McDaniel v. American Honda Finance Corp.

HARRELL, Judge. In this appeal we are asked to address the merits of a question, which, because of intervening procedural issues, we foresook in a previous opinion in Simpkins v. Ford Motor Credit, 389 Md. 426, 430-31 , 886 A.2d 126, 129 (2005). 1 Specifically, that question is whether a late fee charged by the lessor of a motor vehicle, in the first instance, constitutes interest and, if so, whether the rate of interest charged was lawful ⁷⁸ under Maryland constitutional and statutory law. The Circuit Court for Prince George’s County dismissed lessees-Appellants’ First Amended Complaint, which alleged that the late fee assessed by lessor-Appellee was an amount in excess of the legal rate of interest of 6% per annum, as provided by Article III, § 57 of the Maryland Constitution. The trial court concluded that the amount charged for the late fee, set by the lease agreement, was lawful because Maryland Code (1975, 2000 Repl.Vol.), Commercial Law Article (hereinafter “Commercial Law”), § 14r-2002(g)(l)(i) 2 authorized a lessor to charge late fees set in the lease agreement, which would not be deemed to be interest.

Not being interest, the late fees, and in particular their amount, were not governed by the limit imposed by Article III, § 57. We shall affirm the Circuit Court’s judgment. I. FACTS The three representative plaintiffs in this putative class action suit executed lease agreements for personal use motor vehicles, within the same relative period of time, 3 with American Honda Finance Corporation and its various entities (“American Honda”). Each agreement, although involving different dealerships, contained a nearly identical term providing for a “late charge”: “I will pay a late charge equal to the lesser of $25 or 5% of the unpaid portion on any payment that is not received within 10 days after it is due, or such lesser amount as set by law.” 4 Each plaintiff alleged that American ⁷⁹ Honda assessed, and each plaintiff paid, a single late fee prescribed by the above-quoted term for failing to remit timely a monthly amount due under their respective leases. 5 ⁸⁰ II.

PROCEDURAL HISTORY On 15 September 2000, McDaniel filed, in the Circuit Court for Prince George’s County, a Complaint against American Honda, seeking class action certification and asserting that American Honda charged her and putative class members a late fee in excess of the 6% per annum limit on interest prescribed by the Maryland Constitution. On 13 December 2000, McDaniel amended her Complaint to include two additional representative plaintiffs, Yanick Hazlewood and Laura Baptista (collectively “Appellants”). The First Amended Complaint alleged four theories of recovery or relief: (1) the late fees provision was an unlawful liquidated damages contract term exceeding the 6% per annum constitutional limit on interest, (2) a declaratory judgment to the effect that the collection of such a damages provision is not permitted by statute, (3) violation of the Maryland Motor Vehicle Leasing A ct, 6 and (4) violation of the Maryland Consumer Protection Act. 7 Compensatory and statutory damages, and declaratory and injunctive relief, were sought. Reformation of the leases was not sought.

The Circuit Court stayed the proceedings on 13 February 2001 in contemplation of the disposition of an expedited appeal to this Court in Dua v. Comcast Cable of Md., Inc., 370 Md. 604 , 805 A.2d 1061 (2002), a case which the trial court felt raised issues bearing directly on those in the present ease. The stay was continued by the Circuit Court in 2003 in light of ⁸¹ this Court issuing a writ of certiorari to the Court of Special Appeals in the Simpkins case, which facially presented substantive issues very similar to those posed in the instant case. On 21 March 2006, the Circuit Court lifted the stay because of our decision to remand Simpkins to the trial court for the consideration of procedural issues unrelated to the merits of those substantive questions. American Honda filed a Motion to Dismiss for failure of the First Amended Complaint to state a cause of action upon which relief may be granted.

