MEMORANDUM OPINION
Plaintiff Wayne A. Bradshaw filed this action, on behalf of himself and all others similarly situated, against Defendant Hilco Receivables, LLC, for alleged unlawful debt collection practices. Currently pending before this Court is Plaintiffs Motion for Partial Summary Judgment as to Liability Only on Counts II, III, & IV of the Complaint (ECF No. 16). Also pending is Defendant Hilco Receivables, LLC’s Cross Motion for Summary Judgment (ECF No. 22). This Court has reviewed the record, as well as the pleadings and exhibits, and conducted a hearing on February 7, 2011 pursuant to Local Rule 105.6 (D.Md. 2010). For the reasons stated below, Plaintiffs motion is GRANTED, and Defendant’s Motion is DENIED with respect to Counts II, III, and IV. Defendant’s Motion is partially GRANTED with respect to Count I in which the Plaintiffs have sought injunctive and declaratory relief.
BACKGROUND
On September 17, 2009, Wаyne A. Bradshaw (“Plaintiff’ or “Bradshaw”) filed this class action lawsuit in the Circuit Court for Frederick County, Maryland, seeking damages and declaratory and injunctive relief against Defendant Hilco Receivables, LLC (“Defendant” or “Hilco”). Bradshaw alleges that Hilco acted as a debt collector in the State of Maryland without a license and that Hilco unlawfully filed lawsuits against Plaintiff and others (collectively “Plaintiffs”) as part of its debt collection practices. Bradshaw contends that Hilco, through its actions, violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692
et seq.,
the Maryland Con
The Plaintiff class, as represented by Bradshaw, consists of all persons in the State of Maryland who within three years prior to the filing of the initial complaint were contacted by Hilco in connection with any effort to collect a debt. See Pls.’ Mot. Certify Class 1, ECF No. 15; Order Granting Class Certification, ECF No. 44.
On June 17, 2009, Hilco filed suit (the “Underlying Lawsuit”) against Bradshaw in the District Court of Maryland for Frederick County in order to collect a debt that it purchased from Bradshaw’s creditors after the debt went into default. 1 Likewise, Plaintiffs allege that Hilco regularly pursues litigation against Maryland debtors to collect defaulted debts purchased by Hilco. Pls.’ Mot. Summ. J. 7, ECF No. 16-1. At the heart of Plaintiffs’ case is their contention that in filing suit against Maryland debtors, Hilco acted as a “collection agency” and thereby violated Maryland and federal law as a result of its failure to obtain a license required by Maryland law. 2
Plaintiffs argue that they suffered actual damages under their state law causes of action and that they are entitled to statutory damages under the federal FDCPA. Plaintiffs have moved for partial summary judgment as to liability only on Counts II, III, and IV of the Complaint. Hilco has cross moved for summary judgment, and argues, inter alia, that it was not required to be licensed as a collection agency, that filing of lawsuits in state court is not “collection activity,” and that even if it was required to obtain a license, that failure alone, does not constitutе a per se violation of the FDCPA, and finally, that it is entitled to summary judgment on Plaintiffs’ state law causes of action.
STANDARD OF REVIEW
Rule 56 of the Federal Rules of Civil Procedure provides that a court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). A material fact is one that “might affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc.,
In undеrtaking this inquiry, this Court must consider the facts and all reasonable inferences in the light most favorable to the nonmoving party.
Scott v. Harris,
When both parties file motions for summary judgment, as here, the court applies the same standard of review to both motions, with this Court considering “eaсh motion separately on its own merits to determine whether either [side] deserves judgment as a matter of law.”
Rossignol v. Voorhaar,
ANALYSIS
This Court has jurisdiction over this matter pursuant to 15 U.S.C. § 1692k(d) and 28 U.S.C. § 1331 because Plaintiffs’ claims constitute a federal question arising under the FDCPA. This Court has supplemental jurisdiction over Plaintiffs’ state law claims under 28 U.S.C. § 1367(a). Because the basis for this Court’s jurisdiction arises under the FDCPA claims, those claims will be discussed first, with the state law claims to follow. As the parties’ arguments overlap to a significant degree, and for the sake of clarity and brevity, the parties’ claims and arguments will be discussed together in the following sections, with the understanding that each motion will be considered on its own merits.
