COMMISSIONER OF FINANCIAL REGULATION v. BROWN, BROWN, & BROWN, P.C., et al.
Docket No. 102, Sept. Term, 2015
Court of Appeals of Maryland.
August 19, 2016
Reconsideration Denied September 28, 2016
144 A.3d 666
Christopher E. Brown (Alexandria, VA; Christal Edwards, Brown, Brown & Brown, P.C., Silver Spring, MD), on brief, for Respondent.
Argued Before: BARBERA, C.J.; GREENE, ADKINS, MCDONALD, WATTS, HOTTEN and LYNNE A. BATTAGLIA (Retired, Specially Assigned), JJ.
McDONALD, J.
Maryland law places various restrictions on those who purport to assist consumers in obtaining credit—restrictions that include certain licensing, bonding, and disclosure requirements. These requirements are set forth in the Maryland Credit Services
In this case, Respondent Brown, Brown & Brown, P.C. (“BB&B“), a small Virginia law firm, consulted with hundreds of Maryland homeowners facing foreclosure, and entered into more than 50 agreements with homeowners over a nine-month period in 2008 and 2009. The firm‘s managing partner, Respondent Christopher E. Brown, oversaw this aspect of the firm‘s business and signed many of the agreements. Under these agreements, in return for an advance payment of money by the homeowner, BB&B promised to attempt to renegotiate the mortgage loan so that the homeowner could avoid foreclosure. BB&B ultimately did not obtain loan modifications for any of those homeowners.
After receiving a complaint about BB&B from a family that had entered into such an agreement, Petitioner Commissioner of Financial Regulation (“Commissioner“), who has primary responsibility for enforcing the MCSBA, initiated the administrative proceedings that resulted in this case. Following an evidentiary hearing, an administrative law judge (“ALJ“) of the Office of Administrative Hearings concluded that Mr. Brown and his firm had violated the MCSBA in several respects and recommended that the Commissioner issue a permanent cease and desist order, impose a substantial civil monetary penalty, and direct BB&B and Mr. Brown to pay treble damages to the Maryland homeowners with whom they had agreements. The Commissioner accepted the ALJ‘s recommendations and issued an order imposing that relief.
Respondents sought judicial review. The Circuit Court reversed the agency decision on the ground that the agreements with the Maryland homeowners were for legal services rather than credit services and that the MCSBA did not apply to BB&B and Mr. Brown. The Court of Special Appeals affirmed in an unreported opinion. We granted certiorari.
We hold that the agency decision accurately construed the MCSBA and was supported by substantial evidence. There is substantial evidence in the administrative record that BB&B and Mr. Brown represented that, in return for the payment of money, they would undertake to obtain a loan modification for the homeowners with whom they had agreements. Those activities fell within the definition of “credit services business” under the statute, unless BB&B and Mr. Brown qualified for an exemption.
There is also substantial evidence in the record to support the conclusion that BB&B and Mr. Brown did not qualify for the attorney exemption in the MCSBA. While BB&B employed at least one Maryland attorney during the relevant period, Mr. Brown and another non-Maryland attorney at the firm executed many of the agreements. More importantly, the evidence revealed that the firm engaged in these activities on a “regular and continuing basis” during the relevant period of
I
Background
A. Statutory Framework
Credit Services Business
The MCSBA defines a “credit services business” as “any person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that such person can or will sell, provide, or perform” any of certain enumerated services “in return for the payment of money or other valuable consideration.”
debt, or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes.”
Thus, an individual or entity that, in return for the payment of money, offers to assist a consumer in obtaining an extension of credit—such as the deferral of a debt that was incurred for household purposes—falls within the general definition of “credit services business.”
Attorney Exemption
Notwithstanding the breadth of the general definition of “credit services business” in the statute, there are 10 categories of individuals and entities excluded from that definition.
Regulation of Credit Services Businesses
The MCSBA applies to any contract with a Maryland resident involving credit services.
“[c]harge or receive any money or other valuable
The provisions of the MCSBA are primarily enforced by the Commissioner of Financial Regulation, who may issue cease and desist orders and initiate administrative enforcement proceedings.