After conducting a hearing on the motion, the trial court, on 1 September 2006, dismissed all claims and declared that American Honda was entitled to charge late fees, as framed in the contracts, pursuant to Commercial Law § 14-2002(g). Evidently, the trial court was persuaded, and perceived itself to be bound, by the Court of Special Appeals’s opinion in Simpkins v. Ford Motor Credit, 160 Md.App. 1 , 862 A.2d 471 (2004). 8 Simpkins and the ⁸² present case involve automotive finance companies charging late fees for untimely lease payments, challenged as exceeding the legal rate of interest set by the Maryland Constitution. Article III, § 57 of the Maryland Constitution provides, in pertinent part, that the legal rate of interest is 6% per annum “unless otherwise provided by the General Assembly.” (emphasis added). As understood by the Circuit Court here, the General Assembly so provided by enacting Commercial Law §' 14-2002(g), which states that, if a motor vehicle lease permits, a lessor may impose late payment fees on a lessee.

In reaching this conclusion, the Circuit Court relied on the intermediate appellate court’s reasoning in Simpkins, holding that late fees authorized by Commercial Law § 14-2002(g) are not interest and are exempt from the constitutionally prescribed maximum interest rate. Accordingly, the Circuit Court dismissed the Complaint. Appellants noted a timely appeal to the Court of Special Appeals. Before the intermediate appellate court could decide the case, Appellants petitioned for, and we granted, a writ of certiorari. 396 Md. 12 , 912 A.2d 648 (2006).

In the petition, two questions are presented for our review: 1. Did § 14-2002(g)(l) of the Commercial Law Article authorize [Appellee] American Honda Finance Corporation to charge [Appellants] a late fee in excess of 6% per annum, the legal limit on interest set forth in Article III, § 57 of the Maryland Constitution? 2. Did § 14-1315 of the Commercial Law Article authorize [Appellee] American Honda Finance Corporation to charge [Appellants] a late fee in excess of 6% per annum even though [Appellants’] lease agreements with American Honda were entered into prior to the October 1, 2000 effective date of section 14-1315? Because we conclude that Appellants did not state a claim upon which relief could be granted, we affirm the judgment of the Circuit Court dismissing the action. ⁸³ III.

STANDARD OF REVIEW The standard of review for a grant of a motion to dismiss is well-settled. In Debbas v. Nelson, 389 Md. 364 , 885 A.2d 802 (2005), we reiterated that: In reviewing the underlying grant of a motion to dismiss, we must assume the truth of the well-pleaded factual allegations of the complaint, including the reasonable inferences that may be drawn from those allegations. In the end, “[dismissal is proper only if the complaint would fail to provide the plaintiff with a judicial remedy.” In sum, because we must deem the facts to be true, our task is confined to determining whether the trial court was legally correct in its decision to dismiss. 389 Md. at 372, 885 A.2d at 807 (citations omitted); see also Fioretti v. Md. State Bd. of Dental Exam’rs, 351 Md. 66, 71-72 , 716 A.2d 258, 261 (1998).

IV

DISCUSSION Appellants argue that, under our decision in United Cable Television of Baltimore v. Burch, 354 Md. 658 , 732 A.2d 887 (1999) (Burch 7), the late fees American Honda assessed them for late payments under their leases constitute interest subject to the Constitutional rate limitation thereon. This is because the late fee, like the “administrative fee” charged by United Cable Television in Burch I for the late payment of cable bills, is not authorized by statute to exceed the 6% per annum limit on interest. Burch I, 354 Md. at 675 , 732 A.2d at 896 . Appellants contend, in riposte to American Honda’s assertions and the Circuit Court’s reasoning, that Commercial Law § 14-2002(g)(1)® does not sanction what Appellants calculate to be a 182.5% annual interest rate. 9 Therefore, they seek restitu ⁸⁴ tion and other recompense for any late fee amounts exceeding the constitutional 6% rate “cap.” We hold, however, pursuant to Commercial Law § 14—2002(g)(1)(i), that the late fees American Honda charged Appellants are not interest and the timing and amount of such fees are governed by the terms of the leases in question.

