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Court of Appeals Protects Debtors from Excessive Liability for Creditors’ Attorney’s Fees

On July 27, 2010, the Court of Appeals of Maryland issued a favorable decision in three consolidated cases in which the Public Justice Center (PJC) filed a friend-of-the-court (amicus) brief on behalf of itself, Civil Justice, the Legal Aid Bureau, and the Maryland Consumer Rights Coalition.  In the three cases, Monmouth Meadows Homeowners Association, Inc. v. Hamilton, Montpelier Hills Homeowners Association, Inc. v. Thomas-Ojo, and Constant Friendship Homeowners Association, Inc. v. Tillery, the PJC and the other amici curiae participated in support of the Respondents, Ms. Hamilton, Mr. and Mrs. Thomas-Ojo, and Mr. Tillery, who were unrepresented.  In addition to drafting the brief, the Murnaghan Appellate Advocacy Fellow Monisha Cherayil argued on behalf of the amici curiae in the Court of Appeals.

The three Respondents owned homes that were within the Petitioners’ homeowners’ associations, and all, at some point, became unable to pay their annual assessments to their respective associations.  Attorneys for the homeowners’ associations pursued the homeowners for their debts, which ranged from about $550 to $1,280, by sending form collection letters and eventually filing district court small claims suits, where the Petitioners sought not only the assessment arrears, but also attorney’s fees pursuant to fee-shifting provisions that appeared in the contracts between the homeowners and the associations.  The amount of the requested attorney’s fees ranged from about 70% to over 160% of the underlying debt. When the district courts awarded a lower amount of fees, equal to 15% of the principal in two of the three cases, the homeowners associations’ initiated de novo appeals in the circuit courts that were also largely uncontested.  Before the Court of Appeals, the Petitioners argued that they were entitled to recover the full measure of attorney’s fees they incurred in attempting to collect the debt and appeal the district court rulings to the circuit courts, even to the extent that these fees approached or exceeded the damages otherwise in dispute.

In its 6-1 opinion, the Court of Appeals adopted the main position of the PJC and the other amici curiae that the “lodestar” method of calculating attorney's fee awards should not be applied in contractual debt collection actions.  Lodestar calls for computing a fee award by multiplying the number of hours an attorney has reasonably expended on a legal matter by the attorney’s reasonable hourly rate for the work performed, a formula that can produce fee awards that are substantial in comparison to the amount of actual damages, The Court explained that lodestar is designed to encourage counsel to undertake cases where the expected monetary relief is small but the social benefits are significant, and is not intended to provide a windfall to parties that litigate purely private matters.  Thus, the Court concluded, it was not an appropriate tool to employ in a case in which a creditor, such as a homeowner’s association, was furthering only its own interest, and not that of the public, by collecting a debt from an individual.  The Court’s decision ensures that a debtor, often a person of limited means, does not end up liable for a fee award that approaches or exceeds the amount of his or her original debt.



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