B. Facts
The Firm
The following facts were found by the ALJ who conducted the hearing and were accepted by the Commissioner, or are
undisputed. During the relevant period, BB&B was a law firm located in Alexandria, Virginia, that employed no more than four attorneys at any one time.4 Mr. Brown, an attorney licensed to practice law in Virginia and the District of Columbia, served as the managing partner of BB&B and was its sole shareholder. Mr. Brown was not licensed to practice law in Maryland.
During the time period relevant to this case, BB&B employed a Maryland lawyer to meet with Maryland clients and work on their matters. Specifically, Bradley Deutchman, a lawyer licensed in Maryland, worked fоr BB&B during 2008, but left in January 2009. After Mr. Deutchman left the firm, it employed Adam Polsky, who was also licensed in Maryland, for three or four months at the beginning of 2009. If a Maryland lawyer was not available to meet with a Maryland client of BB&B, Mr. Brown or Michael Miller, a lawyer licensed in the District of Columbia, would meet with the Maryland client instead.
Referrals of Homeowners Facing Foreclosure
During late 2008 and early 2009, Mortgage Analysis & Consulting LLC, a Virginia-based business that advertised in Spanish-language media and that accepted fees from homeowners to analyze their
the firm in early 2009, he spent the majority of his time dealing with the homeowners facing foreclosure. Between June 2008 and March 2009, at least 57 Maryland homeowners, most of whom were referred by Mortgage Analysis & Consulting, paid BB&B to help them with their mortgage debts. Most of the Maryland homeowners who entered into these agreements with BB&B were native Spanish-speakers and spoke little or no English. Most, if not all, of the homeowners were seeking a modification of their mortgage loans.
Agreements with Homeowners
The agreements between BB&B and Maryland homeowners were entitled either “Retainer Agreement” or “Fee Agreement.” Although the agreements varied in their precise content and some contained parallel provisions in Spanish as well as English, certain provisions were common to the vast majority of the agreements. Under the agreements, homeowners paid BB&B amounts varying from $2,500 to $7,500 up front before receiving any services. The amount paid, according to the agreement, was deemed “earned upon receipt.” An introductory paragraph of the agreement, which appears in several different iterations in the agreements, stated that BB&B would represent the homeowners in negotiations with the homeowner‘s lender, foreclosure defense, and possible litigation concerning the homeowner‘s property. The nature of the work, in relation to the amount paid, was elaborated in a paragraph entitled “BB&B‘s Obligations.” That paragraph specified that, in consideration for the money paid by the homeowner, the firm would “engage the appropriate party in discussions to renegotiate the terms of your loan.” If the renegotiation of the homeowner‘s mortgage loan proved un-successful, BB&B was to “assess the chances of success in state or federal court and the costs involved” to decide whether to do something more. In the event of such further action, the agreements provided that BB&B would receive an additional feе (usually stated as a 40% contingency fee, or any attorney‘s fee awarded by a court, whichever was greater).
Only four of the agreements with Maryland homeowners were signed by the firm‘s Maryland lawyer on behalf of BB&B. Thirteen were signed by other BB&B lawyers, including Mr. Brown, on behalf of BB&B, while most of the agreements had no signature of any attorney on behalf of BB&B.
BB&B apparently made little effort to actually renegotiate loans and did not obtain a loan modification for any of the Maryland homeowners with whom it had agreements. There was some evidence that it made other efforts that it referred to as “foreclosure defense.” In particular, it would sometimes send what Mr. Deutchman referred to as “form letters” to lenders requesting documentation under certain federal statutes in the hope that the
The Experience of Mr. and Mrs. Batres
Testimony at the administrative hearing focused on the example of Miguel and Teresa Batres, who filed the complaint with the Commissioner that initiated this case. Ms. Batres, whose native language is Spanish and who does not read English, responded to a Spanish-language radio advertisement for Mortgage Analysis & Consulting. After paying $150 to that entity, she was referred to BB&B to help her obtain a loan modification. On July 23, 2008, she and her husband signed an agreement with BB&B and paid $1,500 of the $3,000 specified in the agreement.
