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Old Republic Ins. Co. v. Gordon

Court of Special Appeals of Maryland

April 27, 2016


         Appeal from the Circuit Court for Baltimore County. Nancy M. Purpura, JUDGE.

         ARGUED BY: John T. Prisbe & Nathaniel S. Berry (Venable, LLP on the brief) all of Baltimore, MD. FOR APPELLANT

         ARGUED BY: Phillip Robinson (Jesse Iliff, Consumer Law Ctr, LLC of Silver Spring, MD and Scott Borison, Legg Law Firm, LLP of San Manteo, CA) all of the brief FOR APPELLEE

         ARGUED BEFORE: Graeff, Kehoe, Nazarian, JJ. Opinion by Graeff, J. Dissenting Opinion by Nazarian, J.


Page 238

          [228 Md.App. 2] Graeff, J.

         In Finch v. LVNV Funding LLC, 212 Md.App. 748, 71 A.3d 193, cert. denied, 435 Md. 266, 77 A.3d 1084 (2013), this Court held that judgments obtained by collections agencies that do not have a license are void. In this case, we must determine whether Old Republic Insurance Company (" Old Republic" ), appellant, is a collection agency pursuant to Md. Code (2010 Repl. Vol.) § 7-101(c) of the Business Regulation Article (" BR" ), part of the Maryland Collection Agency Licensing Act (" MCALA" ), and therefore, was required to be licensed as a [228 Md.App. 3] collection agency to pursue this action against Nancy Gordon, appellee.

         Old Republic is an insurance company that offers, among other things, credit insurance.[1] In December 2006, Old Republic issued a credit insurance policy to Countrywide Home Loans (" Countrywide" ) to insure a mortgage that Countrywide had extended to Ms. Gordon. Ms. Gordon defaulted on her mortgage, and Old Republic paid Countrywide pursuant to the insurance policy.

         Old Republic filed suit in the Circuit Court for Baltimore County against Ms. Gordon, seeking the unpaid amount of her debt. It subsequently moved for summary judgment. Ms. Gordon opposed Old Republic's motion, arguing that she was entitled to summary judgment because Old Republic was an unlicensed collection agency, and therefore, it could not obtain a judgment against her. After a hearing, the circuit court found, as a matter of law, that Old Republic was engaged in collection

Page 239

activity, and it granted Ms. Gordon's motion for summary judgment.

         On appeal, Old Republic raises three questions for our review, which we have rephrased slightly, as follows:

1. Did the circuit court err in its construction of the phrase " collection agency" under B.R. § 7-101(c)?

2. Did the circuit court err in granting an oral summary judgment request?

3. Did the circuit court err in dismissing the case with prejudice?

         For the reasons set forth below, we answer the first question in the affirmative, and therefore, we shall reverse the [228 Md.App. 4] judgment of the circuit court and remand for further proceedings.[2]


         On July 28, 2005, Ms. Gordon purchased a property in Parkville, Maryland for $589,700. On October 26, 2006, Countrywide extended a loan to Ms. Gordon in the amount of $95,000, secured by a deed of trust in the property.

         Old Republic states, and Ms. Gordon does not dispute, that Old Republic issued a credit insurance policy to Countrywide in December 2006, " providing insurance coverage for loss if a qualified loan held by Countrywide defaulted." Although the insurance contract is not a part of the record on appeal, Old Republic stated in its motion to vacate, alter, or amend, or for other appropriate relief, and Ms. Gordon has not disputed, that the policy set forth subrogation rights, as follows:

In the event of any payment under this Policy, the Company [i.e., Old Republic] shall be subrogated to all of the Assured's [i.e., Countrywide] rights of recovery against the Borrower and any other person or organization liable under the terms of the defaulted Note and against any reserve or holdback funds in its hands, and the Assured shall execute and deliver at the request of the Company instruments and papers and do whatever else is necessary to transfer, assign and secure such rights. The Assured shall do nothing after Loss to prejudice such rights, and the execution by the Assured of a release or waiver of the right to collect the unpaid balance of a Loan shall equally release the Company from any further obligation under this Policy as to said Loan, anything in this Policy to the contrary notwithstanding.

