Suazo et al v. Select Portfolio Servicing, Inc. et al
Filing
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MEMORANDUM OPINION. Signed by Judge Richard D. Bennett on 9/25/2019. (bmhs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
REYNALDO SUAZO, et al.,
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Plaintiffs,
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v.
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U.S. BANK TRUST, NA, et al.,
Defendants.
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Civil Action No. RDB-18-1451
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MEMORANDUM OPINION
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Plaintiffs Reynaldo and Eva Suazo (“Mr. and Mrs. Suazo”), Ronald Lewis (“Mr.
Lewis”), and Catherine Martinson (“Ms. Martinson”) (collectively, the “Named Plaintiffs” or
“Plaintiffs”), on behalf of themselves and other similarly situated mortgage borrowers, allege
that Defendants Caliber Home Loans, Inc. (“Caliber”) and U.S. Bank Trust, NA, solely in its
capacity as Trustee for LSF9 Master Participation Trust (“LSF9”) (collectively, “Defendants”),
have unjustly enriched themselves by engaging in unlawful debt collection practices. Caliber
is alleged to have acted as the debt collector for LSF9, a special purpose vehicle holding title
to high-risk mortgages. Through Caliber, LSF9 allegedly pursued outstanding mortgage
obligations without the appropriate license under Maryland law. Additionally, Plaintiffs allege
that the Defendants unlawfully charged inspection fees as part of these collection efforts.
Currently pending before this Court is the Plaintiffs’ Motion for Leave to File an
Amended Complaint. (ECF No. 35.) The Amended Complaint adds new factual allegations
and changes the Plaintiffs’ theory of the case in an effort to comport with the recent opinion
of the Maryland Court of Appeals in Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188 (2018).
Defendants oppose the amendment and seek dismissal of this case with prejudice. This Court
has reviewed the parties’ submissions and finds that no hearing is necessary. See Local Rule
105.6 (D. Md. 2018). For the reasons stated herein, Plaintiffs’ Motion for Leave to File
Amended Complaint (ECF No. 35) is DENIED. This Court finds that Plaintiffs have failed
to state a claim under both the Original and Amended Complaints. Accordingly, this case is
DISMISSED WITH PREJUDICE.
BACKGROUND
I.
Factual Background
Plaintiffs allege that Defendants unjustly enriched themselves by engaging in mortgage
debt collection practices which ran afoul of Maryland law. Defendant LSF9 is a Delaware
Statutory Trust which belongs to a large family of private equity funds owned by a private
equity firm called Lone Star Funds (“Lone Star”). (Am. Compl. ¶ 23.) Lone Star is organized
into sixteen private equity funds which are structured as closed-end, private-equity limited
partnerships which include corporate and public pension funds, sovereign wealth funds,
university endowments, foundations, funds of funds, and high net worth individuals. (Id.)
Although US Bank, N.A. is named as the trustee for LSF9, it does not manage the fund. (Id.)
Hudson Advisors L.P. performs that task; it conducts due diligence, asset management, and
other support services for LSF9 and the assets the trust acquires. (Id.)
LSF9 participates in the mortgage industry’s secondary market, which springs from
mortgage lenders’ desire to offload the mortgages that they originate. See Blackstone, 461 Md.
at 136, 191 A.2d 1188 (discussing the mortgage industry’s secondary market and mortgagebacked securitization). In recent years, hedge funds and private equity funds have acquired
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hundreds of thousands of defaulted consumer mortgage loans. (Am. Compl. ¶ 30.)
The
funds rely on collection agencies to extract profit from their mortgage portfolios. (Id.)
In league with this trend, Plaintiffs allege that Lone Star and LSF9 have acquired
distressed and nonperforming home loans. (Id. at ¶ 23.) LSF9 has acquired these loans for an
amount less than the value of the real estate secured by the debt and less than the sum due on
the loan balance. (Id.) Defendant Caliber has allegedly served as LSF9’s “debt collector” since
July 10, 2014. (Id. at ¶ 24.) In turn, Caliber relies on law firms, including the BWW Law Group,
LCC and the Law Offices of Jeffrey Nadel, to assist it with foreclosure proceedings. (Id. at ¶¶
25, 106.) Consumer advocates have complained that Caliber lulls struggling borrowers into
“interest-only” payment plans which quickly balloon into unaffordable payments. (Id. at ¶ 30.)
Plaintiffs allege that Caliber does not expect to convert non-performing loans into performing
loans, but rather uses deceptive practices to obtain a greater profit through foreclosure. (Id.
at ¶ 107.)
LSF9 is alleged to profit from these practices; a “substantial majority” of the
properties related to each loan it acquires are expected to be liquidated. (Id. at ¶ 33.)
