santander violated CLEC. Mr. Lyles entered into a Retail Installment Sales Contract (“RISC”) to finance the purchase of a motor vehicle. The RISC, subsequently assigned to Santander, expressly invoked CLEC as the governing law.

Mr. Lyles financed $20,657.00 in the RISC with finance charges of $15,596.44 throughout the duration of the RISC. Mr. Lyles completed several payments to Santander under the RISC. As of the filing of the underlying class action, Santander collected at least $27,029.67 on the RISC, which amounts to $6,372.67 more than the amount Mr. Lyles financed under the RISC. According to Santander, $15,603.54 remains due on the RISC.

Santander charges a convenience fee to its customers “for making a payment by phone through a live representative or through an automated system or through the internet[.]” On Mr. Lyles’ RISC, Santander charged and collected twelve convenience fees, each for $10.95, totaling $131.40. Mr. Lyles maintains that Santander knowingly violated CLEC by charging the twelve convenience fees and asserts that he and the purported class are entitled to relief under CL § 12-1018(a)(2) and CL § 12-1018(b). Santander removed this action to the federal district court on March 4, 2021 pursuant to 28 U.S.C. § 1332 (d)1, which, in part, requires the class action’s amount in controversy to exceed $5,000,000. 1 28 U.S.C. § 1332 (d) sets forth the requirements for a federal district court to have original jurisdiction over a class action. This statute provides: 4 Presently, a Motion for Remand is pending before the federal district court.

As such, the federal district court’s subject matter jurisdiction over this matter is dependent on the proper amount in controversy—i.e., the appropriate amount of damages Mr. Lyles may be entitled to under CL § 12-1018(b). The federal district court certified the following question of law to this Court to determine the appropriate interpretation of CL § 12-1018(b): If a credit grantor is found to have knowingly violated Credit Grantor Closed End Credit Provisions (“CLEC”), Maryland Code Annotated, Commercial Law §§ 12-1001, et seq., does [CL] § 12-1018(b) require the credit grantor to return three times: (1) all amounts collected by the credit grantor in excess of the principal amount financed; (2) only those amounts collected that the borrower contends violate CLEC (in this case, the convenience fees); or (3) some other amount? For the reasons that follow, we hold that CL § 12-1018(b) requires a credit grantor to return three times the amount of interest, fees, and charges collected that the borrower contends violate CLEC (in this case, the convenience fees). (2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which– (A) any member of a class of plaintiffs is a citizen of a State different from any defendant; (B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or (C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state. 28 U.S.C. § 1332 (d). 5 DISCUSSION A. Parties’ Contentions Mr. Lyles maintains that if a credit grantor knowingly violates CLEC, CL § 12-1018(b) requires the credit grantor to forfeit three times the amount of the unauthorized charges.

In this case, that would total $394.20, which is three times $131.40, the total amount collected for the twelve convenience fees charged. In support of this contention, Mr. Lyles relies upon the recent Court of Special Appeals’ holding in Bolling v. Bay Country Consumer Finance, Inc., 251 Md. App. 575 (2021). Mr. Lyles asserts that the Court of Special Appeals’ interpretation of CL § 12-1018(a)(2), in conjunction with the plain language of CL § 12-1018(b), indicates that a knowing violation of CLEC entitles the borrower to treble the unauthorized amounts charged. In addition, Mr. Lyles emphasizes that the legislative history of CL § 12-1018(b) demonstrates that the penalty provisions set forth in CLEC are identical to the penalties set forth in CL § 12-413, the Maryland Secondary Mortgage Loan Law.

Accordingly, Mr. Lyles asserts that caselaw and regulatory decisions interpreting CL § 12-413 provide the appropriate calculation of damages under CL § 12-1018(b). Before the federal district court, Santander argued that under CL § 12-1018(b) a credit grantor would be required to pay three times the amount collected in excess of the principal amount financed under the RISC. In this matter, that would total $19,118.01, which is three times $6,372.67, the amount Santander has collected above the amount financed under the RISC. However, before this Court, Santander did not substantively oppose Mr. Lyles’ interpretation of CL § 12-1018(b).

