E-Alert Case Updates

Attempt to Void Final Judgment in Prior Debt Collection Case Barred by Principles of Res Judicata and Collateral Estoppel

Reza Mostofi v. Midland Funding, LLC, et al.
No. 1084 (Court of Special Appeals of Maryland, July 2, 2015)
by Caroline E. Willsey
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://mdcourts.gov/opinions/cosa/2015/1084s14.pdf

In Mostofi v. Midland Funding, LLC, et al., No. 1084, (Court of Special Appeals of Maryland, July 2, 2015), the Court of Special Appeals decided whether a subsequent lawsuit brought by Mr. Mostofi, which sought to challenge the final judgment in a prior debt collection case, was barred by principles of res judicata and collateral estoppel. For a full summary of the prior debt collection case, please see http://www.semmes.com/publications/cases/2013/03/mostofi-v-capital-one.asp. The Court of Special Appeals held that because a final judgment had been entered without an appeal from Mr. Mostofi, and because the instant case merely sought to relitigate claims and facts at issue in the prior debt collection case, Mr. Mostofi’s claims were barred and his Second Amended Complaint was dismissed properly.

Defendants in the instant case had brought previously a collection action against Mr. Mostofi in 2012 in the District Court of Maryland for Montgomery County, alleging that Mr. Mostofi owed $4,506.82 on a credit card account with Chase Bank, N.A. (“Chase”), and that Midland Funding, LLC (“Midland Funding”) had purchased the debt from Chase. In the 2012 collection case, Mr. Mostofi argued that Midland Funding did not have standing to bring a collection suit against him because Midland Funding was a debt-purchaser, not the original debt-collector. The District Court disagreed and entered a judgment for Midland Funding in the amount of $4,506.82 plus costs. This judgment was upheld on appeal to the Circuit Court for Montgomery County. Mr. Mostofi moved to set aside or vacate the Circuit Court’s judgment; however, the record did not indicate whether a ruling was made on that motion. Thus, there is no dispute that the judgment in the debt collection action became final.

Prior to filing his motion to set aside or vacate the judgment in the debt collection case, Mr. Mostofi filed a new lawsuit against Midland Funding, seeking to void the judgment in the 2012 collection case, on the grounds that Midland Funding did not have standing to sue him, and that Midland Funding had committed violations of the Fair Debt Collection Practices Act (“FDCPA”), the Maryland Consumer Debt Collection Act (“MCDCA”) and the Maryland Consumer Protection Act (“MCPA”). Midland Funding moved to dismiss, arguing that Mr. Mostofi’s claims were barred by res judicata and collateral estoppel. The Circuit Court for Montgomery dismissed Mr. Mostofi’s Second Amended Complaint on these grounds. Mr. Mostofi appealed the Circuit Court’s ruling to the Court of Special Appeals.

Res judicata and collateral estoppel, more descriptively known as claim preclusion and issue preclusion, bar relitigation of causes of action and relitigation of issues, respectively. These doctrines reflect the judicial policy that a party who is fairly defeated does not deserve a second “bite at the apple” against his opponent and the law of the case or stare decisis should prevail in subsequent stages of the case.

Mr. Mostofi argues that his claims are not barred by res judicata based on the case of Rowland v. Harrison, 320 Md. 223 (1990), in which a individual whose pet was injured by a veterinarian and subsequently refused to pay the veterinary bill, was allowed to bring a negligence claim against the veterinarian despite a previous collection action being brought against her by the veterinarian. The Court distinguished the instant case from Rowland, on the grounds that a subsequent counterclaim is precluded only where the claim would nullify the initial judgment or would impair rights established in the initial judgment. Because the subsequent negligence claim in Rowland was sufficiently unrelated to the prior collection action, there was no threat of nullification. The Court also rejected the argument that the prior collection judgment was void due to Midland Funding’s alleged lack of standing, saying that res judicata precludes attacks on jurisdictional grounds where the same standing allegations have previously been made.

The Court of Special Appeals held that res judicata did not bar Mr. Mostofi’s FDCPA and Maryland statutory claims, because these claims were not raised in the prior collection case, and because, if Mr. Mostofi prevailed on these claims, it would not nullify the judgment in the prior collection case per se.

The Court did rule, however, that Mr. Mostofi’s FDCPA and Maryland statutory claims were barred under the principle of collateral estoppel. The Court affirmed the following four-part test to determine whether issue preclusion would apply to previously litigated facts: (1) Was there a final judgment on the merits in the prior litigation? (2) Was the party against whom the plea is asserted a party or in privity with the party to the prior adjudication? (3) Was the issue decided in the prior litigation identical with the issue presented in the subsequent litigation? (4) Was the issue actually litigated essential to the judgment in the prior action? Applying this test, the Court determined that while Mr. Mostofi’s FDCPA and Maryland statutory claims were all asserted for the first time in the instant case, they were all predicated on allegations decided against him in the prior collection case.

Finally, the Court upheld the dismissal of an additional claim against the law firm that had represented Midland Funding in the prior collection action. Mr. Mostofi had alleged, as part of the basis for his FDCPA and Maryland statutory claims, that the firm had not conducted meaningful review of his file prior to the filing of the collection action. This allegation was based solely on the volume of collection actions filed by the firm. The Court rejected this allegation under Md. Rule 2-305, for failure to state a claim, holding that the volume of collection actions filed by a law firm is not conclusive of the question of meaningful attorney involvement.