Master Financial, Inc. v. Crowder

• Citation: 972 A.2d 864,409 Md. 51
• Decision Date: 09 June 2009
• Docket Number: No. 96, September Term, 2008.,96, September Term, 2008.
• Parties: MASTER FINANCIAL, INC., et al. v. Ralph S. CROWDER, et al.
• Court: Court of Special Appeals of Maryland

972 A.2d 864

409 Md. 51

MASTER FINANCIAL, INC., et al. v. Ralph S. CROWDER, et al.

No. 96, September Term, 2008.

Court of Appeals of Maryland.

Argued March 5, 2009.

Decided June 9, 2009.

Reargued May 5, 2009.

Gerard J. Gaeng (Andrew H. Baida and Melody Tagliaferri Cronin of Rosenberg, Martin, Greenberg, LLP), Ward B. Coe, III (Hillary A. Hussin of Gallagher, Evelius & Jones, Baltimore), on brief, John M. McIntyre (Thomas L. Allen and Roy W. Arnold of Reed Smith, LLP, Pittsburgh, PA), Gregory L. Lockwood, Pope & Hughes, Towson, Anne Kelly Laynor, Law Offices of Anne Kelly Laynor, Marriotsville, Daniel J. Tobin, Ballard, Spahr, Andrews & Ingersoll, LLP, Bethesda, Brian L. Moffet, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, J. Steven Lovejoy, Michael E. Rowan, Shumaker Williams, P.C., Towson, Philip M. Andrews, Kramon & Graham, P.A., Baltimore, Marva Deskins, Goodwin Procter, LLP, Daniel H. Squire, Wilmer, Cutler, Pickering, Hale and Dorr, LLP, Washington, DC, Gerald Danoff, Danoff & King, PA, Towson, Jefferson V. Wright, E. Hutchinson Robbins, Jr., Robert S. Brennen, Miles & Stockbridge, P.C., John T. Prisbe, Venable, LLP, Gregg L. Bernstein, Zuckerman Spaeder, LLP, Baltimore, Kenneth G. Roberts, WolfBlock, LLP, New York, NY, Dana B. Klinges, Wolf-Block, LLP, Philadelphia, PA, Joseph Aronauer, John C. Re, Aronauer, Goldfarb, Re & Yudell, LLP, New York, NY, Jack L.B. Gohn, Gohn, Hankey & Stichel, LLP, Baltimore and Richard D. Holzheimer, Jr., Reed Smith, LLP, Falls Church, VA, on supplemental memorandum, for petitioners/cross-respondents.

E. David Hoskins (The Law Offices of E. David Hoskins, LLC, Baltimore), on brief and on supplemental memorandum, for respondents/cross-petitioners.

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

Reargued before JOHN C. ELDRIDGE (Retired, Specially Assigned), ALAN M. WILNER (Retired, Specially Assigned) and DALE R. CATHELL (Retired, Specially Assigned), JJ.

ALAN M. WILNER, J., Retired, Specially Assigned.

Before us are nineteen lawsuits, nine of which are class actions. In all of them, the plaintiffs, each of whom had allegedly obtained a loan secured by a second mortgage on residential property, claimed that their respective loan transactions violated the State Secondary Mortgage Loan Law (SMLL) in several respects, and they sought redress under that statute. Several of the plaintiffs also asserted violations of the State Consumer Protection Act (CPA), and a few sought a declaratory judgment that, because of a particular violation of the SMLL, the loan agreements, as a matter of common law, were void or voidable as illegal contracts.

Named as defendants in all of the cases were the entities that had allegedly originated the respective mortgage loans to the plaintiffs (lender defendants) and entities that had purchased those mortgage loans from the lender defendants (holder defendants). In some of the class action cases, a third category of defendant (non-holder defendants) was added. That category consisted of entities which had purchased from lender defendants mortgage loans made to persons other than the named plaintiffs but which were alleged to be "juridically linked" to the named plaintiffs.

The Circuit Court for Baltimore City dismissed all of the actions, principally on the ground that, as none of the lawsuits had been filed within three years after the closing of the respective loans, they were barred by limitations. The court also held that the class action plaintiffs had no cause of action against the non-holder defendants, which had no connection with any of those plaintiffs or their loans. On appeal, the Court of Special Appeals concurred in most of the conclusions and holdings of the Circuit Court, including the findings that the applicable limitations period was three years and that no cause of action was stated against the non-holder defendants. It disagreed, however, with the Circuit Court's finding that the actions under the SMLL were entirely barred by limitations and, to that extent, reversed the Circuit Court judgment. Crowder v. Master Financial, 176 Md.App. 631, 933 A.2d 905 (2007).

