Nagle & Zaller, P.C., et al. v. Jahmal E. Delegall, et al.
Misc. No. 6
IN THE COURT OF APPEALS OF MARYLAND
August 11, 2022
Opinion by Booth, J.
September Term, 2021; United States District Court for the District of Maryland, Case No.: 8:20-cv-0626-PWG; Argued: December 6, 2021
MARYLAND CONSUMER LOAN LAW — A law firm that engages in debt collection activities on behalf of a client, including the preparation of a promissory note containing a confessed judgment clause and the filing of a confessed judgment complaint to collect a consumer debt, is not subject to the Maryland Consumer Loan Law,
United States District Court for the District of Maryland
Case No.: 8:20-cv-0626-PWG
Argued: December 6, 2021
IN THE COURT OF APPEALS OF MARYLAND
Misc. No. 6
September Term, 2021
NAGLE & ZALLER, P.C., et al.
v.
JAHMAL E. DELEGALL, et al.
*Getty, C.J.,
*McDonald,
Watts,
Hotten,
Booth,
Biran,
Gould,
JJ.
Opinion by Booth, J.
Watts, J., dissents.
Filed: August 11, 2022
*Getty, C.J. and McDonald, J., now Senior Judges, participated in the hearing and conference of this case while active members of this Court. After being recalled pursuant to
This case comes to us from the United States District Court for the District of Maryland (the “federal court“) pursuant
Is a law firm that engages in debt collection activities on behalf of a client, including the preparation of a promissory note containing a confessed judgment clause and filing of a confessed judgment complaint to collect a consumer debt, subject to the provisions of the Maryland Consumer Loan Law,
Md. Code, Commercial Law Article § 12-301, et seq. ?
As we explain below, the answer to that question is “no.”
In connection with our consideration of the question of law presented herein, we accept as true the following facts as set forth in the operative complaint filed in the federal court, which was incorporated by reference into the federal district court‘s certification order.3
I
Background
This case arises from debt collection activity by Nagle & Zaller, P.C. (“Nagle & Zaller“), a law firm, on behalf of its clients. The clients are homeowners associations and condominium regimes (collectively, “HOAs“)4 that retain Nagle & Zaller to undertake collection efforts against lot owners in HOAs and unit owners in condominium regimes (collectively, “homeowners“) seeking to recover delinquent assessments. The HOAs retained Nagle & Zaller to represent them in negotiating and drafting promissory notes with homeowners that memorialized the repayment terms of the delinquent assessments. The promissory notes drafted by Nagle & Zaller included confessed judgment clauses.5
When homeowners defaulted on their obligations,
In February 2018, Jahmal E. Delegall and others filed a putative class action against Nagle & Zaller in the Circuit Court for Montgomery County challenging the law firm‘s above-described debt collection practices. After the plaintiffs filed an amended complaint adding the HOA clients of the law firms as defendants, the defendants removed the case to the federal court.
After some procedural twists and turns,6 in August 2020, Jahmal E. Delegall and Hadassah Sanders (hereinafter collectively referred to as “Delegall“) filed a Third Amended Complaint against Nagle & Zaller and its client, Vineyards Condominium, which is the operative complaint (the “Complaint“). Although the Complaint includes several counts,7 in connection with the certified question, we are only concerned with one count—Count VIII—which alleges that Nagle & Zaller violated the Maryland Consumer Loan Law (“MCLL“),
For purposes of that count, Delegall alleges that the HOAs and Nagle & Zaller
Nagle & Zaller filed a motion to dismiss the Complaint, alleging, in part, that the MCLL does not apply to the debt collection activities as alleged in the Complaint. Because there are no Maryland appellate court decisions referencing or interpreting whether a law firm that undertakes debt collection activity is required to be licensed under the MCLL under these circumstances, the parties filed a joint motion to certify a question of law, requesting that the federal court enter an order certifying the question to this Court. In July 2021, the federal court entered a certification order requesting that we answer the certified question set forth above.
Nagle & Zaller contends that the General Assembly did not intend to require that law firms or HOAs obtain a license to engage in transactions of this nature because neither the law firms nor their HOA clients are “lenders” who “engage in the business of making loans” under the MCLL,
II
Discussion
Before we turn to the question at hand, it is useful to discuss the underlying transaction and the applicable laws that govern the payment of HOA assessments and charges. In Goshen Run, we observed that HOAs “are often placed in a difficult situation of having to undertake collection efforts against lot owners in their communities for delinquent homeowners assessments.” 467 Md. at 80. We noted that, “[t]o address the problem, the General Assembly has provided HOAs with multiple collection tools” that are outlined in the Maryland Homeowners Association Act, including the HOA‘s ability to collect delinquent assessments through both in rem proceedings under the Maryland Contract Lien Act, as well as in personam proceedings at law. Id. Because similar tools are available to the governing body of a condominium regime, it is useful
A. Right of a Governing Body of a HOA and Condominium Regime to Collect Delinquent Assessments
1. The Maryland Homeowners Association Act
The Maryland Homeowners Association Act (“HOA Act“) is set forth in
The HOA Act contains provisions which address many operational and governance aspects of a development that are subject to a HOA declaration, such as the notice or conduct of meetings of the HOA or its governing body, requirements for maintaining books and records of the association, and the establishment of an annual budget for the repair and maintenance of the common areas.
