Muffoletto v. Towers (Ct. of Special Appeals)

Muffoletto v. Towers (Ct. of Special Appeals)

Filed: January 30, 2020

Opinion by: James A. Kenney, III

Holdings: (1) An action seeking a declaration concerning the location of a common boundary line between adjacent boat slips was barred by the applicable statute of limitations. (2) Substantive and substantial discovery violations warranted the imposition of sanctions.

Facts: In the early 1980’s, a residential condominium was established in Dorchester County, Maryland.  Appurtenant to each condominium unit was a license to use a boat slip.  According to the 1982 site plan for the condominium, two adjacent boat slips were to be established as fourteen-feet-seven-inches wide each, separated by mooring piles.  However, according to an aerial photograph of the subject boat slips, taken in 1984, one slip was nineteen feet wide, and the adjacent slip was thirteen feet wide.

In 2004, the plaintiff purchased the condominium unit and corresponding slip license related to the thirteen-foot-wide boat slip.  Shortly thereafter, the plaintiff noticed the disparate sizes of the adjacent boat slips when he attempted to berth his boat.  In 2010, the plaintiff became a member of the condominium’s council of unit owners (the “council”), at which time he allegedly learned of a policy enacted by the council in 1999 requiring a unit owner who had made changes to the location of any mooring piles to return the piles to their original location when the appurtenant condominium unit is sold.  Title to each of the condominium units corresponding to the subject boat slips (and the related boat slip licenses) had been transferred multiple times before being transferred to the parties to this lawsuit.

In 2016, the plaintiff filed suit in the Circuit Court for Dorchester County, seeking (i) a declaration that the adjacent boat slips were intended and initially constructed to be of equal width and (ii) specific performance and injunctive relief, requiring that the mooring piles be moved to establish the adjacent boat slips as being equal in width.  During discovery, the defendants served the plaintiff with interrogatories.  Despite multiple court orders directing the plaintiff to respond to the interrogatories, the plaintiff failed to properly respond.

The Circuit Court entered sanctions against the plaintiff for failing to provide discovery responses as ordered, finding that the defendants had been prejudiced as a result.  Thereafter, the Circuit Court entered summary judgment in favor of the defendants, finding that the possible movement of the mooring piles was not a disputed material fact because they were placed in their current location no later than 1984 (when the aerial photograph was taken), and any legal action related to their present location was thus barred by the applicable three-year limitations period.  The plaintiff timely appealed the rulings to the Court of Special Appeals.

Analysis:  The Court of Special Appeals first addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the statute of limitations.  The plaintiff argued that the statute of limitations had been tolled by virtue of the “continuing harm” doctrine, which provides that claims in the nature of a continuous tort may toll the running of limitations based on new occurrences over time.  The court discussed Maryland case law applying the doctrine, and found that “courts have consistently held that the continuing harm doctrine rests on a new affirmative act” and does not apply to a “continuing ill effect” of a prior act.  The court then concluded that the continuing harm doctrine did not apply under the circumstances of this case because the act causing the harm was the alleged moving of the mooring piles, which occurred sometime before the photograph taken in 1984, and that “leaving them in place is a continuing effect of that act.”  Ultimately, the court held that the plaintiff’s claims were barred by the statute of limitations, noting that the action was filed six years after the plaintiff allegedly became aware that the piles may have been moved, twelve years after the plaintiff attempted to berth his boat in the slip, and more than twelve years after he bought the condominium unit (and corresponding boat slip license).

The Court of Special Appeals next addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of laches.  The court noted that laches is an equitable doctrine intended to ensure fairness, and that it is “based upon grounds of sound public policy by discouraging fusty demands for the peace of society.”  The court also noted that, generally, “an action for declaratory judgment will be barred to the same extent that the applicable statute of limitations bars an underlying action in law or equity.”  The court concluded that the plaintiff’s claims were barred by the doctrine of laches because the mooring piles had been in place for thirty-five years and the only people who would have had definitive knowledge regarding when and if the piles had been moved (the developer and the person who initially bought the nineteen-foot-wide slip in 1983) had died before the suit was filed.

