Md. App. Holds Judgment in Favor of Unlicensed Collection Agency Subject to Challenge "At Any Time"

In Jason v. National Loan Recoveries, LLC, the Court of Special Appeals of Maryland determined that a borrower could challenge a district court judgment as void beyond the catch-all three-year statute of limitations, where it was obtained against him by an unlicensed collection agency.  Noting that prior case law determined such judgments to be void, the intermediate appellate court held that a void judgment was subject to attack “at any time,” but an open question remained as to what remedies were available, including whether they were subject to the defenses of laches and waiver.

However, the Court determined that a three-year statute of limitations applied to Borrower’s claims for unjust enrichment relating to amounts received in satisfaction of the judgment through garnishment of his bank account, as well as Maryland statutory consumer protection claims relating to unlicensed collection activity.  Because the record was not clear as to when Creditor had been allegedly unjustly enriched, i.e., the date it received the garnished funds, the Court reversed the dismissal of the unjust enrichment claim for further proceedings.   However, the Court affirmed the dismissal of the statutory consumer protection claims on limitations grounds, noting that the Borrower was on inquiry notice of the alleged unlicensed collection activity more than three years before filing suit.

A copy of this opinion is available here.


After acquiring a debt in default, Creditor sued Borrower, and subsequently obtained a judgment against him.   Thereafter, a writ of garnishment was served upon Borrower’s bank, and ultimately the judgment was satisfied through the garnishment proceedings. 

Three years after the original collection suit had been filed, Borrower filed a lawsuit seeking a declaration that the prior judgment against him was void because Creditor lacked a collection agency license, asserting a claim for unjust enrichment, and further asserting that Creditor’s unlicensed collection activity violated the Maryland Consumer Debt Collection Act, Md. Code, Comm. Law § 14-201 (“MCDCA”), and Maryland Consumer Protection Act, Md. Code, Comm. Law § 13-101 (“MCPA”).

Notably, Borrower alleged that Creditor constituted a collection agency because it acquired the loan when it was in default.  See Md. Code, Bus. Reg. § 7-101(c)(1)(ii) (defining a “collection agency” 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; . . .”).  Further, for purposes of the appeal, it was undisputed that at the time Creditor had filed suit against Borrower, it did not hold a Maryland Collection Agency license, nor did it obtain a license until after the writ of garnishment was issued.

Creditor moved to dismiss Borrower’s claims, which the trial court granted, determining that all of Borrower’s claims were barred by the three-year statute of limitations under Maryland Code, Courts and Judicial Proceedings (“CJP”) § 5-101.  This appeal followed.


Addressing Borrower’s claims for declaratory relief, the Court noted that in Finch v. LVNV Funding, LLC, 212 Md. App. 748 (2013), it previously held that “a judgment entered in favor of an unlicensed debt collector constitutes a void judgment as a matter of law.”  Op. at 6.  Recognizing that Finch did not address the applicability of the statute of limitations, the Court nevertheless concluded that although “it is possible that the passage of time could limit the remedies available to the judgment debtor who is subject to a void judgment, there appears no time limit for asserting that a judgment is void.” Op. at 8 (Emphasis in original). 

Thus, although the Court reversed the dismissal of the claims for declaratory relief, it explicitly expressed no opinion regarding the remedial relief that the Borrower could ultimately obtain, and whether such relief was subject to defenses of laches or waiver.  Further, the Court noted that comments to the Restatement (Third) of Restitution and Unjust Enrichment indicated that payment on an invalid judgment resulting from valid debt does not create unjust enrichment.  See Op. at 8-9 n. 4.

The Court then determined that “a claim for unjust enrichment that seeks the remedy of restitution of money is subject to the general three-year statute of limitations” set forth in Maryland Code, CJP § 5-101.  Op. at 13.  Applying the discovery rule to Borrower’s unjust enrichment claim, the Court noted that it could not ascertain when Creditor obtained the funds from its judgment against Borrower.  Op. at 15.  Therefore, the Court could not determine whether the unjust enrichment claim was timely filed, and accordingly reversed the trial court’s dismissal of such claim for further proceedings.  Op. at 17.