In connection with the establishment of a budget, the HOA has the authority to adopt assessments and charges to cover expenses for maintaining and repairing common areas.11
Under its declaration, the HOA can establish and impose on any lot, or on the owners or occupants of any lot, mandatory assessments or fees to cover “the provision of services or otherwise for the benefit of some or all of the lots, the owners or occupants of lots, or the common areas.”
Section 11B-117(a) of the HOA Act states that, “[a]s provided in the declaration, a lot owner shall be liable for all homeowners association assessments and charges that come due during the time that the lot owner owns the lot.” To encourage the timely payment of assessments, the HOA Act gives the HOA the authority to establish in its declaration or bylaws “a late charge of $15 or one-tenth of the total amount of any delinquent assessment or installment, whichever is greater, provided the charge may not be imposed more than once for the same delinquent payment and may be imposed only if the delinquency has continued for at least 15 calendar days.”
With respect to enforcement, the HOA Act permits a HOA to establish provisions
2. The Maryland Condominium Act12
The Maryland Condominium Act,
Under the Maryland Condominium Act, property becomes a condominium upon the recording of a declaration, bylaws, and a condominium plat.
has the obligation to establish an annual budget, which shall include, among other things, maintenance costs of the common areas and utilities.
The Council of Unit Owners has the authority to adopt assessments and charges to cover the cost of maintaining and repairing the common areas. The Condominium Act states that “[a] unit owner shall be liable for all assessments, or installments therefore, coming due while he is the owner of a unit,”
B. Homeowners’ Remedies Where Governing Body‘s Collection Efforts Do Not Comply with State Consumer Protection Laws
Although the governing body of an HOA or a condominium regime has the statutory right to collect delinquent assessments, interest, and fees, the exercise of such rights must be undertaken in conformance with the organization‘s respective bylaws and organizational documents, as well as applicable state laws. Similarly, the governing body‘s efforts to collect the debts must comply with the applicable federal and state consumer protection statutes, including the Maryland Consumer Protection Act (“MCPA“), which is set forth in
The purpose of the MCPA is to “set certain minimum statewide standards for the protection of consumers across the State.”
A confessed judgment clause is a “device designed to facilitate collection of a debt.” Goshen Run, 467 Md. at 103 (quoting Schlossberg v. Citizens Bank, 341 Md. 650, 655 (1996)). Specifically, it is a provision in a debt instrument, such as a promissory note, “by which debtors agree to the entry of a judgment against them without the benefit of a trial in the event of a default on the debt instrument.” Id. (internal quotation marks omitted). In Goshen Run, we discussed in detail some background and history of the use of confessed judgments
In Goshen Run, we considered whether a HOA‘s collection of HOA assessments from a homeowner, through the use of a promissory note containing a confessed judgment clause, violated the MCPA. We determined that it did. Id. at 119. Specifically, we considered the definitions contained in the MCPA, and held that: the homeowner fell within the definition of “consumer“; the HOA assessments fell within the broad definition of “consumer debt“; and the promissory note constituted an “extension of credit” to pay the HOA assessments. Id. at 101. We also held that the MCPA prohibits the use of all confessed judgment clauses in consumer contracts. Id. at 115.
Under the facts of that case, the HOA obtained a confessed judgment based upon the confessed judgment clause in the promissory note. Id. at 84. Because the MCPA does not permit the use of a confessed judgment, we determined that dismissal of the confessed judgment case was required under
To summarize, under Goshen Run, a HOA may not use a promissory note containing a confessed judgment clause to collect delinquent HOA assessments, because the use of a promissory note containing a confessed judgment clause violates the MCPA. See
In addition to the remedies afforded under the MCPA, a consumer may have a private right of action under the Maryland Consumer Debt Collection Act (“MCDCA“),
Of course, we are not here to consider whether Nagle & Zaller‘s debt collection activities violated the state or federal consumer protection statutes. Those issues will be for the federal court to decide in connection with the other counts set forth in the Complaint that are not before us. Here, we must determine whether Nagle & Zaller‘s debt collection activities are subject to the MCLL.