Approximately six months later, after receiving a notice initiating a foreclosure action as to their home, and a form notice of the Commissioner advising homeowners in foreclosure of potential remedies, the Batreses contacted the Commissioner‘s Office to lodge a complaint against BB&B. The
Batreses alleged that BB&B had done nothing on their behalf and asked for their money back. The Batreses eventually lost their home to foreclosure.8
Non-Compliance with the MCSBA
Neither BB&B nor Mr. Brown nor any of the firm‘s other attorneys has ever been licensed under the MCSBA. Nor did they apparently cоmply with the other requirements of the Act, such as the bonding and disclosure requirements. None of the agreements contained any advisements relevant to credit services.
C. Procedural History
Administrative Investigation and Charges
As a result of the Batres complaint, the Commissioner investigated BB&B. On the basis of that investigation, the Commissioner issued a Summary Order to Cease and Desist on March 6, 2009 to BB&B, Mr. Brown, Mr. Deutchman, and Mr. Miller that alleged various violations of the MCSBA. In response, BB&B terminated its agreements with Maryland homeowners. In April 2009, Mr. Deutchman settled with the Commissioner, admitting the essentials of the alleged violations. BB&B and Mr. Brown requested a contested case hearing.9 The Commissioner referred the matter to the Office of Administrative Hearings for a hearing and proposed decision.
Administrative Hearing and Decision
On September 28 and November 4, 2010, an ALJ of the Office of Administrative Hearings held an evidentiary hearing. After receiving post-hearing briefs, the ALJ issued a Proposed
Decision on March 8, 2011, concluding that BB&B and Mr. Brown had violated the MCSBA. The ALJ recommended that the Commissioner issue a final ceаse and desist order and assess a civil monetary penalty in the amount of $114,000 under
The matter was delegated to the Deputy Commissioner of Financial Regulation as final agency decisionmaker under the State Administrative Procedure Act. See
There followed an interregnum during which the parties entered into a settlement agreement and consent order. BB&B and Mr. Brown were apparently unable or unwilling to carry out some of the monetary requirements of the consent order and the administrative proceeding was revived.10 The Deputy Commissioner held a hearing on the exceptions of BB&B and Mr. Brown on October 4 and October 23, 2012.
On March 26, 2013, the Deputy Commissioner issued an Opinion and Final Order concluding that BB&B and Mr. Brown had violated the MCSBA. The Opinion and Final Order also declared that the agreements with Maryland homeowners were void and unenforceable, ordered BB&B and Mr. Brown
to cease and desist from engaging in any credit services business activities with Maryland residents, held BB&B and Mr. Brown jointly and severally liable for a civil monetary penalty of $114,000,11 and directed them to pay 57 Maryland consumers a total of $720,600 as treble damages.12
Judicial Review
BB&B and Mr. Brown sought judicial review of the agency decision in the Circuit Court for Baltimore City. In the memorandum in support of their petition, BB&B and Mr. Brown contended: (1) for a variety of reasons, the MCSBA did not apply to
their provision of legal services and their activities did not constitute a credit services business as defined in the MCSBA. The Circuit Court did not address the issue of willfulness.
The Commissioner appealed, and, on October 23, 2015, the Court of Special Appeals affirmed the Circuit Court in an unreported opinion. We subsequently granted the Commissioner‘s petition for a writ of certiorari.
II
Discussion
It is undisputed that neither BB&B nor Mr. Brown obtained a license to operate a credit services business or otherwise complied with the various requirements in the MCSBA. The issue is whether they should have. To resolve that issue requires consideration of the following questions.
First, did the business activities of BB&B and Mr. Brown with respect to the Maryland homeowners with whom they entered into agreements during late 2008 and early 2009 come within the definition of a “credit services business” under Maryland law?
Second, if the answer to the first question is “yes,” did BB&B or Mr. Brown qualify for the attorney exemption in the MCSBA?
In adopting, with minor changes, the ALJ‘s Proposed Decision, the Commissioner answered “yes” to the first question and “no” to the second. It is now our task to review those determinations.
