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McDaniels v. Westlake Services, LLC

United States District Court, Fourth Circuit

June 7, 2013

ASHLEY McDANIELS, on her own behalf and on behalf of all others similarly situated, Plaintiff,
WESTLAKE SERVICES, LLC, d/b/a Westlake Financial Services, , Defendants.



This case presents itself in an unusual procedural posture, because it concerns the plaintiff's motion to vacate a class action settlement agreement that was preliminarily approved.

In July 2011, plaintiff Ashley McDaniels filed a class action suit against Westlake Services, LLC, doing business as Westlake Financial Services ("Westlake"), defendant.[1] Westlake was plaintiff's creditor with respect to a Retail Installment Sale Contract that Ms. McDaniels executed to finance the purchase of a motor vehicle. Ms. McDaniels contended that Westlake unlawfully charged her convenience fees and interest at a rate in excess of the maximum rate permitted by Maryland law, and unlawfully repossessed her motor vehicle, all in violation of the Credit Grantor Closed End Credit Provisions ("CLEC") of the Maryland Credit Deregulation Act of 1983, codified, as amended, at Md. Code (2005 Repl. Vol., 2012 Supp.), §§ 12-1001 et seq. of the Commercial Law Article ("C.L.").[2] Her complaint (ECF 1) contained five counts directed against Westlake: violation of CLEC (Count I); breach of contract (Count II); violation of the Maryland Consumer Protection Act ("CPA"), C.L. §§ 13-101 et seq. (Count III); restitution and unjust enrichment (Count IV); and violation of the Maryland Consumer Debt Collection Act ("MCDCA"), C.L. §§ 14-201 (Count V).[3]

Plaintiff proposed to conduct the case as a class action, [4] on behalf of two defined classes: a "Repossession Class, " consisting of all persons whose consumer goods were repossessed by Westlake in connection with a credit contract governed by CLEC; and an "Interest Rate/Fee Class, " consisting of all persons who entered into a credit contract with Westlake that was governed by CLEC and who were charged either (1) interest at a rate exceeding 24%, or (2) a convenience fee.[5]

Soon after the complaint was filed, the parties jointly requested an expedited settlement conference and a stay of further proceedings pending a settlement conference. See ECF 8. The Court granted their request, see ECF 9, and a settlement conference was conducted by a magistrate judge in October 2011. Settlement negotiations were fruitful and, on January 31, 2012, plaintiff filed a motion for preliminary approval of a class-wide settlement. See ECF 14. On February 6, 2012, Judge Benson E. Legg, to whom the case was then assigned, issued an "Order Preliminarily Approving Settlement, Certifying Classes for Settlement Purposes, Appointing Class Counsel and Settlement Administrator, and Setting Schedule with Respect to Notice, Settlement Hearing and Administration" ("Preliminary Approval Order") (ECF 15). Among other things, the Preliminary Approval Order preliminarily approved the parties' settlement agreement as "fair, reasonable and adequate, subject to further consideration thereof at class members exceeds 99 or that the aggregate amount in controversy exceeds $5 million. And, even if this case otherwise satisfies CAFA's jurisdictional requirements, it appears that there is more than a remote possibility that one of the exceptions to CAFA jurisdiction could apply.

Nevertheless, it is clear that jurisdiction under the FDCPA was proper at the inception of the suit and that, accordingly, the court has supplemental jurisdiction over plaintiff's state law claims. See 28 U.S.C. § 1367(a). And, although the FDCPA claim has since been dismissed, the court has discretion to retain supplemental jurisdiction over the state law claims. See 28 U.S.C. § 1367(c). In the exercise of that discretion, I see no reason to decline to exercise jurisdiction. Accordingly, the Court is assured of its subject matter jurisdiction under 28 U.S.C. § 1367. [a] Fairness Hearing" to be held on June 14, 2012; it preliminarily certified for settlement purposes both the Repossession Class and the Interest Rate/Fee Class, pursuant to Fed.R.Civ.P. 23(b)(3); and it made provisions for notice to class members and an opportunity to opt out of the class and proposed settlement. Preliminary Approval Order at 1-2, 4-5, 6.