C. Canons of Statutory Interpretation
In considering the parties’ competing interpretations of the MCLL, we apply the following principles of statutory interpretation. “The cardinal rule of statutory interpretation is to ascertain and effectuate the real and actual intent of the Legislature.” Lockshin v. Semsker, 412 Md. 257, 274 (2010). “We begin with an examination of the text of a statute within the context of the statutory scheme to which it belongs.” Kemp, 476 Md. at 169. “We neither add nor delete language so as to reflect an intent not evidenced in the plain and unambiguous language of the statute, and we do not construe a statute with forced or subtle interpretations that limit or extend its application.” Lockshin, 412 Md. at 275 (internal quotation marks and citations omitted). Rather, we construe the statute “as a whole so that no word, clause, sentence, or phrase is rendered surplusage, superfluous, meaningless or nugatory.” Koste v. Town of Oxford, 431 Md. 14, 25–26 (2013) (internal quotation marks and citations omitted). We “do not read statutory language in a vacuum, nor do we confine strictly our interpretation of a statute‘s plain language to the isolated section alone.” Lockshin, 412 Md. at 275. In other words, “[r]eview of the text does not merely entail putting the words under the microscope by themselves with a dictionary at hand, because words that appear clear and unambiguous when viewed in isolation may become ambiguous when read as part of a larger statutory scheme.” Kemp, 476 Md. at 169 (internal quotation marks and citations omitted); see also Johnson v. State, 360 Md. 250, 265 (2000) (explaining that the Court must analyze the statute “in its entirety, rather than independently construing its sub-parts[]“). “We presume that the Legislature intends its enactments to operate together as a consistent and harmonious body of law, and, thus, we seek to reconcile and harmonize the parts of a statute, to the extent possible consistent with the statute‘s object and scope.” Lockshin, 412 Md. at 276. “We also review the legislative history of the statute to confirm conclusions drawn from the text or to resolve ambiguities. In addition, we examine prior case law construing the statute in question.” Kemp, 476 Md. at 170. “Finally, we check our interpretation against the consequences of alternative readings of the text.” Bell v. Chance, 460 Md. 28, 53 (2018). Doing so ensures that we adopt an interpretation that avoids a construction that is “illogical, unreasonable, or inconsistent with common sense.” Reier v. State Dep‘t of Assessments and Taxation, 397 Md. 2, 33 (2007) (internal quotation marks and citations omitted). Indeed, “it has been called a golden rule of statutory interpretation that, when one of several possible interpretations produces an unreasonable result, that is a reason for rejecting that interpretation in favor of another which would produce a reasonable result.” Id. (internal quotation marks and citations omitted); see also Kemp, 476 Md. at 170 (explaining that “it is important to consider the consequences of alternative interpretations of the statute, in order to avoid constructions that are illogical or nonsensical, or that render a statute meaningless[]“) (internal quotations and citations omitted).
D. Maryland Consumer Loan Laws—The General Statutory Framework
The General Assembly has enacted a comprehensive statutory scheme for the regulation of consumer lending, which is set forth in Title 12 of the Commercial Law Article. Various Subtitles within Title 12 address the lending terms and conditions associated with different types of consumer loans, including the maximum interest rate, fees, and charges that lenders are permitted to charge.18 For example, the maximum allowable interest rate that a lender may charge depends on the type of consumer loan in question.19
When considering the various requirements that are applicable to a particular consumer lending transaction—whether they pertain to the permissible terms associated with a particular type of consumer loan, the licensing requirements applicable to the lender, or the rights and remedies associated with a violation of a consumer lending law—the General Assembly has established a statutory framework whereby the provisions of Title 12 of the Commercial Law Article and Title 11 of the Financial Institutions Article must be read together. As discussed below, the Maryland Consumer Loan Law is no exception.
E. The Maryland Consumer Loan Law (“MCLL“)
The MCLL is located in two separate Articles of the Maryland Code: (1) the Maryland Consumer Loan Law – Credit Provisions, set forth at
Consumer Loan” law means this subtitle and Title 12, Subtitle 3 of the Commercial Law Article[]“);
1. The MCLL Credit Provisions
Under the Credit Provisions of the MCLL, a person is prohibited from “engag[ing] in the business of making loans . . . unless the person is licensed or is exempt from the licensing requirements of” the Licensing Provisions.
The Credit Provisions “appl[y] to a loan of $25,000 or less made for personal, family or household purposes.”
2. The MCLL Licensing Provisions
The definitions contained in the Licensing Provisions include a definition of “loan” that mirrors the definition of “loan” contained in the Credit Provisions.
Unless a person23 is licensed by the Commissioner, the person may not:
(1) Make a loan; or (2) In any way use any advantage provided by the Maryland Consumer Loan Law.
The Licensing Provisions require that a person obtain a license through the Nationwide Multistate Licensing System & Registry to “[m]ake a loan.”