Finally, the Court held that the three-year statute of limitations also applied to Borrower’s statutory consumer protection claims under the MCDCA and MCPA.  Op. at 18.  The Court rejected Borrower’s assertion that Creditor had a duty to disclose its lack of licensure.   Rather, the Court determined that Borrower was on inquiry notice of Creditor’s collection activities against him at least three years prior to filing his lawsuit, and was on inquiry notice to investigate potential claims against Creditor when it sought and obtained the judgment against him.  Thus, the Court held that Borrower’s statutory claims under the MCDCA and MCPA were time-barred, and affirmed the dismissal of such claims.  Op. at 18.  


4th Cir Affirms Dismissal of Debtor’s FDCPA Claims Where Debt Collector Sought Estimated Attorneys’ Fees Within Contractual Limits

In Elyazidi v. SunTrust Bank, et al., the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a debtor’s alleged violations of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. (FDCPA), which attempted to challenge debt collectors seeking estimated attorneys’ fees in its initial pleading.  Observing that the debt collectors sought no more than what applicable law allowed, and that they explained that the amount requested for attorneys’ fees was estimated, the Court held that this conduct was not misleading in violation of 15 U.S.C. § 1692e(2).  Nor was it unconscionable in violation of under 15 U.S.C. § 1692f(1), as it was proper for the debt collector to estimate an appropriate fee within the limits of its contract with the debtor.

 A copy of the opinion is available here.


In opening a checking account with her banking institution (the “Bank”), Appellant (“Debtor”), agreed to be bound by the Bank’s rules and regulations, which included a provision on overdraft liability allowing for the Bank to recover an “attorney’s fee up to 25% . . . of the amount owed.”  In September of 2010, although the account held no more than a few hundred dollars, Debtor cut herself a check for $9,800.  After its own attempts to collect the overdraft were unsuccessful, the Bank hired a Maryland law firm (“Law Firm”) to bring a debt collection action.

 Thereafter, the Law Firm filed a warrant in debt in general district court in Virginia.  The warrant (a simple, standardized pleading available to creditors) indicated that the Debtor owed $9,490.82, plus 6 percent interest; $58 in costs; and $2,372.71 in attorneys’ fees.  In two supporting affidavits submitted to the court, an employee with the Bank affirmed that the amount for attorney’s fees represented 25% of the amount owed; while, an attorney with the Law Firm explained that the fees represent “a just and reasonable fee, which is equal to or less than the actual arrangement with client in this case.”

 Eventually, the general district court entered judgment “in the sum demanded for the plaintiff on the evidence.”  At a separate hearing, the Bank’s attorney submitted an updated affidavit supporting a claim for attorneys’ fees in the amount of $4,025 based on the amount of billable hours spent on the case.  In reducing the award to $2,372.71 (the amount originally sought), the court stated that such amount was “minimally more than that was spent in this entire matter.”

 Following the judgment in favor of the Bank in the collection suit, Debtor filed a separate lawsuit against the Bank and Law Firm in Maryland state court.  Challenging their efforts to recover allegedly unearned attorneys’ fees in the collection suit, Debtor brought two counts under Maryland state consumer protection laws, as well as two counts under Sections 1692e(2) and 1692f(1) of the FDCPA.  Additionally, Debtor sued the Law Firm under Section 1692f of the FDCPA for failing to redact Debtor’s social security number from bank statements filed with the Virginia general district court.

 After removing the case to federal court, the Bank and Law Firm filed separate motions to dismiss.  The district court dismissed the case, and this appeal followed.


