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By Sarah Walton

On August 6, 2015, the Fourth Circuit issued a published opinion in the civil case of Gardner v. GMAC. The Fourth Circuit affirmed the district court’s holding that the plaintiffs were not entitled to relief under Maryland’s Credit Grantor Closed End Credit Provisions (“CLEC”) because CLEC requires that borrowers repay their principal loan balance before they can obtain additional relief.

Origins of the Dispute

This appeal consolidated two class action suits. Plaintiffs Gladys Gardner and Randolph Scott (“Gardner and Scott”) entered into sales agreements with defendant GMAC, Inc. (“GMAC”). Their contracts designated CLEC as the governing law. Gardner and Scott both made payments on their car loans, but subsequently defaulted. GMAC repossessed their vehicles and sold them at auction, but were unable to recover the full value owed on the loans. Because GMAC did not recoup the full value of the loans, it issued a post-sale notice to account for the deficiency. Gardner and Scott then filed complaints against GMAC alleging, in pertinent part, that GMAC failed to meet the notice requirements under CLEC. Gardner and Scott argued that GMAC mischaracterized the sale as “public” instead of “private,” which affected its disclosure obligations under CLEC. Gardner and Scott argued that the auction was private because it required a refundable entrance fee.

The district court initially determined that the auctions were public and granted summary judgment to GMAC. On appeal, the Fourth Circuit certified the question to the Court of Appeals of Maryland. The Court of Appeals, in Gardner v. Ally Financial, determined that the auctions were private. The Fourth Circuit subsequently remanded the cases to the district court. The district court granted summary judgment for GMAC on other grounds, concluding that (1) Gardner and Scott were not eligible for relief under CLEC because a balance remained on their loans at the time of sale, and (2) GMAC abandoned its potential claim for a deficiency judgment against Gardner and Scott. Gardner and Scott appealed to the Fourth Circuit.

Gardner and Scott Are Not Entitled to Damages Under CLEC

On appeal, Gardner and Scott argued that they were entitled to damages under CLEC because GMAC failed to properly notify them about the sale of their vehicles. Section 12-1018(a)(2) of CLEC restricts a debtor’s relief to amounts in excess of the principal amount due on the loan. The Fourth Circuit reasoned that because Gardner and Scott never paid the principal balance in full, CLEC did not provide a remedy.

Gardner and Scott Could Not Recover Proceeds from the Sale of Their Vehicles

Nevertheless, Gardner and Scott argued that, under CLEC, they were entitled to refunds of the proceeds GMAC received from the sale of their vehicles. The Fourth Circuit dismissed Gardner and Scott’s argument based on the Maryland Court of Appeals’ response to the certification question. The Court of Appeals stated that creditors can retain proceeds from the sale of vehicles even when they do not satisfy CLEC notice requirements. However, creditors who do not satisfy the notice requirements cannot obtain deficiency judgments. Thus, because GMAC abandoned its claims for a deficiency judgment, it did not violate CLEC’s requirements.

Gardner and Scott Are Not Entitled to Equitable Relief

Gardner and Scott next argued that the court should prevent GMAC from (1) seeking a deficiency judgment, (2) using means other than a deficiency judgment to collect the unpaid balance, and (3) collecting fees and interest from the unpaid loan on any future loans Gardner and Scott may take out with GMAC. On Gardner and Scott’s first argument, the Fourth Circuit held that they failed to present a matter in “controversy” because GMAC expressly abandoned its claims for deficiency judgments. The Fourth Circuit also dismissed Gardner and Scott’s second and third arguments, holding that CLEC only prohibited GMAC from recovering under a deficiency judgment. Because the statute is silent on remaining measures that GMAC can use to recover its loss, the Fourth Circuit held that it could not prohibit GMAC from utilizing other methods of recovery.

Fourth Circuit Affirms the District Court’s Judgment

The Fourth Circuit affirmed the district court’s judgment that Gardner and Scott could not recover under CLEC because they (1) did not satisfy their original loan balance, and (2) GMAC abandoned its claims for a deficiency judgment.

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