Mostofi v. Midland Funding, LLC

NAZARIAN, J. Reza Mostofi appeals from the decision of the Circuit Court for Montgomery County to dismiss his Second Amended Complaint against Midland Funding, LLC (“Midland Funding”), Midland Credit Management, Inc. (“Midland Credit”), and Lyons, Doughty & Veldhuis, P.C. (“Lyons”) (collectively, the “appellees”) with prejudice. 1 Mr. Mostofi alleged that the appellees committed violations of the Fair Debt Collection Practices Act (the “FDCPA”) and analogous state statutes in the course of purchasing consumer credit card debt Mr. Mostofi had incurred, attempting to collect that debt, and suing (successfully) to reduce that debt to judgment in an earlier case (the “collection case”). We agree with the circuit court that Mr. Mostofi cannot attack that judgment collaterally, and we affirm its decision to dismiss this case. ⁶⁹⁰ I. BACKGROUND On November 12, 2012, Lyons brought the collection case in the District Court of Maryland for Montgomery County against Mr. Mostofi and on behalf of its clients, Midland Funding and Midland Credit. The complaint alleged that Mr. Mostofi owed $4,506.82 on a credit card account with Chase Bank, N.A.

(“Chase”), and that Midland Funding had purchased the debt from Chase. Although the record does not contain a transcript, Mr. Mostofi’s Notice of Intent to Defend raised the two arguments he asserts here: that he “is not indebted to [Midland Funding] as alleged” and that Midland Funding “does not have standing to sue.” It is less clear whether he articulated these arguments at the hearing in the district court. But there is no dispute that the district court entered judgment for Midland Funding and Midland Credit in the amount of $4,506.82, plus costs, on July 26, 2013. It is equally undisputed that Mr. Mostofi appealed the judgment to the Circuit Court for Montgomery County, where the case was heard de novo on October 31, 2013.

Again, Mr. Mostofi challenged Midland Funding’s standing to sue him, and he offered evidence that, he argued, demonstrated that the debt belonged to Washington Mutual, if to anyone: MR. MOSTOFI: [Y]our honor, what you’re looking at is a statement from Washington Mutual. THE COURT: I understand that. MR.

MOSTOFI: And it has the same account number that [counsel] alleges was Chase card. THE COURT: Okay. MR. MOSTOFI: And my point is that if this wasn’t a Washington Mutual I wouldn’t have a statement saying that it was a Washington Mutual card.

THE COURT: Okay. MR. MOSTOFI: So at some point, apparently, allegedly, it transferred from Washington Mutual to Chase, but there is no bill of sale showing that occurred. And in order for them to show standing and the fact that they are the ⁶⁹¹ rightful owner, they need to show the proper chain of assignments.

Lyons offered affidavits from Midland Funding employees to prove that it owned the debt, and Mr. Mostofi sought to cross-examine the affiants. It appears that the court rejected this request, and, in any event, that the affiants were not present. Mr. Mostofi also disputed the amount owed, and identified what he claimed were inconsistencies between statements about amounts owed as principal or interest. Lyons attempted to demonstrate that the debt was accurate by calling Mr. Mostofi to the stand and asking him details about several of the charges, with mixed success.

Based on the evidence, the circuit court ruled from the bench, and stated on the record that it ultimately disbelieved Mr. Mostofi and credited documents that Midland Funding offered into evidence but are not part of the record here: The court has had an opportunity—has received into evidence [Midland Funding’s] Exhibit Number 1, which is a document which contains voluminous references to this account, the Chase account, with [Mr. Mostofi’s] name and account number on it, with multiple charges that [Mr. Mostofi] has testified he doesn’t have any specific recollection of having used, which begs credulity at a minimum. The court is satisfied that [Midland Funding] has met its burden, and proven that they are the owner of the debt and the court will enter judgment in favor of [Midland Funding] in the amount of .. . $4,506.82 plus costs. Mr. Mostofi moved to set aside or vacate the judgment on December 5, 2013. The record here does not reveal a ruling on that motion or whether Mr. Mostofi appealed the judgment; the appellees proffer that the motion was denied and that Mr. Mostofi did not appeal. 2 Regardless, there is no ⁶⁹² dispute that the judgment in the collection case became, and for our purposes is, final.

