COSA Dissent Watch: Defining a “Collection Agency”

[Dissents in the Court of Special Appeals are, as we’ve noted here before, an infrequent thing — but quite useful. Many times, disagreement in the intermediate court portends consideration and resolution by the Court of Appeals, or highlights thorny issues that appellate practitioners can take up in future cases. In this new feature, the Blog tracks and analyzes split decisions at the Court of Special Appeals.]

By Chris Mincher

The case: Old Republic Ins. Co. v. Gordon, No. 1020 (Sept. Term 2014)

The question: Did the circuit court err in its construction of the phrase “collection agency” under BR § 7-101(c)?

The facts: Old Republic Insurance Company sold Countrywide Home Loans a “credit insurance policy,” pursuant to which Old Republic would pay for losses caused by defaults in loans held by Countrywide; in return, Countrywide would subrogate its rights of recovery to Old Republic. Countrywide submitted a claim for Nancy Gordon’s default on her approximately $70,000 loan, and Old Republic paid it. Old Republic then exercised its subrogation rights to pursue repayment.

The company filed suit in circuit court and moved for summary judgment. Ms. Gordon opposed the motion on the grounds that, under Maryland law, Old Republic was barred from bringing its claims because it was acting as a collection agency subject to the Maryland Collection Agency Licensing Act but wasn’t licensed to do so. The court agreed and granted summary judgment to Ms. Gordon.

The majority opinion (Graeff, joined by Kehoe): Pursuant to Md. Code, Bus. Reg. § 7-101(c)(1)(ii), a “collection agency” is a person (including an entity) that “engages directly or indirectly in the business of … collecting a consumer claim the person owns, if the claim was in default when the person acquired it.” The majority decided that the phrase “in the business of” was ambiguous and turned to the legislative history to see whether an insurance company exercising subrogation rights was intended to be treated as a collection agency. The majority concluded that the statute was only intended to apply to “debt purchasers” — meaning, people who purchased defaulted accounts at a discount. Because Old Republic wasn’t a debt purchaser, it wasn’t “in the business of” collecting consumer claims, and therefore wasn’t a collection agency.

The dissent (Nazarian): Judge Nazarian didn’t see any ambiguity in the phrase “in the business of … collecting a consumer claim” and believed Old Republic’s activities (that is, collecting  on defaulted debts for profit) fit the statutory requirements, regardless of whether the legislature had specifically considered the possibility that they could apply to an insurance company. Judge Nazarian also noted that the law applies to entities that merely “acquire” a consumer claim — not just those who, as the majority concluded, actually purchase it. For both credit insurers and debt purchasers, “the ability to collect unpaid debt from consumer debtors that originated elsewhere is a core element of their businesses,” and he would apply the Act to both.

Notes: The majority and dissent look at the question from two different ways. By focusing on the targeted business model — actually purchasing debt and then collecting it — the majority is reluctant to call an insurance company a “collection agency,” regardless of whether its conduct is similar and has the same effect. Judge Nazarian, on the other hand, cares much more about whether the activities themselves look like regulated collections work than he does about what kind of company is doing it. 

Judge Nazarian can generate his result from the statutory language itself, while, in order to adopt a wider view of the Act’s implications, the majority had to find ambiguity that would allow it to consult the legislative history. BR § 7-101(c) sets up two relevant questions: (1) whether Old Republic collects on consumer claims that it owns, and, if it does, (2) whether Old Republic can properly be said to be “in the business of” doing that. The majority decided that “in the business of” was uncertain because various jurisdictions have applied different tests as to how consistent and frequent an activity has to be for a party to be considered “in the business of” doing it.

By skipping directly to the second question, the majority presumably concedes the first, that is, that Old Republic collects on consumer claims that it owns. (There was no dispute that the claim at issue in the case was a “consumer claim.”) But the majority’s interpretation of “in the business of” — i.e., having previously purchased the debt at a discount — seems to actually pertain more to the meaning of the initial premise: Essentially, the majority’s reasoning changes “collecting a consumer claim the person owns” to “collecting a consumer claim the person purchased.” (This goes right to Judge Nazarian’s point that the provision also uses the broader “acquire” rather than “purchase.”) “[C]ollecting a consumer claim the person owns,” however, wasn’t the ambiguous phrase the majority said it needed legislative history to understand.

Further, neither opinion spends much thought on the use of the word “indirectly” — even if the majority is right that insurance companies generally weren’t intended to be considered “in the business of” collecting on consumer claims, might a credit insurer nonetheless “indirectly” be in that business once it enforces its subrogation rights?

Certiorari prospects: Pretty solid. The Court of Appeals generally likes to have the last word on legitimate disputes of statutory interpretation, particularly where, as here, the issue isn’t just limited to one case (it looks like, at the same time this litigation was developing, Old Republic ran into the same issue in another court) and the Court of Special Appeals opinion exempts an entire industry from a regulatory scheme. If Ms. Gordon wants the appellate courts to take another crack at this one, they probably will.

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One response to “COSA Dissent Watch: Defining a “Collection Agency””

  1. Robert Loskot says :

    Nazarian. The only issue is the common understanding of the statutory language. The legislative history is a nullity. If the General Assembly wanted to exclude subrogated insurance companies from the definition, it should have said so.

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