Uduak J. Ubom v. SunTrust Bank (Ct. of Special Appeals)

Filed: April 4, 2011
Opinion by Judge Kathryn Grill Graeff

Held: The clear language of an Agreement for a Line of Credit, as a whole, shows that the signature of a managing partner as guarantor was in a personal capacity, resulting in personal liability when the LLC defaulted on its obligations.

Facts: A professional limited liability company that provides legal services obtained a line of credit from a bank. The Managing Partner, the managing attorney and sole owner of the LLC, signed his name twice on the Agreement, once on the signature line for “Applicant” and once on the signature line for “Guarantor.” After both signatures, The Managing Partner included his title of “Managing Partner.” The Managing Partner also completed the personal information listed under the section title “Guarantor Information.” The Bank approved the line of credit.

Almost three years later, the bank filed a Complaint against the LLC and The Managing Partner asserting that the LLC had failed to make scheduled monthly payments due on the account, and requesting that the court grant judgment in its favor against the LLC and The Managing Partner, jointly and severally. The Managing Partner acknowledged that the LLC had defaulted on the Agreement, but argued that he signed the Agreement in his official capacity as Managing Partner, not as a personal guarantor of the loan. The Managing Partner further asserted that the bank representative told him that although he was signing as guarantor on the LLC’s Line of Credit, he could avoid personal liability by not including his name on the page of the Agreement that asked for legal name of guarantor, and by writing his title of “Managing Partner” after his signature on the final page of the Agreement.

The Circuit court granted summary judgment in favor of the bank and against the LLC and The Managing Partner. The Managing Partner appealed.

Analysis: The legal question before the court was whether The Managing Partner signed his name in his capacity as an officer of the corporation or whether it was a personal guaranty. The Court noted that The Managing Partner in arguing that his signature did not create a personal guaranty cited no case law in support of this assertion. However, the Court exercised its discretion to consider The Managing Partner’s claim. The Managing Partner argued that the court should have allowed him to introduce evidence of the statements allegedly made to him by SunTrust’s representative.

Maryland courts adhere to a principle of objective interpretation of contracts, and only when the language of the contract is ambiguous will the court look to extraneous sources for the contract’s meaning. The Court compared the contract in this case to a similar case, L & H Enterprises, Inc. v. Allied Building Prod. Corp, 88 Md. App. 642, where there was a question of whether a guaranty of a corporation’s obligation, signed by a corporate officer, was signed in the officer’s representative or individual capacity. Although the Court in that instance found there was no personal liability because there was intent to only bind the corporation and only one place the corporation’s representatives signed, the Court distinguished that case from the case at hand. Here, there were two signature lines, one for “Applicant,” the law firm, and one for “Guarantor.” The Managing Partner signed his name on both signature lines, including his title after his signature. The court asserted that a corporate officer is not relieved of personal liability by the mere addition of his corporate title to a signature line.

The Managing Partner also completed the personal information under the “Guarantor Information” section of the form. If The Managing Partner had only signed the guaranty in a representative capacity, this would render the guaranty inconsequential; it would add nothing to SunTrust’s security to have the law firm, through its Managing Partner, guaranty an obligation to which the law firm was already bound. The language of the Agreement specifically indentifies the applicant, the LLC, as the entity primarily responsible for the line of credit, and the individual signing as guarantor, as jointly liable for the obligation of the LLC.

Since the language, which is clear and unambiguous, of the Agreement as a whole shows an intent to fix personal liability, parol evidence is inadmissible to contradict the clear terms of the Agreement.

The Court held that the circuit court properly granted bank’s motion for summary judgment against the LLC and the Managing Partner.

The full opinion is available in pdf.

Bradshaw v. Hillco Receivables, LLC (Maryland U.S.D.C.)

Filed: February 23, 2011

Opinion by: Judge Richard D. Bennett

Held: A debt collector violates the Fair Debt Collection Practices Act (“FDCPA”) by violating State law for failing to register as a debt collector. In addition, the unlicensed filing of lawsuits to collect debts purchased from original creditors is violative of the FDCPA. Both questions are issues of first impression in this district and in the Fourth Circuit.

