WFS Financial, Inc. v. Mayor of Baltimore

HARRELL, J. I. The facts of this case are straightforward and undisputed. On 5 August 2004, Allen S. Cooley and Karen A. Cooley agreed to purchase a 1999 Chevrolet Tahoe from Fox Chevrolet, Inc., with financing provided by WFS Financial, Inc. (“WFS”). The sales contract and security agreement for the vehicle were assigned to WFS. WFS perfected the security interest in the vehicle.

On 18 May 2006, the vehicle was seized by the Baltimore City Police Department in the course of an investigation into illegal drug trafficking. 1 On 29 June 2006, the Mayor and City Council of Baltimore (“the City”) filed a complaint in the Circuit Court for Baltimore City seeking forfeiture of the vehicle, pursuant to Title 12 of the Maryland Criminal Proce ⁴ dure Article. 2 The City notified WFS of its intent to seek forfeiture via service of the complaint and a summons issued on 3 July 2006. 3 The Cooleys subsequently defaulted on payments owed to WFS under the sales contract and security agreement. In a letter dated 2 August 2006, WFS, closely following the requirements enumerated in § 12-101, notified the City of its intent to sell the vehicle, 4 provided copies of the sales contract, security agreement, assignment, and security interest filing, 5 and provided an affidavit stating the reasons for the default. 6 WFS requested that the City release the seized vehicle to it. Although the City agreed that the vehicle should be released to WFS, the City demanded that WFS pay approximately $200 in towing and storage fees as a condition precedent to the release of the vehicle. WFS retorted that the City’s towing and storage fees should be paid out of the proceeds of the sale of the vehicle, if the vehicle is sold for more than the underlying debt owed on the sales contract.

WFS filed a motion in the Circuit Court in the forfeiture action seeking an order releasing the vehicle without the requirement that the towing and storage fees be paid prior to release. The Circuit Court agreed with the City’s position. WFS appealed to the Court of Special Appeals. Before that court could decide the appeal, we granted certiorari, on our initiative, to consider whether an innocent lienholder is re ⁵ quired to pay towing and storage fees as a condition precedent to the release of a seized, but not yet forfeited, vehicle.

II

There are two different routes by which a lienholder may repossess and sell property seized pursuant to Title 12 of the Criminal Procedure Article. The distinguishing feature between the two procedures is the forfeiture hearing. If a forfeiture hearing has been held, § 12-402 applies. By contrast, if a forfeiture hearing has not been held and the property has merely been seized, §§ 12-501 to 12-505 govern.

Although in the present case a forfeiture hearing has not been held, and thus §§ 12-501 to 12-505 apply, the two statutory schemes are related nonetheless and should be considered together. Accordingly, we shall inquire into the relevant history and application of both statutory schemes to illuminate our path here. In 1970, the General Assembly repealed the Uniform Narcotic Drug Act and replaced it with the Maryland Controlled Dangerous Substances Act. State v. One 1983 Chevrolet Van Serial No. 1GCCG15D8D 104615, 309 Md. 327, 329 , 524 A.2d 51, 52 (1987) (citing Chapter 403 of the Acts of 1970).

The statute contained provisions that permitted forfeiture of “property used ... to transport ... [illegal drugs].” Chapter 403 of the Acts of 1970. The statute, however, contained very little protection for holders of perfected security interests or innocent owners of seized vehicles. After this Court decided Prince George’s County v. Blue Bird Cab, 263 Md. 655 , 284 A.2d 203 (1971), 7 the Legislature amended the statute to offer more protection to innocent owners. No protection then was included for lienholders.

Ford v. General Motors Acceptance ⁶ Corp., 98 Md.App. 257, 265 , 633 A.2d 410, 414 (1993) (citing Chapter 659 of the Acts of 1972). Car dealers complained that the law provided inadequate notice to lienholders, permitted the State to hold vehicles for more than one year (exposing them to theft and vandalism), and provided that proceeds from forfeited vehicles may be used to pay for seizure and forfeiture costs before secured debts. ' Dealers pointed out that this often left insufficient funds to pay off the purchase money debts owed by the owners of a forfeited vehicle. Dep’t of Legislative Reference, Senate Judicial Proceedings Committee, Committee Report System: Summary of Committee Report, S.B. 589, at 3 (1984). In response, the General Assembly enacted S.B. 589 in 1984.