A. The General Assembly “Provided Otherwise” by Enacting Commercial Law § 14—2002(g)(1)(i) As we noted previously, Article III, § 57 of the Maryland Constitution provides, in pertinent part, that the legal rate of interest is 6% per annum “unless otherwise provided by the General Assembly.” (emphasis added). This Court, in Burch I, held that, because the General Assembly did not authorize or regulate by statute the assessment of late fees for untimely payment of cable bills, the late fees charged by the cable provider remained subject to the limit on interest rates imposed by Article III, § 57. 354 Md. at 681 , 732 A.2d at 899 . That is not the case here. Application of the principles of statutory interpretation lead us to the conclusion that the General Assembly “provided otherwise” by enacting Commercial Law § 14-2002(g)(l)(i), which applies to consumer motor vehicle leasing contracts such as those binding Appellants.

See Commercial Law § 14-2001(g). In Mayor & Town Council of Oakland v. Mayor & Town Council of Mountain Lake Park, 392 Md. 301 , 896 A.2d 1036 (2006), we said: The cardinal rule of statutory construction is to ascertain and effectuate the intent of the Legislature. In ascertaining legislative intent, we first examine the plain language of the statute, and if the plain language of the statute is unambiguous and consistent with the statute’s apparent purpose, we give effect to the statute as it is written. If a statute has more than one reasonable interpretation, it is ambiguous.

If the language of the statute is ambiguous, we ⁸⁵ resolve the ambiguity in light of the legislative intent, considering the legislative history, case law, and statutory purpose. We consider both the ordinary meaning of the language of the statute and how that language relates to the overall meaning, setting, and purpose of the act. We avoid a construction of the statute that is unreasonable, illogical, or inconsistent with common sense. We construe a statute as a whole so that no word, clause, sentence, or phrase is rendered surplusage, superfluous, meaningless, or nugatory. 392 Md. at 316 , 896 A.2d at 1045 (citations omitted).

Section 14-2002(g)(l)(i) provides, “[i]f a lease permits, a lessor may impose on the lessee: [a] late or delinquency charge for payments or portions of payments that are in default under the lease.” The statute plainly authorizes late fees, thus permitting and regulating that which ordinarily was not permitted otherwise at that time. See Burch I, 354 Md. at 680 , 732 A.2d at 899 . The question remains whether these authorized late fees constitute interest. We believe that had the General Assembly intended the “late charges” under § 14-2002(g)(l)(i) to be considered interest, the Legislature would have labeled them as such. 10 Instead, the General Assembly chose to refer to them as “late or delinquency charges.” The General Assembly, particularly at the time Commercial Law § 14-2002(g)(l)(i) was enacted, demonstrated that it knew how to distinguish “late charges” from “interest.” See, e.g., Maryland Code (1995, 2003 RepLVol.), Insurance Article, § 6-108(a) (“A tax not paid when a report or declaration is due to be filed is subject to a penalty of 5% and interest....”) (emphasis added); Maryland Code (1974, 2003 RepLVol.), Real Property Article, § ll-110(d) (“Payment of assessments, together with interest, late charges, if any, costs ⁸⁶ of collection and reasonable attorney’s fees may be enforced by the imposition of a lien on a unit in accordance with the provisions of the Maryland Contract Lien Act.”) (emphasis added); Maryland Code (1974, 2003 Repl.Vol.), Real Property Article, § 11A-I10(e)(l)(ii) (same); Maryland Code (1993, 2004 Repl.Vol.), State Personnel & Pensions Article, § 21-314(d)(2) (“A participating employer that does not submit supporting payroll data as required by the State Retirement Agency within the time required is liable for: (i) a late charge of $250 for each payroll for which the supporting data is late; and (ii) interest on delinquent late charges at 10% per year if the late charge is not paid by the date certified by the State Retirement Agency.”) (emphasis added).

It makes no difference in our analysis that several other statutes, classified by Burch I as Class II and III statutes, 11 declare specifically that the late charges they authorize are not interest. See Burch I, 354 Md. at 676 -77 & nn. 6-8, 732 A.2d at 897 -98 & nn. 6-8. This is because Class I statutes, which do not state specifically that their authorized late fees are not interest, are no more informative on the matter of interest than Class IV statutes, of which § 14-2002(g)(l)(i) is an example; 12 yet, late fees authorized by Class I statutes presumably still are not subject to the limitation on interest in Article III, § 57. See Burch I, 354 Md. at 680 , 732 A.2d at 899 (“[Ajbsent statutory authorization, [late fees] would constitute interest on the presently due and payable debt and would ⁸⁷ be subject to the limitations on interest.”).