Facts: On June 17, 2009, the creditor (Defendant in the underlying case) filed suit against the debtor in the District Court of Maryland for Frederick County in order to collect a debt that it purchased from the debtor's original creditors after the debt went into default. The debtor then brought a separate class action against the creditor, asserting claims that the creditor acted as a debt collector in the State of Maryland without a license and that the creditor unlawfully filed lawsuits against the debtor and others as part of its debt collection practices. The debtor contends that the creditor, through its actions, violated the FDCPA, 15 U.S.C. § 1692 et seq., the Maryland Consumer Debt Collection Act (“MCDCA”), Md. Code Ann., Com. Law § 14-201 et seq., and the Maryland Consumer Protection Act (“MCPA”), Md. Code Ann., Com. Law § 13-101 et seq.

Analysis: The creditor acquired the debtor's delinquent account while it was in default, and the creditor is a person who engages directly or indirectly in the business of collecting such consumer claims. According to the Court, the creditor is therefore a "collection agency" within the meaning of the Maryland Collection Agency Licensing Act, Md. Code Ann., Bus. Reg. § 7-101, et seq. ("MCALA"). In the Court's view, the statutory scheme and its legislative history confirm that the statute is intended to cover not only agents of the original owners of consumer debts but also purchasers of such debt such as the creditor here. Debt purchasers who collect consumer claims through civil litigation are therefore subject to the licensing requirement. The Court found that the creditor violated this requirement when it failed to obtain a collection agency license prior to suing the debtor to collect a debt purchased from the debtor's original creditor. According to the Court, although the creditor's violation of MCALA's licensing requirement does not itself give rise to a private right of action, it may support a cause of action under the FDCPA. The Court specifically declined to hold that any violation of state law, no matter how trivial, constitutes a per se violation of the FDCPA. 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 creditor argued that it was not liable for violating the FDCPA because it did not threaten to take illegal action against the debtor but, rather, merely filed an illegal lawsuit against him. Although noting a split of authority among the circuits, the Court adopted the majority view, holding that the relevant section of the FDCPA prohibits the taking of “action that cannot legally be taken,” as well as the threatening of such action. Furthermore, under the "least sophisticated debtor" standard prevailing in the Fourth Circuit, the Court held that the filing of an illegal collection lawsuit would reasonably be construed by such a debtor as a threat to take illegal action.

The Court also held that the creditor was also not protected by the "bona fide error" defense, namely, 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). The Court held that this defense was not available to the creditor because of the Supreme Court's recent holding in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S. Ct. 1605, 1608 (2010) that it does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.

For essentially the same reasons as it found the creditor liable for violating the FDCPA, the Court also determined, on summary judgment, that the creditor had violated the MCDCA and the MCPA. Similar in purpose and scope to the FDCPA, the MCDCA states that a “person collecting or attempting to collect an alleged debt arising out of a consumer transaction” may not “[c]laim, attempt, or threaten to enforce a right with knowledge that the right does not exist.” Md. Code Ann., Com. Law §§ 14-201(b) & 14-202(8). The MCPA prohibits “unfair or deceptive trade practices,” Md. Code Ann., Com. Law § 13-301, and expressly designates as “unfair or deceptive trade practices” those that constitute any violation of the MCDCA. Each statute provides for a private right of action for its violation. The Court determined that because the creditor was not immunized from its conduct based on a mistake of law (i.e., that it was not required to be licensed under the MCALA), and because the creditor actually violated that law and was reckless as to whether its conduct was proscribed, the knowledge element of the MCDCA was satisfied. For the foregoing reasons, the Court ruled that the debtor was entitled to partial summary judgment, on liability only, on its claims for damages under the FDCPA, the MCDCA, and the MCPA (Counts II, III, and IV).

As a result of Judge Blake's recent opinion in Hauk v. LVNV Funding, LLC, __ F. Supp. 2d __, 2010 WL 4395395 (D. Md. Nov. 5, 2010), the Court held that declaratory and injunctive relief was not available to the debtor in the case at bar. The Court therefore found that the creditor was entitled to summary judgment on the debtor's Count I, which sought such relief.

Practice Tip: Judge Bennett specifically noted that the "FDCPA is a strict liability statute and a consumer has only to prove one violation in order to trigger liability." Consumer debt purchasers would therefore be wise to comply fully with this statute and its Maryland counterpart in order to avoid liability to consumers, including those, like the debtor in this case, who do not dispute the validity or amount of the underlying debt.

Related Opinion: In an earlier opinion granting the debtor's motion to strike the creditor's affirmative defenses, Judge Bennett held that the plausibility standard set forth in Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) and Ashcroft v. Iqbal, 566 U.S.__, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) applies to the pleading of affirmative defenses.

The full opinion is available in pdf..