Bartlett v. Portfolio Recovery Assocs., LLC, 64
| Decision Date | 19 May 2014 |
| Docket Number | No. 64,No. 76,64,76 |
| Parties | RAINFORD G. BARTLETT v. PORTFOLIO RECOVERY ASSOCIATES, LLC JAMES TOWNSEND v. MIDLAND FUNDING, LLC |
| Court | Court of Special Appeals of Maryland |
RAINFORD G. BARTLETT
v.
PORTFOLIO RECOVERY ASSOCIATES, LLC
JAMES TOWNSEND
v.
MIDLAND FUNDING, LLC
No. 64
No. 76
COURT OF APPEALS OF MARYLAND
September Term, 2013
Argued: March 10, 2014
Filed: May 19, 2014
Rainford G. Bartlett v. Portfolio Recovery Associates, LLC, No. 64, September Term 2013, and James Townsend v. Midland Funding, LLC, No. 76, September Term 2013, Opinion by Greene, J.
SMALL CLAIM ACTIONS - JUDGMENT ON AFFIDAVIT - ASSIGNED CONSUMER DEBT CASES
In pursuing a judgment on affidavit, involving a small or large claim, a debt buyer plaintiff must produce certain documents, as contemplated by Maryland Rule 3-306(d), sufficient to pass muster under the business records exception. Once a small claim action is contested and proceeds to a trial on the merits, the parties are not constrained by the Rules of Evidence, as contemplated by Maryland Rule 3-701.
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Circuit Court for Baltimore City
Bartlett v. PRA, Case No. 24-C-13-001323
Townsend v. Midland, Case No. 24-C-13-001033
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In these consolidated "debt buyer" small claim actions,1 we must determine whether the plaintiffs are permitted to satisfy their respective burdens of proof to establish liability and damages on the basis of hearsay evidence. Both cases originated in the District Court of Maryland sitting in Baltimore City. The plaintiffs filed small claim actions for money damages and demanded judgment on affidavit at the time of filing the complaint commencing the actions. Md. Rule 3-306 ("Judgment on Affidavit"); Md. Rule 3-701 ("Small Claim Actions"). The defendants filed timely notices of intention to defend, pursuant to Md. Rule 3-307. Rule 3-306, which addresses judgments on affidavit, was amended in 2011 to include special provisions related to cases involving assigned consumer debt ("debt buyer cases"). See One Hundred Seventy-First Report of the Standing Committee on Rules of Practice and Procedure, 6-9 (July 1, 2011). Rule 3-307(e) requires that a defendant file a timely notice of intention to defend to avoid, on the date set for trial, the court's determination of liability and assessment of damages based on the plaintiff's ex parte proof. In other words, timely filing of a notice of intention to defend entitles the defendant to a trial on the merits.
The intersection between Rules 3-306 and 3-701 involves two competing interests.
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First, Rule 3-306, as amended in 2011, is designed to raise the bar for plaintiff debt buyers who desire to obtain a judgment on affidavit by requiring them to establish a prima facie case on the basis of evidence that would satisfy the business records exception to the hearsay rule. For example, if the consumer debt is an unpaid credit card balance, the plaintiff's evidence must show that the plaintiff owns the debt sued upon and that the defendant debtor owes that debt. Second, small claim actions, by definition, shall be "informal" and the rules of evidence are not applicable to these proceedings, in order to enable all parties to adequately participate in the proceedings without the benefit of counsel.
With these principles in mind, we address the following questions:2
1. Does the evidentiary standard under Md. Rule 3-306(d), which contemplates that the documents submitted to support a judgment on affidavit pass muster under the business records exception, apply to a contested small claim proceeding?
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2. Did the trial courts abuse their discretion when they considered business records and hearsay evidence in entering judgment for the plaintiffs in the present cases?