The Court of Special Appeals also addressed the Circuit Court’s holding that the plaintiff’s claims were barred by the doctrine of adverse possession or prescription.  The court noted that whether or not the doctrine applies to riparian rights is unsettled in Maryland.  Ultimately, the court, without concluding that the doctrine applied to the boat slip licenses at issue, held that the requisite period of adverse possession (i.e., twenty years) had not run.

Finally, the Court of Special Appeals addressed the Circuit Court’s imposition of sanctions against the plaintiff for discovery violations.  The court first noted that circuit courts have very broad discretion to determine whether sanctions should be imposed.  The court then outlined the factors that circuit courts should consider when deciding whether to impose sanctions (noting that the factors need not be analyzed on a compartmentalized basis), which factors include (1) whether the sanctioned violations were “persistent and deliberate”; (2) whether the discovery violation was technical or substantial; (3) the timing of disclosures made; (4) any reason for the violation; (5) the degree of evidentiary prejudice resulting from the violation; and (6) whether the resulting prejudice might be cured by postponement and the desirability of a continuance.  Applying these factors, the court affirmed the Circuit Court’s imposition of sanctions.

The full opinion is available in PDF.

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Smith v. Wakefield, LP (Ct. of Appeals)

Filed:  February 27, 2019

Opinion by:  Judge Robert N. McDonald

Holding:  Action for back rent under a residential lease is subject to a three-year statute of limitations irrespective of whether the parties purport to convert the lease into a contract under seal.  The three-year statute of limitations governing residential leases is not subject to waiver.

Facts:  

Petitioner (“Tenant”) in 2007 entered into a month-to-month lease for an apartment in Baltimore City owned by respondent (“Landlord”).  The lease consisted of a one-page cover page and seven pages comprising 90 numbered terms and conditions.  Among those provisions was the following sentence: 

STATUTE OF LIMITATIONS: This lease is under seal and is subject to the twelve-year limitation period of Section 5-102 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland.

Tenant vacated after a few months and ceased to pay rent though the parties dispute whether Tenant vacated voluntarily after giving notice or had been evicted.

Nearly eight years later, Landlord sued Tenant to recover unpaid rent, arguing that CJ §5-101’s three-year period of limitations did not apply to a “contract under seal.”  The District Court of Baltimore City agreed and found in Landlord’s favor.  On appeal, the Circuit Court for Baltimore City affirmed.  Tenant thereafter petitioned for and was granted certiorari.

Analysis:

First, the Court set out the two relevant statutes prescribing statutes of limitation for civil actions: CJ § 5-101 providing the three-year limit for the majority of civil actions and CJ § 5-102 outlining the twelve-year limit for “specialities” such as instruments under seal, bonds, or judgments.

In Tipton v. Partner’s Management Co., the Maryland Court of Appeals had evaluated the merits of a similar action; there, a landlord had sued to collect back rent after failing to take legal action for seven years.  The Tipton Court exhaustively researched the legislative history of CJ § 5-101 and CJ § 5-102, determining that Maryland had applied the three-year period of limitations since colonial times, even though leases and conveyances of real property had customarily been executed “under seal.”  Maryland’s legislature had seen fit not to place residential leases among the “specialties” carved out from the general three-year limit when it revised the code and created CJ § 5-101.   Tipton held that a mere seal affixed to a lease would not waive the three-year period of limitations.  The Tipton Court, however, did not reach the threshold questions of the instant case: would a clear and explicit waiver of the three-year statutory period of limitations conflict with Maryland landlord-tenant law?