A. Standard of Review
When we review the final decision of an administrative agency, such as the decision made by the Commissioner in this case, we “look through” the circuit court‘s and intermediate appellate court‘s decisions, and evaluate the decision of the agency directly. CashCall, Inc. v. Commissioner of Financial Regulation, 448 Md. 412, 426, 139 A.3d 990 (2016). We look for whether there is substantial evidence in the record as a whole to support the agency‘s decision, and whether the agency‘s decision applies a correct interpretation of the law. Bd. of Directors of Cameron Grove Condo., II v. State Comm‘n on Human Relations, 431 Md. 61, 80, 63 A.3d 1064 (2013). In the latter assessment, “the interpretation of a statute by the agency charged with administering the statute is entitled to great weight.” Adventist Health Care Inc. v. Maryland Health Care Comm‘n, 392 Md. 103, 119, 896 A.2d 320 (2006).
B. Whether the Activities Came Within the Definition of “Credit Services Business”
1. Statutory Text
Any effort at statutory interpretation begins with the text of the statute. Lockshin v. Semsker, 412 Md. 257, 275, 987 A.2d 18 (2010). The MCSBA applies to a “credit services business,” which the statute defines to include a “person who, with respect to the extension of credit by others ... sells ... or represents that such person can or will sell, provide, or perform ... in return for the payment of money or other valuable consideration” the
This is precisely what BB&B and Mr. Brown did. Each of the agreements obligated the homeowner to pay several thousand dollars to BB&B. The agreements specified that, in consideration for that payment, BB&B was “to engage the appropriate party in discussions to renegotiate the terms of your [mortgage] loan.” Renegotiating the key terms of a mortgage loan in distress means seeking to modify such terms as the principal, the interest rate, and the length of the loan term. It may involve forgiveness of past due mortgage payments, moving missed payments to the end of the loan, recapitalization of the loan, or any number of other mechanisms that defer all or part of the debt in some manner.
Modification of a mortgage loan in default inevitably results in some form of deferral. Thus, renegotiating the terms of a mortgage loan in distress is “obtaining an extension of credit” as defined in MCSBA because it would involve some form of deferral of the original payment terms.
Finally, a home mortgage loan is debt primarily for personal, family, or household (as opposed to, for example, commercial or business) purposes. Accordingly, renegotiating the terms of a mortgage loan involves seeking “the right to defer payment of debt ... offered or granted primarily for personal, family, or household purposes,” which is an extension of credit according to
2. Legislative History
Although the text of the statute encompasses the agreements between BB&B and Maryland homeowners, it is appropriate to examine the legislative history of the statute for at least two reasons. First, we may consult legislative history to confirm our understanding of apparently unambiguous text. Hammonds v. State, 436 Md. 22, 44, 80 A.3d 698 (2013). Second, in this case, BB&B and Mr. Brown argue that the General Assembly actually intended that the MCSBA cover only credit repair agencies, and therefore it should not cover them. Although this argument has no basis in the language of the statute, we shall also consider it in our examination of the legislative history.
MCSBA (1987-2010)
The General Assembly, inspired by model legislation suggested by the Council of State Governments in 1986 (which in turn was inspired by California‘s Credit Services Act of 198414), enacted the MCSBA in 1987. Chapter 469, Laws of Maryland 1987; see Council of State Governments,
In particular, the post-1987 amendments prohibited a credit services business from “[c]harg[ing] or receiv[ing] any money or other valuable consideration in connection with an extension of credit that, when combined with any interest charged on the extension of credit, would exceed the interest rate permitted for the extension of credit under the applicable title of this article.”15
services.” Gomez, 427 Md. at 169. Rather, it is intended to provide broad protection to consumers of credit services. A report of the Senate Finance Committee concerning the 2002 amendment of the statute explained that the аmendment was intended to close a perceived loophole and apply the statute to “any extension of credit.” Floor Report of Senate Finance Committee concerning House Bill 1193 (2002) (emphasis in original). The MCSBA, as amended over the past two decades, is not intended to regulate only credit repair agencies or payday lenders; its reach is broader.
MARS Act (2013)
The legislative history of the MCSBA after the time period relevant to this case provides another important clue. In 2013, the General Assembly enacted the Maryland Mortgage Assistance Relief Services (“MARS“) Act. Chapter 465, Laws of Maryland 2013, codified at
The addition of this new exemption to the MCSBA to exclude those regulated by the MARS Act indicates that the General Assembly believed that those who offer to obtain loan modifications for homeowners would otherwise be covered by the MCSBA. If that were not true, the new exemption in
Under the plain meaning of the text of the MCSBA, a person who offers to renegotiate a mortgage loan for a homeowner facing foreclosure is offering to assist a consumer in obtaining an extension of credit. If the person does so in return for the payment of money by the consumer, the person falls within the definition of “credit servicеs business” under the statute. The legislative history of the MCSBA and the related MARS Act confirm that reading.