To qualify for a license, an applicant shall satisfy the Commissioner that:
(1) The applicant has at least $20,000 in liquid assets available to be used in the business to be covered by the license;
(2) The business will promote the convenience and advantage of the community in which the place of business will be located; and
(3) The applicant or, if the applicant is not an individual, the owners, officers, directors, or members have sufficient experience, character, financial responsibility, and general fitness to:
- Command the confidence of the public; and
- Warrant the belief that the business will be operated lawfully, honestly, fairly, and efficiently.
The initial license issued by the Commissioner is valid for one-year and may be renewed thereafter for additional one-year terms, upon the filing of an application for renewal, paying the renewal fee of $850, and satisfying the requirements for renewal.
Any person who violates the Licensing Provisions by making a loan without a license “is guilty of a misdemeanor and on conviction is subject to a fine not exceeding $5,000 or imprisonment not exceeding 3 years or both.”
To summarize, under the MCLL, a “person may not engage in the business of making loans” under the Credit Provisions “unless the person is licensed or exempt from the licensing requirements” under the Licensing Provisions.
F. The Parties’ Competing Interpretations
Turning to the plain language of the statute, Delegall directs our analysis to the very broad definition of “loan” set forth in
Nagle & Zaller admits that it engages in debt collection activities that fall within other consumer protection statutes. Specifically, Nagle & Zaller does not dispute that the firm undertakes collection activities on behalf of its clients, including drafting promissory notes, collecting clients’ debts, and charging the delinquent homeowners the attorneys’ fees incurred in enforcing the notes. Nagle & Zaller also acknowledges that, in Goshen Run, we held that the MCPA prohibits the use of confessed judgment clauses and confessed judgment actions “in this exact type of transaction.” Nagle & Zaller points out that the MCLL is not the MCPA—it is a different statute that applies to different circumstances.
Nagle & Zaller asserts that one must read the plain language of the Credit Provisions within the entire context of the MCLL, including the Licensing Provisions, as well as the purpose of the statute. Nagle & Zaller argues that the MCLL is intended to regulate the consumer lending industry and only applies to persons “in the business of making loans.” Nagle & Zaller contends that neither the law firm nor the HOA are in the “business of making loans,” and to hold otherwise would lead to an illogical result. Specifically, Nagle & Zaller argues that such a broad interpretation would require any law firm that drafts loan documents, or a structured settlement in the amount of $25,000 or less with payments over time, to obtain a consumer loan license.
G. The MCLL Is Intended to Regulate the Consumer Lending Industry — Persons “In the Business of Making Loans”
1. The Plain Language
The MCLL clearly envisions that only persons who are licensed by the Commission may engage in the business of consumer lending: “A person may not engage in the business of making loans under this subtitle unless the person is licensed or exempt from the [Licensing Provisions].”
The Court of Special Appeals has observed that “[t]here is a dearth of authority in Maryland addressing the meaning of
(1) any regular activity that occupies one‘s time and attention, with or without direct profit motive; or (2) an activity with a direct profit objective.” 228 Md. App. at 17 (quoting American Legion Post # 49 v. Jefferson Ins. Co., 485 A.2d 293, 294 (N.H. 1984)) (some internal quotations omitted). Black‘s Law Dictionary defines “business” as “a commercial enterprise carried on for profit; a particular occupation or employment habitually engaged in for livelihood or gain.” (11th ed. 2019).
A law firm and the lawyers it employs are certainly in the business of providing legal services to clients, which may include drafting loan documents; drafting settlement agreements that include structured payments; and engaging in debt collection activity. The question here is whether the Legislature considers a lawyer or law firm who engages in such conduct as being a person who “makes a loan” or who is “in the business of making loans” and, consequently, subject to the requirements of the MCLL. Given the broad, general definitions set forth within the statute, we determine that the statutory language is ambiguous and, therefore, we shall look to the legislative history.
2. The Legislative History of the MCLL
Maryland‘s licensing requirements for lenders of loans dates to a 1912 Act, which, among other things, required licensing of “petty loan brokers,” capped certain fees depending on the amount borrowed, and mandated disclosure of the loan‘s terms to the borrower. Price v. Murdy, 462 Md. 145 (2018) (citing Ch. 836, 1912 Md. Laws 1621, 1621–24). The Act required “[a]ny person, firm, corporation, or association” to “obtain a license for carrying on the business of petty loan broker.” Ch. 836, 1912 Md. Laws at 1622 (emphasis added). Like the current MCLL, any violation of the 1912 Act rendered every loan in connection with the violation null and void, which allowed the borrower to recover “any and all sums paid or returned on account of or in connection with such loan.” Id. at 1624.
