Converge Serv. Group, LLC v. Curran

• Decision Date: 08 November 2004
• Docket Number: No. 13,13
• Citation: 860 A.2d 871,383 Md. 462
• Parties: CONVERGE SERVICES GROUP, LLC d/b/a Suredeposit v. J. Joseph CURRAN, Jr., et al.
• Court: Maryland Court of Appeals

860 A.2d 871

383 Md. 462

CONVERGE SERVICES GROUP, LLC d/b/a Suredeposit v. J. Joseph CURRAN, Jr., et al.

No. 13, September Term, 2004.

Court of Appeals of Maryland.

November 8, 2004.

Andrew M. Dansicker (Joshua R. Treem of Schulman, Treem, Kaminkow, Gilden & Ravenell, P.A., on brief), Baltimore, for appellant.

Philip D. Ziperman, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen. of Maryland, and William D. Gruhn, Asst. Atty. Gen., on brief), Baltimore, for appellees.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.

HARRELL, J.

An incipient dispute arose between Converge Services Group, LLC, d/b/a SureDeposit, Inc. ("SureDeposit") and the Consumer Protection Division of the Office of the Maryland Attorney General ("Division") in 2002 when the Division commenced an investigation of SureDeposit for the latter's marketing and sale of a "surety bond product" to Maryland residential real estate tenants to be used by the tenants in lieu of traditional security deposits required by their tenancies. After some administrative discovery occurred, the Division notified SureDeposit in January 2003 that it believed SureDeposit's trade practices violated the Maryland Consumer Protection Act, Md.Code (1975, 2000 Repl.Vol.), § 13-101, et seq., of the Commercial Law Article ("CPA") and the Maryland Security Deposit Law and Application Fee Law, Md.Code (1974, 2003 Repl.Vol.), §§ 8-203 and 8-213 of the Real Property Article (collectively, "SDL"). Not surprisingly, SureDeposit disagreed.

SureDeposit and the Division engaged in some negotiations; but, apparently unsatisfied with their course and facing a potential contested administrative process regarding the Division's probable filing of formal charges, SureDeposit filed on 9 October 2003 a complaint in the Circuit Court for Baltimore County seeking declaratory relief that the SDL did not apply to SureDeposit's "surety bond product" and, assuming that relief were granted, that SureDeposit had not violated the CPA.

The Division, on 26 November 2003, filed an administrative statement of charges against SureDeposit, alleging multiple violations of the CPA, some of which overlapped with allegations of violations of the SDL. After the parties exchanged some mutual paper discovery in SureDeposit's Circuit Court action, the Division moved there for dismissal of the complaint under Md. Rule 2-323(b)(2) on the basis that the declaratory judgments sought would not resolve fully the entire controversy between the parties in accordance with § 3-409(a) of the Declaratory Judgment Act and that the Division, as an administrative agency with recognized expertise with regard to administering and interpreting the CPA, exercised primary jurisdiction over the entire dispute.

The Circuit Court dismissed SureDeposit's complaint on 4 February 2004. SureDeposit noted an appeal to the Court of Special Appeals. We issued a writ of certiorari, on our initiative and before the intermediate court could decide the appeal, in order to consider SureDeposit's following questions, which we reword slightly for consistency.¹

I. Does the Division have "primary jurisdiction" over the subject matter of the complaint where the issues raised in the complaint require interpretation of the Security Deposit Law, not the Consumer Protection Act?

II. If the Division does have primary jurisdiction, did the Division waive that argument by affirmatively engaging in discovery in the Circuit Court case?

III. Does the Security Deposit Law apply to the marketing and sale of SureDeposit's surety bond product?

Based on our analysis of SureDeposit's first issue, and the interplay between the principles of primary jurisdiction and the statutory requirements of the Declaratory Judgment Act, Md.Code (1973, 2002 Repl.Vol.), §§ 3-401 — 3-415 of the Courts and Judicial Proceedings Article, we shall affirm the Circuit Court's judgment.²

I.

A.

SureDeposit is a New Jersey corporation that offers nationwide a "surety bond product" to residential rental tenants as an alternative to paying a security deposit to their landlords. Consumers purchase these surety bonds, usually at the commencement of the tenancy, by signing a document entitled "SureDeposit Bond Acknowledgment Form" (Acknowledgment Form) and paying a premium to their landlords. The landlords collect the premium and forward it to SureDeposit. SureDeposit retains a portion of this premium as profit while allotting a portion of it to a "primary claims pool"³ to satisfy damage claims filed by landlords. Another portion is returned to the landlords to compensate them for their administrative expenses, although a landlord may elect to receive a portion of any excess funds available in the claims pool in lieu of this payment.