As a preliminary matter, during oral argumеnt heard on February 7, 2011, both parties acknowledged that the issues set forth in the respective motions for summary judgment are legal issues and present no genuine issues of material fact that would foreclose this Court from rendering judgment. Essentially, this Court is asked to determine whether Hilco’s filing of lawsuits in Maryland state court without a debt collection license constitutes violations of the FDCPA, the MCDCA, and the MCPA. For the reasons set forth below, this Court finds that in failing to obtain a license and nevertheless filing lawsuits to collect debt, Hilco violated the FDCPA and the respective state statutes.
I. Plaintiffs’ Fair Debt Collection Practices Act (FDCPA) Claims (Count IV)
The FDCPA safeguards consumers from abusive and deceptive debt collection practices by debt collectors.
Spencer v. Hendersen-Webb, Inc.,
It is well established that “the threshold requirement for application of the [FDCPA] is that prohibited practices are used in an attempt to collect a debt.”
Mabe v. G.C. Servs. Ltd. P’ship,
A. Hilco Was Required To Be Licensed Under The Maryland Collection Agency Licensing Act (MCALA)
It is first necessary to consider whether Hilco is, in fact, required to be
Although Hilco similarly acknowledges that it acquired Bradshaw’s delinquent account while in default, it nonetheless contends that it is not subject to MCALA’s licensing requirement on the ground that it was not doing business as a collection agency in the State of Maryland. See Def.’s Cross Mot. Summ. J. 4, ECF No. 22. As Plaintiffs aptly note, MCALA is clear on its face — it requires that any person who directly or indirectly engages in collecting debts must be licensed. Id. at §§ 7-101(c), 7-301(a). Moreover, if there were any confusion, there is ample legislative history confirming the Maryland General Assembly’s intention to require companies that acquire defaulted consumer debt, such as Hilco, to be licensed. For example:
House Bill 1324 extends the purview of the State Collection Agency Licensing Board to include persons who collect consumer claims acquired when claims were in default. These persons are known as “debt purchasers” since they purchase delinquent consumer debt re-suiting from credit card transactions and other bills; these persons then own the debt and seek to collect from consumers like other collection agencies who act on behalf of original creditors.
H.B. 1324, 2007 Leg. Sess., S. Fin. Comm. (Md. 2007), ECF No. 16-9.
The law does not require licensing for businesses that only collect their own consumer debts.... However, the evolution of the debt collection industry has created a “loophole” used by some entities as a means to circumvent current State collection agency laws. Entities such as “debt purchasers” who enter into purchase agreements to collect delinquent consumer debt rather than acting as an agent for the original creditor, currently collect consumer debt in the State without complying with any licensing or bonding requirement. The federal government has recognized and defined debt purchаsers as collection agencies, and requires that these entities fully comply with the Federal Fair Debt Collection Practices Act. This legislation would include debt purchasers within the definition of a “collection agency,” and require them to be licensed by the Board before they may collect consumer claims in this State.
Testimony in Support of HB 1324 by Charles W. Turnbaugh, Comm’r Fin. Reg. (emphasis removed), ECF No. 16-9.
Despite the above statutory language, and the clear legislative intent to require debt buying entities such as Hilco to be licensed prior to collecting debts in Maryland, Hilco nonetheless argues that it is exempt from the licensing requirement because it is a “passive debt buyer” and therefore not cоvered by the statute’s definition of “collection agency.” Def.’s Cross Mot. Summ. J. 5, ECF No. 22. In support
Moreover, even if the Mack Letter were entitled to any degree of reliance by Hilco, less than one month after its issuance, the DLLR issued an advisory notice clarifying its official position thаt “any person engaged in the collection of a consumer claim the person owns, if the claim was in default when the person acquired it is required to be licensed as a collection agency pursuant to HB 1324____” DLLR Advisory Notice No. 07-06, July 17, 2007, Pls.’ Mot. Summ. J. ex. 10, ECF No. 16-10. Finally, on May 5, 2010, the Maryland State Collection Agency Licensing Board issued an advisory notice that further clarified its position:
The Board wishes to clarify that it has been its consistent position that a Consumer Debt Purchaser that collects consumer claims through civil litigation is a “collection agency” under Maryland law and required to be licensed as such regardless of whether an attorney representing the Consumer Debt Purchaser in the litigation is a licensed collection agency.