But see Burch I, 354 Md. at 685 , 732 A.2d at 901 (“[W]e intimate no opinion on whether late charges in other types of transactions [than those unauthorized by statute], particularly those falling within Class IV, ... are or are not interest.”). In any event, Burch I did not rely on the fact that Class II and III statutes contained “disclaimers stating that certain statutorily authorized late charges are not interest,” but viewed them as merely “reinforcing [its] conclusion” that Class I, II, and III statutes depart from the constitutional interest rate limitation. 354 Md. at 680 , 732 A.2d at 899 . The very fact that Commercial Law § 14—2002(g) (1) (i) was enacted to permit late fees is indicative that the Legislature intended to fit situations such as are presented in the present case within the exception provided in Art. Ill, § 57. By its plain terms, the statute allows contracting parties to agree to the assessment of late fees.

Commercial Law § 14-2002(g)(1)® (“If the lease permits____”). This provision allows contracting parties to decide whether to assess and the amount of the late fee, rather than be governed by a default mechanism where Art. Ill, § 57 would treat such charges as interest. We believe it to be no coincidence that the language delegating the assessment of a late fee to the contracting parties also is found in the representative Class II and III statutes highlighted in Burch I, 354 Md. at 676 -77 & nn. 6-8, 732 A.2d at 897 nn. 6-8,. The representative Class II statute contained the phrase “[i]f the loan contract provides for them ____” Commercial Law § 12-105(b).

The highlighted Class III statutes contained similar wording. Commercial Law § 12-910(a) (“If the agreement governing a revolving credit plan permits.... ”); Commercial Law § 12-1008(a) (“If the agreement governing a loan permits .... ”). Accordingly, we conclude that, pursuant to Commercial Law § 14-2002(g)(l)(i), whatever late fees Appellants incurred before 1 June 2000 and after 1 January 1996 were not interest, and therefore were not subject to the limitation of 6% per annum interest rate imposed by Art. Ill, § 57. As for any ⁸⁸ late fees that may have been assessed after 1 June 2000, 13 we hold that the controlling statute is Commercial Law § 14-1315(d)(1), which was enacted by the General Assembly in response to Burch I specifically to clarify that “[a] late fee imposed under [a consumer contract] is not ... [interest.” There is no question that the motor vehicle leases executed by Appellants fall within the bounds of § 14-1315. 14 The statute plainly covers “consumer contracts,” which entail “the ... lease ... of goods ... which are for personal, family, or household purposes.” Commercial Law § 14-1315(a)(2).

The lease of a motor vehicle is undoubtedly the type of contract for a personal or family good contemplated by the ⁸⁹ statute. 15 It is also evident that American Honda’s late fee, which is calculated as a percentage of the amount due, is precisely what the statute regards as a late fee. Commercial Law § 14—1315(a)(4)(ii)2. Because Commercial Law § 14-1315(d)(1) states that late fees assessed in accord with consumer contracts are not interest, contradicting the foundation of Appellants’ argument that any late fees charged here after 1 June 2000 are interest, the remainder of their argument concerning the constitutional rate of interest becomes moot. Thus, any late fees charged by American Honda after 1 June 2000 are governed properly by the terms of the contracts American Honda executed with its lessees.

See Commercial Law § 14-1315(b), (c). To the extent that § 14—1315(d)(1) is construed to govern any late fees assessed to and/or paid by Appellants after 1 June 2000, Appellants argue the application of the statute to their leases executed before the effective date of the statute impairs their contract rights impermissibly. They are wrong for the simple reason that the supervening law has not changed the substance of their leases. The test for determining whether a subsequently enacted statute impairs the obligations of a contract under the Contract Clause of the U.S. Constitution 16 and its closest Maryland counterpart 17 is well-settled. “In determining whether an enactment violates the clause, a court engages in a three part inquiry: ‘[ (1) ] whether there is a contractual ⁹⁰ relationship, [(2)] whether a