Nagle & Zaller, P.C. v. Delegall

• Decision Date: 11 August 2022
• Docket Number: Misc. No. 6, Sept. Term, 2021
• Citation: 480 Md. 274,280 A.3d 653
• Parties: NAGLE & ZALLER, P.C., et al. v. Jahmal E. DELEGALL, et al.
• Court: Court of Special Appeals of Maryland

480 Md. 274
280 A.3d 653

NAGLE & ZALLER, P.C., et al.
v.
Jahmal E. DELEGALL, et al.

Misc. No. 6, Sept. Term, 2021

Court of Appeals of Maryland.

August 11, 2022

Argued by Richard A. Simpson (Wiley Rein LLP, Washington, DC; Shirlie Norris Lake and Alexander V. Cranford, Eccleston & Wolf, P.C., Hanover, MD), on brief, for Appellants.

Argued by Martin E. Wolf (Richard S. Gordon, Benjamin H. Carney and Sara E. Assaid, Gordon, Wolf, & Carney, Chtd., Towson, MD; Alexa E. Bertinelli, Civil Justice, Inc., Baltimore, MD), on brief, for Appellees.

Amicus Curiae the Maryland State Bar Association: Jennifer L. Kneeland, Esquire, Marguerite Lee DeVoll, Esquire, Watt, Tieder, Hoffar, & Fitzgerald LLP, 1765 Greensboro Station Place, Suite 1000, McLean, VA 22102.

Amici Curiae Public Justice Center, Cash Campaign of Maryland, Maryland Consumer Rights Coalition, Inc., and Public Justice: Michael R. Abrams, Esquire, Murnaghan Appellate Advocacy Fellow, Public Justice Center, 201 N. Charles Street, Suite 1200, Baltimore, MD 21201.

Argued before:^* Getty, C.J., *McDonald, Watts, Hotten, Booth, Biran, Gould, JJ.

Booth, J.

480 Md. 281

This case comes to us from the United States District Court for the District of Maryland (the "federal court") pursuant

280 A.3d 657

to a certification order¹ requesting that we answer the following question, which we have rephrased:²

Is a law firm that engages in debt collection activities on behalf of a client, including the preparation of a promissory note containing a confessed judgment clause and filing of a confessed judgment complaint to collect a consumer debt, subject to the provisions of the Maryland Consumer Loan Law, Md. Code, Commercial Law Article § 12-301, et seq. ?

As we explain below, the answer to that question is "no."

In connection with our consideration of the question of law presented herein, we accept as true the following facts as set forth in the operative complaint filed in the federal court, which was incorporated by reference into the federal district court's certification order.³

480 Md. 282

I

Background

This case arises from debt collection activity by Nagle & Zaller, P.C. ("Nagle & Zaller"), a law firm, on behalf of its clients. The clients are homeowners associations and condominium regimes (collectively, "HOAs")⁴ that retain Nagle & Zaller to undertake collection efforts against lot owners in HOAs and unit owners in condominium regimes (collectively, "homeowners") seeking to recover delinquent assessments. The HOAs retained Nagle & Zaller to represent them in negotiating and drafting promissory notes with homeowners that memorialized the repayment terms of the delinquent assessments. The promissory notes drafted by Nagle & Zaller included confessed judgment clauses.⁵ When homeowners defaulted

480 Md. 283

on their obligations,

280 A.3d 658

Nagle & Zaller filed confessed judgment complaints against them.

In February 2018, Jahmal E. Delegall and others filed a putative class action against Nagle & Zaller in the Circuit Court for Montgomery County challenging the law firm's above-described debt collection practices. After the plaintiffs filed an amended complaint adding the HOA clients of the law firms as defendants, the defendants removed the case to the federal court.

After some procedural twists and turns,⁶ in August 2020, Jahmal E. Delegall and Hadassah Sanders (hereinafter collectively referred to as "Delegall") filed a Third Amended Complaint against Nagle & Zaller and its client, Vineyards Condominium, which is the operative complaint (the "Complaint"). Although the Complaint includes several counts,⁷ in connection

480 Md. 284

with the certified question, we are only concerned with one count—Count VIII—which alleges that Nagle & Zaller violated the Maryland Consumer Loan Law ("MCLL"), Md. Code (2013 Repl. Vol., 2021 Supp.), Commercial Law Article ("CL") § 12-301, et seq. , and Md. Code (2020 Repl. Vol, 2021 Supp.), Financial Institutions Article ("FI") § 11-201, et seq.

