Wake Forest Law Review

By: Kristina Wilson

Earlier today, November 4, 2016, the Fourth Circuit issued a published opinion in the civil case Wells Fargo Equipment Finance v. Asterbadi. The Fourth Circuit affirmed the District Court’s decision in favor of Wells Fargo. On appeal, the parties disputed whether the statute of limitations on a debt collection judgment against Asterbadi had restarted upon registration in a new district.

Facts and Procedural History

On October 4, 1993, the District Court of Virginia entered a debt collection judgment against Asterbadi for over 2 million dollars. Under Virginia law, the judgment was enforceable for twenty years. Asterbadi made several payments on the judgment, but it remained mostly unsatisfied. The creditor, CIT/Equipment Financing Inc. (“CIT”), registered the debt in Maryland in 2003, pursuant to 28 U.S.C. § 1963. At the time of registration, Asterbadi still owed over 1.5 million dollars on the debt, most of which was interest. After unsuccessful attempts to enforce the judgment against some of Asterbadi’s stocks in Maryland, CIT took no further action to enforce the judgment.

In June of 2007, CIT sold and assigned the judgment to Wells Fargo. Starting in April of 2015, Wells Fargo attempted to enforce the judgment. It filed a notice of assignment and a copy of the assignment in the Circuit Court of Montgomery County, as well as a notice of assignment in the District Court of Maryland. In May of 2015, Asterbadi sought a protective order, stating that Wells Fargo was attempting to enforce a Virginia judgment that was outside Virginia’s and Maryland’s statutes of limitations. In August of 2015, Wells Fargo filed a renewal of its registered judgment in the district court.

The district court ultimately held that the statute of the limitation on the judgment began when the judgment was registered with the district court , which was in August of 2003. Thus, the District Court denied Asterbadi’s motion for a protected order because the judgment was still enforceable against him.

Asterbadi Can Appeal the Protective Order

The Fourth Circuit considered two jurisdictional issues on appeal. First, Wells Fargo argued that Asterbadi’s appeal was limited to an injunction entered against him by CIT in September of 2015. Second, Asterbadi contended that Wells Fargo lacked standing to enforce the judgment.

In September of 2015, the District Court entered an injunction against Asterbadi, and in October of 2015, the District Court denied Asterbadi’s motion for a protective order. Asterbadi appealed the entry of the injunction, but Wells Fargo argued that Asterbadi should have appealed the denial of the protective order instead. However, in its September of 2015 order, the District Court explicitly rejected Asterbadi’s claims that Wells Fargo did not have standing and that the statute of limitations had run on the judgment. The Fourth Circuit stated that these claims were “ necessary conditions precedent” to a grant of injunctive relief. Thus, the Fourth Circuit concluded that Asterbadi could challenge the District Court’s rulings on those two claims.

Wells Fargo Does Have Standing

Asterbadi argued that Wells Fargo lacked standing because it did not comply with Maryland Rule 2-624. Under Maryland Rule 2-624, an assignee may enforce a judgment in its own name when it files the assignment in the court where the judgment was entered. Asterbadi contended that Wells Fargo had only submitted a notice of assignment and not the actual copy of assignment to the District Court. However, Asterbadi himself provided the District Court with a copy of the assignment in an earlier proceeding. Therefore, the District Court had both the notice and the copy of the assignment. The District Court consequently held that Wells Fargo had satisfied Maryland Rule 6-264, and the Fourth Circuit affirmed.

The Judgment’s Statute of Limitations Restarted under Maryland Law

Asterbadi argued that the statute of limitations on the judgment had expired, while Wells Fargo contended that registering the judgment in Maryland constituted a “new judgment” and that the statute of limitations therefore started tolling upon its registration in Maryland.

The Fourth Circuit evaluated both arguments under 28 U.S.C. § 1963. Under this section, debt collection judgments from one district are enforceable in a different jurisdiction if they are registered by filing a certified copy of the judgment in the other jurisdiction’s District Court. The statute’s intent was to minimize the inefficiency and awkwardness of requiring creditors to obtain new judgments against a debtor in order to enforce a judgment in a different jurisdiction. In interpreting § 1963 in this manner, the Fourth Circuit rejected Asterbadi’s contention that the registration was simply a “ministerial act” and a procedural mechanism to enforce the Virginia judgment. The Fourth Circuit reasoned that if registration was just a “ministerial act,” § 1963 would not need to explicitly provide that registered judgments are equally as enforceable as other judgments entered in the registration court.

