Jones et al v. Pohanka Auto North, Inc. et al
Filing
34
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 9/2/14. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
EUNICE JONES, et al.
:
v.
:
Civil Action No. DKC 13-3238
:
POHANKA AUTO NORTH, INC.
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this putative
class action is the motion to dismiss filed by the remaining
eleven Defendants: Pohanka Auto North, Inc.; Pohanka Chevrolet,
Inc.; Pohanka Hyundai, Inc.; Pohanka Imports, Inc.; Pohanka MB,
Inc.; Pohanka NMH, Inc.; Pohanka of Clarksville, Inc.; Pohanka
of Salisbury, Inc.; Pohanka Oldsmobile-GMC Truck, Inc.; Pohanka
SHO, Inc.; and Pohanka TM, Inc.
(ECF No. 17).
The issues have
been fully briefed, and the court now rules, no hearing being
deemed necessary.
Local Rule 105.6.
For the following reasons,
the motion to dismiss will be granted.
I.
Background
A.
Factual Background
On August 15, 2008, proposed Named Plaintiffs Eunice and
Barbara Jones (“Plaintiffs”) purchased from Pohanka Isuzu a used
2007
Mercedes-Benz
C230
for
$35,153.20,
with
financing
they
obtained by executing a Retail Installment Sale Contract (“RISC”
or “credit contract”).
(ECF No. 1-2).
Defendants represent –
and Plaintiffs do not challenge - that Pohanka Isuzu is now
closed and that it was operated by Defendant Pohanka Auto North,
Inc. (“Pohanka Auto North”).
(ECF No. 17-1, at 9).
The RISC
lists Eunice and Barbara Jones as the Buyers and Pohanka Isuzu
as the “Creditor-Seller.”
(Id. at 1).
The total price of the
vehicle included a $750 charge for an optional debt cancellation
agreement, which Plaintiffs purchased.
No. 1-3).1
(Id. at 1; see also ECF
The “Applicable Law” section of the contract stated:
Federal law and Maryland law apply to this
contract. This contract shall be subject to
the
Credit
Grantor
Closed
End
Credit
Provisions (Subtitle 10) of Title 12 of the
Commercial Law Article of the Maryland Code.
(ECF No. 1-2, at 4).
The contract also contained a “Holder
Notice” that stated:
Any holder of this consumer credit contract
is subject to all claims and defenses which
the debtor could assert against the seller
of goods or services obtained pursuant
hereto
or
with
the
proceeds
hereof.
Recovery hereunder by the debtor shall not
exceed amounts paid by the debtor hereunder.
(Id.)
(emphasis
removed).
Plaintiffs’
credit
contract,
including the GAP Agreement, was assigned to SunTrust, which is
identified as the “lienholder” in the GAP Agreement.
(ECF No.
1-3, at 1).
1
The debt cancellation agreement is also called a
Guaranteed Asset Protection Deficiency Waiver Addendum (“the GAP
Agreement”).
2
Plaintiffs
that
they
agreement
contend
entered
under
that
into
Maryland
is
the
not
Credit
debt
a
cancellation
“true”
Grantor
debt
agreement
cancellation
Closed
End
Credit
Provisions (“CLEC”), Md. Code Ann., Com. Law § 12-1001 et seq.
Under CLEC, a debt cancellation agreement requires a lender to
cancel the remaining loan balance when a car is totaled and the
insurance payout does not cover the entire outstanding balance.
The debt cancellation agreement that was part of Plaintiffs’
contract
differed
cancellation
cancellation
from
the
agreement”
agreement
-
statutory
under
which
CLEC.
they
definition
of
“debt
Plaintiffs’
debt
believe
was
“phony”
-
stated:
If the Insurance Company providing physical
damage coverage on the Vehicle described
above determines that Vehicle is a Total
Loss, then You will be responsible for
paying only the following to the Lienholder
you make payments to under the Contract:
1. A) The Value of the Vehicle as determined
by the physical damage insurance company on
the Date of Loss or the Nada Retail Value of
the Vehicle, whichever is greater, plus any
physical damage insurance deductible over
$1,000 which reduces that settlement, or
B) If there is no physical damage insurance
in effect on the Date of Loss, the average
retail price of the Vehicle on the Date of
Loss based on a current edition of the NADA
Used Vehicle Price Guide.
(ECF No. 1-3, at 1).
According to the complaint, “[t]he phony
GAP Agreements purchased by Plaintiffs and the Class, [] only
3
agree
to
relieve
the
borrower
of
the
obligation
to
pay
the
difference between the ‘Value of the Vehicle’ and the amount
owed
on
the
financing
contract,”
which
Plaintiffs
presumably
believe will be less than the remaining loan balance in the
event of total loss.
(Id.).
Plaintiffs assert that if they
“had purchased and financed a true ‘debt cancellation agreement’
as defined by Maryland’s credit statutes . . . Plaintiffs would
not have had any obligation to make any payments toward the
remaining loan balance on their vehicle loan for the [vehicle]
after
a
total
loss
or
insurance proceeds.”
“because
the
GAP
theft,
after
the
(ECF No. 1 ¶ 41).
agreement
is
not
a
application
of
the
Plaintiffs aver that
true
debt
cancellation
agreement, it does not relieve them of that potential obligation
–
but
they
[were]
Agreement].”
still
required
to
pay
$750
for
[the
GAP
(Id.).
Although Plaintiffs did not actually suffer any loss on
their
used
Mercedes-Benz
cancellation
agreement
(thus
was
the
allegedly
not
applied
in
“phony”
debt
case),
they
their
contend that “Maryland law does not permit the financing of the
phony GAP Agreements in question – or the charging or collection
of
charges
creditors
for
to
cancellations
such
finance
phony
and
agreements
remaining on an account.”
GAP
Agreements
charge
which
and
cancel
(Id. ¶ 43).
4
–
it
collect
the
only
for
permits
true
debt
outstanding
debt
Plaintiffs allege that
eleven dealerships associated with one another under the nonincorporated
Pohanka
Automotive
advertise as one entity.
Group
(Id. ¶ 8).
umbrella
in
order
to
Plaintiffs contend that
the entities that are part of the Pohanka Automotive Group aided
and abetted one another and conspired regularly to sell and
finance,
and
regularly
Agreements
which
did
agreements
eligible
statutes.”
(Id. ¶ 47).
sold
not
for
and
financed,
constitute
financing
true
under
“the
debt
form
GAP
cancellation
Maryland’s
credit
According to the complaint, the Pohanka
Automotive Group agreed to assign credit contracts financing the
GAP Agreements to SunTrust Bank.
(Id. ¶ 48).
Plaintiffs assert
that Pohanka Isuzu is a name under which the Pohanka Defendants
associate “in order to conduct their conspiracy.”
The
complaint
identifies
multiple
(Id. ¶ 51).
transactions
in
which
“the Pohanka Automotive Group and its co-conspirators financed
phony
GAP
Agreements
transaction.
“[t]he
actions
(ECF
Pohanka
in
the
No.
in
1,
a
similar
at
17-21).
manner”
to
Plaintiffs
Plaintiffs’
aver
Automotive
Group
repeatedly
undertook
course
their
conspiracy.
Each
of
that
similar
and
every
Pohanka Defendant took part in the sale and financing of GAP
Agreements to Class members in violation of CLEC, and directly
sold illegal GAP Agreements to Class members in numerous similar
transactions.”
(ECF No. 1 ¶ 56).
The complaint avers that the
Pohanka Automotive Group and SunTrust Bank have conspired to
5
collect
and
members
have
collected
from
Named
costs,
fees,
and
interest,
Plaintiffs
other
and
class
charges
which
Plaintiffs maintain are uncollectible “and must be forfeited on
each
credit
Agreements.”
contract
due
to
the
financing
of
the
phony
GAP
(Id. ¶ 58).