Maryland State Collection Agency Licensing Bd. Advisory Notice 05-10, May 5, 2010, Pls.’ Mot. Summ. J. ex. 2, ECF No. 16-3 (emphasis added).
As previously stated, it is clear that Hilco is a debt collector and has engaged in collection activity within the meaning of the FDCPA as a result of its initiation of state court lawsuits brought against Bradshaw and the class members. Furthermore, this Court concludes that Hilco violated the MCALA by engaging in collection activity without the required license.
7
As such, because a violation of
B. A Fair Debt Collection Practices Act (FDCPA) Cause Of Action Exists As A Result of Hilco’s Failure to Obtain a License Under The Maryland Collection Agency Licensing Act (MCALA)
The FDCPA prohibits the use of any “false, deceptive, or misleading representation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, and provides a non-exhaustive list of conduct that violates the FDCPA, including “[t]he threat to take any action that cannot legally be taken.” 15 U.S.C. § 1692e(5). The theory underlying Plaintiffs’ claim is that because Maryland law prohibits collection agencies from conducting debt collection in the state without a license, Hilco’s noncompliance with the Maryland statute forecloses it from initiating debt collection activities, including litigation. Essentially, Plaintiffs argue that Hilco’s violation of MCALA’s licensing requirement is a
per se
violation of Section 1692e(5)’s рrohibition on threats to take action that cannot legally be taken. There is precedent for that argument. In
Gaetano v. Payco of Wisconsin, Inc.,
the United States District Court for the District of Connecticut concluded that unlicensed collection activity violated various provisions of the FDCPA.
Defendant does not argue that a violation of MCALA’s licensing requirements can never form the basis of a FDCPA cause of action, but rather, argues that the failure to obtain a collection agency license does not constitute a
per se
violation of the FDCPA. There is ample precedent for this argument as well. The United States Court of Appeals for the Eleventh Circuit recently considered the issue and, although it determined that the defendant’s violation of a Florida licensing statute did support a cause of action under the FDCPA, held that debt collector actions in violation of state law would not automatically constitute
per se
violations of the Act.
LeBlane v. Unifund CCR Partners,
The FDCPA was designed to provide basic, overarching rules for debt collection activities; it was not meant to convert every violation of a stаte debt collection law into a federal violation. Only those collection activities that use “any false, deceptive, or misleading representation or means,” including “[t]he threat to take any action that cannot legally be taken” under state law, will also constitute FDCPA violations.
Carlson v. First Revenue Assurance,
In light of the clear weight of authority, and absent any cases to the contrary, this Court holds that a violation оf Maryland’s MCALA licensing requirement may support a cause of action under the FDCPA. However, this Court declines to hold that any violation of state law, no matter how trivial, constitutes a per se violation of the FDCPA. Accordingly, this Court must next consider whether the actual conduct complained of by Plaintiffs — namely, Hilco’s filing of lawsuits to collect defaulted debt without a license — violates Section 1692e(5) of the FDCPA which prohibits threatening to take action that cannot legally be taken.
C. Hilco Violated The Fair Debt Collection Practices Act (FDCPA) In Filing Lawsuits Without A License In Violation Of The Maryland Collection Agency Licensing Act (MCA-LA)
As previously stated, the FDCPA prohibits the use of any “false, deceptive, or misleading represеntation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, and provides a non-exhaustive list of conduct that violates the FDCPA, including “[t]he threat to take any action that cannot legally be taken.” 15 U.S.C. § 1692e(5). The question therefore becomes whether Hilco’s unlicensed filing of lawsuits constitute making a “threat to take any action that cannot legally be taken.” As recently summarized by Judge Blake of this Court in a similar case, “[t]o prevail on this claim, the plaintiffs must establish that, first, filing a lawsuit and serving interrogatories in connection with the lawsuit constitute ‘threat[s] to take [unlawful action],’ rather than unlawful actions themselves, and second, that failing to hold a state license renders the filing of the lawsuit ‘action that cannot legally be taken.’ ”
Hauk v. LVNV Funding, LLC,
Although Plaintiffs’ FDCPA claims seemingly turn on the resolution of the above questions in their favor, they cite no cases in support of their argument that Hilco’s filing of lawsuits constituted threats to take action that could not legally be taken. Similarly, although Hilco asserts that it “did not threaten to take action against Plaintiff,” Def. Cross Mot.