LSF9 and Caliber are alleged to have violated Maryland law, and unjustly enriched
themselves, at the expense of the Named Plaintiffs and the proposed classes. The allegations
vary with respect to each Named Plaintiff, but Defendants are alleged to have engaged in the
following general pattern of activity. First, LSF9 acquired each Plaintiff’s mortgage loan from
a prior loan servicer, such as Bank of America or Ocwen Loan Servicing, LLC, after the loans
entered default. (Id. at ¶¶ 39; 56; 79.) Next, Caliber began its collection efforts and entered
into standard modification/forbearance agreements with the Named Plaintiffs on behalf of
LSF9. (Id. at ¶¶ 45-47, 64-65, 94.) In some cases, these collection efforts included threats of
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foreclosure or the initiation of foreclosure proceedings. (Id. at ¶ 59, 82.) Then, Caliber, acting
on behalf of LSF9, collected sums claimed due for interest, fees, and costs unrelated to the
principal loan balance. (Id. at ¶¶ 47, 73, 98; 135.) Ms. Martinson in particular alleges that
Caliber charged her various fees in violation of Maryland law, including property inspection
fees in violation of Md. Code Ann., Com. Law § 12-121(b) and foreclosure costs and fees in
violation of a court order issued by the Circuit Court for Carroll County, Maryland. (Id. at ¶
58; 68.) Ultimately, the Named Plaintiffs either refinanced their loan or made payments under
unfavorable “interest-only” modification agreements. (Id. at ¶¶ 49-51; 59-70; 93-94.)
II.
Procedural Background.
Plaintiffs commenced this putative class action lawsuit in the Circuit Court for
Montgomery County, Maryland on April 12, 2018. On May 18, 2018, Defendants removed
the case to this Court,1 citing 28 U.S.C. §§ 1331, 1332, 1367, 1441, 1446, 1453 and the Class
Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332(d). In their Original Class Action
Complaint (ECF No. 2), Plaintiffs alleged that LSF9 had unlawfully extracted profits from
mortgage borrowers without obtaining a license to pursue debt collection activities as required
under the Maryland Collection Agency Licensing Act (“MCALA”), Md. Code Ann., Bus. Reg.
§ 7-301, et seq. (See, e.g., Compl. ¶¶ 111, 114.) On June 6, 2018, this Court stayed this case
pending the resolution of a consolidated appeal of four Maryland Circuit Court cases before
the Court of Appeals of Maryland, Blackstone, et al. v. Sharma, et al.; Shanahan, et al. v. Marvastian,
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On May 18, 2018, Defendants filed a Joint Motion (ECF No. 12) requesting transfer of this case to the
undersigned because two related cases were pending before the undersigned: Altenburg v. Caliber Home Loans,
Inc., et al., RDB-16-3374; and Knopp v. O’Sullivan, et al., RDB-17-3806. On May 23, 2018, this Court granted the
Motion and the case was transferred from the Honorable Paul W. Grimm to the undersigned. (ECF No. 20.)
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et al., Case No. 40, Sept. Term, 2017; O’Sullivan, et al. v. Altenburg, et al., Case No. 45, Sept.
Term, 2017; Goldberg, et al. v. Neviaser, et al., Case No. 47, Sept. Term, 2017.
On August 2, 2018, the Maryland Court of Appeals issued its ruling in the consolidated
appeal and held that a foreign statutory trust, such as LSF9, is not required to obtain a license
as a collection agency under MCALA.2 See Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188
(2018). Following the Blackstone decision, this Court lifted the Stay; dismissed with prejudice
Plaintiffs’ declaratory judgment claim (Count I); dismissed without prejudice Plaintiffs’ unjust
enrichment claims (Counts II and III); clarified that Plaintiffs’ inspection fee claim under Md.
Com. Law § 12-121(a)(1)(ii) (Count IV) remained pending; permitted Plaintiffs to file a Motion
for Leave to File an Amended Complaint; and dismissed with prejudice all claims asserted
against a third Defendant, Select Portfolio Servicing, Inc. (Letter Order, ECF No. 34.)
On November 9, 2018, Plaintiffs filed a Motion for Leave to File an Amended
Complaint (ECF No. 35.) The proposed Amended Complaint (ECF No. 35-3) makes
sweeping changes to the Original Complaint. In light of the Blackstone decision, Plaintiffs
withdraw their allegation that Defendants violated MCALA, and now asserts that Defendant
LSF9 violated the Maryland Mortgage Lender Law (“MMLL”), Md. Code, Fin. Inst. § 11-501,
et seq. by operating as an unlicensed mortgage lender. (See, e.g., Am. Compl. ¶¶ 2-3, 5-12.) The
Amended Complaint also adds new factual allegations to support its inspection fee claim
(Compl. ¶¶ 13-19, 54-76), and introduces a new claim pursuant to the Maryland Consumer
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This ruling deviated from decisions of this Court, which held that foreign statutory trusts must
obtain an MCALA license before pursuing a foreclosure action. See Bradshaw v. Hilco Receivables, LLC, 765 F.
Supp. 2d 719, 726-27 (D. Md. 2011); Ademiluyi v. PennyMac Mortg. Inv. Tr. Holdings I, LLC, 929 F. Supp. 2d
502, 523 (D. Md. 2013); Altenburg v. Caliber Home Loans, Inc., RDB-16-3374, 2017 WL 2733803, at *6 (D. Md.
June 26, 2017).
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Protection Act, Com. Law § 13-101, et seq. and the Maryland Consumer Debt Collection Act,
Com. Law § 14-201, et seq. The Amended Complaint now seeks to certify two classes (as
opposed to three classes sought in the Original Complaint) comprised of consumers who
allegedly suffered harm because of Defendants’ practices: the “Caliber Class” and the
“Inspection Fee Class.” (Am. Compl. ¶ 1.)
In sum, the Amended Complaint asserts the following three counts: an unjust
enrichment claim on behalf of the Named Plaintiffs and the Caliber Class against LSF9 and
Caliber (Count I); a claim arising from alleged violations of the Maryland Consumer Debt
Collection Act (“MCDCA”), Md. Code, Com. Law § 14-201, et seq. and the Maryland
Consumer Protection Act (“MCPA”), Md. Code, Com. Law § 13-101, et seq., brought by the
Named Plaintiffs and the Caliber Class against all Defendants (Count II); and an inspection
fee claim based on violations of Md. Code, Com. Law § 12-121(a)(1)(ii) on behalf of Ms.