In 1918, the General Assembly replaced the 1912 Act with the Uniform Small Loan Law. Ch. 88, 1918 Md. Laws 197. The law capped the interest rate for loans under $300 made by unlicensed lenders. Id. at 198. The Act‘s preamble identified the Legislature‘s goals of “prohibiting false or misleading statements” regarding these loans, setting maximum interest rates and charges, and regulating wage garnishments. Id. at 197–98. The preamble to that law declared that:
The conduct of [the business of making small loans] has long been the cause of general complaint, and of much hardship and injustice to borrowers, and there is no regulation or provisions of law which has proved effective for the protection of such borrowers and for the punishment of usurious money lenders . . . and there is a real need for the enactment of a law that will enable [the] continuance [of small loan lending] under proper supervision[.]
Id. at 198. In describing the 1918 Act, this Court noted that “[c]ountless instances illustrate the oppression and injustice wrought upon small needy borrowers by the callous and cruel greed so often found in the class engaged in the business of lending money in small amounts to those who have little to offer as security[.]” Liberty Fin. Co., Inc. v. Catterton, 161 Md. 650, 654 (1932).
In 1945,
In 1975, the General Assembly added the “Commercial Loan Article” to the Maryland Annotated Code and renamed the Maryland Industrial Financial Law the Maryland Consumer Loan Law (“MCLL“). See Ch. 49, 1975 Md. Laws 81, 397–435; see also
This subsection is new language derived without substantive changes from Art. 11, § 165. It is repeated here to note the general requirement of licensure for making of loans under this subtitle. The specific licensing provisions are retained in the cited Maryland Consumer Loan Law — Licensing Provisions, Art. 11, §§ 163 et seq[.]
The 1975 Act also repealed and reenacted with amendments the 1918 Act and renamed that subtitle “Small Loans — Licensing Provisions.” Ch. 49, 1975 Md. Laws 81, 86-87. The Revisor‘s Note in the session law points out that
In 1977, the General Assembly repealed the 1918 Uniform Small Loan Law, which had been codified in Article 58A, “[for] the purpose of consolidating the laws of [Maryland] relating to small loans and consumer loans into a unified Maryland Consumer Loan Law.” Ch. 693, 1977 Md. Laws 2818, 2818. By the conclusion of the code recodification process, the credit provisions, which originated in Article 11 (the Industrial Finance Law), became (with some revisions) the surviving MCLL-Credit Provisions; and the licensing provisions that originated in Article 58A (the Small Loan Law) became (with some revisions) the surviving MCLL-Licensing Provisions.
In the 2018 Legislative Session, the General Assembly made some revisions to certain sections of the Credit Provisions. Ch. 790, 2018 Md. Laws 4064. The revisions included, among other things, revising the definitions set forth in
[T]he bill establishes new requirements within the interest and usury sections of the Commercial Law Article for a “covered loan” that prohibit an unlicensed person from making such a loan. In addition, the bill increases from $6,000 to $25,000 the threshold below which a loan is subject to small lending requirements within the [MCLL] and prohibits
a person from lending $25,000 or less if the person is not licensed under (or exempt from) the requirements under MCLL. The bill also establishes that specified violations result in a loan becoming void as well as unenforceable.
H.B. 1297, 2018 Leg., Reg. Sess. (Md. 2018), Fiscal and Policy Note. The comments from the Office of the Attorney General Consumer Protection Division contained in the Legislative Bill file for House Bill 1297 stated that:
The current version of HB 1297 was the result of a collaborative effort between the Consumer Protection Division, the Office of the Commissioner of Financial Regulation, and counsel for the Maryland bankers. The bill provides important protections for consumers while simultaneously clarifying and updating Maryland‘s lending laws, most of which have been in place since the 1970‘s or earlier. More specifically, the bill clarifies the relationships between different subtitles within Title 12 of the Commercial Law Article;27 it modernizes the amounts covered by the [MCLL] and the Retail Installment Sales Act; it provides increased relief for consumers under both the MCLL and the Interest and Usury Law as a result of predatory lending; and it codifies the long-standing principle that it is necessary to look behind the form [of] a transaction to its substance when determining whether a particular transaction constitutions a loan, and if so, whether it is usurious.
Notably, although House Bill 1297 made changes to the maximum lending amount under the MCLL and provided some updated definitions, it did not make any changes to
3. The Purpose of the Statute — Regulation of Small Consumer Lenders
The legislative history makes clear that, from the inception of these laws, the General Assembly intended them to regulate petty loan brokers and persons traditionally engaged in the business of consumer lending. The General Assembly enacted the first iteration of the statute—the Uniform Loan Law—to curb abuses in the consumer lending industry and to remedy the evils associated with loan sharks. Price, 462 Md. at 148–49. In the preambles to the 1918 Act and the 1945 Act, the General Assembly explained its intent to regulate the business of money lending in an effort to remedy abuses in that industry. Ch. 88, 1918 Md. Laws 197, 198; Ch. 932, 1945 Md. Laws 1438, 1438–39.