         On or around February 1, 2011, Ms. Gordon defaulted on her loan, and Countrywide submitted a claim to Old Republic. [228 Md.App. 5] At the time of default, $70,481.19 remained unpaid on the loan. Old Republic determined that the claim was covered and paid it. Old Republic then began to pursue repayment from Ms. Gordon.

         On February 29, 2012, after negotiations with Ms. Gordon, Old Republic agreed to release the deed of trust in exchange for a payment of $9,000 and Ms. Gordon's acknowledgment that she still owed $85,541.62 on the loan, minus the $9,000 she paid. By October 2013, Old Republic had received no further payment from Ms. Gordon. It then filed a complaint for money due on accounts stated. Old Republic sought $70,481.19, as well as pre-judgment interest of $10,572 and attorney's fees of $10,572.18, plus costs. Old Republic also filed a motion for summary judgment on the ground that Ms. Gordon had no defense to the claim.

Page 240

          Ms. Gordon filed an answer and an opposition to the motion for summary judgment. She asserted that the collection attempt was illegal because Old Republic acquired the alleged debt when it was in default, and therefore, Old Republic was acting as a " collection agency" under B.R. § 7-101(c), but Old Republic was not licensed as a collection agency.[3] Relying on Finch, 212 Md.App. at 764, in which this Court held that " a judgment entered in favor of an unlicensed debt collector constitutes a void judgment as a matter of law," Ms. Gordon argued that Old Republic was not entitled to summary judgment against her because any judgment it obtained would [228 Md.App. 6] be void. She requested that the circuit court enter judgment against Old Republic because it was not entitled to the relief it sought.

         The circuit court directed Old Republic to file a reply, not to exceed five pages and limited to the argument that it was not authorized to bring the complaint because it was not licensed as a collection agency. Old Republic did so, asserting that it was not required to be licensed under MCALA because it did not engage in debt collection, but rather, it was licensed in the State of Maryland to conduct insurance business. It argued that it was pursuing the subrogation rights it obtained after paying Countrywide pursuant to its insurance policy, and therefore, it did not " acquire" Ms. Gordon's debt at a time when she was in default, but rather, it " stepped into the shoes" of Countrywide and enjoyed " the same rights that [Countrywide] enjoyed prior to filing its claim." Moreover, Old Republic stated that it did not engage in the debt collection agency business, noting that it did not undertake debt collection for third parties or purchase defaulted debts from third parties for the purpose of collection. Citing MCALA's legislative history, it asserted that B.R. § 7-101(c)(1)(ii) was targeted at " 'debt purchasers,' a special subset of entities," which did not include insurance companies pursuing subrogation rights. Consequently, it argued that it was not a collection agency, and it was permitted to obtain a judgment against Ms. Gordon.

         Ms. Gordon disagreed, asserting that Old Republic was requesting the circuit court to " create a judicial exception for it that does not exist under the statute or common law." Stating that MCALA governs businesses attempting to assert a consumer claim " if the claim was in default when the person acquired it," Ms. Gordon asserted that, because Old Republic acquired this debt when it was in default and was trying to collect it, Old Republic was required to be licensed under MCALA, regardless of its status as an insurance company.

         On March 6, 2014, the circuit court held a hearing on Old Republic's motion. Counsel for Old Republic listed three [228 Md.App. 7] reasons why Old Republic should not be required to be licensed in this matter. First, Old Republic was an insurance company and did not do business as a collection

Page 241

agency. Second, MCALA was targeted toward debt purchasers, not insurance companies pursuing subrogation rights, and Old Republic did not purchase the debt at issue in this case. Third, Old Republic's rights vested prior to Ms. Gordon's default, as it was essentially stepping into Countrywide's shoes as Ms. Gordon's creditor. It argued that, because MCALA was not targeted toward a party in Old Republic's position, Old Republic did not qualify as a collection agency under B.R. § 7-101, and it did not need to be licensed as such.