B. Procedural Background
Plaintiffs
filed
a
putative
class
action
complaint
on
October 31, 2013 against the eleven Defendants identified above
and SunTrust Bank.
counts
including:
breach
of
(Count
contract;
enrichment.
dismiss
or
to
I)
and
Plaintiffs
relief (count III).
to
(ECF No. 1).
The complaint alleges four
violations
(Count
also
IV)
seek
of
CLEC;
restitution
declaratory
(Count
and
and
II)
unjust
injunctive
On January 9, 2014, SunTrust filed a motion
strike
class
allegations.
(ECF
No.
18).
Plaintiffs subsequently accepted Rule 68 offer of judgment from
SunTrust Bank and the undersigned issued an order on February
26, 2014 entering judgment for Plaintiffs on the terms set forth
in the Rule 68 Offer of Judgment dated February 10, 2014.
No. 23).
(ECF
On March 13, 2014, an order was entered certifying as
final the judgment entered on February 26, 2014 as to all claims
of Plaintiffs against Defendant SunTrust Bank.
2
(ECF No. 26).2
The accepted Rule 68 offer of judgment moots the motion to
dismiss or to strike class allegations filed by SunTrust Bank.
(ECF No. 18).
6
The eleven remaining Defendants also moved to dismiss on
January 9, 2014.
(ECF No. 17).
Plaintiffs opposed the motion
(ECF No. 24), and Defendants replied (ECF No. 30).
II.
Standard of Review
The purpose of a motion to dismiss under Rule 12(b)(6) is
to test the sufficiency of the complaint.
Charlottesville,
464
F.3d
480,
Presley v. City of
(4th
483
Cir.
2006).
A
plaintiff’s complaint need only satisfy the standard of Rule
8(a), which requires a “short and plain statement of the claim
showing that the pleader is entitled to relief.”
8(a)(2).
Fed.R.Civ.P.
“Rule 8(a)(2) still requires a ‘showing,’ rather than
a blanket assertion, of entitlement to relief.”
v. Twombly, 550 U.S. 544, 556 (2007).
Bell Atl. Corp.
That showing must consist
of more than “a formulaic recitation of the elements of a cause
of
action”
or
“naked
enhancement.”
assertion[s]
Ashcroft
v.
Iqbal,
devoid
556
of
U.S.
further
662,
678
factual
(2009)
(internal citations omitted).
At this stage, all well-pleaded allegations in a complaint
must be considered as true, Albright v. Oliver, 510 U.S. 266,
268 (1994), and all factual allegations must be construed in the
light
most
favorable
to
the
plaintiff.
See
Harrison
v.
Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.
1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134
(4th Cir. 1993)).
In evaluating the complaint, unsupported legal
7
allegations
need
not
be
accepted.
Revene
Comm’rs, 882 F.2d 870, 873 (4th Cir. 1989).
v.
Charles
Cnty.
Legal conclusions
couched as factual allegations are insufficient, Iqbal, 556 U.S.
at 678, as are conclusory factual allegations devoid of any
reference to actual events, United Black Firefighters v. Hirst,
604 F.2d 844, 847 (4th Cir. 1979).
III. Analysis
A.
Standing
Defendants challenge Plaintiffs’ standing to bring claims
against the dealership defendants with whom Plaintiffs did not
transact.
Specifically, Plaintiffs entered into their financing
contract with a single dealership, Pohanka Isuzu, operated by
Pohanka Auto North at the time.
(See ECF No. 1-2).
The Pohanka
Defendants3 argue that Plaintiffs lack standing to assert any
claims
against
them.
assuming
Plaintiffs
financing
of
a
(ECF
No.
suffered
“phony”
debt
an
17-1,
at
injury
cancellation
39).
arising
Thus,
even
from
the
agreement,
Pohanka
Defendants maintain that it cannot be attributed to them because
they were not in contractual privity with the Joneses (thus they
were not “credit grantors” as to Plaintiffs’ transaction under
CLEC).
3
The Defendants other than Pohanka Auto North, Inc. will be
referred to as “Pohanka Defendants.”
8
Article
III
requirement.
standing
is
a
threshold
jurisdictional
See Central Wesleyan College v. W.R. Grace & Co.,
6 F.3d 177, 188 (4th Cir. 1993) (“standing is a jurisdictional
issue, and courts should attempt to resolve such issues as soon
as possible.”).
The Supreme Court has consistently required
that a litigant have “standing” to challenge the action sought
to be adjudicated in federal court.
471.
Valley Forge, 454 U.S. at
“In order to have standing, a plaintiff must demonstrate
some actual or threatened injury as a result of the putatively
illegal conduct of the named defendant, and must show that the
injury can be fairly traced to the challenged action and that
the injury is likely to be redressed by a favorable decision.”
Herlihy
(D.Md.
v.
Ply-Gem
1990);
see
Industries,
also
Gladstone,
Bellwood, 441 U.S. 91 (1979).
standing
result
in
the
Inc.,
752
F.Supp.
Realtors
v.
1282,
Village
1290
of
“The constitutional limits on
elimination
of
a
claim
in
which
the
plaintiff has failed to make out a case or controversy between
himself and the named defendant.”
Herlihy, 752 F.Supp. at 1290.
As the Supreme Court of the United States noted:
That a suit may be a class action . . . adds
nothing to the question of standing, for
even named plaintiffs who represent a class
“must allege and show that they personally
have been injured, not that injury has been
suffered by other unidentified members of
the class to which they belong and which
they purport to represent.”
9
Lewis
v.
Casey,
518
U.S.
343,
357
(1996)
(alteration
in
original) (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S.
26, 40 n.20 (1976)).
The United States Court of Appeals for the
Fourth Circuit has echoed this outlook, stating that in the
class
action
context,
“it
is
essential
that
named
class
representatives demonstrate standing through a ‘requisite case
or
controversy
defendant].”
between
themselves
personally
and
[each
Cent. Wesleyan Coll. v. W.R. Grace & Co., 6 F.3d
177, 188 (4th Cir. 1993) (emphasis added); Lieberson v. Johnson &
Johnson Consumer Co., Inc., 865 F.Supp.2d 529, 537 (D.N.J. 2011)
(holding that the plaintiff lacked standing to pursue putative
class
action
claims
of
consumer
fraud
against
a
baby
bath
product manufacturer as to any products the named plaintiff did
not allege she used or purchased).
Plaintiffs
assert
that
they
have
standing
over
Pohanka
Defendants based on each Defendant having aided and abetted one
another and conspired to finance vehicle sales using “phony”
debt cancellation agreements that violated Maryland law.
With
respect to aiding and abetting, the complaint asserts that each
Pohanka Defendant aided and abetted one another in selling and
financing
“the
illegal
GAP
Agreement
.
.
.
and
knowingly
provided substantial assistance, aid, and encouragement in the
commission
dealerships
of
that
for
the
conduct
sale
by
of
providing
the
10
illegal
forms
GAP
to
the
other
Agreements,
by
agreeing on and encouraging the other dealerships to sell and
finance the illegal GAP Agreements.”
Pohanka
attempt
to
allegations,
Defendants
hold
them
“their
interpretation.”
assert
(ECF
that
liable
effort
No.
(ECF No. 1 ¶ 80).
to
the
through
extent
Plaintiffs
aiding
and
matter
of
fails
as
a
17-1,
at
41).
They
abetting
statutory
argue
that
“[b]ecause the CLEC is silent as to aiding and abetting or other
derivative liability, this Court may not read into that statute
a cause of action against the Non-Seller Pohanka Defendants.”
(ECF No. 17-1, at 41).
Plaintiffs counter that unlike cases
that have declined to uphold claims for aiding and abetting
where the statute did not explicitly provide for such liability,
CLEC includes a broad definition of “credit grantor.”
24, at 50).
(ECF No.
