Franklin Credit Mgmt. Corp. v. Nefflen

• Decision Date: 20 December 2013
• Docket Number: No. 32,Sept. Term, 2013.,32
• Citation: 436 Md. 300,81 A.3d 441
• Parties: FRANKLIN CREDIT MANAGEMENT CORPORATION v. Fred NEFFLEN.
• Court: Maryland Court of Appeals

436 Md. 300

81 A.3d 441

FRANKLIN CREDIT MANAGEMENT CORPORATION

v.Fred NEFFLEN.

No. 32, Sept. Term, 2013.

Court of Appeals of Maryland.

Dec. 20, 2013.

Jason C. Rose (Nathaniel S. Berry and Venable LLP, Baltimore, MD), on brief, for Petitioner.

Scott C. Borison (Legg Law Firm, LLC, Frederick, MD), on brief, for Respondent.

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

BATTAGLIA, J.

In this case we initially are asked to consider whether a defendant who fails to respond to a complaint and against whom an order of default is entered and fails to move to vacate the order of default, after which judgment of default is entered may, thereafter, contest liability either by moving, under Maryland Rule 2–534 to alter or amend a judgment or directly on appeal.¹

The dispute before the Court arises out of a suit alleging the breach of a settlement agreement terminating litigation in the Circuit Court for Frederick County that earlier ensued between the Petitioner, Franklin Credit Management Corporation (Franklin), and the Respondent, Fred Nefflen. The original litigation arose when Franklin was assigned the servicing rights to Mr. Nefflen's mortgage on a piece of property located in Frederick, Maryland. According to Mr. Nefflen's Complaint, Franklin attempted to collect more than was due on the loan as well as notified credit reporting agencies that Mr. Nefflen's payments were past due. Mr. Nefflen, thereafter, sued Franklin, and the settlement terms, as reflected in an agreement signed between Franklin and Mr. Nefflen, provided in relevant part:

7. The parties agree that there shall be no demand or requirement for flood insurance of any kind in connection with the Nefflen Loan.

8. The parties agree that there shall be no escrow requirement for the Nefflen Loan. Nefflen, upon request made through counsel, shall promptly provide [Franklin] with proof of payment of taxes and insurance.

* * *

11. [Franklin] will delete all derogatory information from any Credit Reports and report the Nefflen Loan as current and paid as agreed.

According to the Complaint, Franklin violated those provisions; Mr. Nefflen alleged breach of contract, defamation, as well as violations of the Maryland Consumer Debt Collection Act ² and the Maryland Consumer Protection Act ³ :

COUNT I

Violation of the Maryland Consumer Debt Collection Act (“MCDCA”)

* * *

40. Defendant has repeatedly made claims that Plaintiff owes amounts due to Defendant. The claims have no legal or factual basis.

41. Defendant has engaged in acts that violate the MCDCA....

42. The Defendant's repeated and wrongful acts have caused the [P]laintiff emotional distress.

COUNT II

Defamation

* * *

44. The [D]efendant has defamed the [P]laintiff by knowingly, intentionally and repeatedly publishing false and inaccurate information about the [P]laintiff to third parties who reasonably recognize the information is defamatory with the intent to injure the [P]laintiff.

45. The Defendant acted with malice against the Plaintiff.

46. Plaintiff has been damaged by the defendant[']s actions.

COUNT III

Violation of the Maryland Consumer Protection Act (“MCPA”)

* * *

48. The Defendant's violations of the MCDCA constitutes a violation of the Maryland Consumer Protection Act pursuant to § 13–301(14)(iii) of the Commercial Law Article.⁴

COUNT IV

Breach of Settlement Agreement

* * *

50. Defendant has materially breached the terms of the settlement agreement that it entered into with the Plaintiff.

51. Plaintiff has suffered damages as a result of the Defendant's breach of contract.

Approximately five months after the Complaint was served on Franklin, Mr. Nefflen moved for an entry of an order of default, pursuant to Rule 2–613(b), ⁵ asserting that Franklin had failed to respond to the complaint in any way. An order of default was entered against Franklin:

ORDER OF DEFAULT

The Motion for Entry of an Order of Default in the above captioned matter having been read and considered, it is thereupon this 5th day of October, 2010 by the Circuit Court for Frederick County, Maryland,

ORDERED, that an Order of Default be and it is hereby entered in favor of the Plaintiff and against the Defendant.

Franklin was notified by the clerk of the court of its default, more specifically that:

You are hereby notified that an Order of Default has been entered against you in the above entitled case on 10/06/10.