Mr. Mostofi filed the Complaint in this case on November 27, 2013, before he filed his motion to set aside or vacate the judgment in the collection case. He amended the Complaint twice, and the Second Amended Complaint named Midland Funding, Midland Credit, and Lyons as defendants. As before, in the Complaint he contends that Midland Funding does not own his debt and that the amount allegedly owed was false. He complained that he had been deprived of the opportunity to cross-examine Midland Funding’s affiants— whom he characterized as “trial witnesses”—in violation of his due process rights.

He argued that because Midland Funding did not own the debt, lacked standing to sue him and that the judgment in the collection case was void. And he alleged that Midland Funding and Midland Credit’s assertions that they owned the debt, and the amount of the debt—as well as Lyons’s prosecution of the case on these grounds—constituted “false, deceptive, or misleading representations,” through which the appellees violated the FDCPA, the Maryland Consumer Debt Collection Act, and the Maryland Consumer Protection Act. Midland Funding, Midland Credit, and Lyons all moved to dismiss. Midland Funding and Midland Credit argued that Mr. Mostofi’s claims were barred by res judicata and collateral estoppel, and that in the alternative, he had failed to state a claim for which relief could be granted.

Lyons asserted that it had never been served in this case, and as such, filed its Motion before the Second Amended Complaint. The circuit court held a hearing on the Motions on July 16, 2014. Counsel for Lyons proffered that he had brought the firm’s receptionist, who was not authorized to receive service on its behalf, and who would testify that the sheriff who allegedly served Lyons incorrectly left the papers with her instead. When pressed, Mr. Mostofi said that he would “accept [Lyons’s] word for it.” Although he asked for another opportunity to serve Lyons, the court granted Lyons’s Motion ⁶⁹³ to Dismiss.

The court then heard argument from Midland Funding and Midland Credit, and rebuttal from Mr. Mostofi, focusing particularly on the res judicata and collateral estop-pel effects of the judgment in the collection case. Ultimately, the court held that to the extent Mr. Mostofi stated claims, 3 they were barred: [Ajpplying the relevant Maryland standard, I am persuaded of two things. One[:] the matters that [Mr. Mostofi] in this case seeks to relitigate [were] either actually raised or should have been raised in the [the collection case], and whether respectfully the decisions [the court] made were correct or incorrect—I don’t need to analyze that. What I need to analyze is, and I have, what was presented to [the court] and what [it] decided.

That [it] issued a judgment which is now final by virtue of the fact that no timely petition was filed to the Court of Appeals for writ of certiorari. In addition to that, having reviewed the case law by my federal colleagues—Judge Day, the Fourth Circuit, and other magistrate judge opinions— I choose to agree with their reasoning about what one has to plead in terms of the elements of the claims of the federal statute or statutes at issue. ..: So for those reasons, plus the reasons set out largely by Midland in their papers and as supplemented by counsel’s argument, Madam [Clerk], the Motion is granted. The Second Amended Complaint is dismissed with prejudice and without leave to amend. Mr. Mostofi filed a timely notice of appeal.

II

DISCUSSION Mr. Mostofi raises four questions for our review: ⁶⁹⁴ 1. Did the Circuit Court err in dismissing [Mr. Mostofi’s] claim for declaratory relief seeking to collaterally attack a void judgment entered by another court, which lacked subject-matter jurisdiction at the time it entered its judgment, and acted in a manner inconsistent with due process? 2. Did the Circuit Court err in dismissing [Mr. Mostofi’s] claim for violations of the [FDCPA], the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act, arising out of Appellees’ conduct in an underlying debt collection action, based on the doctrines of res judicata and claim preclusion, when under Maryland law [Mr. Mostofi] was not required to litigate his statutory claims as counter claims in the underlying collection action? 3. Did the Circuit Court err in dismissing [Mr. Mostofi’s] Complaint for failing to state a claim upon which relief can be granted for violations of the [FDCPA], the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act when [Mr. Mostofi’s] operative Complaint alleged, inter alia, that Appellees brought an improper debt collection action against [Mr. Mostofi], while they knew they did not own the alleged debt, and in addition intentionally misstated and inflated the principal amount of the debt? 4.