Section 12-1001(g)(1) defines a “credit grantor”
as:
any individual, corporation, business trust,
statutory trust, estate, trust, partnership,
association, two or more persons having a
joint or common interest, or any other legal
or commercial entity making a loan or other
extension of credit under this subtitle . .
. or is a retailer.
Md. Code Ann., Com. Law § 12-1001(g)(1).
Plaintiffs argue that
“the
regulation
statutory
text
contemplates
broad
of
credit
grantor ‘association[s]’ like Pohanka,” thus making them liable
as aiders and abettors.
(ECF No. 24, at 50 n.24).
11
Plaintiffs’ arguments are unavailing.
Although Maryland
law recognizes aider and abettor civil liability for those who
“actively
participate
.
.
.
in
the
commission
of
a
tort,”
Alleco, Inc. v. Harry & Jeannette Weinberg Found., 340 Md. 176,
200 (1995), “Maryland courts have not yet extended the scope of
aiding and abetting liability or assignee liability to statutes
providing
for
civil
liability
where
the
statute
does
not
expressly impose this additional avenue of liability,” Petry v.
Wells Fargo Bank, N.A., 597 F.Supp.2d 558, 565 (D.Md. 2009).
“[C]ivil
aiding
and
abetting
statute-by-statute basis.”
liability
is
determined
on
a
Baltimore-Washington Tel. Co. v. Hot
Leads Co., LLC, 584 F.Supp.2d 736, 745 (D.Md. 2008) (citing
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver,
N.A., 511 U.S. 164, 181-82 (1994)).
The legislature “[knows]
how to impose aiding and abetting liability when it [chooses] to
do so.”
Cent. Bank of Denver, 511 U.S. at 176.
In this case,
the statutory language of CLEC does not specifically provide for
such
liability.
See,
e.g.,
Petry,
597
F.Supp.2d
at
565
(declining to extend aiding and abetting liability under the
Finder’s Fee Act and the Maryland Consumer Protection Act).
The
broad definition of “credit grantor” under CLEC does not qualify
as an express imposition of aiding and abetting liability for
violations
thereof.
See
Baltimore-Washington
Tel.
Co.,
584
F.Supp.2d at 746 (refusing to expand liability under federal
12
statute for aiding and abetting where statute did not expressly
provide for such liability).
Plaintiffs
also
premise
their
claims
against
Pohanka
Defendants on the theory that they conspired to finance “phony”
debt cancellation agreements in contravention of CLEC and charge
interest
and
Plaintiffs
fees
contend
in
that
connection
“Defendants
therewith.
Specifically,
developed
and
agreed
to
implement a fraudulent scheme and conspiracy through the Pohanka
Automotive Group to market, sell and finance GAP Agreements . .
. with misleading and fraudulent representations and omissions
concerning the nature of the GAP Agreements.”
(ECF No. 1 ¶ 9).
Plaintiffs aver that in their transaction:
the other Pohanka Defendants all conspired
in the sale of the phony GAP Agreement. For
example,
the
Buyer’s
Order
for
this
transaction, which includes the $750 GAP
charge, specifically lists Pohanka Hyundai,
Pohanka Isuzu, Pohanka Imports, Pohanka
Honda, Saturn of Bowie, Saturn of Marlow
Heights, Saturn of Waldorf, and Pohanka Used
Cars on these transaction documents.
(Id. ¶ 49).4
“In a multi-defendant action or class action, the named
plaintiffs must establish that they have been harmed by each of
4
Plaintiffs refer to the “Buyer’s Order” as listing other
dealerships, but have not supplied a copy of such a document.
The RISC and debt cancellation agreement included as exhibits to
the complaint identify only Pohanka Isuzu as the seller. Veney
v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002) (a court need not
accept as true “allegations that contradict matters properly
subject to judicial notice or by exhibit.”).
13
the defendants” and they may not use the procedural device of a
class action “to bootstrap themselves into standing they lack.”
Crowder v. Master Financial, 176 Md. App. 631, 646 (2007).
In a
situation where a named plaintiff did not deal directly with the
named defendants, “a plaintiff may be able to satisfy the injury
aspect
of
standing
conspiracy.”
through
sufficient
allegations
of
See Cent. Wesleyan Coll., 6 F.3d at 188 (“[w]hile
allegations of conspiracy among parties with whom a plaintiff
did not directly deal may confer standing upon the plaintiff to
sue the nondealing parties,[] the Supreme Court has emphasized
that indirectness of injury, though not fatal to standing, ‘may
make
it
substantially
more
difficult
to
meet
the
minimum
requirement of Art. III,’ Warth v. Seldin, 422 U.S. 490, 505
(1975).”); Brown v. Cameron-Brown Co., 652 F.2d 375, 378 (4th
Cir. 1981) (“[w]e are in full accord with the district court
that when plaintiffs alleged injury as a result of a conspiracy
in
which
the
non-dealing
defendants
participated,
plaintiffs
have alleged standing to sue the non-dealing defendants.”).
Under
Maryland
“combination
of
two
law,
civil
or
more
conspiracy
persons
by
is
defined
an
as
agreement
the
or
understanding to accomplish an unlawful act or to use unlawful
means
to
accomplish
an
act
not
in
itself
illegal,
with
the
further requirement that the act or the means employed must
result in damages to the plaintiff.”
14
Hoffman v. Stamper, 385
Md. 1, 24 (2005).
In addition to proving an agreement, “[t]he
plaintiff must also prove the commission of an overt act, in
furtherance
of
the
agreement,
suffer actual injury.”
that
Id. at 25.
caused
the
plaintiff
to
In Shenker v. Laureate
Education, Inc., 411 Md. 317, 352 (2009), the Court of Appeals
of Maryland held that a defendant may not be held liable for
civil conspiracy “where that defendant is legally incapable of
committing the underlying tort.”
Because one of the defendants
owed no fiduciary duty to the plaintiffs, the court held that
this defendant could not be held liable for conspiracy to breach
a fiduciary duty and affirmed the dismissal of the conspiracy
claim
against
the
defendant.
Id.
In
dismissing
the
civil
conspiracy claim, the Shenker court explained:
[T]ort liability arising from a conspiracy
presupposes
that
the
coconspirator
is
legally capable of committing a tort, that
is, that [the co-conspirator] owes a duty to
the plaintiff recognized by law and is
potentially subject to liability for breach
of that duty.” . . . “[A] cause of action
for civil conspiracy may therefore not arise
if the alleged conspirator, though allegedly
a participant in the agreement underlying
the injury, was not personally bound by the
duty violated by the wrongdoing.
Id. at 352 (quoting Bahari v. Countrywide Home Loans, No. 052085, 2005 WL 3505604, at *6 (D.Md. Dec. 16, 2005)); BEP, Inc.
v. Atkinson, 174 F.Supp.2d 400, 409 (D.Md. 2001)).
conspiracy
requires
an
agreement,
15
and
an
Thus, civil
overt
act
in
furtherance
of
the
agreed-to
unlawful
conduct
that
causes
injury, as well as the legal capacity of the conspirators to
complete the unlawful conduct.
Pohanka Defendants argue that they cannot be liable on the
basis of civil conspiracy because they were not legally capable
of committing the underlying violations.
42).
Pohanka
SunTrust
Defendants
were
in
assert
privity
with
that
the
(ECF No. 17-1, at 41“only
Joneses
breached any contractual obligation to them.”
43).
Auto
and
North
could
and
have
(ECF No. 17-1, at
Moreover, Pohanka Defendants point out that CLEC applies
only to credit grantors and no entities other than Pohanka Auto
North and SunTrust Bank acted as a credit grantor in Plaintiffs’
transaction.
Plaintiffs
disagree,
taking
the
position
that
Pohanka Defendants are all credit grantors within the meaning of
CLEC,
thus
legally
capable
of
violating
the
statute.