         Counsel for Ms. Gordon argued that Old Republic acquired its interest in Ms. Gordon's debt when it was in default, and it was now pursuing a consumer claim against her. Accordingly, counsel asserted that, pursuant to the plain language of B.R. § 7-101, Old Republic was acting as a collection agency. He argued that, because any judgment obtained by Old Republic, an unlicensed collection agency, would be void, Ms. Gordon was entitled to judgment in her favor.

         Counsel for Ms. Gordon also noted that B.R. § 7-102 contains a list of persons and entities to whom MCALA is inapplicable, and insurance companies pursuing subrogation rights are not listed. He argued that this list would be essentially meaningless if the court carved out a new exception for Old Republic.

         At the end of the hearing, counsel for Old Republic stated that, because the parties had been limited to five pages of argument on the issue of interpreting MCALA, it believed that the parties could " flesh out" the record more substantially with further submissions, particularly with regard to MCALA's legislative history. The court responded: " If you want to supplement the record, I am going to permit you to do that." The court took the parties' motions for summary judgment under advisement and indicated that it would issue a written opinion at an unspecified later date.

          [228 Md.App. 8] On March 18, 2014, the circuit court issued a memorandum opinion. The court stated that there were no facts in dispute, and the sole question before it was the legal issue whether Old Republic was required to be licensed as a collection agency in order to pursue its claim against Ms. Gordon. The court found that, under the plain language of MCALA, Old Republic was acting as a collection agency because it was asserting a consumer claim related to a debt that it acquired while the debt was in default. It refuted Old Republic's arguments to the contrary, stating: " That [Old Republic] acquired the debt through a subrogation agreement as opposed to a debt purchase is immaterial. The plain meaning of the statutory language captures the activity that [Old Republic] is engaging in."

         The court stated that MCALA's legislative history " does not supersede a plain meaning analysis of the statutory language," which " requires a court to end its inquiry into legislative intent when the statutory language is unambiguous and the resulting application of the statute is reasonable, as it is in the instant case." In any event, it was not persuaded by Old Republic's argument that MCALA was targeted solely at debt purchasers because B.R. § 7-102(b) contained an extensive list of persons and entities who were not required to obtain a collection agency license, and insurance companies were not included in that list. Because it found that Old Republic was acting as a collection agency without a license, the court granted summary judgment to Ms. Gordon and dismissed Old Republic's action with prejudice.

         On April 14, 2014, Old Republic filed a motion to vacate, alter, or amend, or for

Page 242

other appropriate relief. It stated that the court's initial order limiting it to a five page reply on the issue whether it was required to be licensed " materially limited" its ability to respond, and therefore, it was " materially prejudiced" when the court granted Ms. Gordon's oral summary judgment motion. It explained that it was in the process of preparing its supplemental memorandum when the court issued its order, but it was unable to submit it prior to the order. Old Republic asserted that the court " appear[ed] [228 Md.App. 9] to miss certain material points" in granting Ms. Gordon's motions. In particular, it noted that the court did not discuss what it meant to " engage in the business of" collecting consumer claims, and it argued that it was not engaged in any such business.

         Old Republic elaborated on its argument that MCALA was targeted only at regulating debt purchasers. It asserted that debt purchasers were a very specific group of entities, whose primary business was collecting debts that they had purchased. It contended that it was not a debt purchaser, and accordingly, MCALA did not apply to it. Old Republic stated that it was not seeking to carve out a judicial exception for itself, but rather, it simply was seeking a construction of the statute that recognized it was not " engaged in the business of" collecting consumer claims.

         Old Republic also argued that the rule of lenity was applicable to the court's analysis because MCALA contained both civil and criminal provisions. It asserted that, because it was at least ambiguous whether MCALA applied to it, pursuant to the rule of lenity, that ambiguity should be resolved in its favor.

         Finally, Old Republic asserted that, even if the court disagreed with Old Republic's proposed interpretation of MCALA, it would be deciding that Old Republic did not have standing to bring the complaint. Accordingly, it argued that only a dismissal without prejudice was appropriate because the court's decision would not constitute an adjudication of the case on the merits.

