By Ronald S. Canter, Esquire
The Law Offices of Ronald S. Canter, LLC
On January 27, 2020 the Maryland Court of Appeals, in a 4-3 ruling, held that homeowner association assessments (HOA) come within the definition of a “consumer debt” under the Maryland Consumer Protection Act (MCPA) and that the use of a promissory note containing a confession of judgment clause to secure payment of delinquent assessments is a violation of the MCPA’s prohibition on using confession of judgment clause in consumer contracts.[Goshen Run v. Cisneros (Case No. 3, September Term 2019)]
The court relied on cases decided by Federal courts under the Fair Debt Collection Practices Act in holding that debts to HOAs are consumer obligations. The Court rejected the HOA’s argument that the inclusion of a non-waiver of defense provisions in the note meant that the obligation was not a true confession of judgment. The Court determined that the statutory definition of a confessed judgment note, which provides that it “waives the consumer’s right to assert legal defenses to an action”, was merely descriptive as to what a confession of judgment clause typically provides and does not establish a separate element that must be satisfied to bring a confession of judgment clause within the kind of consumer contract prohibited by the MCPA.
The Court upheld the dismissal of the confession of judgment lawsuit but determined that the dismissal was without prejudice, thereby permitting the HOA to refile the suit as one for breach of contract. Although the HOA was permitted to refile its suit to collect unpaid assessments, it now faces a consumer class action lawsuit in Federal Court that was filed prior to the Court of Appeals’ ruling but still pending as of the date of the decision.
Even though this action was filed against the HOA, Maryland lawyers who sue on a confession of judgment clause based on delinquent HOA assessments could face potential exposure under the Fair Debt Collection Practices Act for taking an action that could not legally be taken. Additionally, Maryland lawyers can also be sued under the Maryland Consumer Debt Collection Act.
The following day, the Court of Appeals, in a case of first impression, [Andrews & Lawrence, et al. v. Mills, (Case No. 5, September Term 2019)] held that the “professional services” exemption accorded to attorneys from claims under the Maryland Consumer Protection Act (MCPA) does not apply where the lawyer is providing debt collection services that can also be furnished by a licensed debt collection agency.
This ruling will likely increase the number of lawsuits against Maryland attorneys who engage in non-litigation collection activity, such as the sending of demand letters and the negotiating of settlements of debts, where it is alleged those activities violate the Maryland Consumer Debt Collection Act (MCDCA) which prohibits, for example, claiming sums not permitted by law. (See, Section 14-202(8), CL Article. ) Although lawyers have always been subject to the MCDCA, this new ruling means that MCDCA claims against lawyers are now subject to the fee shifting provisions of the MCPA, which deems a violation of the MCDCA to be a violation of the MCPA.
In carving out this broad exception to the MCPA’s professional services exemption, the Court explained that the law firm/ appellant employs paralegals who primarily contact consumers about debts and, for that reason, obtained a debt collection license under the Maryland Collection Agency Licensing Act. The Court further focused on the fact that the firm sent unsigned letters to the consumer that only identified the sender as the law firm. The Court also stresses that most of the communications with the consumer were with the firm’s paralegal, including demands that the consumer pay thousands of dollars of fines claimed by the HOA for parking a truck on the homeowner’s driveway and for storing landscaping business equipment on the property. The total fines sought which exceeded the delinquent monthly assessments.
The Court was careful to explain that an attorney who files a legal action to collect a debt is engaged in “professional services” and that the law firm may be exempt from the MCPA “for any deceptive or unfair trade practices arising from such professional services.” (Slip op. at p.29, n.7) However, the Court held that a debt collection attorney’s client could potentially be vicariously liable for the lawyer’s conduct, even when undertaken in the context of litigation, explaining that “we have held that where an agent has immunity, the principal does not have immunity simply because the agent has immunity; the principal must establish an independent basis to receive the benefit of the immunity” (Slip op. at 44)
All Maryland collection attorneys should carefully study this ruling and consider its impact on present collection practices, particularly where the lawyer’s client may be held vicariously liable for the attorney’s conduct.