Because the statute allowed creditors to obtain “new judgments,” without litigation, the Fourth Circuit treated Wells Fargo’s judgment as a “new judgment” upon its registration in Maryland. The Fourth Circuit applied Maryland law and held that debt collection judgments are enforceable for twelve years, pursuant to Maryland Rule 2-625. Accordingly, the judgment against Asterbadi would only have been enforceable until August 27, 2015. However, Wells Fargo filed for renewal on August 26, 2015. Thus, the Fourth Circuit held that Wells Fargo’s judgment will remain enforceable for twelve more years.

Disposition

Therefore, the Fourth Circuit affirmed the District Court’s denial of Asterbadi’s motion for a protective order.

paper-trail-1557043

By Mike Stephens

This afternoon, October 7, 2016, the Fourth Circuit issued a published opinion in the civil case McCray v. Federal Home Loan Mortgage Corp. The Fourth Circuit affirmed the district court’s decision to dismiss the Plaintiff’s Truth in Lending Act (“TILA”) claims regarding notice. However, the Fourth Circuit reversed and remanded the district court’s decision that two of the defendants, the White Firm and the “Substitute Trustees,” were not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”).

Facts and Procedural History

In October 2005, Renee McCray took out a loan to refinance her house. The loan documents were sold to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Wells Fargo was retained to service the loan. After several years of payments, McCray disputed a billing statement in June 2011 and sent Wells Fargo several requests for information regarding the costs contained within the statement. Wells Fargo either failed to respond or did not respond adequately to McCray’s requests. Eventually, McCray stopped making payments after April 2012 and the loan went into default. Wells Fargo employed the White Firm to initiate the foreclosure.

The White Firm sent McCray a letter dated September 28, 2012, notifying McCray that the firm had been retained to begin the foreclosure proceedings on her home. The letter ended by stating, “This is an attempt to collect a debt. This is a communication from a debt collector. Any information obtained will be used for that purpose.” The White Firm also sent McCray another letter notifying her that the loan was “154 days past due” and that $4,282.91 was needed to cure the default. Members of the White Firm were placed as trustees on the deed of trust and filed a foreclosure action in February 2013, which is still pending. McCray filed suit in 2013, alleging violations of FDCPA and TILA. The district court dismissed four of McCray’s claims and granted summary judgment on the fifth. McCray raised three issues on appeal.

Defendants Were Debt Collectors Subject to the FDCPA’s Regulation

McCray first alleged that the the district court erred in concluding the White Firm and the Substitute Trustees were not “debt collectors” as defined within the FDCPA. McCray argued that the facts contained within the complaint regarding the firm’s letter were sufficient to show that the White Firm “regularly collect[ed] or attempt[ed] to collect debts” that were owed to another, consistent with the definition in 15 U.S.C. § 1692a(6). The White Firm responded that their actions did not qualify them as debt collectors as they never actually sought collection of money because, as the district court concluded, there was no “express demand for payment or specific information about [McCray’s] debt.” The White Firm also argued that their foreclosure action was “incidental to [their] fiduciary obligation,” placing them within an exception in § 1692a(6)(F)(i).

The Fourth Circuit reversed and remanded the district court’s dismissal, holding that McCray’s complaint sufficiently alleged that the White Firm were debt collectors and that their actions in initiating the foreclosure constituted debt collection activity for the purposes of the FDCPA. The Court rejected the White Firm’s argument for two reasons. First, the Court held that the FDCPA did not require an “express demand for payment.” Instead, activities “taken in connection with the collection of a debt or in an attempt to collect a debt” are actionable under the FDCPA. Second, the Court held that foreclosure is not merely “incidental,” but instead “central to the trustee’s fiduciary obligation under the deed of trust.” Thus, because McCray’s complaint alleged facts showing the White Firm was retained to collect the loan in default, and because the firm’s letter concluded that it was “an attempt to collect debt,” their actions fell within debt collection activity that is regulated by the FDCPA.