You may move to vacate the Order of Default within (30) Days of the date of entry. The motion shall state the reasons for the failure to plead and the legal and factual basis for the defense to the claim.

Despite the notice, Franklin never responded in any way.⁶ The clerk, thereafter,sent a “Notice of Hearing/Trial” to Franklin, notifying it that a default hearing was scheduled for March 8, 2011, which was postponed upon motion by Mr. Nefflen; the hearing was rescheduled for April 7, 2011, and a notice of the change of date also was sent to Franklin.

On April 7, 2011, Judge Julie S. Solt of the Frederick County Circuit Court held a hearing on the issue of Mr. Nefflen's damages. Franklin failed to appear. Mr. Nefflen presented copies of his credit reports obtained from Equifax ⁷ and Transunion,⁸ which reflected that the adverse credit information with respect to the Franklin loan continued to appear on the report six months after the parties entered into the settlement agreement; mortgage statements reflecting escrow payments; and letters from Franklin to Mr. Nefflen demanding that he obtain flood insurance. Mr. Nefflen also testified at the hearing and expounded on the damages he suffered, including his inability to purchase a car because of the negative credit reporting and the emotional and physical effects of Franklin's actions on him and his family, such as “a lot of sleepless nights,” stomach problems, and that his “nerves [were] practically shot.”

At the conclusion of the hearing, Judge Solt made findings of fact and ruled that Franklin was in breach of the settlement agreement:

I find the following facts. I find obviously by default that there has been a breach by Franklin Credit of the settlement agreement that was attached as, to the complaint that specifically in that settlement agreement that Franklin Credit indicated that they would remove any requirement for the Plaintiff to have flood insurance on his property. That within weeks of signing the settlement agreement that Franklin Credit breached that settlement contract by requiring and requesting that the Plaintiff obtain flood insurance on the property despite their agreement only weeks earlier not to require that and that they ultimately have taxed his account with $1,650.92 on two different occasions representing flood insurance, which by their agreement they indicated that the Plaintiff did not owe. They also have added, and that comes to $3301.84. They also breached the settlement agreement which indicated there was to be no escrow to be attached to the Plaintiff's account. That despite their settlement agreement they began requesting $700, 700 plus dollars per month.

Judge Solt also awarded Mr. Nefflen damages on his claims for defamation and violations of the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act:

I also find that it is a clear violation of the Maryland Consumer Credit Reporting Act and that the Plaintiff has suffered damage in mental anguish, sleepless nights, anxiety, and the ability, inability to get appropriate credit merely because of the negative credit reporting by Franklin, which they agreed to remove from his credit reports, and that the Plaintiff is entitled to damages under that count in the amount of $100,000. I also find that he has slandered Mr. Nefflen's good name. In looking at these reports, again, the only information to a negative account is Franklin Credit and that is quite frankly because of them not providing the necessary assurances to the credit reporting agencies which they agreed to do, and by putting negative references on for non-payment I'm assuming of the obligations that they agreed he didn't owe in the first place, and quite frankly that's outrageous and I find that the Plaintiff is entitled to damages in that instance to $100,000.... [O]n count three, which is the Consumer Protection, that's really covered for the damages in count one and with respect to attorneys' fees those were authorized under count four pursuant to the settlement agreement. So total damages are ... $203,301.84 plus attorneys' fees to be submitted, plus costs of this suit.

Judge Solt, thereafter, issued a default judgment in the amount of $203,301.84, a copy of which was sent to Franklin.

Franklin, then, filed a “Motion for a New Trial or to Alter or Amend Judgment,” pursuant to Rule 2–534,⁹ requesting that the default judgments be set aside because, according to Franklin, the claims were legally deficient,¹⁰ and, in its view, “[w]hile the facts in the complaint may be deemed admitted due to default, the Court must still make a determination as to liability and there must be satisfactory proof of damages.” Mr. Nefflen filed an opposition to the motion to alter or amend the judgment, refuting the contention that his claims were legally deficient. Judge Solt denied the motion for a new trial or to alter or amend the judgment, and Franklin filed a timely notice of appeal to the Court of Special Appeals.¹¹

In a reported opinion, the Court of Special Appeals affirmed the trial court's decision, concluding that the judge did not abuse her discretion when she entered the default judgments, reasoning that, in Maryland there is no “prerequisite to the entry of a default judgment, in the absence of any pleadings from the defaulting party, ... that the trial court make a determination as to liability.” Franklin Credit Mgmt. Corp. v. Nefflen, 208 Md.App. 712, 728, 57 A.3d 1015, 1024 (2012). With respect to the decision to deny the ...