The stated purposes of the bill included “altering the provisions for application of proceeds of repossessed goods that are resold” and “providing for the release of a motor vehicle to the holder of a security interest in certain circumstances.” Chapter 549 of the Acts of 1984. The bill repealed Maryland Code (1957, 1976 Repl. Vol., 1977 Cum.Supp.), Art. 27, § 297(f), which had provided: The proceeds of sale shall be applied first to payment of all proper expenses of the proceedings for forfeiture and sale including expenses of seizure, maintenance of custody, advertising and court costs; secondly to payment of the balance due on a lien (if any). The balance (if any) shall be deposited in the general funds of the state.

Senate Bill 589 enacted Maryland Code (1957, 1987 Repl. Vol.) Art. 27, § 297(j), which provided: (1) If, after a full hearing, the court determines that the motor vehicle should not be forfeited, the court shall order that the motor vehicle be released. (2) (i) If the court determines that the motor vehicle should be forfeited, the court shall order that the motor vehicle be forfeited to the state. (ii) If, however, the court determines that the forfeited motor vehicle is subject to a bona fide recorded security ⁷ interest created without the knowledge that the motor vehicle was being, or was to be used in violation of this subtitle, the court shall order that the motor vehicle be released within 5 days to the secured party of record.

(iii) The secured party shall sell the motor vehicle in a commercially reasonable manner. (iv) The proceeds of the sale shall be applied as follows: 1. To the court costs of the forfeiture proceeding; 2. To the balance due the secured party including all reasonable costs incident to the sale; 3.

To payment of all other expenses of the proceedings for forfeiture, including expenses of seizure, or maintenance of custody; and 4. To the general funds of the state or the political subdivision that seized the motor vehicle. 8 The Committee Report stated that the intent of certain committee amendments to S.B. 589, retained in the enacted bill, was to ensure that “the balance of proceeds of the sale of goods seized in connection with a drug arrest shall go to state or local funds only after the holder of a secured interest is paid.” Senate Judicial Proceedings Committee, Committee Report System: Committee Report, S.B. 589, at 4 (Md.1984). The Report also noted that the law was intended to “make the Commercial Law article consistent with the Crimes and Punishments article.” Senate Judicial Proceedings Committee, Committee Report System: Committee Report, S.B. 589, at 6 (Md.1984). In order to render the two articles consistent, the ⁸ bill limited an owner’s right of redemption if the “goods were seized by a police department, bureau, or force and the goods were repossessed because of that seizure, in which event, the buyer shall have no right to redeem or take possession, even if the buyer tenders payment of the entire balance due under the agreement.” Chapter 549 of the Acts of 1984.

In addition, companion changes to the Commercial Law Article ensured that the owner of the vehicle was not to receive the proceeds of the sale of forfeited property. 9 The relevant provisions enacted in 1984 remain in effect today with only minor technical amendments achieved through recodification. Maryland Code (1957, 1987 Repl.Vol.), Art. 27, § 297(j) became Maryland Code (2001) Criminal Procedure Article § 12-402, which provides as follows: (a) After a full hearing, if the court determines that the property should not be forfeited, the court shall order that the property be released. (b) Subject to § 12-403(b) of this subtitle, if the court determines that the property should be forfeited, the court shall order that the property be forfeited to the appropriate governing body. (c) If the court determines that the forfeited property is subject to a valid lien created without actual knowledge of the lienholder that the property was being or was to be used in violation of the Controlled Dangerous Substances law, the court shall order that the property be released within 5 days to the first priority lienholder. ⁹ (d) (1) The lienholder shall sell the property in a commercially reasonable manner.

(2) The proceeds of the sale shall be applied as follows: (i) to the court costs of the forfeiture proceeding; (ii) to the balance due the lienholder, including all reasonable costs incident to the sale; (iii) to payment of all other expenses of the proceedings for forfeiture, including expenses of seizure or maintenance of custody; and (iv) except as provided in § 12—403(b) of this subtitle, to the General Fund of the State or of the political subdivision that seized the property. It is clear from the plain meaning of the statute, corroborated by the legislative history, that the Legislature intended for seizure and maintenance costs to be paid after the balance due the lienholder is paid from the proceeds of sale. The Legislature repealed the earlier statute prioritizing seizure costs ahead of the lienholder’s balance. In its place, the Legislature enacted a law which expressly relegated the payment of seizure and storage costs to payment after the lienholder is satisfied from the proceeds of sale.