Landlord argued that Tipton’s holding left room for parties to agree to modify the limitation period.  The Court responded shrewdly: had anything changed so markedly in the five decades since the last code revision that supported quadrupling the period of limitations on an action for back rent to 12 years?  The 1970s legislature not only revised the Courts and Judicial Proceedings articles, but also the Real Property articles (e.g. attempting to eliminate the custom of executing leases under seal) and Landlord-Tenant law (e.g. attempting to neutralize the superior bargaining power of landlords).   Landlord’s last bastion was an attempt to point to more recent developments.

So looking, the Court turned its focus to Ceccone v. Carroll Home Services, LLC, decided in 2017.  The Ceccone Court held that parties could modify a statute of limitations that might otherwise apply to a cause of action provided that (1) there existed no controlling statute to the contrary, (2) the modification was reasonable, and (3) the modification was not subject to other defenses such as fraud, duress, or misrepresentation.  Finding some ambiguity in the application of the first element to RP § 8-208(d)(2)’s requirement that a lease be proscribed from waiving or foregoing any right or remedy provided by applicable law, the Court found more clarity in element two.  Ceccone’s framework for evaluating the reasonableness of a modification included the following factors: the length of the modified period of limitations, its relation to the statutory period, the relative bargaining power of the parties, the subject-matter of the contract, and whether the modification was one-sided in its effect.  

Applying this framework, the Court found the factors to lean in Tenant’s favor.  Government agencies would not have retained records for so long as twelve years, the lease terms and format argued against an arms-length bargaining process, and the Court could find no potential action that a tenant might reasonably bring under a lease a decade or more after its termination making the waiver one-sided in its application.  In the Court’s view, a nine-year extension of the time to bring an action for back rent did not constitute a reasonable modification of the statute of limitations.

The Court therefore found the three-year period of limitations (1) to apply to actions for back rent under residential leases regardless of language purporting to convert the lease to a contract under seal, and (2) not subject to waiver.

Two judges wrote in dissent, noting that the Maryland legislature in 2014 excepted from the twelve-year period of limitations certain instruments such as deeds of trust, mortgage, and promissory notes signed under seal, but did not include residential leases in that legislation.  Bills in 2016 and 2017 to craft such an exception failed, indicating legislative intent to militate precisely against the court’s majority reasoning.

The dissent further noted that statutes of limitation operate as procedural mechanisms rather than rights or remedies, meaning RP § 8-208(d)(2) should not limit a lease’s modification of the three-year general statute of limitations.

The full opinion is available in PDF.

Blackstone v. Sharma (Ct. of Appeals)

Filed:  August 2, 2018

Opinion by:  Joseph M. Getty

Holding:  The Maryland Collection Agency Licensing Act does not require foreign statutory trusts to obtain a collection agency license before pursuing foreclosure actions against Maryland homeowners. 

Facts:

The instant action includes two cases consolidated before the Court of Special Appeals and two additional actions appealed directly from circuit court foreclosure proceedings.  While not identical, the four cases are substantially similar and amalgamated below. 

Petitioners are a group of foreign statutory trusts ("Trusts") and their substitute trustees (“Substitutes”); Trusts became beneficiaries in deeds of trust as part of securitized pools of defaulted mortgage loans and designated Substitutes to initiate foreclosure actions.  Respondents (“Homeowners”) are Maryland homeowners who defaulted on home loans made between 2006 and 2007.   

In each of the four cases, Homeowner obtained a loan on a Maryland home and within a few years missed a payment, defaulting on the note.  Sometime later, Trust acquired the debt obligation as part of a securitized pool and appointed Substitute to enforce the security interest.  Substitute initiated foreclosure proceedings sometime between 2014 and 2016. 

In response, Homeowner filed a counter complaint alleging Trust and Substitute had acted as a collection agency as defined under the Maryland Collection Agency Licensing Act (“MCALA”) when it purchased the defaulted loan, collected mortgage payments, and initiated foreclosure, but violated MCALA and the Maryland Consumer Debt Collection Act (“MCDCA”) by failing to acquire the required MCALA license.  Under the theory that any judgment obtained by an unlicensed entity acting as a collection agency would be void, Homeowner requested that the court dismiss or enjoin the foreclosure sale. 

