E-Alert Case Updates
Relaxed Evidentiary Threshold Will Force Unsophisticated, Self-Represented Defendant Debtors to Fight for Justice Against Institutional Plaintiff Debt Collectors in Small Claim Debt Buyer Trials
Bartlett v. Portfolio Recovery Associates, LLC and Townsend v. Midland Funding, LLC
Available at http://www.mdcourts.gov/opinions/coa/2014/64a13.pdf
In these consolidated small claims cases, a divided Maryland Court of Appeals explicated the interplay of amended MD. RULES 3-306 and 3-701 on assigned consumer debt cases. The court held that MD. RULE 3-306(d) applies to debt buyer plaintiffs requesting judgment on affidavit, regardless of the size of the claimed amount, thereby requiring production of certain documents that satisfy the business records exception to the hearsay rules; however, if a claim of $5,000 or less is contested and proceeds to trial, MD. RULE 3-701 relieves both parties of compliance with the Rules of Evidence. Effectively, this decision grants trial judges broad discretion in admitting and evaluating financial documents. Judge Greene authored the majority opinion, in which Judges Barbera, Harrell, and Battaglia joined. Judge Watts wrote a separate concurrence, while Judge MacDonald, joined by Judge Adkins, submitted an opinion concurring in part and dissenting in part.
By way of factual background, Plaintiff debt collectors bought the rights to pursue Defendant debtors’ unpaid consumer credit debt from Chase Bank, the original issuer of each Defendants’ individual delinquent credit card account. Per RULE 3-306, Portfolio Recovery Associates (PRA) and Midland Funding brought separate suits in the Baltimore City District Court seeking judgments on affidavit for collection of debt owed plus interest from their debtors, Rainford G. Bartlett and James Townsend, respectively. In both cases, Defendants filed timely Notices of Intention to Defend under RULE 3-701. Following trials on the merits, the court entered a judgment against Bartlett of $2,897.88 and a judgment against Townsend of $1,905.21. The Baltimore City Circuit Court affirmed both awards.
The archetypal debt buyer case arises from consumer credit accounts, be it credit card or any unsecured debt, on which the debtor accrues debt, yet fails to make payments. In many cases, the amount owed is relatively small and unlikely to be paid without collection endeavors. Realistically, the original creditor will not pursue these seemingly uncollectible debts, and will instead charge off such debts to debt buyers. These charge offs are often sold in bulk for nominal fees to companies who wish to go after these smaller-scale debtors for the full amount owed. The noteworthiness does not lie in the facts or procedural histories of Bartlett and Townsend, as these matters are representative of common debt buyer cases, but rather in the court’s application of varying standards of pleading and evidentiary requirements in the pre-trial and trial stages of resolving these everyday claims.
Pursuant to RULE 3-306, a party seeking a monetary award in a consumer debt case, regardless of the size of award, may file for judgment on affidavit concurrently with the complaint after providing supporting documentation showing plaintiff’s entitlement to judgment as a matter of law. Prior to raising the bar in 2011, 99% of debt buyer cases concluded with plaintiff debt collectors obtaining favorable judgment without a trial per Rule 3-306. Bartlett, No. 64 at *4 (citing Peter A. Holland, Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers, 26 LOY. CONSUMER L. REV. 179, 187 (2014)). Studies also showed that plaintiff debt buyers often received improper uncontested judgments based on insufficient evidence. Bartlett, No. 64 at *4 (citing U.S. Fed. Trade Comm’n, Repairing a Broken System: Protecting Consumers in Litigation and Arbitration (2010)). Consequently, concern over the frequency and ease by which plaintiff debt collectors used scant ex parte evidence to obtain uncontested pre-trial judgments cultivated nationwide debt collection reform.
The legislature amended RULE 3-306 to include subsection (d), a provision designed to intensify the burden on plaintiff debt collectors demanding judgment on affidavit by requiring them to support their case with proof that satisfies the business records exception to the hearsay Rules of Evidence. As amended, RULE 3-306(d) requires a “certified or properly authenticated photocopy or original” record or documentation to prove the existence and ownership of a debt. This heightened pleading requirement raises the evidentiary threshold that a plaintiff must overcome before obtaining judgment on affidavit.
RULE 3-701 applies to a small claims trial on the merits and is triggered when a defendant files a timely Notice of Intent to Defend. RULE 3-701(f) demands that the court “conduct the trial of a small claims action in an informal manner. [Rules of Evidence] do[es] not apply to proceedings under this Rule.” Once in trial, neither party is bound to produce evidence that conforms to the Rules; more specifically, hearsay evidence is admitted in small claim debt buyer trials, allowing plaintiffs to circumvent the business records exception and cross-examination. This informality requirement aligns with the underlying purpose of a small claims proceeding: making these actions accessible and understandable to the unrepresented public. To require an indebted, unsophisticated defendant to be familiar enough with the Rules of Evidence to seek a fair verdict against a corporate plaintiff would undermine the ability of a pro se plaintiff to participate in small claim proceedings, thereby leading to numerous unjust results. Thus, the admissibility of evidence in these proceedings rests in the broad discretion of the trial judge, who may informally evaluate the weight and reliability of evidence presented.
In his dissent, Judge McDonald expressed due process concerns based on the applicability of the heightened evidentiary threshold only in the pre-trial stage, fearing that failure to subject plaintiffs to authentication requirements and cross-examination of testimony at trial will effectively penalize debtors who invoke their statutory right to trial. Judge McDonald conceded that “[i]t is true that small claims trials … are to be conducted informally, but that does not mean ‘anything goes’—in particular, that a party that has the burden of proof can avoid having any of its evidence tested through cross-examination.” Judge Watts concurred in the judgment, but wrote separately to call upon the Maryland Judiciary’s Standing Committee on Rules of Practice and Procedure to examine whether the meager evidentiary requirements imposed on debt collectors at trial should be heightened in order to thwart due process concerns.
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