In Mostofi v. Midland Funding, LLC, et al., the Maryland Court of Special Appeals held that a debtor could not collaterally attack a credit card judgment on jurisdictional grounds, where he raised and lost on the same issues in the prior collection case. The Court distinguished a prior decision – which held that judgments in favor of an unlicensed debt collector are void – because, unlike the present case, the judgments at issue in the prior decision were uncontested.
The Court further rejected the Debtor’s claims under the Fair Debt Collection Practices Act, 15 U.S.C. §1692, et seq. (FDCPA), including claims that the Creditor’s attorney failed to engage in meaningful review prior to filing suit, and expressly rejected the rationale of Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014).
A copy of the opinion is available here.
In Mostofi, Debtor had incurred credit card debt that had ultimately been assigned to Creditor. In a prior collection case, Debtor claimed that Creditor lacked standing, because he claimed it lacked a proper chain of assignment for the debt and challenged the count owed. Ultimately, after exhausting his appeals, a final judgment was rendered in favor of Creditor.
Separately, Debtor filed a lawsuit in state court, which was ultimately amended to assert that because Creditor “did not own the debt, [it] lacked standing to sue him and the judgment in the collection case was void.” Slip Op. at 4. Debtor also asserted claims against Creditor and its attorneys under the FDCPA and related state statutes premised upon his theory that Creditor’s claim of ownership and the amount of the debt constituted “false, deceptive, or misleading statements,” Slip Op. at 5, and alleged that the attorneys failed to engage in meaningful review of the lawsuit before filing, asserting this conduct also violated the FDCPA as articulated in Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014).
Creditor moved to dismiss, contending that Debtors claims were barred by res judicata, and collateral estoppel, and otherwise failed to state a viable claim for relief. After determining that the law firm had not been properly served, the trial court granted Creditor’s motion to dismiss, and Debtor appealed.
Affirming, the Maryland intermediate appellate court held that Debtor’s attack on the judgment was barred under the doctrine of res judicata due to the prior judgment in the collection action. The Court explained that under Maryland’s permissive counterclaim rules, a defendant “is not required to ‘raise or waive’ that counterclaim unless successful prosecution of it would nullify the other party’s claim . . . .” Slip Op. at 9 (Emphasis added).
The Court observed that Debtor’s “explicit purpose” in arguing that Creditor lacked standing to sue him, was to render the collection case’s judgment a nullity. Slip Op. at 12. “Having failed to convince one trial court that jurisdiction was a problem, and having failed to appeal, [Debtor] does not get another bite at the apple, even if we were to assume that he was right (and we do not) about who owned his debt. His collateral attack on the underlying debt judgment, then, is barred under res judicata.” Slip Op. at 14-15.
Relying on Finch v. LVNV Funding LLC, 212 Md. App. 748 (2013), involving an alleged unlicensed debt collection agency, Debtor argued that “a void judgment ‘may be assailed at all times,’ and ‘[i]t does not constitute res judicata.’” Slip Op. at 12. Notably, the Finch Court held that “[a] complaint filed by an unregistered collection agency is a nullity, and any judgment entered on such a complaint is void.” Slip Op. at 13 (citing Finch, 212 Md. App. at 761).
However, the Court found Finch inapposite, because Finch involved uncontested default judgments, whereas here, it was undisputed that Debtor raised his lack of standing argument in the collection case. Slip Op. at 14. Because Debtor had raised the issue in the collection case, he could not use that same issue to collaterally attack the judgment in a subsequent lawsuit. See Op. at 14 (“[W]here the issue of jurisdiction is raised and determined in favor of the jurisdiction, the ensuing judgment on the merits is not open to later collateral attack on the jurisdictional issue, whether or not the determination therein was erroneous.”) (citation omitted).
As to the FDCPA and state law consumer protection claims, the Court determined that such claims “are not necessarily barred by the doctrine of res judicata/claim preclusion if they are not asserted [in the collection action], because they do not attack a debt collection judgment per se.” Slip Op. at 18. However, “[w]hen a party tries to use one of these statutes to attack a judgment against him or her collaterally . . . res judicata/claim preclusion normally bars the attack.” Slip Op. at 17. Nevertheless, assuming without deciding that the FDCPA and related claims were not barred by res judicata (i.e., claim preclusion) the Court determined that they were, in any event, barred by collateral estoppel (i.e., issue preclusion).
“[W]hen [an] issue of fact . . . is actually litigated and determined by a valid final judgment, and that determination is essential to the judgment, the determination is conclusive in a later action between the parties, whether the same or different claim is asserted.” Slip Op. at 18 (citations omitted). Because Debtor’s FDCPA and related claims were predicated on allegations decided against him in the collection case--i.e., a judgment for a sum certain in favor of Creditor, despite his challenge to its ownership--those claims could not be re-litigated.
Finally, the Court rejected Debtor’s claim that Creditor’s counsel (also a defendant) “could not establish that a meaningful review of [Debtor]’s file occurred before filing suit.” Slip Op. at 19. Notably, the Court expressly declined to adopt the New Jersey federal court’s interpretation of the FDCPA in Bock v. Pressler & Pressler, 30 F.Supp.3d 283 (D.N.J. 2014), which held that a lawyer violated the FDCPA by filing a lawsuit without meaningful review by an attorney, where the attorney had conceded that he only spent four seconds reviewing the complaint against a debtor.
In this case, Debtor asserted that Creditor’s counsel had signed thousands of other complaints filed in the same month as the complaint filed against him. Slip Op. at 19. Rejecting Bock, the Court explained that such allegation “is not conclusive of the question of meaningful attorney involvement.” Slip Op. at 20. Notably, Creditor’s counsel “could have worked every day that month at twelve hours a day, and turned out 2000 complaints, giving him a full eleven minutes per complaint on average, compared to Bock’s four seconds. Counsel could have short-shifted every other complaint filed that month and spent hours working on [Debtor]’s, and that would still be consistent with the facts [Debtor] has alleged. On a Bock theory—which again, we have not adopted—it is still [Debtor]’s burden to allege actual facts that, if believed, would demonstrate a lack of meaningful attorney involvement in his case. . . . He has failed to do so. And this case is hardly rocket science—the appellees alleged, and proved in the collection case, that they acquired a credit-card debt that remained unpaid, and it did not require complicated pleadings or cutting-edge research to prepare the case for filing or trial.” Slip Op. at 20-21.
Accordingly, the intermediate appellate court affirmed the dismissal of the complaint with prejudice.