LVNV Funding LLC v. Finch

• Citation: 463 Md. 586,207 A.3d 202
• Decision Date: 22 April 2019
• Docket Number: No. 46, Sept. Term, 2018,46, Sept. Term, 2018
• Parties: LVNV FUNDING LLC v. Larry FINCH, et al.
• Court: Court of Special Appeals of Maryland

463 Md. 586

207 A.3d 202

LVNV FUNDING LLC

v.Larry FINCH, et al.

No. 46, Sept. Term, 2018

Court of Appeals of Maryland.

April 22, 2019

Argued by Thomas J. Moloney (Lewis J. Liman, Cleary, Gottlieb, Steen & Hamilton, LLP, New York, NY; Nowell D. Bamberger, Cleary, Gottlieb, Steen & Hamilton, LLP, Washington, DC; Ronald S. Canter, The Law Office of Ronald S. Canter, LLC, Rockville, MD; Douglas F. Gansler, Buckley Sandler LLP, Washington, DC; Frederick S. Levin, Buckley Sandler LLP, Santa Monica, CA), on brief, for Petitioner/Cross-Respondent.

Argued by Scott C. Borison (Legg Law Firm, LLP, Baltimore, MD; Philip R. Robinson, Consumer Law Center LLC, Silver Spring, MD), on brief, for Respondent/Cross-Petitioners.

AMICUS CURIAE BRIEF OF RECEIVABLES MANAGEMENT ASSOCIATION INTERNATIONAL, INC.: Stephen H. Sherman, Esquire, Maurice Wutscher, LLP, 20 F. Street, NW, 7th Floor, Washington, DC 20001, Donald S. Maurice, Jr., Esquire, Thomas R. Dominczyk, Esquire, Maurice Wutscher LLP, 5 Walter E. Foran Blvd., Flemington, NJ 08822, Shannon P. Miller, Esquire, Maurice Wutscher LLP, 10 West Front St., Media, PA 19063, Jose' Felipe' Anderson, Esquire, Professor of Law, 1401 North Charles Street, Baltimore, MD 21201.

AMICUS CURIAE BRIEF FOR THE MARYLAND-DC CREDITORS BAR ASSOCIATION: Nathan D. Willner, Esquire, Maryland-DC Creditors Bar Association, 10461 Mill Run Circle, Suite 825, Owings Mills, MD 21117, Steven D. Silverman, Esquire, William N. Sinclair, Esquire, Silverman Thompson Slutkin White LLC, 201 North Charles Street, Suite 2600, Baltimore, MD 21201.

AMICUS CURIAE BRIEF FOR THE MIDLAND FUNDING, LLC: James P. Ulwick, Esquire, Amy E. Askew, Esquire, Steven M. Klepper, Esquire, Kramon & Graham, P.A., One South Street, Suite 2600, Baltimore, MD 21202.

AMICUS CURIAE BRIEF FOR ATTORNEY GENERAL OF MARYLAND: W. Thomas Lawrie, Esquire, William D. Gruhn, Esquire, Assistant Attorneys General, Consumer Protection Division, Office of the Attorney General, 200 Saint Paul Place, 16th Floor, Baltimore, MD 21202.

AMICUS CURIAE BRIEF FOR THE PUBLIC JUSTICE CENTER, CASH CAMPAIGN OF MARYLAND AND THE MARYLAND CONSUMER RIGHTS COALITION, INC.: Ejaz H. Baluch, Jr., Murnaghan Appellate Advocacy Fellow, Public Justice Center, One North Charles Street, Suite 200 Baltimore, MD 21201.

Argued before:Barbera, C.J., Greene, McDonald, Hotten, Getty, Sally D. Adkins (Senior Judge, Specially Assigned), Alan M. Wilner (Senior Judge, Specially Assigned)

Wilner, J.

This is a class action lawsuit filed in the Circuit Court for Baltimore City against petitioner LVNV Funding LLC (LVNV) that resulted in (1) money judgments against LVNV in favor of two of the named representative plaintiffs, and (2) after a remittitur ordered by the court, a separate money judgment against LVNV in the amount of $ 25 million in favor of the class. In an unreported Opinion, the Court of Special Appeals affirmed the Circuit Court's rulings with respect to LVNV's liability under the Maryland Consumer Debt Collection Act (Md. Code, Title 14, Subtitle 2 of the Commercial Law Article) but remanded the case for retrial on the issue of damages.

Neither side is entirely happy with the appellate decision, and we granted cross-petitions for certiorari to review it. There are four principal issues before us, each encompassing sub-issues. To put it all in context, some background is necessary – the corporate structure within which LVNV operates, the nature of the business that LVNV conducts, how LVNV conducts its business, regulation of that business by the State of Maryland, and the procedural history of what is now before us.