         Ms. Gordon filed a response, characterizing Old Republic's pleading as a " 'kitchen sink' tome." She asserted that Old Republic did not raise any new arguments and had a full and fair opportunity to present its position before the circuit court, objecting to the five-page limitation only after the court ruled against it. In any event, Ms. Gordon argued that MCALA was unambiguous, and therefore, its legislative history and the rule of lenity were not applicable. She asserted that the court did not err in holding that the plain language of MCALA required Old Republic to be licensed as a collection agency [228 Md.App. 10] and precluded it from obtaining a judgment against her. Finally, she argued that the court did not err in dismissing Old Republic's action with prejudice, as any judgment it obtained would be void.

         Ms. Gordon subsequently filed a document entitled Supplemental Authority in Opposition to Plaintiff's Motion to Vacate, Alter or Amend. She noted that Old Republic was involved in a related matter in the Circuit Court for Frederick County, Old Republic Insurance Company v. Joana Oteng, in which it sought to enforce a debt as subrogee of a mortgage company, and the circuit court in that case found that Old Republic was a collection agency and could not collect the debt. She attached a copy of the Frederick County decision.

         On June 24, 2014, the circuit court issued another memorandum opinion and order denying Old Republic's motion to vacate, alter or amend. The court rejected Old Republic's claim that it did not have an adequate opportunity to respond to Ms. Gordon's oral motion for summary judgment,

Page 243

noting that: (1) Old Republic did not object to the oral motion at the hearing; and (2) Ms. Gordon " unequivocally requested 'that the Court grant judgment against [Old Republic] since it is not entitled to the relief it seeks in this action' in her Opposition to Motion for Summary Judgment." The court further noted that it had permitted Old Republic to submit a supplemental response to the court after the hearing, but Old Republic failed to submit it timely. For these reasons, the court believed that, even if there were any procedural abnormalities, Old Republic was not prejudiced. In any event, the court stated that the additional materials recently submitted by Old Republic did not impact its decision because MCALA was unambiguous. The court further ruled that dismissal with prejudice was proper because, Old Republic's assertions notwithstanding, the court did not rule that Old Republic lacked standing to sue Ms. Gordon, but rather, it ruled that Old Republic was engaged in illegal debt collection and was not permitted to obtain the relief it was seeking. Accordingly, the court denied Old Republic's motion to vacate, alter, or amend. This timely appeal followed.

         [228 Md.App. 11] DISCUSSION


         Motion to Dismiss

         Before addressing the propriety of the circuit court's ruling on the merits, we address Ms. Gordon's motion to dismiss this appeal. This motion is based on Old Republic's action, subsequent to the judgment here, in obtaining a Maryland collection agency license. Ms. Gordon asserts that, given that action, this appeal should be dismissed as moot because it " now concerns a hypothetical question for which no further controversy exists." She contends that, " [b]y voluntarily seeking and obtaining a collection agency license as of November 7, 2014, Old Republic is equitably estopped from acting in a manner contrary to its declaration to the Maryland Collection Agency Licensing Board that it requires a collection agency license."

         Addressing first the mootness argument, this Court has stated that " '[a] case is moot when there is no longer any existing controversy between the parties at the time that the case is before the court, or when the court can no longer fashion an effective remedy.'" Thana v. Bd. of License Comm'rs for Charles County, 226 Md.App. 555, 567, 130 A.3d 1103 (2016) (quoting Green v. Nassif, 401 Md. 649, 654, 934 A.2d 22 (2007)). Here, Old Republic's action in obtaining a license after the hearing does not make this appeal moot. The issue presented, whether the circuit court properly determined that the action against Ms. Gordon should be dismissed because Old Republic did not have a license at the time it instituted suit, remains an existing controversy. Dismissal on the grounds of mootness is not warranted.

         Turning to the equitable estoppel argument, we note that the Court of Appeals has explained the doctrine ...

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