The District Court Properly Dismissed McCray’s TILA Claim

McCray also alleged that the district court wrongfully dismissed her TILA claim against Freddie Mac. McCray argued that Freddie Mac failed to give her notice of its purchase of the loan in violation of § 1641(g). This provision was added by Congress in 2009, which provides that:

not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer.

The district court found that McCray’s complaint failed to allege that Freddie Mac acquired the loan after Congress amended TILA to require notice. Additionally the district court found that McCray received notice of her claim in October 2011 because Wells Fargo sent her a letter notifying her that Freddie Mac was the “investor” on the loan. Because McCray filed suit in 2013 after receiving notice of the TILA claim in October 2011, the district court held, in the alternative, that her claim was barred by TILA’s one-year limitations period.

The Court affirmed the district court’s initial conclusion because McCray did not challenge the district court’s dismissal for failure to allege that her loan was sold after Congress amended TILA in 2009.  The Court affirmed the district court’s alternative holding as well. McCray did challenge the district court’s alternative conclusion, alleging hat the district court erred by not allowing her the opportunity to amend her complaint.  McCray pointed out that the October 2011 letter was not included in her complaint and instead was contained within the defendants’ motion to dismiss. Yet, McCray submitted an affidavit in her response where she stated she received a letter in December 2011 which repeated that “[t]he investor/noteholder for this loan is [Freddie Mac].” The Court found McCray’s claim was barred by the statute of limitations because McCray conceded notice that Freddie Mac was the owner of the loan in December 2011.

Wells Fargo Did Not Hold Legal Title

Lastly, McCray argued the district court wrongfully dismissed her claim that Wells Fargo violated § 1641(g) when it failed to give her notice that it had been assigned the deed of trust. The district court concluded that § 1641(g) was not applicable because Wells Fargo only received a “beneficial interest” to service the loan and “not legal title.” McCray claimed that a line in the deed of trust granted Wells Fargo an ownership interest and that failure to notify her of this interest was in violated of TILA.

The Fourth Circuit affirmed the district court, holding that the Wells Fargo did not obtain an ownership interest because the note was not sold to Wells Fargo. The Court found that simply because the note “can be sold” does not mean “the note was in fact sold to Wells Fargo.” The Court also highlighted that this claim contradicted McCray’s previous claim that Freddie Mac owned the note and failed to provide timely notice of ownership.

Disposition

The Court ultimately reversed and remanded McCray’s FDCPA claim that the White Firm and the Substitute Trustees were acting as “debt collectors.” The Court was careful to note that this reversal was not to indicate whether or not the defendants actually violated the FDCPA. The Court affirmed the district court’s dismissal of McCray’s TILA claims.

Judge Johnston Concurring in Part and Dissenting in Part

Judge Johnston, District Judge for the Southern District of West Virginia, sitting by designation, only dissented on the portion of the decision to affirm dismissal of McCray’s TILA claim against Wells Fargo for failing to provide notice of its interest in the loan. Judge Johnston noted that McCray’s complaint was filed pro se, and as such, should have been construed liberally. Because of this, the complaint could be read to infer that McCray could not identify the actual owner of the mortgage loan. In essence, the TILA claim regarding notice was nothing more than a pro se litigant attempting to “cast a wide net” by alleging both Wells Fargo and Freddie Mac failed to provide her notice of which entity owned the loan. Judge Johnston found the majority opinion’s reading of a pro se complaint to be “unduly strict” at the pleading stage when discovery would surely reveal whether Wells Fargo did receive an ownership interest.

By Rolf Garcia-Gallont

In an opinion published today, the Fourth Circuit affirmed the district court’s decision in the civil case of Elyazidi v. SunTrust Bank, dismissing all claims brought by the appellant and original plaintiff, Mounia Elyazidi.

Facts and Procedural Posture

Elyazidi overdrew her SunTrust checking account when, despite having only a few hundred dollars in the account, she cut herself a check for nearly $10,000 and cashed it at a SunTrust branch.

When Elyazidi had opened her account with SunTrust, she had signed an agreement that included a provision addressing the account holder’s overdraft liability as follows:

You are liable for all amounts charged to your Account, whether by offset, overdraft, lien or fees. If we take court action or commence an arbitration proceeding against you to collect such amounts, . . . you will also be liable for court or arbitration costs, other charges or fees, and attorney’s fees up to 25 percent, or an amount as permitted by law, of the amount owed to us.