Did the Circuit Court abuse its discretion by dismissing [Mr. Mostofi’s] Complaint against Appellee Lyons pursuant to Md. Rule 2-507(b) when the case had been improperly removed to a federal court and subsequently remanded, [Mr. Mostofi] had diligently made attempts to effectuate service, Appellee Lyons had not been prejudiced, and dismissal of his claims prevents [Mr. Mostofi] from re-filing the complaint as the statute of limitations expired shortly after [Mr. Mostofi] filed his initial Complaint? Mr. Mostofi argues that the judgment entered against him in the collection case was a void judgment subject to collateral ⁶⁹⁵ attack, and therefore is not barred by principles of res judica-ta, because Midland Funding was never assigned his debt and lacked standing to collect or sue on it. He further argues that the appellees are, in fact, liable under the FDCPA and the parallel state statutes, and that he was not compelled to litigate his claims as compulsory counterclaims under Maryland law. And although Mr. Mostofi does not concede that he failed to effect service on Lyons, he argues that if he had, the circuit court abused its discretion by dismissing the case against the firm.

Midland Funding and Midland Credit argue that res judica-ta and collateral estoppel barred Mr. Mostofi’s claims, and dismissal was proper. They argue in the alternative that the circuit court properly dismissed the Second Amended Complaint because Mr. Mostofi had failed to state a claim for which relief may have been granted. Finally, Lyons simply argues that it was not served. We review the circuit court’s decisions de novo: In reviewing a lower court’s ruling on a motion to dismiss, we must determine whether the court was “legally correct.” We accept all well-pled facts in the complaint, and reasonable inferences drawn from them, in a light most favorable to the nonmoving party.

We also interpret Maryland case law to review whether the lower courts’ conclusions were correct as a matter of law. Cochran v. Griffith Energy Services, Inc., 426 Md. 134, 139 , 43 A.3d 999 (2012) (internal quotation marks and citations omitted). We may affirm even if a trial court has not provided the preferred legal conclusions for the result: [A]n appellate court will affirm a circuit court’s judgment on any ground adequately shown by the record, even one upon which the circuit court has not relied or one the parties have not raised. Therefore, it is within our province to affirm the trial court if it reached the right result for the wrong reasons. ⁶⁹⁶ Monarc Const., Inc. v. Aris Corp., 188 Md.App. 377, 385 , 981 A.2d 822 (2009) (quoting Pope v. Board of Sch.

Comm’rs, 106 Md.App. 578, 591 , 665 A.2d 713 (1995) (citation omitted)). We note at the outset that Mr. Mostofi’s claims reach us in a rare posture: there are no findings of fact for us to review, but the collection case was fully litigated and the time for appeal has passed. The findings of fact in that case do not exist in a vacuum. We must determine what bearing they have on Mr. Mostofi’s present case, and ultimately, whether principles of res judicata or collateral estoppel bar this case based on the result of the collection case.

Together, they do. A. Res Judicata Bars Mr. Mostofi’s Collateral Attack on His Debt. Res judicata and collateral estoppel are also known by their more descriptive names: claim preclusion and issue preclusion. Claim preclusion means a party can no longer bring a claim because a judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action, and is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit.

Lizzi v. Wash. Metro. Transit Authority, 384 Md. 199, 207 , 862 A.2d 1017 (2004) (quoting Alvey v. Alvey, 225 Md. 386, 390 , 171 A.2d 92 (1961)). Issue preclusion means that if a previous case took place between the same parties or their privies, and the fact-finder made a finding that was “essential to” the judgment entered, all future cases between those parties are stuck with that finding and cannot re-litigate the question.