Some district courts, including a court in which Hileo is currently a defendant, have taken the position that illegal conduct that is actually undertaken, as opposed to merely threatened, cannot support a claim under 15 U.S.C. § 1692e(5).
See, e.g., Cox v. Hilco Receivables, LLC,
On the other hand, the majority view is reflected by the United States Court of Appeals for the Fifth Circuit, as well as district courts in Massachusetts, Washington, Ohio, and Arizona which have held that Section 1692e(5) protects consumers against debt collectors that actually complete illegal acts as well as against debt collectors who merely threaten to complete those acts.
See Poirier v. Alco Collections, Inc.,
This Court finds the latter, and majority view more persuasive and consistent with legislative intent. Accordingly, this Court interprets Section 1692e(5) of the FDCPA to include the
taking
of “action that cannot legally be taken.” It simply strains credulity to believe that the FDCPA, a law that safeguards consumers from abusive and deceptive debt collection practices by debt collectors,
See United States v. Nat’l Fin. Servs. Inc.,
Finally, in the Fourth Circuit, the “least sophisticated debtor” standard ap
D. Hilco Is Not Entitled To The Bona Fide Error Defense Pursuant to 15 U.S.C. § 1692k(c)
Under the FDCPA, a debt collector is shielded from liability under the Act upon a showing, by a preponderanсe of the evidence, that “the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. § 1692k(c). However, the Supreme Court recently held that the “bona fide error” defense does not apply to “a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.”
Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA,
— U.S. -,
Nevertheless, in its Reply Memorandum in Support of its Cross Motion for Summary Judgment, Hilco again seeks shelter in the bona fide error defense. See Def.’s Reply Supp. Cross Mot. Summ. J. 8, ECF No. 33. This time, however, Hilco asserts that its mistaken interpretation of the FDCPA was a mistake of fact, and not a mistake of law. Id. This argument is without merit. Hilco provides no basis for a finding that its flawed interpretation of the Maryland licensing requirements and the FDCPA were in any way “factual” mistakes. Hilco may have received imprudent legal advice, but it was legal advice nonetheless.
II. Plaintiffs’ State Law Claims Under The Maryland Consumer Debt Collection Act (MCDCA) (Count II) And The Maryland Consumer Protection Act (MCPA) (Count III)
The Maryland Consumer Debt Collection Act (“MCDCA”) prohibits debt
Hilco’s main contention with regard to the MCDCA and the MCPA, aside from its continued argument that it was not required to be licensed under MCALA, revolves around the “knowledge” requirement of the MCDCA. As previously mentioned, the MCDCA states that, in collecting a consumer debt, a collector may not “[c]laim, attempt, or threaten to enforce a right with knowledge that the right does not exist.” Id. § 14-202(8) (emphasis added). Hilco maintains that “the lack of state licensure was based upon a mistake of fact, not a mistake of law,” and that Hilco “did not act with actual knowledge or reckless disregard that Hilco should have been licensed in the State of Mayland.” Def.’s Cross Mot. Summ. J. 10, ECF No. 22. As previously discussed, Hilco’s contention that any violation of Maryland’s licensing laws was based on a mistake of fact and not a mistake of law is without merit.
This Court has previously construed the level of knowledge required under the MCDCA and has held that “[c]onsidering the remedial aim of the MCDCA and the dilution of the statute that would result from a contrary interpretation, the Court holds that the term ‘knowledge’ in the Act does not immunize debt collectors from liability for mistakes of law.”
