Court of Appeals Ruling Eases Standards on Proving Debt Buyer Claims

Ronald Canter

The Maryland Court of Appeals Monday decided the companion cases of Bartlett v. Portfolio Recovery Associates, LLC and Townsend v. Midland Funding, LLC.  Each case, which made its way to Maryland’s highest court, began as a routine collection suit filed in the District Court of Maryland for Baltimore City by Maryland collection counsel on behalf of a debt buyer client.  The District Court’s small claim rules applied at trial because each claim was for less than $5,000.

The plaintiffs in each case were represented by Baltimore consumer attorney E. David Hoskins, Esquire who has filed a number of FDCPA suits against debt buyers in both state and federal courts.  At each trial, Mr. Hoskins argued that because Maryland amended its District Court rules in 2011 to require enhanced filing requirements for debt buyer suits, the evidence at trial was insufficient to meet the “personal knowledge” requirement embodied in Maryland’s new rules.

Counsel for the debt buyers in each case argued alternatively that the rules of evidence do not apply to small claims cases but even if the rules did apply, that the debt buyer’s evidence met the business records exception to the hearsay rule because the original issuer’s records were incorporated into the business records of the debt buyer/assignee.

The District Court Judges who heard the two cases, which were tried on separate dates, rejected the debtor’s arguments, relying on pre-existing Maryland court rules providing that the formal rules of evidence do not apply in a small claims action.  Both Mr. Bartlett and Mr. Townsend appealed the District Court judgments to the Circuit Court for Baltimore City.  Under established Maryland procedure, each Circuit Court judge conducted a trial de novo as to each suit.

In separate trials, counsel for the debtors again objected to the debt buyer’s evidence based on credit card billing statements created by the original issuer.  Both Circuit Court judges ruled in favor of the debt buyer.  The debtor’s counsel then filed separate petitions for Writ of Certiorari to the Maryland Court of Appeals which granted the requests for the purpose of deciding whether the amended filing rules relating to debt buyer’s claims in the State of Maryland required the application of the formal rules of evidence in a small claims case.

In a reported decision authored by Judge Clayton Greene, who began his judicial career as a District Court Judge, the Court held that once a small claim case is contested and proceeds to trial on the merits, a debt buyer, like any other small claims litigant, is not constrained by the formal rules of evidence and may rely on “hearsay” testimony to support its claim.  The Court rationalized that the historical purpose of small claims courts was to allow cases to be litigated inexpensively and efficiently and determined that the existing Maryland small claims rules, which preclude formal rules of evidence in a small claims trial, apply to all proceedings. The Court further held that the amended pleading rules adopted as to debt buyer claims do not impose additional proof requirements in a small claims trial.

Since many debt buyers suits are for $5000 or less in value, this decision benefits both third party debt purchasers and their collection counsel trying contested small claim cases in the State of Maryland.

NARCA submitted an Amicus Brief in the Bartlett case authored by Ronald S. Canter, Esquire, immediate past Chair of NARCA’s Amicus Brief Committee. The MD/DC Creditor’s Bar submitted an Amicus Brief in both Bartlett and Townsend authored by its Executive Committee member Scott Whiteman, Esquire.

Ronald Canter is the founding member of The Law Offices of Ronald S. Canter, LLC of Rockville, Maryland. Join Mr. Canter, Kim Phan of Ballard Spahr and Anita Tolani of Weinberg, Jacobs & Tolani at ARM-U (October 14-15 in Washington, DC) for a panel discussion of what the regulatory future looks like for debt collectors – including the huge role the CFPB will play – and how agencies can prepare for the future right now. This exclusive event will bring together senior compliance and operations officers, collection attorneys and HR/training experts, and allow them to learn from each other, discuss pitfalls and identify areas of improvement.