They
contend that because CLEC regulates each Pohanka Defendant, they
are
legally
violations.
capable
of
Plaintiffs
committing
maintain
the
that
underlying
alleged
complaint
“asserts
the
that each Pohanka entity did, in fact, owe direct duties under
CLEC to Plaintiffs and putative class members with whom they had
direct
putative
dealings
class
–
and
members,
that
in
and
as
each
part
such
of
transaction
their
with
overarching
conspiracy, they each directly violated CLEC. . . . Each Pohanka
entity owed a direct duty under CLEC to putative class members,
16
a direct duty each Pohanka entity breached.”
(ECF No. 24, at
56).
The
relevant
inquiry
is
whether
Pohanka
Defendants
are
legally capable of violating CLEC in Plaintiffs’ transaction,
not in some other transaction they may have entered into with
putative class members where each Pohanka Defendant functioned
as a credit grantor.
See, e.g., Pashby v. Delia, 709 F.3d 307,
316 (4th Cir. 2013) (“When the case is a class action lawsuit,
the named class representatives ‘must allege and show that they
personally have been injured, not that injury has been suffered
by
other,
unidentified
members
of
the
class
to
which
they
belong.’” (quoting Blum v. Yaretsy, 457 U.S. 991, 1001 n.13
(1982))).
GAP
Thus, the argument that Pohanka Defendants financed
Agreements
sold
to
putative
class
members
and
are
thus
legally capable of committing the underlying statutory violation
misses the mark, as Plaintiffs must establish their standing to
sue Pohanka Defendants.
Indeed, this same argument was rejected
in Minter v. Wells Fargo Bank, N.A., 924 F.Supp.2d 627, 647-48
(D.Md. 2013).
In that case, plaintiffs argued (unsuccessfully)
that it did not matter that two of the defendants “are not
alleged to have [acted as mortgage brokers] in the transactions
in this case” as long as “they could have” in some transaction.
Id. at 647 (emphasis in original).
The court held that the fact
that defendants are “hypothetically capable of functioning as
17
mortgage brokers in some other context, does not render them
capable of committing the tort that is underlying the conspiracy
claims.”
Id. at 648; see also Lombel v. Flagstar Bank F.S.B.,
No. PWG-13-704, 2013 WL 5604543, at *4 n.5 (D.Md. Oct. 11, 2013)
(“The decisive fact is that Defendant was not a mortgage broker
in this transaction; there is no need to consider whether facts
could ever arise that could render Defendant liable under the
FFA.”).
Similarly, the fact that Pohanka Defendants may be
regulated
by
CLEC
as
credit
grantors
in
other
lending
transactions does not establish that they are legally capable of
violating the statute as to Plaintiffs.
Plaintiffs also argue that the “entire Pohanka Automotive
Group
has
the
status
transaction under CLEC.”
of
credit
grantor
(ECF No. 24, at 49).
in
Plaintiffs’
Plaintiffs state
for the first time in their opposition that Pohanka Defendants
are retailers, which is included in the definition of “credit
grantor” under Section 12-1001(g).
(ECF No. 24, at 49-50).
This allegation is nowhere in their complaint, however.
They
also argue that the Pohanka Automotive Group qualifies as an
“association,”
which
also
is
“credit grantor” under CLEC.
Defendants’
them
credit
alleged
grantors
included
the
definition
of
Plaintiffs believe that Pohanka
“association”
in
in
or
Plaintiffs’
“retailer”
transaction.
several problems with Plaintiffs’ arguments.
18
status
makes
There
are
First, Plaintiffs’
reliance on the definition of “credit grantor” is misplaced.
Specifically,
“credit
grantor”
is
defined
as
“any
.
.
.
association . . . making a loan or other extension of credit
under
this
licensed
subtitle
pursuant
which
to
is
State
or
incorporated,
federal
chartered,
law,
the
or
lending
operations of which are subject to supervision, examination, and
regulation by a State or federal agency or which is licensed
under Title 12, Subtitle 4 of the Financial Institutions Article
or is a retailer.”
(emphasis
added).
Md. Code Ann., Com. Law § 12-1001(g)(1)
Notably,
the
complaint
refers
to
Pohanka
Defendants as “The Pohanka Automotive Group,” but alleges that
this group is comprised of entities associated with one another
under the
non-incorporated
(ECF No. 1 ¶ 8).
nothing
to
Pohanka Automotive Group umbrella.
As Pohanka Defendants point out, “[t]here is
suggest
that
the
legislature
used
the
word
‘association’ to create derivative liability of one legal entity
for a credit transaction entered into by another.”
(ECF No. 30,
at 24).
Second,
Plaintiffs’
actual
contract
Pohanka Isuzu as the only Creditor-Seller.
documents
“That is the sole
entity that extended the credit and elected CLEC.”
at
24).
As
Pohanka
Defendants
point
identify
out,
(ECF No. 30,
“the
fact
that
affiliate companies may advertise together or share order forms
does not, [] create derivative liability or make one affiliate
19
the credit grantor on a contract made by another affiliate.”
(ECF No. 30, at 24).
Only Pohanka Isuzu entered into a credit
contract and a debt cancellation agreement with Plaintiffs (with
SunTrust
Bank
dealerships
as
the
engaged
in
lienholder).
a
uniform
The
fact
practice
of
that
other
financing
debt
cancellation agreements that Plaintiffs allege did not comply
with
the
Pohanka
statutory
Defendants
underlying
definition
were
contractual
is
legally
and
insufficient
capable
statutory
of
to
show
that
committing
violations
the
as
to
Plaintiffs.
Even assuming Plaintiffs could show that Pohanka Defendants
were legally capable of committing the underlying violations as
to them, the allegations are insufficient to plead a conspiracy
among
all
Defendants.
Detrimental
to
Plaintiffs’
conspiracy
allegations here is the requirement that “plaintiff must set
forth more than just conclusory allegations of [the] agreement.”
Brady v. Livingood, 260 F.Supp.2d 94, 104 (D.D.C. 2004).
complaint
should
include
factual
allegations
that
The
provide
an
indication of when and how the agreement was brokered and how
each
of
the
agreement.
defendants
specifically
were
parties
to
the
Day v. DB Capital Grp., LLC, Civ. Action No. DKC 10-
1658, at *6 (D.Md. Mar. 11, 2011); Acosta Orellana v. CropLife
Int’l, 711 F.Supp.2d 81, 113-14 (D.D.C. 2011).
merely
alleges
that
“[t]he
20
Defendants
The complaint
conspired
among
themselves, by agreement and understanding, to engage in the
acts which resulted in legal damages to Named Plaintiffs and the
Class they represent.”
(ECF No. 1 ¶ 6).
The complaint further
states that “the Defendants developed and agreed to implement a
fraudulent scheme and conspiracy through the Pohanka Automotive
Group to market, sell and finance GAP Agreements in a uniform
way.”
(Id. ¶ 9).
These allegations do not support a true
conspiracy, but rather concerted action.
Cf. DB Capital Grp.,
2011 WL 887544, at *7 (finding conspiracy allegations sufficient
where plaintiff’s complaint referenced specific instances when
alleged
co-conspirators
met,
and
engaged
in
acts
to
defraud
plaintiff).
The
analysis
instructive.
group
of
plywood
in
Herlihy,
752
F.Supp.
at
1290,
is
That case involved a putative class action by a
homeowners
products,
against
alleging
manufacturers
that
the
of
products
fire
were
retardant
defective.
The court reasoned:
Nowhere in the complaint is there an
allegation that a named plaintiff suffered
any injury or damage because of the wrongful
act or conduct of a named defendant. Rather
than relying on any allegation in the
complaint of a specific injury [caused by a
named defendant], plaintiffs contend that
they have standing to sue under a so-called
“concert of action” theory.
Plaintiffs
argue that a defendant may be liable for an
injury caused by the product of another if
the
plaintiff
can
prove
that
multiple
defendants acted tortuously pursuant to a
21
common plan or design.