Trust and Substitute argued in response that (1) they did not conduct business in Maryland, (2) they did not conduct business as a collection agency subject to MCALA, (3) MCALA did not apply to in rem proceedings, (4) foreign statutory trusts were exempted from MCALA, and (5) Homeowner had failed to specify a relevant defense under Maryland foreclosure law. 

The circuit court found Trust to have failed to provide convincing evidence that they constituted a trust company, a type of entity specifically exempted from relevant MCALA sections, and was therefore subject to MCALA’s licensing requirements.  Accordingly, the circuit court concluded Trust had no right to bring the foreclosure action and dismissed the case without prejudice. 

Trust and Substitute thereafter appealed to the Court of Special Appeals who consolidated the two cases and held that a foreign statutory trust must meet the MCALA licensing requirements unless some other MCALA exception applies.  The Court of Special Appeals held Trust and Substitute to be barred from bringing foreclosure action, affirming the judgment below. 

Trust and Substitute filed petition for writ of certiorari to the Court of Appeals.  The Court of Appeals granted certiorari in 2017 and consolidated the cases with two similar cases pending appeal in the Maryland court system. 

Analysis: 

In addressing each of the underlying cases, the court found six questions for review which ultimately hinged on the answer to one fundamental question: did the Maryland General Assembly intend to require foreign statutory trusts to obtain a collection agency license pursuant to MCALA before pursuing an in rem foreclosure proceeding? 

Such an inquiry required the court to undertake statutory construction analysis, beginning with the plain language of the statute, reviewing the legislative history to confirm or negate alleged latent intent, and finally considering external relationships to both subsequent and related legislation that fairly bore on the issue of legislative purpose. 

Turning first to the plain language of the statute, the court found MCALA to generally require a person to have a license whenever he does business as a collection agency in the State, which MCALA defined in BR § 7-101(d):

(d) “Collection agency” means a person who engages directly or indirectly in the business of:   

(1)

(i) collecting for, or soliciting from another, a consumer claim; or  

(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it;

(2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim;   

(3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or  

(4) employing the services of an individual or business to solicit or sell a collection system to be used for collection of a consumer claim. 

While MCALA BR § 7-102(b) specifically exempted a list of entities including a trust company, it failed to define any of the entities.  And although the commonly understood meaning of collection agencies as entities sending letters, making calls, and filing collection suits for consumer debt aligned with a majority of the relevant § 7-101(d), the court found it not to comport with § 7-101(d)(1)(ii) which was added in a 2007 departmental bill, raising a question about whether the General Assembly intended to move away from the ordinary meaning it ascribed when MCALA was originally passed in 1977.

The court also identified the ambiguity in § 7-101(d)’s phrase “engages directly or indirectly in the business of.”  Because foreign statutory trusts act solely through trustees and substitute trustees and have no employees, offices, or identified pursuit in the State, the court found it difficult to conclude foreign statutory trusts engage either directly or indirectly in the business of a collection agency where it was difficult to reach a determination of whether they conduct business at all.

Homeowners pointed to a lack of ambiguity in the § 7-101 definition of consumer claim as “arising from a transaction in which the resident sought or got real property.”  But the court found this to be only incidental to whether the General Assembly intended to license certain actors in the mortgage industry as opposed to merely those actors in the collection agency industry.

Because of the substantial ambiguity, the court next turned to the General Assembly’s legislative history regarding consumer debt collection laws.  Looking at the State’s first collection agency licensing statute from 1977, the court found the statutory language at that time to intend only to require licensure for third party collection agencies that collected or solicited debt of others.  Moreover, the legislature at that time grouped together a subsection of exempted actors within the mortgage industry: banks, trust companies, savings & loan associations, building & loan associations, and mortgage bankers.  Further analysis indicated that the legislature anticipated a specific set of 110 collection agencies would be required to apply for a license, signifying an intent to specifically regulate these actors to prevent abusive practices in collection of retail and medical accounts.