Martinson and the Inspection Class against LSF9 and Caliber (Count III). In a single filing,
Defendants oppose the Amendment and seeks dismissal of all of Plaintiffs’ claims with
prejudice. (Defs.’ Brief in Opposition, ECF No. 36.)
STANDARD OF REVIEW
I.
Motion for Leave to File an Amended Complaint.
Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to file an amended
complaint “shall be freely given when justice so requires.” This “liberal rule” reinforces the
“federal policy in favor of resolving cases on their merits instead of disposing them on
technicalities.” Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006). As noted by the United
States Court of Appeals for the Fourth Circuit, Rule 15(a) ensures that the “plaintiff [is] given
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every opportunity to cure a formal defect in his pleading.” Ostrzenski v. Seigel, 177 F.3d 245,
252–53 (4th Cir.1999) (quoting 5A Charles Allen Wright & Arthur R. Miller, Federal Practice
& Procedure § 1357 (2d ed.1990)).
The “liberal rule” of Rule 15(a) is not absolute. A court may deny leave to file an
amended complaint when the amendment “would be prejudicial to the opposing party, there
has been bad faith on the part of the moving party, or the amendment would be futile.” Johnson
v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir.1986) (citing Foman v. Davis, 371 U.S. 178, 182
(1962)). An amendment is futile if its claims cannot survive a motion to dismiss. Perkins v.
United States, 55 F.3d 910, 917 (4th Cir. 1995). Prejudice is analyzed with reference to the
“nature of the amendment and its timing,” as the “further the case progresse[s] before
judgment [is] entered, the more likely it is that the amendment will prejudice the defendant or
that a court will find bad faith on the plaintiff’s part.” Laber, 438 F.3d at 427.
II.
Motion to Dismiss for Failure to State a Claim.
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain
a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P 8(a)(2). Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the dismissal
of a complaint if it fails to state a claim upon which relief can be granted. The purpose of
Rule 12(b)(6) is “to test the sufficiency of a complaint and not to resolve contests surrounding
the facts, the merits of a claim, or the applicability of defenses.” Presley v. City of Charlottesville,
464 F.3d 480, 483 (4th Cir. 2006).
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The Supreme Court’s opinions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and
Ashcroft v. Iqbal, 556 U.S. 662 (2009), “require that complaints in civil actions be alleged with
greater specificity than previously was required.” Walters v. McMahen, 684 F.3d 435, 439 (4th
Cir. 2012) (citation omitted). In Twombly, the Supreme Court articulated “[t]wo working
principles” that courts must employ when ruling on Rule 12(b)(6) motions to dismiss. Iqbal,
556 U.S. at 678. First, while a Court must accept as true all the factual allegations contained
in the complaint, legal conclusions drawn from those facts are not afforded such deference.
Id. (stating that “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice” to plead a claim). Second, a Complaint must be
dismissed if it does not allege a “plausible” claim for relief. Id. at 678-79 (“A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct allege.”).
ANALYSIS
Plaintiffs seek to amend their Complaint and bring it within the ambit of the Maryland
Court of Appeals’ decision in Blackstone. This effort fails. Defendants petition this Court to
reject Plaintiffs’ proposed Amended Complaint and move this Court to dismiss Plaintiffs’
claims with prejudice. Plaintiffs’ Motion for Leave to File an Amended Complaint (ECF No.
35) is DENIED. The Amended Complaint is futile because it fails to state a claim under
Counts I, II, and III in light of the Blackstone decision. Accordingly, the Original Complaint
remains operative. The only remaining claim in the Original Complaint is the Plaintiffs’
inspection fee claim (Count IV), which fails to state a cause of action. Accordingly, Plaintiffs’
claims are DISMISSED WITH PREJUDICE.
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I.
Plaintiffs Have Failed to State a Claim under Counts I and II.
Counts I and II of the proposed Amended Complaint are premised on Plaintiffs’
allegation that LSF9 did not have the appropriate license under Maryland law. Plaintiffs allege
that the Maryland Mortgage Lender Law (“MMLL”) required LSF9 to obtain a license to
service mortgage loans and that it did not acquire this license. Plaintiffs’ legal theory is that
Caliber and LSF9 are liable for the common law tort of unjust enrichment (Count I) and
violations of both the Maryland Consumer Debt Collection Article (“MCDCA”) and the
Maryland Consumer Protection Act (“MCPA”) (Count II) because Caliber helped LSF9
extract profits from the Named Plaintiffs and the putative class members without the license
required by the MMLL.
The parties disagree over whether LSF9, a foreign statutory trust which holds title to
defaulted mortgage loans initiated by other parties and which relies on a third-party debt
collector to obtain profits from said loans, constitutes a “mortgage lender” under the MMLL.
Plaintiffs assert that LSF9 is a mortgage lender required to obtain a license under the MMLL;
Defendants argue that it is not. All parties maintain that the plain text of the statute, as well
as the relevant legislative history, supports their respective positions. Additionally, both sides
seek to draw support from the Blackstone decision.