One month before the fairness hearing was to occur, however, plaintiff filed a Motion to Vacate the Preliminary Approval Order ("Motion to Vacate") (ECF 20), on the ground that new information, which had come to light in the course of "confirmatory discovery" from Westlake, undermined the basis for the settlement agreement. Shortly thereafter, and on the same basis, plaintiff filed a Motion in Opposition to Final Settlement Approval ("Motion Against Final Approval") (ECF 22). Westlake opposed the Motion to Vacate, see ECF 25 & 30, and the Motion Against Final Approval, see ECF 27, and filed a Motion for Final Approval of Class-Action Settlement ("Motion for Final Approval") (ECF 26). The fairness hearing was postponed indefinitely, see ECF 33, and the motions were briefed.[6] However, before Judge Legg was able to rule on the motions, the case was reassigned to me on October 24, 2012, due to Judge Legg's then-impending retirement.

No hearing is necessary to resolve the matters at issue. See Local Rule 105.6. For the reasons that follow, I will deny all pending motions.



Although plaintiff asserted several claims against Westlake, only her claims under CLEC are relevant to the matters now at issue. CLEC is one of several statutory schemes in Maryland that govern the extension of credit. It applies to a loan if the lender affirmatively elects, in the "written... agreement, note, or other evidence of the loan, " to be governed by CLEC's provisions, C.L. § 12-1013.1(a), in which case certain other Maryland credit regulating statutes do not apply. See C.L. § 12-1013.1(b)(1) ("If a credit grantor elects in accordance with this section to make a loan under [CLEC], the provisions of Subtitle 1, 3, 4, 5, 6, or 9 of [Title 12 of the C.L. Article, which establish other credit regulating schemes] do not apply to the loan."); Ford Motor Credit Co., LLC v. Roberson, 420 Md. 649, 662, 25 A.3d 110, 118 (2011) (stating that "CLEC... enable[s] a creditor to unilaterally elect the legal framework for structuring a form contract to be offered to potential borrowers").

Among other things, CLEC limits the rate of interest that can be charged on a covered loan to an "effective rate of simple interest [that] is not in excess of 24 percent per year, " C.L. § 12-1003(a); it limits the types and amount of fees that can be charged to a borrower, see C.L. § 12-1005; and it establishes notice and other detailed procedural requirements for the repossession and sale of collateral. See C.L. § 12-1021.

Of import here, CLEC imposes a stringent penalty for violation of the statutory scheme: "Except for a bona fide error of computation, if a credit grantor violates any provision of [CLEC] the credit grantor may collect only the principal amount of the loan and may not collect any interest, costs, fees, or other charges with respect to the loan." C.L. § 12-1018(a)(2). Moreover, if a credit grantor "knowingly" violates CLEC, the credit grantor is liable for treble damages. C.L. § 12-1018(b).

However, and also of import here, CLEC establishes a safe harbor for a credit grantor who promptly cures certain kinds of violations after receiving notice of the violations, including violations of the maximum interest rate provisions and fee provisions (although not the repossession provisions). See C.L. § 12-1018(a)(3)(i) (enumerating CLEC provisions subject to safe harbor). In the case of a failure to comply with the applicable provisions that is "[u]nintentional[ ] and in good faith, " the penalty of forfeiture of all amounts other than principal does not apply, so long as the credit grantor "[c]orrects the error or violation and makes the borrower whole for all losses, including reasonable attorney's fees and interest, where appropriate, within 10 days after the credit grantor receives notice of the error or violation." C.L. § 12-1018(a)(3). Invocation of the safe harbor is an affirmative defense; the "burden [is] on the credit grantor to show that the credit grantor's failure to comply with [the applicable CLEC provisions] was unintentional and in good faith." C.L. § 12-1018(a)(4).