In 2007, the Maryland Department of Labor, Licensing, and Regulation (“DLLR”) requested a bill which in relevant part changed the definition of collection agency to that described above in § 7-101(d).  Examining the bill request, the court found a narrowly tailored request to regulate actors in the collection industry employing a loophole to evade the licensing requirement by purchasing consumer debt in a goods & services contract.  The court therefore found the intent not to regulate actors outside the collection agency industry but to ensure all actors within that industry were in compliance with the MCALA licensing requirement and subject to its complaint resolution and regulatory oversight.

Further, DLLR’s fiscal estimate projected only 40 additional debt purchasers to be subject to the new 2007 definition and licensing requirement with an expected growth of only 2 additional licensees per year, a far cry from the projected effect on regulating an entirely new industry.

The court found this interpretation to be confirmed by the bill’s purpose paragraph, Fiscal and Policy Note, Floor Report, and written testimony by DLLR proponents and other supporters of the bill.  Moreover, the bill file lacked any written testimony in opposition from any representatives of the mortgage industry, who were vocal and active in their response to foreclosure reform bills in 2009.

Aggregating all of the components of the legislative history, the court was persuaded that the General Assembly did not intend to regulate or license mortgage industry actors such as foreign statutory trusts as collection agencies.

The court finally turned to subsequent and related legislation to confirm its interpretation.  A State Task Force had been created in 2007 to respond to rising foreclosure rates and recommend changes to laws and regulations in the mortgage industry.  The Task Force summarized the state of the mortgage industry at that time as comprising a primary and secondary market; the primary market originating loans to homeowners and the secondary market selling those loans as portfolios to reduce risk and recharge the assets of primary lenders.  In the Task Force’s explanation, this model only worked if business entities like statutory trusts could exist as mere repositories for the loans.  Trustees and substitute trustees would then be the actors who manage and control the trust’s assets, while the servicer would collect payments and interact with borrowers.

As it developed and delivered its recommendations, at no time did the Task Force invoke or mention MCALA or collection agency licensing requirements.  Further, the Task Force identified over 6,000 mortgage licensees under the State’s Mortgage Lender law and more than 10,000 originators, a stark contrast to the total 1,304 MCALA licenses at that time.

The General Assembly did take the Task Force’s eventual recommendations and enact proposals during its 2008, 2009, and 2010 sessions to create a comprehensive scheme for regulating the mortgage industry and foreclosure process to protect Maryland homeowners.  In short, the court found the General Assembly to have consciously separated the consumer debt industry under MCALA from the mortgage industry and did not intend MCALA to regulate mortgage industry actors involved in foreclosure proceedings.

Placing the final truss in the bridge, the court pointed to the General Assembly’s enactment of the Maryland Statutory Trust Act in 2010, which required foreign statutory trusts to register with the State Department of Assessments and Taxation (“SDAT”) prior to conducting business, and stating in relevant part: “the following activities of a foreign statutory trust do not constitute doing business in this State: … (5) foreclosing mortgages and deed of trust on property in this State[.]”

When viewing MCALA, foreclosure reform legislation, and the Maryland Statutory Trust Act together, the court found a clear General Assembly intent to regulate and license a separate collection agency industry through MCALA, to regulate the mortgage industry actors and process of in rem foreclosure proceedings through its foreclosure reform measures, and a specific effort to exempt trusts from having to obtain an SDAT registration when simply seeking a foreclosure.

Accordingly, the court held (1) that the General Assembly did not intend for foreign statutory trusts to be required to obtain a collection agency license under MCALA prior to filing foreclosure actions in circuit court, and (2) foreign statutory trusts to be outside the scope of the collection industry regulated and licensed under MCALA.

The full opinion is available in PDF.