We are not alone in this legal interpretation. Although we have not had occasion previously to assess whether a mortgage loan modification involves an extension of credit within the meaning of the MCSBA, the federal District Court for the District of Maryland has done so on several occasions and reached the same conclusion that we do here.17 Finally, the
[The MARS Act is] not intended, and may not be construed, to have any effect on the authority of the Commissioner of Financial Regulation to regulate mortgage assistance relief service providers under [the MCSBA] or on any enforcement actions, including litigation, taken under that authority as it existed and based on actions that occurred before the effective date of this Act.
Chapter 465, § 2, Laws of Maryland 2013. Thus, regardless of any changes to the Commissioner‘s authority that the MARS Act made going forward, the Commissioner may still take actions based on the Commissioner‘s regulatory and enforcement authority under the MCSBA as it existed before the MARS Act. In other words, if a person who offered to obtain mortgage loan modifications violated the MCSBA before the MARS Act was enacted, but now would be exempt from the MCSBA under the MARS Act, that person is not exempt from the MCSBA for past violations, and the Commissioner may still enforce the MCSBA against that person. This savings provision reinforces the conclusion that a mortgage assistance relief service provider would likely qualify as credit services business under the MCSBA as it existed before enactment of the MARS Act.
Commissioner, who is charged by State law with administering and enforcing the statute, has adopted that interpretation in other enforcement actions and advisory notices concerning the statute.18
Thus, in offering, in return for the payment of money,19 to assist Maryland homeowners
C. Whether the Attorney Exemption Applied
In order to come within the attorney exemption of the MCSBA, an individual must satisfy its three prongs: (1) the individual must be admitted to the Bar of the Court of Appeals of Maryland, (2) the individual must render the services within the course and scope of practice by the individual as a lawyer, and (3) the individual must not engage in the credit services
business “on a regular and continuing basis.” See
In relation to the third prong,20 the ALJ found that “BB&B and the attorneys it employed were engaging in сredit services business on a regular and continuing basis.” The ALJ based this determination on the fact that BB&B entered into 57 agreements with Maryland homeowners during the nine months between June 11, 2008, and March 12, 2009, including 53 in a seven-and-one-half month period. The finding is also supported by the fact that hundreds of other Maryland homeowners consulted with the firm about entering into such an agreement. While the statute does not define the phrase “regular and continuing,” the ALJ found that “when a small out-of-state law firm has 57 cases with Maryland consumers in nine months, it constitutes offering the particular services on a regular and continuing basis.”
A Maryland attorney who counsels an individual client facing foreclosure and attempts to negotiate a mortgage loan modification would thus ordinarily be exempt from the MCSBA. As the ALJ suggested in her Proposed Decision (adopted by the Commissioner), there may be cases where there is a significant question аt what point an attorney who frequently provides such services has crossed the line into providing “regular and continuing” credit services. That, however, is not this case. The consultations and agreements with Maryland homeowners seeking loan modifications were not only a very significant part of the firm‘s business during the months in question, but also accounted for most of the work of
its Maryland-licensed attorney by the time he left the firm. Thus, there was substantial evidence supporting the conclusion that BB&B and Mr. Brown engaged in a credit services business on a regular and continuing basis.
Citing a Circuit Court decision in another case,21 BB&B and Mr. Brown argue
First, Respondents’ reading of the statute ignores the third prong and would render it entirely superfluous. If all lawyers practicing law qualify for the attorney exemption, we need consider only whether the lawyer is admitted to the Bar of the Court of Appeals of Maryland and whether the lawyer rendered the services in question within the course and scope of practice by the individual as a lawyer.23 The third prong—
whether the lawyer engages in the credit services business on a regular
Second, as described above, the MCSBA is ultimately derived from a similar California statute, the Credit Services Act of 1984, which the Council of State Governments included in its 1986 suggested state legislation. As enacted in 1984,24 the California Credit Services Act defines a “credit services organization” in a fashion nearly identical to a “credit services business” under Maryland law, and it also contains an attorney exemption that applies to “[a]ny person licensed to practice law in this state where the person renders services within the course and scope of his or her practice as an attorney at law.” The recommended legislation from the Council of State Governments is nearly identical.