SureDeposit characterizes its "surety bond product" as a surety contract where SureDeposit is the surety, the tenant is the principal, and the landlord is the obligee. The surety bond product seems neither to protect nor insure the tenant from the typical landlord claim most often satisfied from a tenant's security deposit. Rather, the surety bond product allows a landlord to collect compensation for damages to the leased property from an allegedly readily available "claims pool" in lieu of the traditional security deposit. In addition, according to the Acknowledgment Form signed by the tenant, the "surety bond product" may be utilized by the landlord to pay for past due rent, fees, and any other charges beyond "normal wear and tear" to the leased premises. These charges include court costs, expenses, and attorney's fees.

The Acknowledgment Form states that SureDeposit retains the right to seek reimbursement from the tenant for sums paid to the landlord for damages. In addition to SureDeposit's right to reimbursement, the Acknowledgment Form purports to protect the landlord by waiving any landlord responsibility for SureDeposit's collection activities. Tenants also pre-authorize SureDeposit to collect "all requested information to assist in the collection or monies paid by BIC as previously described," from "anyone."

B.

In 2001, SureDeposit began selling its surety bond product in Maryland. Between June 2002 and September 2002, the Division issued administrative subpoenas for production of documents and depositions of SureDeposit's corporate officers. SureDeposit complied with the subpoenas for production of documents and offered up Dan Rudd, SureDeposit's Chief Financial Officer and Chief Operating Officer, for deposition on 10 September 2002.

Upon the conclusion of this discovery, SureDeposit began negotiation with the Division about the investigation. Two letters were sent to the Division, on 9 October 2002 and 19 December 2002, requesting an appointment to discuss any concerns surrounding its surety bond product. At some point during the investigation, SureDeposit voluntarily suspended sale of its surety bond product in Maryland.

The Division responded on 10 January 2003 that it had "reason to believe" that SureDeposit engaged "in trade practices that violate the Maryland Consumer Protection Act, Md.Code Ann., Com. Law II, § 13-101 et seq.,⁴ and the Maryland Security Deposit Law and Application Fee Law, Md.Code Ann., Real Property, §§ 8-203⁵ and 8-213⁶ (2001 Supp.)." On 21 January 2003, SureDeposit and the Division met to discuss a proposed Assurance of Discontinuance that would require SureDeposit to halt permanently the sale of its surety bond product, make restitution to its current clients, and pay the Division's administrative costs and a civil penalty. That meeting was followed by another exchange of letters. SureDeposit sought further clarification of the allegations regarding violations of the CPA and SDL. The Division explained why it believed SureDeposit was in violation of those laws and urged settlement through execution of the Assurance of Discontinuance. In the Division's last letter on 25 July 2003, it stated that, "[t]ypically when we cannot reach an acceptable settlement, we bring an enforcement action pursuant to the Consumer Protection Act."

The Division learned of SureDeposit's response when, on 25 November 2003, it was served with SureDeposit's complaint for declaratory judgment,⁷ filed in the Circuit Court for Baltimore County on 9 October 2003, together with requests for production of documents, admissions, and interrogatories. The Division countered on 4 December 2003 by propounding its own interrogatories and a request for production of documents.

In a contemporaneous time frame, the Division filed an administrative statement of charges against SureDeposit and two of its officers on 26 November 2003. The Division's charges may be categorized in three groupings: 1) those alleging violations of the SDL because the surety bond product is claimed to be a security deposit under § 8-203(a)(3); 2) those alleging violations of the SDL because, alternatively, the surety bond product is claimed to be a "fee other than a security deposit" under § 8-213(b); and 3) those alleging violations of the CPA, some of which overlapped portions of the allegations regarding the SDL.

Allegations supporting the assertion that the surety bond product is a security deposit under § 8-203(a)(3) included: 1) SureDeposit did not disclose to the tenants their rights and protections under the SDL;⁸ 2) the surety bond product may expose tenants to liabilities that exceeded those that landlords would normally claim against traditional security deposits; 3) SureDeposit paid damage claims to landlords without requiring the landlords to submit evidence or affording tenants the right to be present at the inspections or contest the claims; 4) SureDeposit paid damage claims without providing to tenants written lists of damages claimed or costs incurred; and 5) the premiums paid by tenants for the surety bond products were non-refundable. The Division also alleged alternatively that, if the surety bond product...