 As a preliminary matter, the U.S. Court of Appeals for the Fourth Circuit rejected the Bank’s and Law Firm’s (collectively, the “Appellees”) argument that the district court lacked subject matter jurisdiction due to the Rooker-Feldman doctrine.  Although the doctrine prohibits federal courts from reviewing state court decisions, the Fourth Circuit explained that “a federal court is not stripped of its jurisdiction simply because the claim challenges conduct that was previously examined in a state court action.”  Op. at p. 9.  As the federal suit posed “no challenge to the Virginia Court’s judgment,” the district court was not barred from hearing it.  Id. at p. 10.

 As to the alleged FDCPA violations related to the claimed attorneys’ fees, the Fourth Circuit affirmed the district court’s dismissal of the Section 1692e count.  Pursuant to 15 U.S.C. § 1692e, a debt collector may not “use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e.  Such prohibited conduct includes any “false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.”  15 U.S.C. § 1692e(2).

 Noting that the representations must be viewed in context, the Court held that “where the debt collector sought no more than applicable law allowed and explained via affidavit that the figure was merely an estimate of an amount counsel expected to earn in the course of the representations cannot be considered misleading under 15 U.S.C. § 1692e(2).”  Op. at pp. 13-14.  According to the Court, under these circumstances, “any consumer – no matter how sophisticated – should have understood the nature of the Appellees’ request [for attorneys’ fees].”  Id. at p. 15.

 Likewise, the Court also affirmed the dismissal of the alleged Section 1692f(1) violation.  Under 15 U.S.C. § 1692f, a debt collector may not use “unfair or unconscionable means to collect or attempt to collect any debt.”  15 U.S.C. § 1692f.  As an example of such prohibited conduct, Subsection (1) condemns “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  15 U.S.C. § 1692f(1).

 In the complaint, Debtor alleged that the attorneys’ fee request was “unauthorized” because “neither the agreement nor applicable law permit recovery of attorney’s fees for services not performed.”  Op. at p. 16.  However, the Fourth Circuit determined that this argument had no merit, explaining that “it was entirely proper for [the Bank] to estimate an appropriate fee within the limits prescribed in the September 2010 agreement.”  Id.  Although it drew all reasonable inferences in the Debtor’s favor, “the only reasonable inference here is that Appellees sought to enforce their contractual rights in compliance with state court procedure.”  Id. at p. 17.

 Addressing the alleged FDCPA violation related to the disclosure of the Debtor’s social security number, the Fourth Circuit again affirmed the dismissal.  Notably, the Court observed that the enumerated activities prohibited under 15 U.S.C. § 1692f all have “the capacity to harass the debtor or to pressure her to pay the debt.”  Op. at p. 18.  Although “alarming,” Appellees never threatened to disclose the social security number, and the Debtor was not “cowed into paying the debt.”  Id. at pp. 18-19.  Rather, the Court held that “the lapse occurred in the course of litigation and was easily remedied,” and therefore, “the disclosure cannot be considered unfair or unconscionable.”  Id. at p. 18.

 Finally, the Fourth Circuit affirmed the dismissal of the Debtor’s Maryland consumer protection claims, including counts under the Maryland Consumer Debt Collection Act (MCDCA) and Maryland Consumer Protection Act (MCPA).  Although the Debtor attempted to frame the challenged activities as having occurred in Maryland, the Court noted “[t]he critical point, however, is not whether Appellees conduct business in Maryland, but whether some significant portion of the challenged activity occurred there.”  Op. at p. 21.  Indeed, “[t]he act of sitting in a Maryland office and drafting court documents, or taking phone calls, is not the activity that [the Debtor] seeks to condemn in the case.”  As the challenged representations occurred in Virginia, and as any harm to the Debtor occurred in Virginia, these Maryland statutes had “no application here.”  Id. at 22; see also Consumer Prot. Div. v. Outdoor World Corp., 603 A.2d 1376, 1382 (Md. App. 1992) (holding that regulatory statutes are “generally construed as not having extra-territorial effect unless a contrary legislative intent is expressly stated”).

 Accordingly, the Fourth Circuit affirmed the district court’s dismissal of the Debtor’s claims in their entirety.