Our review of the legislative history, including the 2018 amendments to the Credit Provisions, Ch. 790, 2018 Md. Laws 4064, does not reflect an intent by the Legislature to expand the reach of the MCLL beyond traditional consumer lenders who are “in the business of making loans.” Although the Legislature increased the monetary amount that is subject to the MCLL to $25,000, there is nothing to indicate that it intended to expand the licensing requirements of the MCLL to businesses that are not otherwise engaged in traditional consumer lending practices.
Reading the plain language of the statute—which regulates persons “in the business of making loans“—in the context of the legislative history and the purpose of the statute, leads us to the clear conclusion that the General Assembly intended the MCLL to regulate businesses engaged in consumer lending, and did not intend for it to apply to all lawyers or law firms that draft loan documents or engage in collection activity on behalf of clients. Nor is there any evidence that the Legislature intended to require that HOAs or condominium regimes be licensed in order to exercise their statutory right to collect delinquent assessments or charges, including entering into payment plans for the repayment of past-due assessments. When one considers the licensing requirements for loans made under the MCLL, they do not contemplate the licensing of law firms or HOAs under the Licensing Provisions. For example, to qualify for a license, the applicant must demonstrate, among other things, that its “business will promote the convenience and advantage of the community in which the place of business will be located[]“.
To hold that the General Assembly intended to regulate conduct, i.e., the act of making any loan in an amount of $25,000 or less, instead of regulating persons engaged in the consumer lending industry, would ignore the plain language of the statute, which requires that the person be “in the business” of making loans. We will not interpret a statute in a manner that ignores the plain language or renders it surplusage. See Koste, 431 Md. at 25-26.
We determine that the MCLL is an industry-regulating statute that is intended to require entities or individuals “in the business of” consumer lending to obtain a license from the State before engaging in that activity.
4. The Alternative Reading – An Illogical Result
Finally, we observe that Delegall‘s broad interpretation would lead to illogical and
As the Maryland State Bar Association points out in its Amicus Curiae brief, under Delegall‘s interpretation, every Maryland lawyer who represents a creditor-client that agrees to settle a claim for $25,000 or less through settlement payments made over time, and drafts a settlement agreement that memorializes such terms, would be required to be licensed under the MCLL. Under such an interpretation, where a law firm drafts such a document without a consumer loan license issued by the Commissioner, the consequence would be that the underlying indebtedness would be void and unenforceable. Surely, the General Assembly did not intend for the MCLL to be applied to these types of transactions.
In conclusion, we hold that a law firm that prepares promissory notes or undertakes debt collection activity on behalf of a HOA client is not subject to the MCLL because it is not a “lender” that is “engaged in the business of making loans” under the provisions of the MCLL. Rather, a law firm is in the business of providing legal or debt collection services to its clients. Although a law firm‘s conduct is subject to regulations under the Fair Debt Collection Act and similar statutes, when the law firm engages in debt collection activities,29 such activities are not synonymous with consumer lending activities that require a license under the MCLL. We similarly conclude that a HOA that extends a payment plan for the repayment of delinquent HOA assessments is not “in the business of making loans” and, therefore, not subject to the MCLL. Any extension of credit by a HOA under these circumstances is an ancillary function of the HOA‘s operations associated with the protection and maintenance of common areas and community-related infrastructure. Offering a payment plan to a homeowner for the payment of delinquent HOA fees does not transform the HOA into a consumer lender that must be licensed under the MCLL.
Our holding that the MCLL does not apply to a law firm engaged in debt collection activity on behalf of its client simply recognizes that the MCLL, by its plain language, applies to persons “in the business” of making consumer loans, and is intended to regulate the consumer lending industry, not law firms engaged in debt collection activity.
CERTIFIED QUESTION OF LAW ANSWERED AS SET FORTH ABOVE. COSTS TO BE DIVIDED EQUALLY BETWEEN THE PARTIES.
Dissenting Opinion by Watts, J.
Filed: August 11, 2022
Respectfully, I dissent. I would answer the certified question of law “yes” and hold that, based on the facts set forth in the operative complaint, which was incorporated into the federal court‘s certification order, Nagle & Zaller, P.C. (“Nagle & Zaller“), a law firm, is subject to the provisions of the Maryland Consumer Loan Law,
Treating as true the well-pled factual allegations in the operative complaint (the third amended complaint) and construing the Credit Provisions to effectuate their general remedial purpose, I would conclude that the Maryland Consumer Loan Law applies in this case. In the certification order, the United States District Court for the District of Maryland incorporated the operative complaint by reference into its summary of the background and attached the complaint as an exhibit to the certification order. A brief summary of some of the facts from the operative complaint is as follows. Nagle & Zaller provides legal services and debt collection services for homeowner associations and other creditors. Nagle & Zaller required debtors to enter into promissory notes with confessed judgment clauses. The promissory notes typically were not for more than $25,000, and the homes at issue were used for personal, household, family, or agricultural purposes.