Welsh v. Gerber Products, Inc., 315 Md. 510, 516 , 555 A.2d 486 (1989). In sum, claim preclusion bars litigation of claims, whereas issue preclusion generally bars re-litigation of facts. 4 . These two doctrines serve the same judicial policy: ⁶⁹⁷ “that the losing litigant deserves no rematch after a defeat fairly suffered, in adversarial proceedings, on issues raised, or that should have been raised.” Colandrea v. Wilde Lake Community Ass’n, Inc., 361 Md. 371 , 761 A.2d 899 (2000). When a party is sued, and that party could bring a permissive counterclaim, he or she is not required to “raise or waive” that counterclaim unless successful prosecution of it would nullify the other party’s claim: (1) Where the defendant may interpose a claim as a counterclaim but he fails to do so, he is not thereby precluded from subsequently maintaining an action on that claim, except as stated in Subsection (2).

(2) A defendant who may interpose a claim as a counterclaim in an action but fails to do so is precluded, after the rendition of judgment in that action, from maintaining an action on the claim if: (a) The counterclaim is required to be interposed by a compulsory counterclaim statute or rale of court, or (b) The relationship between the counterclaim and the plaintiffs claim is such that successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action. Rowland v. Harrison, 320 Md. 223, 232 , 577 A.2d 51 (1990) (quoting Restatement 2d of Judgments (1982) (Emphasis in original)). Rowland involved a veterinarian who sued to collect unpaid fees. Id. at 225-26 , 577 A.2d 51 .

Ms. Rowland, the pet owner, claimed that Dr. Harrison had provided negligent care, and initially intended to raise his negligence as both a defense and a counterclaim. Id. However, Ms. Rowland ultimately asked the trial court to dismiss her counterclaim without prejudice because she could not gather the necessary evidence or expert testimony to pursue it fully in time for the debt collection action. Id. at 226-27 , 577 A.2d 51 .

The trial court agreed, and granted Ms. Rowland’s motion. Id. at 227 , 577 A.2d 51 . But when she re-filed her negligence claim in a new complaint, the trial court granted summary judgment ⁶⁹⁸ against her on claim preclusion/res judicata grounds. Id. at 227-28 , 577 A.2d 51 .

The Court of Appeals reversed. Deciding as a matter of law that the “issue of negligence was [njeither litigated [n]or determined by [the trial court] in the debt action,” 5 the Court held that the trial court “was in error when [it] concluded that the Maryland counterclaim rule is compulsory and required that [Ms. Rowland] assert her malpractice claim in Harrison’s debt action or lose her right to litigate that matter under the doctrine of res judicata.” Id. at 230-31 , 577 A.2d 51 . Rather, the Court held that Maryland Rule 2-331, “Maryland’s counterclaim rule, by its plain terms, is permissive and not mandatory.” 6 Id. at 233 , 577 A.2d 51 . The Court, adopting the Restatement 2d of Judgments’ approach, held that a subsequent counterclaim is precluded only where the claim “would nullify the initial judgment or would impair rights established in the initial judgment.” Id. at 236 , 577 A.2d 51 .

Alternately quoting and paraphrasing comment f of § 22(2)(b) of the Restatement, the Court explained that Comment / gives examples of subsequent judgments which would nullify previous judgments such as “allowing thé defendant to enjoin enforcement of the [previous] judgment, or to recover on a restitution theory the amount paid pursuant to the judgment (see Illustration 9), or by depriving the plaintiff in the first action of property rights vested in him under the first judgment (see Illustration 10).” ⁶⁹⁹ Illustration 2, which refers to comment f, recognizes that after receiving a default judgment against a patient for medical services rendered, the patient may subsequently maintain a malpractice action, but “is precluded ... from seeking restitution of any amount paid pursuant to the [previous] judgment.” Id. at 237, 577 A.2d 51 . The Court observed that “[w]ere Rowland to successfully prosecute her malpractice action