To resolve this question of Maryland law, this Court applies the jurisprudence of
Maryland’s highest court, the Maryland Court of Appeals.3 Private Mortg. Inv. Servs., Inc. v. Hotel
& Club Assocs., Inc., 296 F.3d 308, 312 (4th Cir. 2002). In this case, the Maryland Court of
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Jurisdiction over this case is based on complete diversity under 28 U.S.C. § 1332 as well as minimal
diversity under the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332(d).
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Appeals has not decisively settled the issue. Consequently, this Court must “predict how that
court would rule if presented with [it.]” Id. Maryland principles of statutory interpretation
will necessarily guide this Court’s analysis. See Antonio v. SSA Sec., Inc., 749 F.3d 227, 234-38
(4th Cir. 2014) (interpreting the scope of a Maryland statute based on Maryland principles of
statutory construction).
A.
Judicial Estoppel Does Not Bar Defendants’ Arguments.
Before reaching the merits of their proposed new claims, Plaintiffs first argue that
judicial estoppel bars Defendants from contesting that LSF9 must be licensed as a mortgage
lender. (ECF No. 35-1, at 15.) Plaintiffs baldly claim that the petitioners in Blackstone,
represented by the same counsel in this case, asserted that LSF9 was exempt from MCALA
because of its status as a mortgage lender. Therefore, Plaintiffs argue, LSF9 must concede that
it is a mortgage lender under the MMLL. “Judicial estoppel precludes a party from adopting
a position that is inconsistent with a stance taken in prior litigation.” Lowery v. Stovall, 92 F.3d
219, 223 (4th Cir. 1996).
Only conflicting factual positions, as opposed to those of legal
theory, trigger judicial estoppel. Zinkand v. Brown, 478 F.3d 634, 638 (4th Cir. 2007).
In this case, the doctrine does not limit Defendants’ arguments because there is no
indication that Defendants took a contrary factual position before the Maryland Court of
Appeals. Plaintiffs do not cite to a single representation made by the Defendants in prior
cases which contradict the Defendants’ arguments before this Court. As explained infra, the
Blackstone Court accepted arguments that MCALA was designed to regulate debt collectors, as
opposed to other mortgage industry actors. To the extent that Petitioners suggested in prior
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proceedings that LSF9 fell within the category of mortgage industry actors unregulated by
MCALA, such representations do not foreclose its arguments here.
B.
Blackstone Did Not Hold that Foreign Statutory Trusts Must Obtain a
License Under the Maryland Mortgage Lender Law.
Plaintiffs argue that the Maryland Court of Appeals’ decision in Blackstone “specifically
supports” its theory that “LSF9 is required to be licensed as a mortgage lender pursuant to the
MMLL.” (ECF No. 35-1 at 8.) Although the Blackstone Opinion referenced the Maryland
Mortgage Lender Law only once, Plaintiffs boldly conclude that “Blackstone . . . recognized that
the MMLL governed the activities of entities who acquire mortgage loans such as [LSF9.]”
(Id.) They argue that Blackstone’s “basic premise” is that “mortgage players like LSF9 are not
required to register as collection agencies because they are already regulated.” (Id.) Blackstone,
however, drew no such conclusions.
In Blackstone, the Maryland Court of Appeals considered only the “limited legal issue”
of whether “the General Assembly intended a foreign statutory trust, as owner of a delinquent
mortgage loan, to obtain a license as a collection agency under [the Maryland Collection
Agency Licensing Act] before substitute trustees instituted a foreclosure action against a
homeowner who defaulted on his or her mortgage.” 461 Md. at 96, 191 A.3d 1188. The Court
concluded that they did not. Over the course of its Opinion, the Court of Appeals did not
once address the scope of the Maryland Mortgage Lender Law and certainly did not conclude
that the statute required LSF9 to obtain a license.
To determine the proper scope of Maryland Collection Agency Licensing Act, the
Court considered legal activity related to a 2007 department bill (House Bill 1324) which
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revised the definition of the term “collection agencies” under MCALA.
During this
discussion, the Blackstone opinion cited the Maryland Mortgage Lender Law a single time. The
Court recounted that, as a part of broader efforts to curb a looming foreclosure crisis, thenGovernor Martin J. O’Malley established the Homeownership Preservation Task Force (the
“Task Force”) to examine current Maryland laws governing the mortgage industry and the
foreclosure process. Id. at 136, 191 A.3d 1188. The Task Force ultimately produced a report
which analyzed the current state of the law and made certain recommendations. The Report
did not mention MCALA or collection agencies. Id. at 139, 191 A.3d 1188. Instead, it noted
that “mortgage brokers, mortgage lenders, and mortgage servicers” must be licensed under
the Maryland Mortgage Lender Law. Id. The Report also recommended proposed
amendments to the Maryland Rules governing the foreclosure process. Id. Pursuant to the
Task Force’s recommendations, the Maryland General Assembly passed comprehensive
mortgage foreclosure law reform in subsequent legislative sessions, including 2009 Maryland
Laws Ch. 4, which altered the definition of “mortgage lender” in the MMLL. Id. at 140, 191
A.3d 1188 (citing 2008 Md. Laws, ch. 1; 2008 Md. Laws, ch. 2; 2008 Md. Laws, ch. 3; 2008
Md. Laws, ch. 4; 2008 Md. Laws, ch. 5; 2008 Md. Laws, ch. 6; 2008 Md. Laws ch. 7; 2008 Md.
Laws, ch. 8; 2009 Md. Laws; ch. 4; 2009 Md. Laws, ch. 615; 2010 Md. Laws, ch. 485; 2010 Md.