According to the complaint, the protocol that Nagle & Zaller typically employed when using promissory notes with confessed judgment clauses was as follows. First, an employee of Nagle & Zaller, usually a clerk or paralegal, contacted a consumer who allegedly owed a debt to a creditor that had hired Nagle & Zaller to collect the debt on its behalf. An agent or employee of Nagle & Zaller—a clerk, paralegal, or attorney—would tell the consumer that the only way that the consumer could avoid further legal action as to the debt would be to sign an agreement. A promissory note with a confessed judgment
In this case, the conclusion that Nagle & Zaller was engaged in the business of making loans is warranted by the plain language of the Maryland Consumer Loan Law. The Maryland Consumer Loan Law applies to “lenders,” which are entities that make loans subject to the Credit Provisions. See
As used in the Maryland Consumer Loan Law, the word “‘[l]oan’ means any loan or advance of money or credit subject to” the Credit Provisions, “regardless of whether the loan or advance of money or credit is or purports to be made under” the Credit Provisions.
Based on the facts alleged in the operative complaint, Nagle & Zaller was engaged in the business of making loans subject to the Credit Provisions. According to the complaint, in hundreds, if not thousands, of instances, while representing homeowner associations, Nagle & Zaller drafted promissory notes with confessed judgment clauses to be signed by people who typically owed up to $25,000 in allegedly delinquent homeowner association assessments. The amounts owed under the promissory notes were higher than the alleged principal amounts owed. Nagle & Zaller contacted people, convinced them to sign the promissory notes, sent them the promissory notes, received the signed copies, collected payments, kept at least a portion of the payments for itself as attorney‘s fees, and sued the people based on confessed judgment clauses in the promissory notes.
Under the circumstances described in the complaint, which we accept as true, Nagle & Zaller used the promissory notes it drafted to create new advances of credit—i.e., loans—with new terms of repayment and new consequences of nonpayment, namely confessed judgments. In other words, Nagle & Zaller did not simply attempt to collect, or arrange for the deferment of, existing debts owed to homeowner associations. As such, Nagle & Zaller did not merely act as an attorney or an agent of the homeowner associations. Rather, Nagle & Zaller created new loan obligations with new terms, including a provision for confessed judgments, and obtained attorney‘s fees for itself by operation of the confessed judgment clauses.
The same is true of the promissory notes with confessed judgment clauses in this case. The instant promissory notes are subject to the Maryland Consumer Loan Law as advances of credit to pay delinquent homeowner association assessments; and under the circumstances of this case, Nagle & Zaller, a law firm, is engaged in the business of making loans. I agree that the General Assembly did not intend the Maryland Consumer Loan Law to apply to any and all law firms that may draft loan documents or engage in collection activities for clients, but under the facts alleged in the instant complaint, Nagle & Zaller was plainly engaged in the business of making loans.
Law firms are not categorically exempt from statutes governing consumer protection or advances or extensions of credit, as demonstrated by two opinions that we issued within the past several years. In Andrews & Lawrence Pro. Servs., LLC v. Mills, 467 Md. 126, 156, 223 A.3d 947, 964 (2020)—a case in which the petitioner was the law firm that represented the homeowner association in Goshen Run, 467 Md. at 82, 223 A.3d at 921—we held that the exemption of “professional services” from the Maryland Consumer Protection Act does not apply to a lawyer or law firm that engages in debt collection activity for which a license is required under the statute or that is prohibited under the Maryland Consumer Debt Collection Act. We explained that our conclusion was consistent with the Maryland Collection Agency and Licensing Act, to which a lawyer or law firm is subject where it engages in the same actions as a collection agency through non-attorney employees, and the Maryland Consumer Debt Collection Act, which has no exemption for professional services by attorneys. See Andrews & Lawrence, 467 Md. at 154, 223 A.3d at 963. In Comm‘r of Fin. Regulation v. Brown, Brown, & Brown, P.C., 449 Md. 345, 348-50, 144 A.3d 666, 669 (2016), we held that there was substantial evidence to support an administrative law judge‘s determination that a law firm was subject to the Maryland Credit Services Businesses Act. We were unpersuaded by the law firm‘s contention that the categories “law firm”
Given the circumstances alleged in the complaint, under the Maryland Consumer Loan Law, Nagle & Zaller was a lender that was engaged in the business of making loans, as the promissory notes with confessed judgment clauses constituted loans. The plain language of
The instant promissory notes were loans under
To conclude that the Maryland Consumer Loan Law does not apply in this case is to essentially create a loophole allowing law firms, like Nagle & Zaller, to engage in the business of making loans, i.e., creating new extensions of credit with confessed judgment clauses. It is clear that the General Assembly expressly intended to prohibit confessed judgment clauses in contracts for loans subject to the Credit Provisions. See
For the above reasons, respectfully, I dissent.