However, the General Assembly did not adopt this language verbatim. The main textual difference between the original attorney exemption (in California‘s 1984 legislation and the Council of State Governments’ suggested state legislation) and the subsequent Maryland attorney exemption is that the original attorney exemption did not contain a third prong; the General Assembly specifically added the additional restriction that an individual is exempt only when the individual “does not engage in the credit services business on a regular and continuing basis.”
That is, the General Assembly based the MCSBA on a statute that exempted all lawyers practicing law, but it specifically chose to add an additional limitation to the exemption so as not to exempt all lawyers practicing law. We can understand this only as reflecting an intent that some Maryland lawyers will be covered by the MCSBA, specifically those lawyers who regularly engage in activities that meet the definition of “credit services business,” even if they are also practicing law.25
In the end, neither BB&B nor Mr. Brown established that they qualified for the attorney exemption. There was substantial evidence to support the ALJ‘s finding and the Commissioner‘s conclusion: the attorney exemption does not apply to BB&B or Mr. Brown, because they engaged in credit services business activities during this period on a regular and continuing basis.
III
Conclusion
For the reasons set forth above, we hold that the Commissioner accurately construed the MCSBA in this case and that there was substantial evidence in the administrative record that: (1) the activities of BB&B and Mr. Brown in regard to the agreements they entered into with Maryland homeowners during late 2008 and early
As noted above, in addition to arguing that the MCSBA did not apply to them, BB&B and Mr. Brown also contended in their petition for judicial review that there was insufficient evidence that any violations were “willful.” Relying on a Court of Special Appeals decision that considered various meanings of “willful,” the ALJ concluded that violations of BB&B and Mr. Brown satisfied оne of those definitions. On the other hand, the ALJ also found that “[t]here was no evidence to prove that [they were] aware of the governing Maryland statutes and deliberately ignored them.” Because the Circuit Court concluded that the statute did not apply to them, it appropriately did not address the question of willfulness. Nor was the issue of willfulness briefed or argued on appeal.
Because we have come to a different conclusion than the Circuit Court on the applicability of the MCSBA, it would now be appropriate for the Circuit Court to address the issue of willfulness on remand.26
JUDGMENT OF THE COURT OF SPECIAL APPEALS REVERSED; CASE REMANDED TO THAT COURT WITH DIRECTIONS TO REVERSE THE JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY AND REMAND THE CASE TO THAT COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION. COSTS TO BE PAID BY RESPONDENTS.
Notes
In their brief, BB&B and Mr. Brown also suggest that the treble damage figure in the Commissioner‘s order is based on an inaccurate computation of the total amount paid to the firm by Maryland homeowners. However, they do not identify what they believe is the correct figure.
These circumstances are thus distinguishable from those in Gomez, where this Court held that a tax preparer who helped a consumer obtain a “refund anticipation loan“—that is, a loan for the value of a taxpayer‘s expected tax refund usually offered about ten days before the tax refund will arrive—was not a “credit services business” under the MCSBA, in part because the requirements of the MCSBA “do not logically apply” to a tax preparer who facilitates refund advance loans. Gomez, 427 Md. at 134 n. 4, 156-58. Ultimately, a tax preparer is not seeking to aid consumers with their debt. Rather, a tax preparer seeks to aid consumers with filing their taxes. So these requirements would be odd for a tax preparer, even one who helps a consumer obtain a refund advance loan as in Gomez. In this case, however, these requirements could well apply to a lawyer seeking a loan modification for a consumer. In any event, “the inapplicability of certain provisions [of the statute] would not necessarily negate the applicability of the entire statute.” Gomez, 427 Md. at 156 n. 26. Were we to hold that the MCSBA did not apply in these circumstances we would be imputing a broader attorney exemption into the statute than the Legislature wrote.