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Patton v. Wells Fargo Financial Maryland, Inc.

Court of Appeals of Maryland

February 24, 2014

Carolyn Delorise PATTON
v.
WELLS FARGO FINANCIAL MARYLAND, INC.

Page 168

Thomas J. Minton (Goldman & Minton, P.C., Baltimore, MD; Bernard T. Kennedy, Edgewater, MD), on brief, for appellant.

Martin C. Bryce, Jr. (Mark J. Furletti, Ballard Spahr, LLP, Philadelphia, PA; Glenn A. Cline, Ballard Spahr, LLP, Baltimore, MD), on brief, for appellee.

Argued before BARBERA, C.J., HARRELL, BATTAGLIA, ADKINS, McDONALD, WATTS and DALE R. CATHELL (Retired, Specially Assigned), JJ.

Page 169

McDONALD, J.

[437 Md. 87] This case concerns a loan contract by which a consumer financed the purchase of an automobile over time. The car dealer assigned the contract to a financial services company. Before the loan was paid off, the consumer stopped making payments. As a result, the assignee of the loan contract repossessed and sold the automobile to recover some of the money owed under the contract. The consumer brought suit, alleging that the repossession and sale of the car did not comply with the Credit Grantor Closed End Credit Law (" CLEC" ), a Maryland statute that governed the loan contract. The Circuit Court dismissed the lawsuit, apparently finding that the consumer's statutory claims were untimely by applying a one-year statute of limitations from the Maryland Equal Credit Opportunity Act. The Circuit Court also dismissed a related contract claim apparently on the ground that the requirements of CLEC were not incorporated into the contract as to the assignee.

We hold that the appropriate statute of limitations for an action alleging a violation of CLEC can be found in CLEC itself— in particular, such an action may not be brought more than six months after the loan is satisfied. We also hold that the loan contract in this case adequately incorporated CLEC [437 Md. 88] as part of the contractual obligations, that the assignee voluntarily accepted that provision in taking the assignment, and that a contract claim may be asserted against the assignee. Accordingly, we reverse.

I. Background

A. Closed End Credit

As a general rule, " closed end credit" denotes a loan or extension of credit in which the borrower receives the benefit of the proceeds of the loan immediately and repays the principal, together with interest and other charges, in the future, usually in installments.[1] Closed end credit is sometimes contrasted to revolving— or " open end" — credit arrangements, like credit cards, in which the borrower is able to use credit to buy goods or secure loans on a continuing basis so long as the outstanding balance does not exceed a specified limit.[2] See Maryland Code, Commercial Law Article (" CL" ), § 12-1001(d) (defining " closed end credit" as " the extension of credit by a credit grantor to a borrower under an arrangement or agreement which is not a revolving credit plan ..." ). A major category of closed end credit involves loans to individuals to finance the purchase of motor vehicles. [3]

In Maryland, when the purchase of a motor vehicle is financed by an installment sale, the lender may elect for the contract to be governed by either of two statutes found in Title 12 of the Commercial Law Article of the Maryland Code: the Credit Grantor Closed End Credit Law, Maryland Code, Commercial Law Article, § 12-1001 et seq. (" CLEC" ), or the Maryland Retail Installment Sales Act, Maryland

Page 170

Code, [437 Md. 89]Commercial Law Article, § 12-601 et seq. (" RISA" ). If the lender elects CLEC, it is to do so by written election in the loan contract. CL § 12-1013.1(a)(2); see also Ford Motor Credit Co. v. Roberson, 420 Md. 649, 658 n. 8, 25 A.3d 110 (2011). This case concerns a loan contract governed by CLEC.

B. CLEC

CLEC provides certain protections to consumer borrowers [4] in transactions involving closed end credit. Among other things, CLEC sets limits on the rate of interest, as well as other fees, that may be charged by a lender— referred to as a " credit grantor" in the statute.[5] See CL §§ 12-1003, 12-1005. The statute confers on a consumer borrower the right to prepay the loan in full at any time without penalty. CL § 12-1009. If a consumer borrower is in default on a loan, the credit grantor may repossess the collateral for the loan, but must follow certain procedures in doing so. CL § 12-1021. In particular, once the lender has taken possession of the collateral, it must advise the borrower of the borrower's right to redeem the property, the location of the property, the rights of the borrower with respect to resale of the property, [437 Md. 90] and the borrower's potential liability for a deficiency. CL § 12-1021(e). The lender may charge the borrower the " actual and reasonable expenses of retaking and storing the property" only if the lender provides the borrower with advance notice of the repossession. CL § 12-1021(c), (h)(3). The statute allows the creditor to sell the collateral at private sale or public sale. CL § 12-1021(j). In the case of a private sale, it requires the lender to provide an accounting to the borrower, including specified information. CL § 12-1021(j)(2); see also Gardner v. Ally Financial, Inc., 430 Md. 515, 523-33, 61 A.3d 817 (2013). The statute also contains other authorizations and protections not pertinent to this case.