3. Did the trial courts commit clear error when they found in favor of the Plaintiffs in the present cases?
We shall hold that in pursuing a judgment on affidavit, involving a small or large claim, a debt buyer plaintiff must produce certain documents, as contemplated by Rule 3-306(d), sufficient to pass muster under the business records exception. Once a small claim action is contested and proceeds to a trial on the merits, the parties are not constrained by the Rules of Evidence, as contemplated by Rule 3-701.3
Generally, in debt buyer cases, the debts sued upon arise from consumer credit, such as credit card accounts and other unsecured debts. In the typical debt buying situation, a debtor has an account with a large bank or credit card company (the "original creditor"), and at some point the debtor ceases to make payments on the account. Although the original creditor may intend to collect on the delinquent account, in cases where the amount owed is
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relatively small or unlikely to be paid without collection efforts, the original creditor may "charge off"4 that account. In other words, the original creditor may not desire to prosecute a claim against the debtor because it deems the debt "uncollectible." A "debt buyer" can buy these "charged-off" debts from the original creditor at a low price, often mere pennies on the dollar, and often in bulk, and then go about collecting the account balance from the debtor.
In Maryland, many debt buyers file their collection actions in the District Court, seeking a judgment on affidavit pursuant to Rule 3-306. According to one study, in 99% of debt collection cases surveyed, the debt buyer plaintiff obtained a judgment against a defendant debtor without a trial. See Peter A. Holland, Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers, 26 Loy. Consumer L. Rev. 179, 187 (2014). Similar studies have found that many debt buyer plaintiffs lack adequate proof and obtain improper uncontested judgments as a result, leading to calls for substantial debt collection reform in the United States. See, e.g., U.S. Fed. Trade Comm'n, Repairing a Broken System: Protecting Consumers in Litigation and Arbitration (2010).
In response to this growing problem, in 2011, this Court's Standing Committee on Rules of Practice and Procedure ("the Rules Committee") proposed amendments to Rule 3-306, to become effective January 1, 2012. The Rules Committee's 171st Report explained that "[t]hese amendments [to Rule 3-306 were] designed to address a problem that has received national attention . . . , namely, the flood of thousands of judgment by affidavit
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cases filed in the District Court by companies that purchase, usually in bulk and with little supporting documentation, consumer debt that has been charged off by the original creditor." Specifically, the Rules Committee explained:
The major thrust of the proposed amendments is in a new section (d), which deals specifically with claims arising from assigned consumer debt. With respect to those claims, (1) the affidavit must contain averments or be accompanied by documents that (i) more adequately establish the existence and identification of the debt and the plaintiff's ownership of the debt and (ii) provide specific information if the account was charged off, other information if the account was not charged off, particular information if the claim is based on a future services contract, and information regarding the licensure of the plaintiff debt buyer, and (2) subject to an exception, if there was a document evidencing the terms and conditions to which the consumer debt was subject, a certified or authenticated copy of that document must be attached.
Accordingly, the Rule as amended was intended to raise the requirements for debt buyer plaintiffs to prove their claim before the trial judge grants a judgment on affidavit. It is this Rule and subsequent amendment, adopted by the Court, that is the primary subject of the instant appeals.
Respondent Portfolio Recovery Associates, LLC ("PRA") filed a small claim action in the District Court, sitting in Baltimore City, on October 3, 2012, to recover $2,897.88 against Petitioner Rainford G. Bartlett ("Bartlett"), arising originally from a delinquent credit card account with Chase Bank USA, N.A. ("Chase"). Bartlett's account became delinquent after he failed to make monthly payments or honor special payment arrangements offered to
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him by Chase. Bartlett's purchases on his Chase credit card were in excess of the $2500 limit by January 2009, at which time a 90 day payment delinquency notice was mailed to his home as part of his monthly credit card statement. From February to October 2009, Bartlett made several $40 monthly payments to Chase under a special payment program. After Bartlett's failure to make any payments after October 2009, Chase charged-off Bartlett's account. In June 2011, PRA purchased Bartlett's delinquent account as part of a package of debts sold directly to it by Chase.
Along with its complaint, PRA filed a form affidavit and Assigned Consumer Debt Checklist, and attached three exhibits. Exhibit One was entitled "Proof of Existence of the Debt or Account, Rule 3-306(d)(1)," and consisted of Chase monthly credit card account statements bearing Bartlett's name, address, and original account number...
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