Counsel for Santander emphasized 6 at oral arguments the “interesting position” Santander maintains of “having an adversary reducing the amount sought by two million dollars.” Santander cautions that the Bolling decision is not properly before the Court. Therefore, it would be imprudent to endorse that holding here. Further, Santander maintains that Bolling did not specifically analyze CL § 12-1018(b) and, accordingly, should not influence this Court’s statutory interpretation. B. Caselaw Interpreting CL § 12-1018(a) The Court’s analysis of CL § 12-1018(b) begins, naturally, with CL § 12-1018(a).

See Berry v. Queen, 469 Md. 674, 687 (2020) (citing Neal v. Balt. City Bd. of Sch. Comm’rs, 467 Md. 399, 415 (2020)) (“Our inquiry is not confined to the specific statutory provision at issue on appeal.”). CL § 12-1018(a) provides, in part: (2) Except for a bona fide error of computation, if a credit grantor violates any provision of this subtitle the credit grantor may collect only the principal amount of the loan and may not collect any interest, costs, fees, or other charges with respect to the loan.

CL § 12-1018(a)(2). At the outset, the Court notes that the United States Court of Appeals for the Fourth Circuit, the United States District Court for the District of Maryland, and the Court of Special Appeals of Maryland have all interpreted CL § 12-1018(a)(2), some of which have produced divergent results. We address each case in turn. The United States Court of Appeals for the Fourth Circuit first wrestled with the statutory language of CL § 12-1018(a)(2) in Bedaiko v. American Honda Finance Corp., 7 537 F. App’x. 183, 186–87 (4th Cir. 2013).2 There, Melissa Bedaiko, on behalf of a putative class, asserted that American Honda Finance Corporation (“Honda Finance”) violated CLEC by providing inadequate notice of the private sale of her repossessed automobile.

Id. at 184. In 2004, Ms. Bedaiko purchased a used automobile with financing she obtained by a RISC. Id. at 185. Ms. Bedaiko eventually defaulted on her loan, and, as a result, Honda Finance repossessed her vehicle on or before April 28, 2005.

Id. Honda Finance notified Ms. Bedaiko in writing that it would sell the vehicle at a private sale after May 15, 2005. Id. Honda Finance sold the vehicle in a private sale on July 1, 2005, and subsequently sent a post-sale notice to Ms. Bedaiko demanding payment on the deficiency of $7,036.80, which remained due on the RISC.

Id. In 2010, Ms. Bedaiko filed a putative class action complaint in the United States District Court for the District of Maryland against Honda Finance alleging defects in the notice provided. Bedaiko, 537 F. App’x. at 185. Honda Finance filed a motion to dismiss asserting that Ms. Bedaiko’s claims failed as a matter of law.

Id. The court granted Honda Finance’s motion to dismiss, concluding that the purported CLEC violation did not result in any actionable damages “because CLEC permits Honda Finance to recover the principal amount of its loan notwithstanding the alleged CLEC violation.” Id. Ms. Bedaiko subsequently appealed to the United States Court of Appeals for the Fourth Circuit. Id.

The dispositive issue before the Fourth Circuit was whether Ms. Bedaiko failed to state a 2 Unpublished opinions of the United States Court of Appeals for the Fourth Circuit are not binding precedent in that court; however, it is appropriate to begin with Bedaiko, which laid the foundation for the published opinions that followed. 8 claim because Honda Finance had not collected more than the principal amount of her loan. Id. at 185–86. The Fourth Circuit agreed with the United States District Court for the District of Maryland’s conclusion that Ms. Bedaiko’s claims failed as a matter of law due to her deficiency in alleging actual, compensable damages. Bedaiko, 537 F. App’x. at 186.

The Court explained that CL §