[]
Plaintiffs
contend that they have sufficiently alleged
in this case a concert of action and that
therefore they have standing to sue the six
named defendants.
Id.
The court rejected this argument, noting that Maryland law
does
not
concert
recognize
of
action.
a
cause
Here,
of
action
although
based
upon
Plaintiffs
an
use
alleged
the
word
“conspiracy” in the complaint, the factual allegations support,
at
most,
the
inference
of
concerted
action
among
Pohanka
Defendants, which does not confer standing.5
Based on the foregoing, there is no standing over Pohanka
Defendants
(other
than
Pohanka
Auto
North)
and
all
counts
against them will be dismissed.
B.
CLEC
In Count I of the complaint, Plaintiffs allege that Pohanka
Auto North violated CLEC, Md. Code Ann., Com. Law § 12-1005, by
charging and collecting from Plaintiffs and members of the class
“impermissible charges for the phony GAP Agreements – charges
which are not permitted to be financed under CLEC.”
¶ 75).
(ECF No. 1
The CLEC claim is premised on the allegation that the
debt cancellation agreement which they entered into was not a
5
For instance, in Acosta, 711 F.Supp.2d at 114, the court
dismissed a civil conspiracy claim because the plaintiff failed
to provide any factual support that the defendant CropLife had
an agreement with the other defendants and found that it was
just as likely that they were acting independently with a common
motivation or goal.
22
“true” debt cancellation agreement because it was inconsistent
with the statutory definition of a debt cancellation agreement.
Specifically,
under
CLEC,
a
debt
cancellation
agreement
“requires a lender to cancel the remaining loan balance when a
car is totaled and insurance payout does not cover the entire
outstanding balance.”
Decohen v. Capital One, N.A., 703 F.3d
216, 219 (4th Cir. 2012).
debt
cancellation
At the time Plaintiffs executed the
agreement
–
in
August
2008
-
Section
12-
1001(h) defined a debt cancellation agreement as:
an agreement between a credit grantor and a
borrower which provides for cancellation of
the remaining loan balance in the event of
theft or total destruction of the collateral
for the loan after application of the
proceeds of any insurance maintained on the
collateral for the loan.
Md. Code Ann., Com. Law. § 12-1001(h) (effective to May 31,
2010).
Plaintiffs assert that the debt cancellation agreement
that was part of their contract did not comply with Maryland law
because it did not require cancellation of the remaining loan
balance, instead requiring the cancellation of the difference
between
the
remaining
loan
balance
and
the
“value
of
the
vehicle,” as determined by the greater of the casualty insurer’s
determination or the book value of the vehicle at the time of
the loss or destruction.
assert
that
because
the
(ECF No. 1-3, at 1).
debt
cancellation
23
Plaintiffs
agreement
did
not
comply with CLEC, it could not be financed, and they should not
have incurred any charges in connection therewith.
The
remaining
Defendant
argues
that
Plaintiffs
have
not
stated a claim because: (1) the contract incorporated CLEC’s
definition of a debt cancellation agreement, thus it would have
been enforced in accordance with the statute; and (2) Plaintiffs
have “never suffered a loss of their vehicle or made any GAP
claim, much less had a claim that was handled inconsistently
with
the
statutory
debt
(ECF No. 17-1, at 17).
cancellation
agreement
description.”
Defendant maintains that “[w]here, as
here, the [P]laintiffs have never suffered a loss or made a
request for debt cancellation, there is no CLEC violation unless
and
until
a
defendant
fails
accordance with the statute.”
to
honor
such
(Id. at 14).
a
request
in
Plaintiffs take the
position that “a debt cancellation agreement may be financed
under CLEC only if, at the time of origination, it ‘provides
for’
the
violation
lender
of
origination.”
to
CLEC
cancel
is
the
remaining
committed,
(ECF No. 24, at 25).
and
debt.
.
.
.
The
determinable,
at
They assert that “[b]ecause
the [] credit contract violated CLEC, [] no interest, costs,
fees, or other charges could be collected with respect to it. .
.
.
Accordingly,
contract
and
undisputably
at
the
financed
did
not
time
the
Pohanka
originated
phony
‘provide
GAP
for’
the
24
Plaintiffs’
Agreement
cancellation
–
which
of
the
remaining loan balance in violation of CLEC – Plaintiffs were
entitled
to
a
loan
free
of
interest,
costs,
(including the charge for their GAP Agreement).”
and
charges
(ECF No. 24,
at 22).
CLEC provides that “[i]n connection with closed end credit
offered and extended . . . a credit grantor may charge and
collect
the
subtitle.”
interest
Md.
Code
and
other
Ann.,
Com.
charges
Law
§
permitted
12-1002(b).
by
this
“Other
charges permitted” include “[t]he cost to the borrower of an
optional debt cancellation agreement, provided that the cost of
the debt cancellation agreement is separately itemized in the
financing agreement.”
Id. § 12-1005(c)(1).
As Defendant points
out – and Plaintiffs do not dispute - CLEC was incorporated into
the parties’ credit contract.
Specifically, the credit contract
stated that “[t]his contract shall be subject to the Credit
Grantor Closed End Credit Provisions (Subtitle 10) of Title 12
of the Commercial Law Article of the Maryland Code.”
1-2, at 4).
(ECF No.
Thus, the credit contract incorporated the terms
and requirements of CLEC.
See, e.g., Decohen, 703 F.3d at 229
(“Decohen’s credit contract, in which the parties elected to be
governed by the CLEC, thus incorporated the terms of the CLEC to
govern the attached debt cancellation agreement.”); Patton v.
Wells Fargo Financial Maryland, Inc., 437 Md. 83, 114 (2014)
(“Wells Fargo Financial voluntarily chose to take assignment of
25
a loan contract that incorporated CLEC . . . In accepting the
assignment,
governed
by
Wells
CLEC
contract.”).
Fargo
in
Financial
the
exercise
expressly
of
its
agreed
rights
to
under
be
the
It is undisputed that Defendant has not enforced
any conflicting provision as to Plaintiffs, to the extent that
the
debt
cancellation
agreement
conflicted
with
CLEC.
Plaintiffs have suffered no loss of their vehicle (e.g, no theft
or total destruction of the collateral securing the loan) and
cannot
allege
any
failure
by
Defendant
to
honor
the
debt
cancellation agreement in accordance with CLEC as to Plaintiffs.
Plaintiffs rely on Decohen and Patton for the proposition
that
a
Agreement
credit
grantor
violates
permits
the
which
CLEC
credit
“by
grantor
financing
to
a
GAP
determine
the
remaining loan balance to be cancelled by reference to a NADA
valuation guide.”
(ECF No. 24, at 20).
In Decohen, 703 F.3d
216, the borrower financed the purchase of a used car under a
loan
contract
identical
to
that
those
also
of
incorporated
the
credit
CLEC
contract
in
terms
here.
The
contract also financed a debt cancellation agreement.
dealer assigned the loan contract to a bank.
nearly
loan
The car
Unlike this case,
however, plaintiff’s car was totaled, but Capital One refused to
wipe
out
Plaintiff
the
in
existing
Decohen
loan
filed
balance
a
class
in
violation
action
of
lawsuit
CLEC.
against
Capital One, the assignee bank, Beacon Industries Worldwide, the
26
servicer of the debt cancellation agreement, and Abassi LLC.
Judge Quarles dismissed the CLEC claim on the basis that it was
preempted by the National Bank Act (NBA), and this portion of
his
opinion
was
later
reversed
Decohen, 703 F.3d at 225.
by
the
Fourth
Circuit.
See
Plaintiffs find persuasive, however,
a portion of Judge Quarles’s opinion which was not appealed, in
which he declined to dismiss the CLEC claim for failure to state
a claim.
