Md. Holds Unlicensed Debt Buyer Judgments Are Not Void; Consumers Have Private Action

In LVNV Funding LLC v. Larry Finch, et al., the Court of Appeals of Maryland considered the scope of the Maryland Collection Agency Licensing Act, Md. Code, Bus. Reg. § 7-101, et seq., (“MCALA”), including whether a judgment in favor of an unlicensed collection agency is void, and whether a consumer had a private right of action against the unlicensed collection agency.  The Court held that even a “passive” owner of a consumer debt may be required to hold a collection agency license, but a judgment in favor of an unlicensed collection agency was not void based merely on lack of licensure.  However, aggrieved consumers could proceed with a private cause of action against the unlicensed collection agency.

Accordingly, the Court vacated the ruling that the underlying collection judgments were void, and remanded the case for a new trial on damages.

 A copy of the opinion is available here.


By way of background, consumers filed a class-action lawsuit against a “passive” debt buyer and owner (“Debt Buyer”), claiming that it engaged in unlicensed debt collection against them.  Ultimately, after a prior intermediate court determined those judgments to be void, the case returned to the trial court, and resulted in a money judgment of $25 million in favor of the class.  The Debt Buyer appealed, arguing that as a passive debt buyer it was not subject to licensure requirements; that the judgments were not void; and that there was no private right of action under MCALA. 

As to the first issue, the Court noted that in 2007, the Legislature amended the definition of “collection agency” under MCALA to include a person “who engages directly or indirectly in the business of . . . collecting a consumer claim the person owns, if the claim was in default when the person acquired it.”  Op. at 16-17.  Thus, the Court noted that while it previously determined that MCALA and its amendments did not apply to real property mortgage foreclosures, see Blackstone v. Sharma, 461 Md. 87 (2018), “the plain language of the amendment, coupled with the legislative history of it, unmistakably shows an intent to include entities like [Debt Buyer].” Op. at 17. Beginning October 1, 2007, “debt buyers who engaged directly or indirectly in the business of collecting consumer debt that they owned and that was in default when they acquired it needed to be licensed.”  Id.

Although the Debt Buyer claimed it was merely a special purpose vehicle that had no employees or offices, the Court noted that several affidavits in support of its judgments were submitted by individuals claiming to be “authorized representatives” of Debt Buyer who were “authorized to execute the affidavit on behalf of” Debt Buyer, and were “familiar with the books and records” of Debt Buyer.  Op. at 19.  Thus, the Court determined that from the effective date of the 2007 amendment, until February 2010 when it obtained a license, Debt Buyer’s collection activity was unlawful under MCALA, as well as the Maryland Consumer Debt Collections Act, Md. Code, Comm. Law  § 14-201, et seq. (“MCDCA”) and Maryland Consumer Protection Act, Md. Code, Comm. Law  § 13-101, et seq. (“CPA”).  Op. at 19.

The Court determined, however, that the judgments obtained by Debt Buyer during such period were not void.  “Judgments, by and large, are meant to be final. Even the court that rendered them has but a limited ability to open and revise them. . . .‘[I]t is most desirable of course that there should be an end to litigation, and a judgment is presumed to be a settlement of all matters in dispute in that particular case; and once entered, parties are no longer under the necessity of preserving the evidences upon which their claims rested . . . .’” Op. at 21 (citations omitted). 

“[T]he ability to challenge a civil judgment, other than by an appeal, is limited, even in the court that entered it.” Op. at 21.  “Collateral attacks, whether in the court that entered the judgment or in any other court, are even more severely limited and are permitted only when the court that rendered the judgment had no jurisdiction to do so. Indeed, there are few principles of law that are so firmly and consistently entrenched in our jurisprudence, and for good reason.”  Op. at 22. 

Consequently, the Court determined that an enrolled judgment would only be subject to attack where the court lacked the fundamental jurisdictional power of law to adjudicate a particular type of case.  Here, even though Debt Buyer was unlicensed, the original district court had fundamental jurisdiction over the collection cases, whose judgments were therefore not void.  Op. at 25.

The Court also determined that these consumers have a private right of action for MCALA, which it formulated based upon the interplay of MCALA, the MCDCA, and CPA.  “An unlicensed debt collector who, in the furtherance of its business, attempts to collect a debt through litigation unquestionably is attempting to enforce a right that, for it, does not exist.  [Md. Code, Comm. Law] § 14-203, also part of MCDCA states that ‘[a] collector who violates any provision of this subtitle is liable for any damages proximately caused by the violation, including damages for emotional distress or mental anguish suffered with or without accompanying physical injury.’ Mostofi v. Midland Funding, 223 Md. App. 687, 702-03 (2015). It is hard to imagine, notwithstanding [Debt Buyer]’s importuning, a clearer expression of an intent to provide a private remedy for the violation of MCALA – a remedy that permits recovery of ‘any damages,’ including for emotional distress.” Op. at 26.

However, because the case was submitted to the jury on the mistaken theory that the underlying debts owned by Debt Buyer were void, the Court remanded the case for a reassessment of damages.