Laws, ch. 323).
Examining this legislative history, the Court of Appeals concluded that the General
Assembly “consciously separated the consumer debt collection agency industry under
MCALA from the mortgage industry.” Blackstone, 461 Md. at 140, 191 A.3d 1188.
With
Maryland Collection Agency License Act and the legislation that followed the Task Force
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Report, the Maryland General Assembly resolved to achieve two separate goals: MCALA was
designed to “regulate and license certain collection agencies,” while other reforms, including
alterations to the MMLL, were designed “to protect homeowners by adding certain
requirements to the foreclosure process and heavier regulation of the mortgage industry
actors.” Id. at 141. The purpose of these laws informed the proper interpretation of their
scope. The Court of Appeals determined that MCALA’s definition of “collection agencies”
did not embrace “passive debt purchasers” like LSF9 based in part on MCALA’s goal of
regulating collection agencies as opposed to mortgage industry actors. Id. at 120 n.17, 140-41,
191 A.3d 1188.
The Blackstone Opinion’s discussion of the legal landscape at the time of amendments
to the Maryland Collection Agency Licensing Act only served to illustrate that the Maryland
General Assembly was not concerned with foreign statutory trusts when it passed the 2007
department bill altering MCALA. Blackstone’s broad conclusion—that the Maryland General
Assembly passed the departmental bill to regulate collection agencies but passed other laws to
regulate various mortgage industry actors—does not support the much narrower proposition
that foreign statutory trusts like LSF9 are “mortgage lenders” under the Maryland Mortgage
Lender Law. The mere fact that Maryland General Assembly sought to regulate mortgage
industry actors separate and apart from collection agencies does not counsel any specific
conclusions with respect to the scope of the MMLL. Blackstone did not hold, either expressly
or by necessary implication, that the MMLL requires foreign statutory trusts to obtain a license
as a mortgage lender.
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C.
Foreign Statutory Trusts are not “Mortgage Lenders” under the MMLL.
The MMLL provides that “[a] person may not act as a mortgage lender unless the
person” has a license or is exempt under the statute. Md. Code Ann., Fin. Inst. § 11-504. In
2009, the Maryland General Assembly amended the definition of the term “mortgage lender.”
2009 Md. Laws Ch. 4. The current version of the statute defines the term to include “any
person who: (i) is a mortgage broker; (ii) makes a mortgage loan to any person; or (iii) is a
mortgage servicer.” Fin. Inst. § 11-501(j)(i). The term “mortgage servicer” is defined as
follows:
(n) “Mortgage servicer” means any person who:
(1) Engages in whole or in part in the business of servicing mortgage loans for
others; or
(2) Collects or otherwise receives payments on mortgage loans directly from
borrowers for distribution to any other person.
Fin. Inst. § 11-501(n).
Plaintiffs argue that LSF9 “engages in whole or in part in the business of servicing
mortgage loans for others” and therefore meets the first of two statutory definitions of the
term “mortgage servicer” in the MMLL. (ECF No. 35-1, at 7 (quoting Fin. Inst. § 11501(n)(1).)
Plaintiffs reach this conclusion by reference to Blackstone and a unique
interpretation of § 11-501(n). First, Plaintiffs note that the Blackstone Court described foreign
statutory trusts in the mortgage industry as “a pool of loans that will eventually be sold off to
others.” Blackstone, 461 Md. at 138, 191 A.3d 1188. Next, Plaintiffs compare the two statutory
definitions of a “mortgage servicer” as it appears in the MMLL and conclude that the act of
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“servicing mortgage loans for others,” see Fin. Inst. § 11-501(n)(1), encompasses a broader
range of activity than merely “collect[ing] or otherwise receiv[ing] payments on mortgage loans
directly from borrowers for distribution to any other person,” see Fin. Inst. § 11-501(n)(2).
To conclude otherwise, Plaintiffs argue, would violate a classic canon of statutory construction
by rendering § 11-501(n)(1) meaningless. Finally, Plaintiffs make an ambitious logical leap:
they assert that a foreign statutory trust’s mere existence as a “pool of loans that will eventually
be sold off to others,” as Blackstone put it, constitutes engaging “in whole or in part in the
business of servicing mortgage loans for others.” Fin. Inst. § 11-501(n)(1).
To determine the proper interpretation of § 11-501(n), this Court follows Maryland
principles of statutory interpretation. See Antonio, 749 F.3d at 234-38. The “cardinal rule” of
statutory interpretation under Maryland law is to “ascertain and effectuate the intent of the
General Assembly.” Hollingsworth v. Severstal Sparrows Point, LLC, 448 Md. 648, 655, 141 A.3d
90 (2016) (citing McClanahan v. Washington Cnty. Dep’t of Soc. Servs., 445 Md. 691, 701, 129 A.3d
293 (2015)).
The “plain meaning rule” is designed to accomplish this task. Under this rule,
courts must give the “ordinary and natural meaning to statutory language.” Id. The Court
must give effect to every word, and “avoid[] constructions that render any portion of the
language superfluous or redundant.” State v. Holton, 420 Md. 530, 541, 24 A.3d 678 (2011)
(quoting Gillespie v. State, 370 Md. 219, 222, 804 A.2d 426 (2002)).
