Default judgment bars suit over notice

Daily Record, The (Baltimore), Sep 30, 2003 by Alisa Bralove

A federal judge in Baltimore has dismissed a putative class action lawsuit brought against Primus Automotive Financial Services and its collection attorneys, saying the named plaintiff's claims are barred by a default judgment obtained against her in state court.

The federal suit, brought by Deborah L. Sheahy of Perry Hall, alleged that the collectors failed to give proper notice after the voluntary repossession of her Nissan pick-up truck and violated the Maryland Consumer Debt Collection Act in the process.

We're going to be appealing to the 4th Circuit and we hope to get a more receptive audience up there, said Russell J. Pope, Sheahy's attorney.

Maryland law requires that they tender a certain series of notices to the customers, Pope said. What we had in our case was a complete failure of notice to our client.

Sheahy purchased her truck in November 1997, financing nearly $15,000 through Nationwide Motor Sales Corp. The contract was later assigned to Primus.

She defaulted on the loan in early 1999 and agreed to voluntary repossession a few months later. A $6,000 balance remained after the vehicle was sold at auction.

Primus retained Thieblot, Ryan, Miller & Hrehorovich to collect Sheahy's debt, and in August 2000, Sheahy signed a promissory note agreeing to pay the outstanding balance. According to Sheahy's complaint, a representative from the firm told her that she had to sign the note or they would be coming for her house.

Early last year, Sheahy defaulted on the note and Thieblot, Ryan filed suit in Baltimore County District Court on behalf of Primus. Sheahy never responded to interrogatories and the law firm filed a motion to compel answers.

Sheahy, representing herself, said she did not receive the interrogatories but the court granted the motion to compel. When Sheahy still failed to respond, the court entered a default judgment against her.

According to Sheahy, after the default judgment was entered, Thieblot, Ryan attempted to garnish her bank account and also contacted mortgage brokers about the default.

Sheahy filed suit in the U.S. District Court in Baltimore, alleging that Primus' failure to give her proper notice resulted in forfeiture of the debt Sheahy owed.

But U.S. District Judge J. Frederick Motz granted Primus' motion to dismiss, saying the previous action Primus brought in Baltimore County District Court met the three requirements for res judicata.

P. Rivka Schochet, a Detroit attorney representing Primus, did not return a call seeking comment.

Typically a defense lawyer, Pope said Sheahy's case caught his attention. He cautions that Motz's decision could make it easier for creditors to secure default judgments without providing proper notice to the creditor.

You've really taken away the statutory remedy in the state, he said.

His client's case is somewhat similar to Green v. Ford Motor Credit, decided in July by the state Court of Special Appeals, in which a suit against the finance company and its collection attorneys was barred by the res judicata effect of a consent judgment in state district court.

Green also named Thieblot, Ryan, Miller & Hrehorovich - the same collection firm as in Sheahy's case - as a defendant. Cordella Green claimed the consent judgment was procured by fraud, in that the finance company's pleadings falsely claimed compliance with statutory notice requirements. The court, however, found that would not constitute a fraud on the court, since nothing prevented Green from having a full adversarial proceeding in the debt-collection suit.

In late August, the Court of Appeals also issued a decision on debt-collection suits. In Moore v. Nissan Motor Acceptance Corp., the top court allowed the plaintiff to sue the finance company that repossessed and resold her car without proper notice, even though the finance company claimed the issue should have been litigated in the debt-collection suit it brought in state district court following repossession.

In Moore, though, Nissan lost the debt-collection suit - and, under Maryland's permissive counterclaim rule and the Restatement (Second) of Judgments, successfully raising lack of notice as a defense to the deficiency suit, without making a counterclaim, does not preclude a later action for damages.

WHAT THE COURT HELD

Case:

Deborah L. Sheahy v. Primus Automotive Financial Services, Inc., et al., USDMD No. JFM-03-544. Published. Opinion by Motz, J. Filed Sept. 12, 2003; Published Sept. 29, 2003.

Issue:

Is a debtor's claim against a creditor barred after the creditor got a default judgment against the debtor in a previous suit in Baltimore County District Court?

Holding:

Yes. The claim is barred by res judicata because there is a valid, final judgment between the same parties, arising out of the same transaction or occurrence.

Counsel:

Russell J. Pope for appellant; P. Rivka Schochet for appellee Primus.