Spencer v. Hendersen-Webb, Inc.,
This Court notes the similarities between the Maryland Consumer Debt Collection Act and Section 1692e(5) of the
III. Plaintiffs Are Not Entitled to Declaratory Judgment Or Injunctive Relief
Count I of Plaintiffs’ Complaint requests “class declaratory judgment and injunctive relief based on engaging in collection activities without a license.” Compl. Count I, ECF No. 2. Plaintiff does not request summary judgment with respect to this Count. Hilco argues that it is entitled to summary judgment on Count I because declaratory and injunctive relief is not available under the FDCPA, MCDCA, or the MCPA. This precise issue was recently considered by this Court, and in
Hauk v. LVNV Funding, LLC,
CONCLUSION
For the aforementioned reasons, Plaintiffs’ Motion for Partial Summary Judgment as to Liability Only on Counts II, III, & IV of the Complaint (ECF No. 16) is GRANTED, and Defendant’s Cross Motion for Summary Judgment (ECF No. 22) is DENIED with respect to Counts II, III, and IV, but GRANTED with respect to Count I in which the Plaintiffs have sought injunctive and declaratory relief. A separate Order follows.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, it is this 23rd day of February, 2011, hereby ORDERED that:
1. Plaintiffs’ Motion for Partial Summary Judgment as to Liability Only on Counts II, III, & IV of the Complaint (ECF No. 16) is GRANTED;
2. Defendant’s Cross Motion for Summary Judgment (ECF No. 22) is DENIED with respect to Counts II, III, and IV, but GRANTED with respect to Count I in which the Plaintiffs have sought injunctive and declaratory relief;
3. Further proceedings with respect to damages will be conducted at a date to be determined; and
4. The Clerk of the Court transmit copies of this Order and accompanying Memorandum Opinion to Counsel
Notes
. Defendant Hilco is in the business or purchasing defaulted debts, on which it subsequently seeks to collect.
See
Pls.’ Mem. Supp. Mot. Partial Summ. J. at 7, nn. 5-7 (summarizing Hilco’s responses to Plaintiffs' Interrogatories and Requests for Admissions);
see also Cox v. Hilco Receivables, LLC,
. Notably, Bradshaw does not argue that he did not owe the amount of money sought by Hilco in the underlying lawsuit, and he does not challenge the propriety of that proceeding. Rather, Bradshaw's arguments stem from Hilco's conduct in prosecuting the underlying lawsuit. See also discussion of the Rooker-Feldman doctrine infra at note 7.
. In their Complaint, Plaintiffs specifically allege three violations of the FDCPA: failure to abide by the statute’s notice provisions under 15 U.S.C. §§ 1692g and 1692e(11), and threatening to take action that cannot legally be taken in violation of § 1692e(5). During oral argument and in their briefs, Plaintiffs’ argument focused entirely on Section 1692e(5). Similarly, although Defendant made passing reference to the notice provisions of the FDCPA specifically pled by the Plaintiffs in its Complaint, it too focused entirely on Section 1692e(5) during oral argument. Because the Plaintiffs must only prove one violation of the FDCPA to trigger liability, this Court will focus its attention on the claims arising under 15 U.S.C. § 1692e(5).
. There are at least two other similar pending cases before this Court. In
Hauk v. LVNV Funding, LLC,
. Hilco applied for a collection agency license in late 2009, and received one on May 20, 2010. Def.’s Cross Mot. Summ. J. 8, ECF No. 22.
. On February 7, 2011, Plaintiffs requested, and were granted leave to file an affidavit of Kelly Mack in supplement to their motion for partial summary judgment. See Order, ECF No. 37. In her affidavit, Ms. Mack confirms that her previously issued “Mack Letter” did not contemplate or refer to debt collection litigation. Rather, her letter "was directed exclusively at traditional collection activities not involving the use of Maryland courts or any other judicial process.” Affidavit of Kelly Mack, Pls.' Supp. Mot., ex. 1, ECF No. 37-1.
. During oral argument, Hilco suggested that a finding by this Court that Hilco violated MCALA with regard to the underlying state court lawsuits filed against the class members could potentially run afoul of the
Rooker-Feldman
doctrine. Under that doctrine, a federal court does not have jurisdiction to overturn state court judgments, even when the federal complaint raises allegations that the state court judgments violate a claimant's constitutional or federal statutory rights.
See Rooker v. Fidelity Trust Co.,
. See supra note 4.
. See supra note 4.