Employing these canons of construction, it becomes clear that the definition of
“mortgage servicing” is not so broad as to encompass the mere act of holding title to defaulted
mortgage loans. The MMLL defines the term “mortgage servicer” in a somewhat circular
manner, setting forth that the term encompasses those who engage in the business of
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“servicing mortgage loans for others.” Fin. Inst. § 11-501(n)(1). The MMLL does not further
define the term “servicing mortgage loans,” but the phrase ordinarily refers to “the
administration of a mortgage loan, including the collection of payments, release of liens, and
payment of property insurance and taxes.” Mortgage Servicing, Black’s Law Dictionary (10th Ed.
2014). This understanding of the term “servicing mortgage loans” in § 11-501(n)(1) both
comports with the plain meaning of the term “mortgage servicing” and does not render § 11501(n)(2) superfluous. The definition in § 11-501(n)(1) encompasses a broad array of
mortgage servicing activities such as releasing liens and paying property insurance; the second
definition in § 11-501(n)(2) is constrained to the narrower task of “collect[ing] or otherwise
receiv[ing] payments on mortgage loans directly from borrowers for distribution to any other
person.”
Neither of these definitions cover LSF9 both as that entity was understood in Blackstone
or described in the Amended Complaint. Both of these sources indicate that LSF9 is a passive
entity that merely holds title to mortgage loans. As such, it does not engage in any of the
activities which potentially fall under the scope of “mortgage servicing.” The Blackstone Court
emphasized that foreign statutory trusts “are called ‘special purpose vehicles’ because they
simply hold the loans managed by the trustees and collected by the mortgage servicers.”
Blackstone, 461 Md. at 138, 191 A.3d 1188. The Court emphasized that trusts like LSF9 are
“exclusively a repository” for such loans, and that they lack “employees or offices.” Id. at 118,
138, 191 A.3d 1188. The proposed Amended Complaint confirms this. The Amended
Complaint alleges that LSF9 is a foreign statutory trust which collects title to loans. It does
not indicate that LSF9 has employees, officers, or any physical existence whatsoever. Plaintiffs
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focus almost exclusively on the collection activities of Caliber, which allegedly served as LSF9’s
“debt collector.” Although the Complaint occasionally alleges that “LSF9 and Caliber”
performed various activities or entered into various agreements, the surrounding allegations
strongly suggest that Caliber, not LSF9, performed all of these tasks.
Even a broad
construction of the term “mortgage servicing” does not encompass the entirely passive role
that LSF9 takes in the mortgage industry. Accordingly, LSF9 is not a “mortgage lender” under
the MMLL and was not required to obtain a license under the statute.
D.
Assignees of Mortgage Lenders are not Subject to the MMLL.
Plaintiffs further argue that LSF9 is subject to the MMLL in its role as an assignee to
mortgage lenders. Plaintiffs appear to suggest that, by virtue of assignment alone, assignees
acquire the same legal characteristics of the assignor and are bound by the same regulations.
(ECF No. 35-1, at 9.) Specifically, Plaintiffs proclaim that “[W]hen LSF9 acquires Maryland
mortgage loans like the Named Plaintiffs’ loans . . . and the loans of the putative class
members, it steps into the shoes of the maker of the loan and qualifies as a mortgage lender.”
(Id.) This argument is simply without merit. It is certainly true that assignees acquire “every
right which the assignor possessed under the mortgage at the time of the assignment.” Md.
Code Ann., Real Prop. § 2-103. Additionally, Maryland courts frequently describe assignees
as “standing in the shoes” of the assignor or use like imagery. Thompkins v. Mountaineer
Investments, LLC, 439 Md. 118, 139, 94 A.3d 61 (2014). Such metaphors do not suggest that
one who assumes a contract thereupon assumes the same entity status as the assignor, thereby
subjecting it to the same rules and regulations. Quite simply, one does not become a
“mortgage lender” merely by obtaining title to a mortgage loan.
17
The only modern case Plaintiffs cite in support of their assignment argument,
Thompkins v. Mountaineer Investments, LLC, does not suggest otherwise. In Thompkins, the
Maryland Court of Appeals recognized that, in some cases, the assignee may assume the
obligations and liabilities of the assignor. Thompkins, 439 Md. at 140, 94 A.3d 61. Ultimately,
however, the Court concluded that an assignee of a second mortgage loan is not presumed to
have assumed liabilities arising from the assignor’s violations of the Maryland Secondary
Mortgage Loan Law (“SMLL”). Id. at 140-41. Thompkins, therefore, does not suggest that
assignees become subject to the same regulations which their assignors must obey. Far from
it: Thompkins holds that assignees of second mortgages are not even subject to liability arising
from the assignor’s breach of Maryland law in connection with the creation of the mortgage.
The Maryland Mortgage Lender Law itself does not include assignees of mortgage
loans under its definition of “mortgage lender.” As previously indicated, this Court must look
to the plain language of the MMLL to determine whether its definition of “mortgage lender”
encompasses assignees of such lenders. In the course of its analysis, this Court must give
effect to every word of the statute. It may not supply words which the General Assembly was
capable of inserting but did not. Chicago Title Ins. Co. v. Mary B., 190 Md. App. 305, 317-18,
988 A.3d 1044 (Md. Ct. Spec. App. 2010). The plain language of § 11-501(j) does not so
much as mention assignees, only mortgage brokers, entities which make mortgage loans, and
mortgage servicers. Elsewhere in the Maryland code, the General Assembly has demonstrated
its ability to govern assignees explicitly. Cf. Md. Code, Com. Law § 12-109.2(a)(3) (“‘Lender’”
includes a lender and assignee of a lender”); Real Prop. § 14-601(c) (“‘Holder’” means the
18
mortgagee, trustee, beneficiary, nominee, or assignee of record.”). In this case, it chose not
to.