Notes
The Maryland Consumer Loan Law,
Md. Code Ann., Commercial Law § 12-301, et seq. , applies to consumer “loans” made by “lenders,” and requires a “person engaged in the business of making loans” to be licensed. Based upon the allegations in the Third Amended Complaint, is Nagle & Zaller, P.C. subject to the statute?
In the event of default of any payment due hereunder, this Promissory Note shall, at the option of the Holder hereof, become immediately due and payable in full. Maker, and any other party at any time liable hereunder, waives presentment, demand and presentation for payment, notice of nonpayment and dishonor, protest and notice of protest, and expressly agrees this Promissory Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Maker or such other party. The Maker, and any other party at any time liable hereunder, hereby authorizes and empowers any attorney of any Court of record to appear in any Court of competent jurisdiction in the State of Maryland or any Court of competent jurisdiction in the United States, any time after payment is due hereunder, whether by acceleration or otherwise, and confess judgment without process in favor of the Holder hereof against the Maker, and any other party at anytime liable hereunder, for such amount as may be due hereunder, together with the costs of such proceedings and attorney‘s fees of fifteen percent (15%) of the amount unpaid hereunder.
Following a partial class-action settlement in Thomas, in March 2020, the federal court granted a motion to sever the claims against Nagle & Zaller and Vineyards Condominium, one of Nagle & Zaller‘s clients, from Thomas, into the pending federal case from which this certified question has been raised. In August 2020, plaintiffs filed the operative Third Amended Complaint, which added Hadassah Saunders as an additional named plaintiff. For simplicity‘s sake, we refer to the Third Amended Complaint as the “Complaint.” Since the filing of the Complaint, Mr. Delegall has settled his claims against Vineyard Condominium so that only the claims against Nagle & Zaller remain.
- A plan or loan for which a written election has been made under Subtitle 1 [Interest and Usury], Subtitle 4 [Maryland Secondary Mortgage Loan Law], Subtitle 9 [Credit Grantor Revolving Credit Provisions], or Subtitle 10 [Credit Grantor Closed End Credit Provisions] of this title;
- A loan made by an individual provided the individual:
- Does not make more than three loans in a calendar year; and
- Does not engage in the business of making loans; or
- A loan between an employer and an employee.”
By way of contrast, the licensing provisions that apply to the Interest and Usury Subtitle contain licensing exemptions. Specifically, under(a) The Maryland Consumer Loan Law does not change any powers conferred by law on any person who is not required or permitted to be licensed under this subtitle.
(b) The Commissioner may not license any bank, trust company, savings bank, credit union, or savings and loan association.
When Article 11 was repealed as part of the recodification of the consumer credit laws into the newly created Commercial Law Article, the business exemption formerly set forth in Article 11, § 166 was repealed as part of the overall repeal of that Article. See Ch. 33, 1980 Md. Laws 136. Delegall argues that the elimination of the former business exemption, which included lawyers, evidences the General Assembly‘s intention to include lawyers within the purview of the MCLL. We do not read such an intention into the elimination of the exemption. First, as noted above, the elimination was part of a wholesale repeal of a former statute with no discussion or legislative history to indicate the reason for the repeal of a particular section. Second, the fact that the General Assembly eliminated a categorical exclusion for attorneys does not mean that the Legislature intended that the MCLL licensing provisions would affirmatively apply to all attorneys who drafted promissory notes or loan documents within the lending ceiling established by the MCLL. Perhaps the General Assembly concluded that the exclusion was unnecessary because attorneys engaged in the practice of law are not “in the business of making loans.” Third, since the exemption was repealed over four decades ago, experience has shown that attorneys who draft loan documents for clients or settlement agreements with payment terms, or engage in debt collection activities have not, in fact, sought licenses under the MCLL or been subject to enforcement proceedings by the Commissioner.This subtitle shall not apply to any person, copartnership, trust, or corporation doing business under and as permitted by any law of this State or of the United States relating to banks, savings banks, trusts companies, building and loan associations, credit unions, or cooperative banks for personal credits, nor to any attorney engaged in the practice of law, nor to any bona fide pawnbroking business, licensed under the laws of Maryland, nor to any person, firm or corporation extending credit in connection with the sale of their own merchandise, nor to any person, copartnership, trust, or corporation licensed and doing business under any Maryland lending provisions in any other article of the Code, and nothing in this article shall act as a bar to prevent any of the aforesaid persons, copartnerships, trusts, or corporations from qualifying for and receiving a license and operating hereunder.