For purposes of that count, Delegall alleges that the HOAs and Nagle & Zaller

280 A.3d 659

are "Lenders" as that term is defined in CL § 12-301(c), but that neither the HOAs nor Nagle & Zaller "are licensed to make loans" under the MCLL. Because they were not licensed to make loans, Delegall asserts that the promissory notes are void and unenforceable, and that the HOAs and Nagle & Zaller cannot collect or retain any payments made on them. In other words, because the HOAs and Nagle & Zaller lack a license under the MCLL, the debt memorialized in the promissory note, including the principal delinquent amount owed, is uncollectible. See CL § 12-314(b)(1) and (2) (stating that a "person may not receive or retain any principal, interest, fees, or other compensation with respect to any loan that is void and unenforceable under this subtitle[ ]" and that a loan is void and unenforceable if "a person who is not licensed under or exempt from the licensing requirements under Title 11, Subtitle 2 of the Financial Institutions Article made the loan[ ]").

Nagle & Zaller filed a motion to dismiss the Complaint, alleging, in part, that the MCLL does not apply to the debt collection activities as alleged in the Complaint. Because there are no Maryland appellate court decisions referencing or interpreting whether a law firm that undertakes debt collection activity is required to be licensed under the MCLL under these circumstances, the parties filed a joint motion to certify a question of law, requesting that the federal court enter an

480 Md. 285

order certifying the question to this Court. In July 2021, the federal court entered a certification order requesting that we answer the certified question set forth above.

Nagle & Zaller contends that the General Assembly did not intend to require that law firms or HOAs obtain a license to engage in transactions of this nature because neither the law firms nor their HOA clients are "lenders" who "engage in the business of making loans" under the MCLL, CL § 12-302. For its part, Delegall contends that the promissory notes constitute "loans" because they are an extension of credit enabling the homeowners to pay delinquent debts owed to the HOAs, and the law firm is "making the loans." Delegall asserts that, under the broad, general definitions contained in the MCLL, the transactions are subject to the MCLL. Because neither the law firm nor the HOAs are licensed to make the loans, Delegall asserts that the promissory notes are void and unenforceable. In large part, Delegall relies upon our decision in Goshen Run Homeowners Association, Inc. v. Cisneros , 467 Md. 74, 223 A.3d 917 (2020), in which we held that promissory notes like the ones at issue here are extensions of consumer credit that fall within the purview of a different statute—the MCPA.

II

Discussion

Before we turn to the question at hand, it is useful to discuss the underlying transaction and the applicable laws that govern the payment of HOA assessments and charges. In Goshen Run , we observed that HOAs "are often placed in a difficult situation of having to undertake collection efforts against lot owners in their communities for delinquent homeowners assessments." 467 Md. at 80, 223 A.3d 917. We noted that, "[t]o address the problem, the General Assembly has provided HOAs with multiple collection tools" that are outlined in the Maryland Homeowners Association Act, including the HOA's ability to collect delinquent assessments through both in rem proceedings under the Maryland Contract Lien

480 Md. 286

Act, as well as in personam proceedings at law. Id. Because similar tools are available to the governing body of a condominium regime, it is useful

280 A.3d 660

to touch upon those statutory provisions as well.

A. Right of a Governing Body of a HOA and Condominium Regime to Collect Delinquent Assessments

1. The Maryland Homeowners Association Act

The Maryland Homeowners Association Act ("HOA Act") is set forth in Maryland Code (2015 Repl. Vol., 2021 Supp.), Real Property Article ("RP") § 11B-101, et seq. The HOA Act applies to real property lots in a development community that are subject to a declaration of a HOA and also provides the legislative framework under which HOAs⁸ operate and manage their affairs. RP § 11B-102. A HOA is governed by its governing body⁹ in accordance with its declaration,¹⁰ as well as other corporate documents such as its bylaws, and rules and regulations promulgated and adopted in accordance with the declaration and other governing documents.

The HOA Act contains provisions which address many operational and governance aspects of a development that are subject to a HOA declaration, such as the notice or conduct of meetings of the HOA or its governing body, requirements for maintaining books and records of the association, and the

480 Md. 287

establishment of an annual budget for the repair and maintenance of the common areas. RP §§ 11B-111, 11B-112, and 11B-112.2.

In connection with the establishment of a budget, the HOA has the authority to adopt assessments and charges to cover expenses for maintaining and repairing common areas.¹¹ Under its declaration, the HOA can establish and impose on any lot, or on the owners or occupants of any lot, mandatory assessments or fees to cover "the provision of services or otherwise for the benefit of some or all of the lots, the owners or occupants of lots, or the common areas." RP § 11B-101(d)(1).

Section 11B-117(a) of the HOA Act states that, "[a]s provided in the declaration, a lot owner shall be liable for all homeowners association assessments and charges that come due during the time that the lot owner owns the lot." To encourage the timely payment of assessments, the HOA Act gives the HOA the authority to establish in its declaration or bylaws "a late charge of $15 or one-tenth of the total amount of any delinquent assessment or installment, whichever is greater, provided the charge may not be imposed more than once for the same delinquent payment and may be imposed only if...