Plaintiffs’ flip the rules of statutory construction on their head: they argue that, if the
Maryland legislature intended to exclude statutory trusts from the definition of the MMLL, it
should have included trusts within its list of entities exempted from the definition. (ECF No.
35-1, at 19 (citing Fin. Inst. § 11-501(j)(2).) As Defendants note, this interpretation would
“automatically include[] any entity within the definition of ‘mortgage lender’ that is not
specifically exempt.” (ECF No. 36, at 13.) Norms of statutory interpretation do not require
legislative bodies to explicitly indicate which entities it seeks to exclude from a general
definition. While exclusions and exemptions may help to illuminate the scope of a general
definition, it is the definition itself that governs, not the exceptions. In this case, the definition
of “mortgage lender” does not include assignees. The analysis starts and ends with this
observation: the MMLL does not require assignees of mortgage loans to obtain a license.
This Court notes that Plaintiffs seek support for their position from actions of the
Maryland Commissioner of Financial Regulation, who in December 2014 issued a Cease and
Desist Order which analyzed the Maryland Mortgage Lender Law. To define the scope of the
term “mortgage lender,” the Commissioner reached beyond the definition of “mortgage
lender” and observed the MMLL’s definition of “mortgage lending business.” Id. (citing Fin.
Inst. § 11-501(k)(2)). This term encompasses “the making or procuring of mortgage loans
secured by a dwelling or residential real estate located outside of Maryland.” Fin. Inst. § 11501(k)(2). Based on this observation, the Commissioner concluded that “[U]nless a person
satisfies an exemption specified by Fin. Inst. § 11-501[(j)](2) . . . a person engaged in the
19
acquisition of all or any portion of a mortgage loan is a mortgage lender and subject to
licensing.” National Payment Relief, LLC, 2014 WL 7409911, at *3 (Md. Comm. Fin. Reg. 2014).
The Commissioner’s conclusion does not dictate the outcome in this case. The Cease
and Desist Order did not concern foreign statutory trusts, rendering this persuasive authority
somewhat less relevant to the present issue. Moreover, this Court need not look beyond the
statutory definition of “mortgage lender” to define the scope of that term. The MMLL plainly
states that “mortgage lenders” must obtain a license, and the statute expressly defines the term
“mortgage lender.” As explained supra, that definition does not encompass passive statutory
trusts like LSF9 which merely hold title to loans. The term “mortgage lender” as defined in
the statute is plain and unambiguous; it does not require reference to the unrelated term
“mortgage lending business” § 11-501(k)(2).
LSF9 is not required to obtain a license under the MMLL because it is not a mortgage
lender, as that term is defined by the statute. Plaintiffs have failed to state a claim under
Counts I and II because these Counts are premised on their faulty legal theory that LSF9
violated the MMLL by failing to acquire the proper licensing.4
II.
Plaintiffs’ Have Failed to State a Claim Under Count III.
In Count III of the proposed Amended Complaint, Plaintiffs claim that Caliber and
LSF9 unlawfully collected inspection fees. Maryland Law provides that “a lender may not
impose a lender’s inspection fee in connection with a loan secured by residential real property.”
Com. Law § 12-121(b). Certain exceptions apply. A lender may assess an inspection fee “if
4
This Court need not reach potential alternative grounds for dismissal, including that Plaintiffs did not
plead the elements of unjust enrichment and did not make proper damages allegations.
20
the inspection is needed to ascertain completion of: (1) Construction of a new home; or (2)
Repairs, alterations, or other work required by the lender.” Id. § 12-121(c). Defendants argue
that Plaintiffs fail to state a claim under this provision because (1) LSF9 is not a “lender” under
the inspection fee statute; and (2) the proposed Second Amended Complaint does not allege
that the inspection fees were charged in violation of Maryland law. This Court finds these
arguments persuasive.5
A. LSF9 is not Subject to the Inspection Fee Statute.
Defendants correctly maintain that the inspection fee statute does not regulate foreign
statutory trusts. A “lender” under the statute is defined as “a person who makes a loan under
this subtitle.” Com. Law. § 12-101(f). The proposed Amended Complaint does not allege
that LSF9 makes loans at all. Accordingly, LSF9 is not the subject of the statute’s prohibition.
Plaintiffs assert that LSF9 nevertheless constitutes a “lender” under the statute because
it has assumed mortgage loans and “stepped into the shoes” of the assignors. To support this
argument, Plaintiffs once again cite Thompkins, supra, and other cases which discuss the general
proposition that assignees obtain the rights and benefits enjoyed by assignors. For the same
reason that these cases do not support assignee liability under the MMLL, they also do not
support assignee liability under the inspection fee statute. Assignees do not adopt the entity
status of assignors and are not presumed to inherit their liabilities. The inspection fee statute
does not otherwise include assignees within its ambit.
5
Defendants additionally argue that the Second Amended Complaint fails to allege that Defendants
charged inspection fees. As this Court has previously indicated, LSF9 is a passive entity which did not engage
in any business activities and consequently cannot be said to have “charged” any fees.