After its own attempts to collect the money proved unsuccessful, SunTrust hired a Maryland law firm, Mitchell Rubenstein & Associates (“MR&A”), to bring a debt collection suit. Because Elyazidi is a Virginia resident, MR&A filed suit on SunTrust’s behalf in Virginia state court. MR&A used a “warrant in debt,” a standardized pleading form that the Virginia courts make available to creditors. The attorneys filled in the blanks to indicate that Elyazidi owed $9,490.82, plus 6 percent interest; $58 in costs; and $2,372.71 in attorneys’ fees. The $2,372.71 in attorneys’ fees represented exactly 25% of the amount Elyazidi owed. MR&A and SunTrust both submitted affidavits along with the pleading, estimating the legal work that would be required to justify this amount. The Virginia state court entered judgment for the full amount demanded by the plaintiff.

After losing her collection suit in Virginia, Elyazidi filed a complaint against SunTrust and MR&A in Maryland state court. Four of her claims — two under Maryland state law, and two under the federal Fair Debt Collection Practices Act (FDCPA) — challenged SunTrust’s and MR&A’s efforts to recover attorneys’s fees in the Virginia suit. Another claim was brought under the FDCPA to recover for MR&A’s disclosure of Elyazidi’s social security number in an unredacted exhibit produced during the Virginia proceedings.

SunTrust and MR&A removed the case to the United States District Court for the District of Maryland, where they were granted a motion to dismiss all claims for failure to state a claim. Elyazidi appealed.

FDCPA CLAIMS

Appellees’ Prayer for Attorneys’ Fees Cannot, as a Matter of Law, Be a False, Deceptive, or Misleading Representation Under the FDCPA

Pursuant to 15 U.S.C. § 1692e, a debt collector may not “use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” It is unlawful to make a “false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.” To violate the statute, a representation must be material, in the sense that it would affect a naive, unsophisticated consumer’s decisionmaking.

The Fourth Circuit found that MR&A’s representations in the Virginia pleading form were not misleading, because the attorneys sought no more than was allowed in the agreement between Elyazidi and SunTrust, indicated via affidavit that the figure was an estimate, and provided an explanation for the amount of work that would generate that amount of fees. Under these circumstances, not even the most unsophisticated consumer would have misunderstood the nature of MR&A’s request.

The Agreement between Elyazidi and SunTrust Expressly Authorized SunTrust to Seek Attorney’s Fees

Section 1692f(1) of the FDCPA condemns the use of “unfair or unconscionable means to collect or attempt to collect any debt,” and provides a non-exhaustive list of proscribed conduct, including “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”

Again, because SunTrust sought nothing more than to enforce their valid contractual rights, the Fourth Circuit affirmed dismissal of this claim for failure to state a claim for relief.

Accidental Disclosure of Elyazidi’s Social Security Number During Litigation Was Not an Unfair or Unconscionable Means of Debt Collection Under FDCPA

Section 1692f lists several examples of unfair or unconscionable debt collection practices. The common denominator of these prohibited practices is that they involve harassing or pressuring the debtor to pay her debt. Elyazidi argued that MR&A had intentionally disclosed her social security number as a means to “extort payment” from her.

The Fourth Circuit again affirmed dismissal of her claim, considering that there was no evidence of a scheme to extort payment, and the fact that the failure to redact the documents that contained the social security number had been quickly remedied.

MARYLAND STATE CLAIMS

The Maryland Consumer Debt Collection Act (“MCDCA”) and Maryland Consumer Protection Act (“MCPA”) Did Not Apply to Appelles’ Conduct, Which Took Place Outside of Maryland

The federal district court exercised supplemental jurisdiction over Elyazidi’s Maryland state claims, and dismissed them on the grounds that neither the MCDCA nor the MCPA applies to conduct occurring “entirely” in Virginia.

In Maryland, regulatory statutes are “generally construed as not having extra-territorial effect unless a contrary legislative intent is expressly stated.” Regardless of the fact that MR&A was a Maryland firm, the entirety of the conduct that gave rise to Elyazidi’s claims took place in Virginia. For this reason, the Fourth Circuit affirmed the district court’s dismissal of both Maryland state claims.

The District Court’s Decision to Dismiss All Counts for Failure to State a Claim is Affirmed