See Decohen v. Abbasi, LLC, Civ. No. WDQ-10-3157, 2011
WL 3438625, at *3-4 (D.Md. July 26, 2011).
Quarles
“[t]he
applied
CLEC
the
claim
following
will
not
be
rationale
dismissed
Specifically, Judge
in
on
concluding
that
the
that
basis
Decohen’s allegations fail to state a basis for relief under
Maryland law”:
The
definition
of
“debt
cancellation
agreement” does not provide that a creditor
may apply a retail guide value to calculate
the amount of debt cancelled.
Instead, it
only provides that such an agreement cancels
the
remaining
loan
balance
less
“the
proceeds of any insurance.” Md. Code. Ann.,
Comm. L. § 12-1001(h). Further, none of the
items that may be excluded from “remaining
loan balance” allow the creditor to deduct
the difference between the insurance payout
and the car’s retail value.
Accordingly,
Decohen’s complaint is sufficient to show
that the GAP Agreement is not a “debt
cancellation agreement” within the meaning
of the CLEC, and therefore may not be
financed “in connection with closed end
credit offered and extended” under the
statute.
Md. Code. Ann., Comm. L. §
1002(b).
27
Id. at *4.
The facts of Decohen, however, are readily distinguishable.
Although Judge Quarles declined to dismiss the CLEC claim where
the debt cancellation agreement conflicted with CLEC - which
also was incorporated into the parties’ credit contract - in
that case, the conflicting provision was actually applied to
plaintiff.
In other words, in Decohen, Capital One demanded
payment of the remaining loan balance in violation of CLEC.
The
Fourth Circuit noted that “[u]nder Maryland law, [] the holder
of the note on the vehicle would have been compelled to cancel
the remaining balance.”
Id. at 220.
Here, there was no such
refusal to cancel the outstanding loan balance in violation of
CLEC;
in
fact,
there
was
no
theft
or
total
destruction
of
property even to trigger the terms of the debt cancellation
agreement.6
Moreover, CLEC was incorporated into the contract, thus to
the
extent
certain
terms
of
the
debt
cancellation
agreement
entered into by Plaintiffs conflicted with CLEC, CLEC governed
the contractual relationship.
As held by the Court of Appeals
6
The parties in Decohen eventually entered into a
settlement agreement, which Judge Quarles approved. See Decohen
v. Abbasi, LLC, --- F.R.D. ----, 2014 WL 1603735, at *3 (D.Md.
Apr. 17, 2014).
Notably, the settlement agreement defined the
settlement class as “borrowers in up to 2,027 transactions who
financed GAP Agreements which allow for the use of retail car
guides in the calculation of the vehicle’s value, where the
borrowers suffered a total loss of the vehicle.”
(emphasis
added).
28
of Maryland, “a contract provision that violates public policy
set forth in a statute is invalid to the extent of the conflict
between the contract and that policy.”
John Deere Const. &
Forestry Co. v. Reliable Tractor, Inc., 406 Md. 139, 153 (2008).
In John Deere, the contractual provision conflicted with the
statutory provision.
The court held that “the provisions of the
contracts at issue in this case that allow termination without
good cause are invalid to the extent that they conflict with the
good cause provision set forth in § 19-103.”
Id.; Ins. Comm’r
v. Metro. Life Ins. Co., 296 Md. 334, 340 n.6 (1983) (“clauses
in
insurance
mandating
policies,
certain
inconsistency.”).
which
coverages,
are
are
inconsistent
void
to
the
with
statutes
extent
of
the
Thus, the inconsistency between terms in the
debt cancellation agreement and the statutory definition of CLEC
at
the
time
inconsistent
August
But
provision.
(in
as
provision
2008)
invalidates
explained
was
above,
never
in
triggered
the
inconsistent
this
(thus,
case,
the
Defendant
never had occassion to enforce it).
Plaintiffs’ reliance on Patton, 437 Md. 83, is similarly
misplaced.
First, Patton involved the repossession provisions
of CLEC, not a debt cancellation agreement.
violation
alleged
in
Patton
was
the
Second, the CLEC
creditor’s
failure
to
perform in accordance with CLEC, not its failure to set forth
the
applicable
terms
of
CLEC
in
29
the
RISC.
Moreover,
the
specific
issue
addressed
in
Patton
concerned
the
applicable
statute of limitations for claims under CLEC, which is no longer
at
issue
as
Defendant
statute of limitations.
has
withdrawn
all
arguments
regarding
(ECF No. 30, at 31 (“Pohanka hereby
withdraws its argument to dismiss the [c]omplaint based on the
statute
Patton
of
as
limitations”)).
holding
that
“the
Thus,
Plaintiffs
failure
of
a
mischaracterize
GAP
Contract
to
‘provide for’ cancellation of the remaining loan balance is a
violation of CLEC.”
(ECF No. 24, at 24).7
Plaintiffs insist
that a “violation of CLEC is committed, and determinable, at
origination” of the loan contract, but this principle is not
supported by any factually analogous cases involving CLEC claims
premised on the inclusion of a debt cancellation agreement that
does not conform to the statutory definition but is not actually
enforced.
Plaintiffs next argue that the legislative history of CLEC
supports their position that a debt cancellation agreement that
7
Plaintiffs also misconstrue Defendant’s argument as
suggesting that “Decohen should be read as immunizing credit
grantors from violations of CLEC by magically changing the terms
of written agreements to conform with the law.” (ECF No. 24, at
24).
That is not what Defendant argues.
Defendant argues –
quite persuasively – that “when there is an actual or potential
incompatibility between a stated term of a contract and
incorporated statutory provisions, the contractual terms are
interpreted as a matter of law [] to be consistent with the
statutory
provisions”
and
liability
may
be
premised
on
enforcement of an inconsistent contractual provision. (ECF No.
30, at 9).
30
is contrary to the statutory definition cannot be financed.
The
problem is that Plaintiffs discuss the legislative history of a
different statute, the Retail Installment Sales Act (“RISA”),
Md. Code Ann., Com. Law II, § 12-601, et seq.
Plaintiffs argue
that “[t]he Maryland Court of Appeals specifically noted that
RISA,
the
predecessor
to
CLEC,
is
designed
to
remedy
the
situation where the buyer probably is discouraged from reading
the contract and might not fully understand its terms even if he
did read it.”
Plaintiffs
appreciate
(ECF No. 24, at 27) (internal citations omitted).
appear
their
to
argue
rights
under
that
some
CLEC
when
consumers
a
may
contract
not
includes
terms inconsistent with a statute expressly incorporated into
the contract.
Plaintiffs conveniently ignore that in the very
same case they cite, the Court of Appeals of Maryland noted that
“CLEC clearly is intended to be construed independently from
RISA.”
Ford Motor Credit Co., LLC v. Roberson, 420 Md. 649, 667
(2011).
“RISA governs extensions of credit that are not made
pursuant
to
CLEC.”
Epps
v.
JPMorgan
Chase
Bank
N.A.,
Civ.
Action No. WMN-10-1504, 2012 WL 5250538, at *3 (D.Md. Oct. 22,
2012) (emphasis added).
Indeed,
provisions.
RISA
expressly
prohibits
certain
See Md. Code Ann. Com. Law II, § 12-607.
contract
Section
12-630(d) explicitly states that “[i]f an instrument contains
any provision prohibited by § 12-607 of this subtitle, that
31
provision is void and the holder may not collect or receive from
the
buyer,
in
instrument
charge.”
connection
relates,
any
with
the
finance,
transaction
to
or
delinquency,
which
the
collection
There is no provision in CLEC that prohibits financing
of a debt cancellation agreement that contains conflicting terms
with
the
statutory
definition.
The
subsection
concerning
prohibited clauses in “[a]n agreement, note, or other evidence
of
a
loan”
is
found
in
Section
12-1023
of
CLEC.