On cross-petitions, we granted certiorari to review the intermediate appellate court's conclusions that (1) the claims under the SMLL were subject to the three-year statute of limitations, (2) they were, however, not entirely barred by limitations, and (3) the plaintiffs in the class action suits had no standing, on behalf of absent class members, to sue the non-holder defendants.

The thrust of the plaintiffs' argument as to limitations was that their claims were based, at least in part, on the loan instruments, that some of those instruments were under seal or should be treated as if they were under seal, and that those claims were therefore subject to a 12-year statute of limitations under Maryland Code, § 5-102(a)(1) or (5) of the Cts. & Jud. Proc. Article (CJP) rather than the three-year period allowed by CJP § 5-101. The defendants averred that the claims were based entirely on the duties, obligations, rights, and remedies set forth in the SMLL and not on the loan instruments and that the period of limitations applicable to those statutory claims was three years.

As the case was presented in the Circuit Court, in the Court of Special Appeals in the cross-petitions for certiorari, and, in the initial briefs and oral argument in this Court, neither side ever contended that the period of limitations applicable to claims under SMLL was anything but three years. That was assumed. As noted, the major dispute was whether the claims were, in fact or in law, statutory claims subject to that three-year period of limitations or were actions on loan instruments under seal. Following oral argument, this Court discovered a line of cases that cast doubt on that assumption, and, in order to permit the parties to address the issues raised by that line of cases, we directed that supplemental memoranda be filed and additional argument be scheduled on the following question:

"If, as the lower courts held, the plaintiffs' claims are based entirely on the duties, prohibitions, and remedies set forth in the [SMLL] and not on the respective loan instruments, whether, in light of the holdings in Greene Tree H.O. v. Greene Tree Assoc., 358 Md. 453 (2000), Mattare v. Cunningham, 148 Md. 309 (1925), and cases cited therein, those claims constitute [an] `other specialty' under [CJP § 5-102]."¹

Having considered the supplemental memoranda and oral argument, we are convinced that the plaintiffs' actions for civil penalties under SMLL do, indeed, fall within the category of "other specialty" under CJP § 5-102(a)(6) and that they are therefore subject to a 12-year statute of limitations. To that extent, we disagree with the ultimate judgments of the two lower courts on that issue. We do agree with those courts, however, that the plaintiffs may not proceed against the non-holder defendants and that the claims under the CPA are subject to a three-year statute of limitations. We shall hold as well that the common law actions to declare the loans void or voidable are also subject to the three-year period of limitations.

BACKGROUND

The credit provisions of the SMLL are found in Maryland Code, §§ 12-401 through 12-415 of the Commercial Law Article (CL). Among other things, the SMLL defines a secondary mortgage loan (§ 12-401(i)), prohibits a person from making such a loan unless the person is licensed under the Maryland Mortgage Lender Law² or is exempt from such licensing (CL § 12-402), limits the amount of interest, fees, points, commissions, and other charges that may be exacted in connection with a secondary mortgage loan (CL §§ 12-404 through 12-406), and requires certain disclosures to certain borrowers (CL § 12-407.1). Violators of those or any other provision of the SMLL are subject to civil and criminal penalties. Of particular relevance here is CL § 12-413, which provides for civil penalties:

"Except for a bona fide error of computation, if a lender violates any provision of this subtitle he may collect only the principal amount of the loan and may not collect any interest, costs, or other charges with respect to the loan. In addition, a lender who knowingly violates any provision of this subtitle also shall forfeit to the borrower three times the amount of interest and charges collected in excess of that authorized by law."

In their respective complaints and in papers filed thereafter, the plaintiffs claimed that the defendants violated the SMLL by (1) not being licensed as required, (2) charging the plaintiff-borrowers, at the time of closing, costs, fees, and expenses in excess of those permitted by the law, and (3) failing to provide a mandated disclosure form at or before the time of closing. In consequence of those alleged violations, all of the plaintiffs sought a refund of the unlawfully excessive fees charged at closing and all interest already paid by them on their loans and an order relieving them from the obligation to pay any further interest. In the nine class action suits, the plaintiffs alleged that the defendants had knowingly violated the SMLL and thus sought, as additional recompense, three times the amount of interest and excessive charges collected by the defendants.

The Consumer Protection Act is found in Title 13 of the Commercial Law Article. CL § 13-301 defines certain unfair or deceptive trade practices, among which are (1) false or misleading statements or representations which have the capacity, tendency, or effect of deceiving or misleading consumers, (2) representations that consumer goods, realty, or services have a characteristic, use, or benefit which they do not have, (3) failure to state a material fact if the failure deceives or tends to deceive, and (4) misrepresentation, knowing concealment, or omission of any material fact with the intent that the consumer rely on the same in connection with the...