LVNV AND ITS AFFILIATES

LVNV is a limited liability company that was organized in Delaware in 2005, is headquartered in Las Vegas, Nevada, and appears to be managed from South Carolina. It claims to have no employees of its own. Its only business is to purchase consumer debts that are in default, mostly from affiliated entities that purchased the debts from others, and attempt to collect those debts through litigation. As determined by the Maryland Commissioner of Financial Regulation in a 2011 enforcement action (and not contested by LVNV in this appeal), LVNV is part of an integrated conglomeration of affiliated entities that include:

• Sherman Capital, LLC and Meeting Street Partners II, Inc., which own and operate Sherman Financial Group (SFG) and Sherman Capital Markets (SCM). SCM provides management services for SFG, which the Commissioner of Financial Regulation found to be "an integrated financial services company engaged in purchasing and servicing portfolios of consumer debt that it acquires at a large discount."¹

• Sherman Originator LLC (Originator), which is a wholly-owned subsidiary of SFG. Originator is headquartered in South Carolina. LVNV is a wholly owned subsidiary of Originator. LVNV's Board of Managers, which has day-to-day supervision over LVNV, also is based in South Carolina.

• Sherman Acquisition Limited Partnership (SALP), Sherman Acquisition II Limited Partnership (SAIILP), Sherman Acquisition II General Partner LLC (SAIIGPLLC), and Sherman Acquisition LLC (SALLC), which also are subsidiaries of SFG. The first two are debt purchasers. SALLC is involved with the management of LVNV; SALP and SAIILP have traded as LVNV; and

• Resurgent Capital Services Limited Partnership, a/k/a Resurgent Capital Services LP, f/k/a Alegis Group Limited Partnership (Resurgent), which acts as the master servicer for charged-off consumer debt owned by LVNV and is headquartered in South Carolina. Resurgent is a limited partnership in which Alegis is the general partner that owns one percent, and SFG, which is a limited partner that owns 99 percent. Both Resurgent and Alegis are subsidiaries of SFG. Id. Though only a one percent owner, Alegis is responsible for the management of Resurgent.²

What the Federal Trade Commission (FTC) referred to as "Sherman Financial" (presumably SFG) was the largest buyer of charged-off credit card debt directly from credit card issuers from 2005 to 2011, except for 2010, when it was the second largest buyer. See The Structure and Practices of the Debt Buying Industry , Federal Trade Commission, January 2013, at 16 and Table 5 (hereafter 2013 FTC Report ). During an overlapping period, LVNV played an active role in Maryland with respect to some of those accounts. In the LVNV Enforcement Action , the Commissioner found that between 1996 and 2011, LVNV was the named plaintiff in nearly 26,000 actions in the District Court of Maryland seeking affidavit judgments.³ In the great majority of those cases, no response was filed by the defendant, no trial was held, and judgments were entered on LVNV's affidavit.

THE DEBT-BUYING INDUSTRY

Traditionally, when a borrower or customer failed to pay a debt on time, the creditor would do what was needed to collect the debt either by engaging with the debtor directly or by employing an attorney or outside debt collector to do so. That still occurs, of course, but a new business model that first developed in the late 1980s has become predominant in the debt collection universe, largely because (1) so much of the debt arrearage in the United States, and in Maryland, is credit card debt, and (2) Federal banking regulations require credit card companies that are bank-related to charge off credit card debt that has been delinquent for six months.⁴

The new model, for those companies, and others, is to sell their delinquent accounts to debt buyers for pennies on the dollar – normally between four and five cents but less for older accounts – and thereby recoup at least something without having to bear the expense of further collection efforts. The sales are in bulk. A three-year study by FTC revealed the sale of more than 5,000 "portfolios" containing nearly 90 million consumer accounts with a face value of $ 143 billion at a cost of $ 6.5 billion. 2013 FTC Report at ii, 8, and Table 2.

While beneficial to the initial creditor in light of the charge-off requirement and lucrative to the debt buyer, the manner in which this new model developed and debt buyers carried on their business created significant consumer protection issues. In its 2013 Report, based in part on a 2009 Study, FTC observed that it received "more consumer complaints about debt collectors, including debt buyers, than about any other single industry." 2013 FTC Report at i. See also Collecting Consumer Debts – The Challenges of Change, A Workshop Report . Federal Trade Commission, February 2009 (hereafter 2009 FTC Report ).

In its 2013 Report, FTC noted that, in its 2009 Report, it had expressed concern that debt buyers "may have insufficient or inaccurate information when they collect on debts, which may result in collectors seeking to recover from the wrong consumer or recover the wrong amount."2013 FTC Report. The Commission found that, although debt buyers normally receive from the initial creditor the information needed to be disclosed to the debtor under the Federal Debt Collection Practices Act ( 15 U.S.C. § 1692g ) they often do not receive data relating to disputes raised by the debtor or a breakdown of how much of the debt is for interest, fees, or penalties, and that they rarely disclose to the debtor other information, such as data indicating that collection may be barred by limitations, that may be relevant to whether the alleged debtor is the actual debtor or owes the money and, if so, how much. 2013 FTA Report at iii-iv.

Those concerns, and others, were relayed to this Court by its Standing Committee on Rules of Practice and Procedure in the Committee's 171^st Report dated July 1, 2011, which led the Court to adopt amendments to Md. Rules 3-306, 3-308, and 3-509 dealing with judgments entered on affidavit rather than trial. The Rules Committee noted that "[b]oth nationally and in Maryland, there have been a multitude of cases in which the ultimate owner of the account sues the person it believes to be the debtor, knowing from experience that the...