Although
Plaintiffs maintain that Section 1023 “has no application here,”
that subsection is quite instructive.
Specifically,
Section
(ECF No. 24, at 32 n.10).
12-1023(b)(3)
states
that
“[e]xcept
as
expressly allowed by law, an agreement, note, or other evidence
of a loan may not contain a provision by which the borrower
waives any right accruing to the borrower under this subtitle
[CLEC].”8
Section 12-1023(b)(4)(i) states that “[a]ny clause or
provision in agreement, note, or other evidence of a loan that
is
in
violation
Furthermore,
of
Section
this
subsection
12-1018(a)(2)
8
shall
contains
be
a
unenforceable.”
general
“civil
Plaintiffs assert that “[a]s this Court held in Decohen, a
creditor violates a different section of CLEC - § 12-1001 – by
financing a phony GAP Agreement.”
(ECF No. 24, at 32 n.10).
First, Section 12-1001 is a “definitions” section; Section 121001(h) defines a debt cancellation agreement.
It does not
contain any prohibition on financing of a debt cancellation
agreement that is different from the statutory definition.
Indeed, Section 12-1023 covers prohibited clauses in an
agreement and the consequences associated with including
prohibited clauses.
32
penalty” provision for any violation of CLEC.
Specifically,
Section 12-1018 states that “[e]xcept for a bona fide error of
computation, if a credit grantor violates any provision of this
subtitle
the
credit
grantor
may
collect
only
the
principal
amount of the loan and may not collect any interest, costs,
fees, or other charges with respect to the loan.”
Notably,
Section
set
under
12-1023(b)(4)(ii)
§§
penalties]
states
12-1017
[criminal
of
subtitle
this
that
“the
penalties]
do
not
penalties
and
apply
12-1018
unless
the
out
[civil
credit
grantor attempts to enforce a provision prohibited under this
subsection
[Section
12-1023].”
(emphasis
added).
Here,
Defendant did not attempt to enforce any provision of CLEC.
Plaintiffs
agreement
that
argue
that
conflicts
by
with
issuing
the
a
statutory
debt
cancellation
definition
under
CLEC, Defendant attempts to circumvent the statute’s disclosure
requirement.
Plaintiffs assert:
If
it
were
the
case
that
the
law
automatically re-wrote illegal contracts,
and deficient disclosures, to comply with
the law, there could never be an unlawful
contract, nor could there ever be a case for
disclosure violations. Instead, perversely,
creditors and others who failed to comply
with disclosure requirements would be saved
by the very laws that were intended to
ensure that consumers were aware of their
rights. The Truth In Lending Act, the Fair
Debt Collection Practices Act, and numerous
other federal and state laws requiring
disclosures and prohibiting the inclusion of
illegal contract terms – with the penalty of
33
statutory damages for non-compliance
be rendered essentially meaningless.
(ECF No. 24, at 30).
would
Unfortunately for Plaintiffs, this case
does not involve claims under TILA or the FDCPA.
Circuit
recently
explained,
unlike
the
Fair
As the Fourth
Debt
Collection
Practices Act, which provides for statutory damages as long as
the claimant can establish a violation, 15 U.S.C. § 1692k(a)(2),
“CLEC does not provide for any fixed statutory damages beyond
the plaintiff’s actual loss.”
Bediako v. Am. Honda Fin. Corp.,
537 F.App’x 183, 187 (4th Cir. Aug. 1, 2013) (Table opinion).
The analysis recently undertaken by Judge Bennett in Askew
v.
HRFC,
LLC,
Civ.
Action
No.
RDB-12-3466,
(D.Md. Mar. 25, 2014), is instructive.
purchase of a used vehicle.
credit
contract
(RISC)
to
here, was governed by CLEC.
2014
WL
1235922
That case arose out of a
The parties also entered into a
finance
the
purchase,
which,
like
The plaintiff in Askew was charged
an interest rate exceeding the Maryland statutory maximum for
that specific type of loan under CLEC.
The plaintiff argued
that disclosing an interest rate that is higher than 24% creates
a separate violation itself based on the following provision:
“The rate of interest chargeable on a loan must be expressed in
the agreement as a simple interest rate or rates.”
Ann.,
Com.
Law
§
12-1003(a).
argument:
34
Judge
Bennett
Md. Code
rejected
this
The [p]laintiff has cited no case law to
support the rather creative proposition that
simply
disclosing
an
improperly
high
interest rate is a separate violation from
actually charging that interest rate.
The
interest rate in the RISC was expressed as a
simple interest rate, albeit higher than
allowed by the CLEC.
The only violation
that has occurred in this case is the actual
charging of an interest rate higher than
24%.
Askew, 2014 WL 1235922, at *5 (emphasis added).
applies here.
The same logic
As Defendant points out, “the remedy under the
CLEC for inconsistent terms is unenforceability and there is no
civil
penalty
enforced.”
for
unlawful
contract
terms
that
are
not
(ECF No. 30, at 15).9
Based on the foregoing, the CLEC claim will be dismissed.
C.
Breach of Contract
In Count II, Plaintiffs allege that Defendant is liable for
breach of contract because compliance with CLEC was made a part
of the RISC and Defendant breached the contract by violating
9
Plaintiffs also argue that certain arguments made by
Defendant in a memorandum in opposition to a motion for a
protective order filed in a different case that has settled,
Holland v. Pohanka Auto North, Inc., et al., Case No. 8:12-cv02141 (D.Md.), support Plaintiffs’ allegations here.
The only
specific example offered by Plaintiffs, however, is a prior
reference allegedly made by Defendants in the Holland litigation
to Section 12-1018(a)(2) & (3) as providing a penalty for
violations of CLEC, but noting that violations can be cured.
(ECF No. 24, at 33).
Plaintiffs take this to mean that “[t]o
invoke § 12-1018 is to admit there is a violation to cure.”
(Id.). This argument is a stretch and by no means constitutes a
judicial admission by Defendant.
35
CLEC.
To state a cause of action for breach of contract in
Maryland, a plaintiff must allege that the defendant owed a
contractual duty and that the defendant materially breached that
duty.
Taylor v. NationsBank, N.A., 365 Md. 166 (2001).
Because
Plaintiffs have not asserted a CLEC violation, the breach of
contract claim also fails.
228-29, is instructive.
that
the
district
The analysis in Decohen, 703 F.3d at
In Decohen, the Fourth Circuit found
court
erred
in
dismissing
the
breach
contract claim, but on readily distinguishable facts.
of
In that
case, as explained above, there was a total loss on the vehicle,
yet Capital One refused to cancel the remaining loan balance in
violation of Section 12-1001(h).
reasoned
that
‘remaining
“Capital
loan
One’s
balance’
Indeed, the Fourth Circuit
refusal
would
to
constitute
cancel
a
breach
contract,” which incorporated the terms of CLEC.
(emphasis added).
Decohen’s
of
that
Id. at 229
Here, there was no such refusal because the
debt cancellation agreement was never triggered to begin with.
Accordingly, this claim will be dismissed.
D.
Restitution and Unjust Enrichment
In Count IV, Plaintiffs assert a claim for restitution and
unjust
support
enrichment
of
their
based
CLEC
upon
the
claim.
same
(ECF
facts
No.
1,
they
at
allege
31-33).
in
In
Maryland, to state a claim for unjust enrichment, a plaintiff
must allege that: (1) a benefit conferred on the defendant; (2)
36
the defendant knew and appreciated the benefit; and (3) under
the circumstances, the defendant’s acceptance or retention of
the benefit would be inequitable.
Mona v. Mona Elec. Group,
Inc., 176 Md.App. 672 (2007).