The Summary of Committee Report regarding S.B. 589 expressed the purpose of the statute as being to affect such a change. That provision has been recodified without substantial change and remains in effect today. If, after a forfeiture hearing, the court finds that forfeited property is subject to a valid security interest, the lienholder is entitled to payment from the proceeds of sale before payment of towing and storage expenses to the forfeiting authority. In cases where there has not been a forfeiture hearing, §§ 12-501 to 12-505 apply, which were recodified from Maryland Code (1957, 1996 RepLVoL), Art. 27, § 297(r).

In 1988, the General Assembly enacted Senate Bill 385. Chapter 586 of the Acts of 1988. Senate Bill 385 enacted Maryland Code (1957,1996 Repl.Vol.), Art. 27, § 297(r), which provided: ¹⁰ (r)(l )This subtitle may not be construed to prohibit a secured party from exercising its rights under applicable law, including the right to sell a motor vehicle that has been seized under this subtitle, in the event of a default in the obligation giving rise to the security interest. (2) (i) A secured party exercising the right to sell a motor vehicle that has been seized under this section shall notify the State’s Attorney in writing of the secured party’s intention to sell the motor vehicle.

(ii) The notice shall be accompanied by copies of documents giving rise to the security interest and shall include an affidavit under oath by the secured party that the underlying obligation is in default and the reasons for the default. (iii) Upon request of the secured party, the motor vehicle shall be released to the secured party. (3) Except as provided in paragraph 4 of this subsection, the rights and duties provided by law to the secured party for the sale of collateral securing an obligation in default shall govern the repossession and sale of the motor vehicle. (4) (i) A secured party may not be required to take possession of the property prior to the sale of the vehicle.

(ii) The proceeds of the sale shall be applied first to the costs of the forfeiture proceeding, then as provided by law for distribution of proceeds of a sale by the secured party. (iii) Any portion of the proceeds that would be paid to an owner of the vehicle under the applicable law relating to distribution of proceeds shall be paid to the seizing agency and subject to forfeiture. If no order of forfeiture is entered, the State shall remit to the owner that portion of the proceeds and any costs of the forfeiture proceedings paid from the proceeds of the sale. (5) (i) If the interest of the owner in the motor vehicle is redeemed, the secured party shall mail a notice of the redemption to the State’s Attorney within 10 days after the redemption ¹¹ (ii) If the motor vehicle has been repossessed by the secured party, the secured party shall return the motor vehicle to the seizing agency within 21 days after redemption.

(iii) The seizing authority and the State’s Attorney may then proceed with the forfeiture of the motor vehicle or the proceeds, and all time limitations required under this section for notice and filing of the complaint for forfeiture shall run from the date of redemption or purchase of the motor vehicle. Then Chief Judge Wilner, writing for the Court of Special Appeals in Ford v. General Motors Acceptance Corp., 98 Md.App. 257, 271 , 633 A.2d 410, 417 (1993), 10 summarized the legislative purpose of that statute: One purpose of the bill ... was explained in the Senate Judicial Proceedings Committee Floor Report. The Committee noted that “[t]his bill allows a secured party to sell a motor vehicle seized for violations of the controlled dangerous substance laws if the owner of the vehicle is in default on payments.” It explained that “[ujnder current law, the secured party must wait until the court decides the forfeiture issue” and that the purpose of the bill was “to allow a lender to realize his collateral if the underlying obligation is in default, without waiting for the completion of the forfeiture.” (emphasis and citations omitted) The Senate Judicial Proceedings Committee Bill Analysis for S.B. 385 offers further insight into the legislative intent: Under current law, the secured party must wait until the court decides the forfeiture issue. If forfeiture is ordered, the secured party may sell the vehicle.

The proceeds are applied as follows: (1) to court costs; (2) to the balance due the secured party; (3) to all other expenses of the forfeiture ¹² proceeding including expenses of the seizure and maintenance of custody; and (4) to the general funds of the State or political subdivision that seized the vehicle. The purpose of this bill is to allow a lender to realize his collateral if the underlying obligation is in default, without waiting for the completion of the forfeiture. Senate Judicial Proceedings Committee, Committee Report System: Bill analysis, S.B. 385 (Md.1988). The Legislature, in essence, created a “fast track” for secured parties to repossess a seized vehicle when the owner of the vehicle is in default. 11 We can find nothing to indicate that the Legislature intended to change the priority of payment scheme in the new expedited process.

In