21
Plaintiffs rely on Taylor v. Friedman, 344 Md. 572, 584, 589 A.2d 59 (1997) to support
their argument that assignees may be held liable under the statute. In Taylor, the Maryland
Court of Appeals considered whether the Maryland Court of Special Appeals erred when it
concluded that § 12-121’s prohibition against inspection fees applied only to closing costs. In
the course of its discussion, the Court used the collective term “Lender” to describe the
Respondents, various entities which had held the note secured by the deed of trust on the
residence at issue in the case. This term embraced the holder of the note secured by the deed
of trust, Margaretten & Company, Inc. (“Margaretten”); the substitute trustees who were
designated during foreclosure proceedings; and BA Mortgage, a Division of Bank of America,
F.S.B., which acquired the note from Margaretten. Ultimately, the Court of Appeals concluded
that § 12-121 was not limited to closing costs, but rather is a “continuing prohibition
throughout the life of the loan.” Id. at 582, 689 A.2d 59.
Taylor does not stand for the proposition that assignees may be held liable under § 12101(f). Although the Court described the various note holders in the case as “Lender” and
appeared to subject each Respondent to the same analysis, it did not hold that each individual
“lender” in the case could be held liable. Put simply, the Court never addressed whether the
inspection fee statute applied to foreign statutory trusts like LSF9 or assignees. Neither Taylor
nor any other authority holds that LSF9 is subject to Maryland law’s prohibition against
inspection fees. Accordingly, Plaintiffs have failed to state a claim against LSF9 under Count
III.
22
B. The Complaint Fails to Allege that the Charged Inspection Fees were Unlawful.
As previously indicated, Com. Law. § 12-121 is not a blanket ban against inspection
fees. Rather, such fees may be assessed “if the inspection is needed to ascertain completion
of: (1) Construction of a new home; or (2) Repairs, alterations, or other work required by the
lender.” Id. § 12-121(c). The proposed Second Amended Complaint merely alleges that Ms.
Martinson was charged inspection fees before LSF9 acquired the loans, and that Caliber folded
these outstanding fee amounts into the amounts it claimed were due and owing. The mere
fact that these fees were charged and subsequently sought to be collected does not suggest
that any violation of law has occurred. For this reason, Plaintiffs have failed to state a claim
under Count III of the proposed Second Amended Complaint.
III.
Plaintiffs’ Complaint is Dismissed with Prejudice.
Defendants petition this Court to both deny Plaintiffs’ Motion for Leave to File an
Amended Complaint and dismiss this case with prejudice. (ECF No. 36 at 32.) “The
determination whether to dismiss with or without prejudice under Rule 12(b)(6) is within the
discretion of the district court.” Weigel v. Maryland, 950 F. Supp. 2d 811, 825 (D. Md. 2013)
(citing 180s, Inc. v. Gordini U.S.A., Inc., 602 F. Supp. 2d 635, 638-39 (D. Md. 2009)). While a
plaintiff “should generally be given a chance to amend his complaint . . . before the action is
dismissed with prejudice,” Weigel, 950 F. Supp. 2d at 825-26 (quoting FinServ Cas. Corp. v.
Settlement Funding, LLC, 724 F. Supp. 2d 662, 674-76 (S.D. Tex. 2010)), dismissal with prejudice
is appropriate where amendment would be futile. Cozzarelli v. Inspire Pharmaceuticals, Inc., 549
F.3d 618, 630 (4th Cir. 2008).
23
This Court finds that Plaintiffs’ proposed Amended Complaint is futile and may not
be filed. Accordingly, the Original Complaint (ECF No. 2) governs this case. In a prior
Letter Order (ECF No. 34), this Court dismissed Plaintiffs’ declaratory judgment claim (Count
I) with prejudice; dismissed Plaintiffs’ unjust enrichment claims (Counts II and III) without
prejudice; noted that Plaintiffs’ inspection fee claims under Md. Com. Law § 12-121(a)(1)(ii)
(Count IV) remained pending; and permitted Plaintiffs to file a Motion for Leave to File an
Amended Complaint. Plaintiffs’ unjust enrichment claims are now DISMISSED WITH
PREJUDICE because Plaintiffs have been granted an opportunity to amend those claims, and
those amendments are futile. Moreover, Plaintiffs have now twice grounded their unjust
enrichment claims in a faulty legal theory (i.e., that LSF9 was required to obtain a license under
either the Maryland Collection Agency Licensing Act or the Maryland Mortgage Lender Law)
and no future amendment can state a claim on these bases. Plaintiffs’ inspection fee claim
(Count IV) is also DISMISSED WITH PREJUDICE. This claim fails for the same reasons
that Plaintiffs’ amended inspection fee claim (Count III of the proposed Amended Complaint)
fails. No claims remain. This case is hereby DISMISSED WITH PREJUDICE.6
CONCLUSION
For the reasons set forth above, Plaintiffs’ Motion for Leave to File Amended
Complaint (ECF No. 35) is DENIED. Plaintiffs have failed to state a claim under both the
6
Plaintiffs briefly argue that they do not require leave to file an Amended Complaint because Defendants
have not yet filed a responsive pleading. See Fed. R. Civ. P. 15(a)(1)(B). However, the result reached here
would be appropriate even if this Court were to construe Plaintiffs’ proposed amendment as the operative
Complaint. Defendants have moved to dismiss the amendment, and dismissal is warranted.
24
Original and Amended Complaints.
Accordingly, this case is DISMISSED WITH
PREJUDICE.
A separate Order follows.
Dated: September 25, 2019
_______/s/________________
Richard D. Bennett
United States District Judge
25
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