The unjust enrichment claim premised on a CLEC violation
fails because Plaintiffs have not alleged an actionable CLEC
claim.
here
Moreover, as Defendant points out, a contract exists
(the
RISC)
that
covers
unjust enrichment claim.
in the alternative.
the
same
subject
matter
as
the
Plaintiffs argue that they can plead
Where a contract exists between the parties
covering the same subject matter as the unjust enrichment claim,
however, a plaintiff’s claim for unjust enrichment must include
an allegation of fraud or bad faith in the formation of the
contract.
(D.Md.
Kwang Dong Pharm. Co. v. Han, 205 F.Supp.2d 489, 497
2002);
Dashiell
&
Cnty.
Sons,
Com’rs
Inc.,
358
of
Md.
Caroline
83,
100
Cnty.
(2000)
v.
J.
Roland
(“Generally,
courts are hesitant to deviate from the principle of the rule
and allow unjust enrichment claims only when there is evidence
of fraud or bad faith, there has been a breach of contract or a
mutual rescission of the contract, when rescission is warranted,
or when the express contract does not fully address a subject
matter.”).
Although Plaintiffs state in the opposition to the
motion to dismiss that they “plainly allege bad faith, alleging
Defendant[] regularly sold and conspired to sell unlawful debt
37
cancellation
agreements,
with
knowledge
that
they
were
unlawful,” (ECF No. 24, at 35), nowhere in the complaint do
Plaintiffs actually allege bad faith in the formation of the
RISC.
Although
the
complaint
includes
general
averments
of
fraud, Plaintiffs do not plead fraud with particularity required
under
Fed.R.Civ.P.
9(b).
Instead,
the
complaint
includes
conclusory allegations that “Defendants developed and agreed to
implement a fraudulent scheme and conspiracy through the Pohanka
Automotive Group to market, sell and finance GAP Agreement in a
uniform
manner
.
.
.
with
misleading
and
fraudulent
representations and omission concerning the nature of the GAP
Agreement, and with the specific intent to deceive and defraud
Named Plaintiffs and members of the Class.”
(ECF No. 1 ¶ 9).
Plaintiffs fail to delineate the fraudulent misrepresentation or
omissions made in the formation of the contract.
See, e.g.,
Epps, 2012 WL 5250538, at *6 (dismissing unjust enrichment claim
where the claim was premised on a violation of CLEC, which was
incorporated
allegations
into
of
the
fraud
written
or
bad
contract,
faith
in
the
and
the
necessary
formation
of
the
contract were missing).
Based on the foregoing, the unjust enrichment claim will be
dismissed.
38
E.
Declaratory or Injunctive Relief
Plaintiffs include as a separate count in the complaint a
claim for declaratory and injunctive relief (Count III).
No. 1, at 29-31).
and
members
of
(ECF
The complaint alleges that “Named Plaintiffs
the
Class
have
received
or
will
receive
collection notices from one or more Defendants and/or creditors
or
debt
amounts
collectors
demanding
attributable
Plaintiffs
assert[]
to
could
payment
the
sale
not
be
of
of
amounts
phony
financed
including
GAP
under
Agreement
CLEC[],
and
payment of interest, costs, fees and other charges in connection
with the Credit Contracts of Plaintiffs and the Class, which are
not
collectible
Agreements.”
due
to
the
financing
(ECF No. 1 ¶ 93).
of
the
phony
GAP
Plaintiffs seek a declaration
that “Defendants may not collect any amounts attributable to
phony
debt
contracts
cancellation
signed
by
agreements
Plaintiffs
and
financed
the
in
Class,
the
and
credit
may
not
collect any interest, fees, costs or other charges in connection
with their Credit Contracts.”
(Id. ¶ 94).
The Declaratory Judgment Act provides that “[i]n a case of
actual controversy within its jurisdiction . . . any court of
the United States . . . may declare the rights and other legal
relations of any interested party seeking such a declaration,
whether or not further relief is or could be sought.”
§ 2201(a).
The Fourth Circuit has explained:
39
28 U.S.C.
[I]t is elementary that a federal court may
properly
exercise
jurisdiction
in
a
declaratory judgment proceeding when three
essentials
are
met:
(1)
the
complaint
alleges an actual controversy between the
parties of sufficient immediacy and reality
to
warrant
issuance
of
a
declaratory
judgment;
(2)
the
court
possesses
an
independent basis for the jurisdiction over
the parties (e.g., federal question or
diversity jurisdiction); and (3) the court
does not abuse its discretion in its
exercise of jurisdiction.
Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386
F.3d 581, 592 (4th Cir. 2004).
Plaintiffs cannot meet the first
prong because there is no actual controversy between Plaintiffs
and Defendant of sufficient immediacy and reality to warrant
issuance of a declaratory judgment.
The accepted Rule 68 offer
of judgment by SunTrust Bank included a waiver of the Joneses’
loan
balance
and
satisfaction
of
the
loan,
thus
Plaintiffs
cannot be pursued for any payments in connection with the credit
contract.
(See ECF No. 23).
The RISC and debt cancellation
agreement were terminated without the Joneses ever requiring any
benefit conferred by the debt cancellation agreement.
To the
extent Plaintiffs seek a declaratory judgment based on claims of
other
potential
cancellation
class
agreement
members
was
in
triggered
whose
and
cases
Defendant
the
debt
failed
to
comply with the statutory definition, Plaintiffs’ claim is not
typical of the class.
n.8
(“A
class
that
See, e.g., Epps, 2012 WL 5250538, at *9
includes
both
40
individuals
who
have
been
pursued for payments or judgments and those, like Epps, who have
not, also fails to satisfy the commonality requirement of Rule
23(a)(2).).
Moreover,
dismissed
contract
for
and
Defendant
the
GAP
argues
additional
Agreement
that
reason
were
Count
that
III
should
Plaintiffs’
assigned
to
be
finance
SunTrust;
thus,
Defendant is not the holder of the finance contract at issue
here and does not seek to collect payment on those contracts.
(ECF No. 17-1, at 45).
Plaintiffs respond to this argument in a
footnote in their opposition to the motion to dismiss, (ECF No.
24, at 47 n.18), citing a decision rendered by the Maryland
Commissioner of Financial Regulation as holding that interest
and
costs
collected
in
violation
of
a
statute
are
not
collectible only from an assignee (thus Defendant can be on the
hook for prohibited costs).
First, as Judge Motz pointed out in
Scott v. Nuvell Fin. Servs., Civ. Nos. JFM-09-3110, JFM-10-1094,
2013 WL 6909518, at *1 n.2 (D.Md. Dec. 31, 2013), this court is
not bound by an administrative law decision.
involved
application
of
Mortgage
Lender
although
provision
Law,
analogous
to
a
different
the
CLEC’s
Second, that case
statute,
Commissioner
Section
the
interpreted
12-1018(a)(2).
summarized by Judge Motz:
[The
Commissioner]
recognized
the
fundamental proposition that a lender is
entitled to recover the principal amount of
41
Maryland
a
As
any
loan
it
has
made
despite
being
prohibited from recovering interest, costs,
fees, or other charges with respect to the
loan.
The Commissioner held, however, that
the
lender
was
required
to
give
the
defendants a choice of either receiving a
refund of the fees and interest already paid
or having those fees and interest credited
against the remaining principal.
Nuvell Financial Services, 2013 WL 6909518, at *1 n.2.
the
actual
Defendant)
lienholder
would
Accordingly,
be
the
is
SunTrust
assessing
declaratory
Bank,
interest,
judgment
thus
it
costs,
claim
fails
(and
and
for
Here,
not
fees.
this
additional reason.
Plaintiffs’ request for injunctive relief
has
the
been
mooted
by
complete
satisfaction
of
their
loan
through the accepted Rule 68 offer of judgment.10
IV.
Conclusion
For the foregoing reasons, the motion to dismiss will be
granted.
A separate order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
10
Additional arguments addressed in Defendants’ motion to
dismiss and reply brief regarding joinder of necessary parties
need not be addressed considering the dismissal of Plaintiffs’
claims on other grounds.
42
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