B. Plaintiff's Claims and Initial Procedural History

According to plaintiff, in February 2009 she purchased a motor vehicle, primarily for personal, family, and household purposes, from a used car dealership in Baltimore, Maryland, financing the purchase by way of a Retail Installment Sale Contract ("RISC"). Complaint ¶¶ 30-32. The RISC, which was assigned to Westlake, contained an affirmative election to be governed by CLEC. Id. ¶ 33.[7] Nevertheless, Westlake charged Ms. McDaniels a 25% interest rate on the RISC, id. ¶ 36, as well as multiple "convenience fees" over the life of the loan. Id. ¶ 39. At some point, Ms. McDaniels fell behind in her loan payments. The motor vehicle was collateral for the loan and, in August 2010, Westlake or its agents repossessed the motor vehicle. Id. ¶ 40-42. Thereafter, Westlake sent Ms. McDaniels a pre-sale notice informing her that the motor vehicle would be sold unless she redeemed it by paying the amounts past due on her loan. Id. ¶ 43. However, the pre-sale notice did not state the location, date, or time at which the vehicle would be sold. Id. ¶¶ 44-46. Westlake sold Ms. McDaniels' motor vehicle and subsequently sought unsuccessfully to collect a claimed deficiency balance from Ms. McDaniels. Id. ¶¶ 47-50.[8]

Ms. McDaniels initiated this suit on July 5, 2011, on her own behalf and on behalf of the Repossession Class and the Interest Rate/Fee Class. As noted, she alleged that Westlake violated the CLEC by charging an excessive rate of interest; charging "convenience fees"; failing to provide notice of the location, date, and time of post-repossession sales; and failing to provide statutorily compliant post-sale notices of claimed deficiency. Westlake was served with the complaint and summons on July 14, 2011. See ECF 3. At the parties' request, a magistrate judge conducted a settlement conference, which was held on October 5 and 6, 2011. At least for a short time, the settlement negotiations were successful. See ECF 14-2.

C. The Settlement Agreement

The parties achieved a proposed class-wide settlement, which was memorialized in a Settlement Agreement dated January 19, 2012 (ECF 14-2). The Settlement Agreement proposed to resolve the claims of a total of 3, 056 class members who "arguably fall within one or both of the Classes." Settlement Agreement ¶ 11.A, at 3. Of the total 3, 056 class members, 219 accounts came within the Repossession Class, and 3, 050 accounts came within the Interest Rate/Fee Class, having been charged either a convenience fee or interest in excess of 24%. See id. ¶ 11.B-C, at 3. Of the 3, 050 accounts in the Interest Rate/Fee Class, 2, 837 accounts had not undergone repossession, and thus were not members of the Repossession Class; the parties referred to these 2, 837 accounts as the "Non-Repossession Accounts." Id. ¶ 11.D, at 3. Of the Non-Repossession Accounts, 147 accounts had been "charged off" by Westlake on or before July 22, 2011, and were referred to as the "Charged-Off Accounts." Id. ¶ 11.E, at 3. Westlake also asserted that the "obligors on at least 1, 023 of the credit accounts identified as potentially within one or both Classes... could arguably have been excluded from the Classes due to legal defenses regarding arbitration clauses and statute of limitations." Id. ¶ 11.F, at 3-4.

For the purpose of the pending motions, the parties agree that Westlake received notice of the alleged CLEC violations on July 14, 2011, the date that it was served with a copy of plaintiff's complaint and summons. Thus, the parties also agree that, in order for Westlake to take advantage of CLEC's safe harbor defense, see C.L. § 12-1018(a)(3), it was required to "[c]orrect[ ] the error or violation and make[ ] the borrower[s] whole for all losses, " id., within ten days after July 14, 2011, i.e., no later than July 24, 2011. Hereafter, I will refer to the ten-day period between July 14 and July 24, 2011, as the "Cure Period."

The Settlement Agreement recounted that Westlake had taken several steps during the Cure Period to attempt to cure the alleged CLEC violations and thereby bring itself within CLEC's safe harbor. The Settlement Agreement stated, id. ¶ 11.G at 2, 4-6 (emphasis added):

Westlake has represented, and [Ms. McDaniels] relies upon such representation, that:
* * *
Within ten (10) days of receiving service of process in the Action, Westlake, on its own accord and in an attempt to cure any alleged violations of the CLEC asserted in the Complaint, took the following actions on or before July 22, 2011:
1. Westlake ceased using the allegedly defective pre-sale notice and post-sale accounting to cure the ...

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