The statute provides various remedies to a borrower if the lender fails to comply with CLEC. For example, in some circumstances, the lender may be limited to collecting the principal of the loan and prohibited from collecting interest and other charges. CL § 12-1018(a)(2). A knowing violation of the statute may result in the lender forfeiting three times the amount of any interest, fees, and charges in excess of those allowed by CLEC. CL § 12-1018(b). The statute provides that, if a lender fails to observe various requirements concerning repossession and notice, the lender is not entitled to a deficiency judgment for the unpaid balance of the loan. CL § 12-1021(k)(4). The statute also confers certain administrative regulatory powers on the Commissioner of Financial Regulation and provides a criminal

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penalty for willful violations of the statute. CL § 12-1015 through § 12-1018.1.

The statute specifies that the phrase " credit grantor" includes an assignee. CL § 12-1001(g)(2)(iii). Thus, an entity that receives an assignment of a loan contract governed by CLEC from the originator of the loan is also subject to the requirements of CLEC.

C. Ms. Patton Finances the Purchase of a New Car

The complaint, including attachments, that initiated this case in the Circuit Court alleged the following facts:

[437 Md. 91] In 2005, Appellant Carolyn Delorise Patton purchased a new Chevrolet Malibu from Fox Chevrolet, Inc. (" Fox Chevrolet" ), a car dealership located in Maryland. Ms. Patton entered into a retail installment sales contract with Fox Chevrolet to finance the purchase. The contract was set forth on a standard form that contained the terms of the contract and blanks for the names of the parties and various monetary amounts specific to the transaction. Under that contract, Ms. Patton agreed to make monthly payments, covering principal in the amount of $22,095.74 and interest in the amount of $14,098.66 (calculated at a rate of 17.9%), over a six-year period. In addition, Ms. Patton gave Fox Chevrolet a security interest in the car to secure payment of the amount owed. The contract also recited various consequences if Ms. Patton failed to make the scheduled payments, including repossession of the car by the lender, acceleration of the obligation to pay the principal, and assessment of collection costs.

In a section entitled " Applicable Law," the contract form stated that " Federal law and Maryland law and specifically Subtitle 10 of Title 12 of the Commercial Article of the Maryland Code apply to this Contract." As noted above, subtitle 10 of Title 12 of the Commercial Law Article is the formal designation of CLEC.

The bottom of the contract form contained a space for assignment of the contract by the seller. The form also contained a notice in boldface print that stated that " Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder." [6]

[437 Md. 92] After the sale of the car to Ms. Patton, Fox Chevrolet assigned the loan contract to Appellee Wells Fargo Financial Maryland, Inc. (" Wells Fargo Financial" ).

D. Ms. Patton Fails to Make Payments; Repossession and Sale of the Car

In 2007, Ms. Patton stopped making the monthly payments required by the contract. In November 2007, Wells Fargo Financial repossessed the car. It immediately notified her of the repossession and of the date that the car would be sold at a private sale if she did not make the payments necessary to redeem it. Ms. Patton did not make the required payment and Wells Fargo Financial proceeded with the sale. In January 2008, it informed Ms.

Page 172

Patton of the sale and also noted that she still owed a deficiency of $13,227.28.

E. Ms. Patton's Lawsuit

On March 5, 2010, more than two years after she had been notified that Wells Fargo Financial had sold the car at a private sale, Ms. Patton sued Wells Fargo Financial [7] in the Circuit Court for Anne Arundel County, alleging various violations of CLEC in connection with the repossession and sale of the car.[8] Her complaint had seven counts: [9]

The first three counts alleged specific violations of CLEC— in particular, of CL § 12-1021— in the repossession and sale of [437 Md. 93] the car. The first count alleged that, after Wells Fargo Financial repossessed the car, it did not provide her with a written notice stating " the rights of the consumer borrower to redeem the vehicle, and the amount payable by it; the rights of the consumer borrower as to a resale, and his liability for a deficiency; and the exact location where the vehicle is stored and the address where any payment is to be made," as required by CL § 12-1021(e), and instead only sent a notice stating the location where the car was being stored.

The second count alleged that Wells Fargo Financial had violated CLEC by charging Ms. Patton for the cost of repossessing her car because it had not provided her with an advance notice of the repossession, contrary to CL § 12-1021(c) & (h)(3).

The third count alleged that Wells Fargo Financial had failed to provide Ms. Patton with a " full accounting" after it disposed of her vehicle at a private sale, including " the purchaser's name, address, and business address; the number of bids received; and any statement as to the condition of the vehicle at the time of repossession," in violation of CL § 12-1021(j)(2).

The fourth count alleged that the provisions of CLEC had " become a part of the [loan] contract just as if the parties expressly included the CLEC provisions in their credit contracts" and that, as a result of the violations of CLEC identified in the first three counts, Wells Fargo Financial was liable for breach of contract.

The fifth count was brought under the Declaratory Judgments Act [10] and sought a declaration that Wells Fargo Financial was precluded from seeking a deficiency judgment against Ms. Patton as a result of the alleged CLEC violations.

The sixth count asserted that Wells Fargo Financial had been unjustly enriched as a result of its CLEC violations and sought restitution of any funds paid toward the deficiency [437 Md. 94] balance, interest, fees, and other costs claimed by Wells Fargo Financial.

The seventh count alleged that Wells Fargo Financial's failure to comply with CLEC and its assertion that Ms. Patton owed a ...


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