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Md. high court answers for borrower on ‘unique’ damages question

Inquiry came from federal judge

Attention trial lawyers: When was the last time you litigated a case in which the plaintiff sought less compensation than the defendant believed the plaintiff would be entitled to if victorious?

Such was the “unique” case facing Maryland’s top court as it answered a federal judge’s question this month regarding the appropriate calculation of damages in Maryland commercial law litigation that pits a potential class of car buyers against a lender who allegedly charged them an illegal convenience fee.

The car purchaser’s counsel sought a damages formula that would keep the available recovery under $5 million, ensuring that the case would return to state court. The financier’s counsel sought a calculation that would result in the amount in controversy exceeding $5 million, thus keeping the case in U.S. District Court under the federal law governing class-action lawsuits.

The Maryland Court of Appeals noted the role reversal regarding damages in unanimously ruling that the car purchaser’s formula is correct under the state’s Commercial Law Article. That calculation would triple, or treble, the compensation owed on the alleged illegally collected convenience fee.

The financier, Santander Consumer USA Inc, had argued that the law calls for an award of triple the amount the company collected from the car purchaser in excess of the principal loan.

“This matter comes before the Court (of Appeals) with unique posturing,” Judge Joseph M. Getty wrote for the high court. “Mr. Lyles, the plaintiff in the federal district court, advocates for a damages calculation that would entitle him to lesser monetary relief than the interpretation Santander argued before the federal district court.”

The Court of Appeals, in ruling for Jabari Lyles’ formulation, said the award of triple damages applies to knowing violations of the Commercial Law Article’s Closed End Credit provisions, or CLEC. Lyles has alleged that Santander knowingly violated the law’s prohibition on charging a convenience fee.

The ruling will likely result in the federal judge remanding the case from U.S. District Court to Baltimore City Circuit Court, as requested by Lyles’ attorney, Cory  L. Zajdel.

Zajdel called the Court of Appeals decision a “step in the right direction” for the right of Maryland consumers to litigate their credit-related claims in court rather than have them go to arbitration.

Zajdel, who specializes in consumer rights cases, said creditors often seek to move cases to federal court, where judges are more willing to submit claims to arbitration than in state court.

“I’m glad that the federal court sought to get advice from the Court of Appeals because this was an important issue,” said Zajdel, of Z Law LLC in Timonium.

Santander’s attorney, Robert J. Brener, did not immediately return telephone and email messages Tuesday seeking comment on the Court of Appeals’ decision. Brener is with Duane Morris LLP in Newark, New Jersey.

In the math-rich litigation, Lyles sued Santander in Baltimore City Circuit Court, alleging the company violated the CLEC by charging a collection fee for payments made by phone or online. Those fees allegedly totaled $131.40.

Lyles also claimed he paid Santander $6,372.67 in excess of the $20,657 principal loan and that $15,603.54 remains due on the loan agreement.

Lyles seeks statutory damages of three times the collection fees he paid, $394.20, recovery of the $6,372.67 he allegedly paid in excess of the principal and forgiveness of the alleged $15,603.54 for a total award of $22,370.41.

Zajdel, Lyles’ attorney, also alleges that Santander’s unlawful charging of the collection fee was widespread. Court papers place the potential number of plaintiffs at 160.

Santander has moved to have the case heard in U.S. District Court, citing the federal Class Action Fairness Act.

Under CAFA, federal courts have jurisdiction over state law claims when a plaintiff resides in a different state than the defendants, the number of plaintiffs is at least 100 and the amount in controversy exceeds $5 million.

Lyles, a Marylander, and Dallas-based Santander satisfy the diversity of citizenship requirement and the potential 160 plaintiffs satisfy the numerosity requirement, leaving only the amount in controversy at issue.

Santander, which denies the allegation of illegality, said the $5 million threshold is met by applying the dollar figures Lyles presented but changing the formula.

Specifically, Santander contends that the amount paid in excess of the principal – not the convenience fee — is tripled under the Commercial Law Article.

Thus, the potential damages are three times $6,372.67, or $19,118.01, plus the amount to be forgiven $15,603.54 for a total of $34,721.55 That figure when multiplied by 160 potential plaintiffs comes to more than $5.5 million, Santander stated in its motion to have the case head in federal court.

Lyles, in urging the federal judge to send the case back to Baltimore City Circuit Court, stated the baseline figure should be at most $22,370.41, which when multiplied by 160 equals $3,579,265.60, well below the $5 million threshold.

U.S. District Judge Catherine C. Blake last year asked the Court of Appeals to resolve which formula applies under the CLEC, saying Maryland’s high court is in the best position to answer this question involving state law.

The Commercial Law Article, Getty responded, “provides an additional penalty for creditor grantors that knowingly violate CLEC, and, therefore are liable for treble the amounts that were collected in violation of the subtitle.”

“Accordingly, assuming Santander knowingly collected the convenience fees alleged by Mr. Lyles in violation of CLEC, the appropriate calculation of damages under (the law) is treble the amount of convenience fees collected,” wrote Getty, a retired chief judge sitting by special assignment.

The Court of Appeals rendered its decision in Jabari Morese Lyles v. Santander Consumer USA Inc., Misc. No. 3, September Term 2021.