MCRC Prince George's Municipal Debt Collection report by Lynne Menefee

MAryland consumer rights coalition

Prince George’s County Municipal Debt Collection

Introduction In 2018, the Maryland Consumer Rights Coalition (MCRC) released No Exit: How Maryland’s Debt Collection Practices Deepen Poverty and Widen the Racial Wealth Gap. This report found that public and private debt and debt collection practices deepen poverty and threaten financial security across the state, particularly for low-income families and in communities of color. The report looked at both private consumer debt and civic debt — debt which is owed to municipalities, counties, and the State of Maryland. Although Maryland has passed legislation to protect consumers from predatory debt collection practices, the State of Maryland has exempted itself from the very protections it requires of private debt collectors. As a result, the State of Maryland is pursuing civic debt which leads to arrests, jail, and garnishments of its own residents. In this policy brief, MCRC examines the debt collection practices in Prince George’s County to assess the effects of civic debt collection within a majority Black, primarily wealthy county.

Methodology In this report, we examine the scope, depth, and impact of municipal debt collection through the District Court system on residents in Prince George’s County between 2015 and 2017. To do this, we analyzed data from the Client Legal Utility Engine (CLUE) database of Maryland Judiciary cases. The State of Maryland has been updating its electronic court record system, which has created a gap in the CLUE data beginning in 2018. This process should be completed by 2021, and the data will again be available for research purposes. We began by pulling data on all cases filed or acted upon in Prince George’s County between 2015 and 2017. This resulted in a universe of 176,456 cases. Then, we manually culled all suits filed by non-municipal plaintiffs from the data. We eliminated duplications by case number, defendant name, and address. We removed tort and detinue cases, which are not debt collection efforts, from the data. We then obtained 35 casefiles from the Prince George’s County courthouse for deeper qualitative analysis.

Key Findings • Between 2015 and 2017, Prince George’s County aggressively collected civic debt accrued during the Great Recession from the owners of small businesses who were already disproportionately impacted by the recession. • Prince George’s County commonly uses body attachments or arrest warrants as a tactic to collect civic debt. Between 2015 and 2017, Prince George’s County filed for 41 body attachments in cases where the defendant owed as little as $329. • Prince George’s County pursued payment for money judgments through garnishment and body attachments even after being presented with evidence that the consumer’s income and assets were legally protected from garnishment. In at least one case, Prince George’s County was able to use a body attachment to pressure a disabled older adult to pay a judgment despite the fact that the defendant’s only income was Social Security, and he was therefore protected from debt collection. • As of June, 2020, at least 21 body attachments requested remain active, meaning these defendants are currently at-risk for arrest over unpaid civic debt. • Prince George’s continued to require bonds after the law barring this practice went into effect in October 2014. We identified 11 instances of a bond being set illegally, often stipulating cash payment to Prince George’s County as a requirement for release. • Having legal representation benefits consumers sued for debt. The one percent of defendants who had an attorney saw their cases dismissed 76% of the time instead of 46% of the time for unrepresented defendants. Those who do have money judgments filed against them see a reduction between the alleged debt and the final judgment. • In Prince George’s County, debt resulting from municipal infractions is primarily collected by Cities and Towns. The City of Bowie was the most active municipal debt collector, filing 327 suits attempting to collect a total of $70,100.

Debt Collection Process Maryland’s District Courts have become an integral part of the civic debt collection process. The Maryland Rules of Civil Procedure, also known as “court rules”, establish the process for filing or resolving a legal dispute in Maryland’s Courts. These rules are set by the Maryland Court of Appeals and they hold the force of law. When a lawsuit is filed by a creditor for a principal amount that is $5,000 or below, it is considered a small claim. These lawsuits are only heard in District Court, which has fewer rules and procedural safeguards for small claims. For these actions, the rules of evidence do not apply, the parties may not conduct any discovery, and debtors lack any rights to a trial by jury. If the creditor wins the lawsuit, the court awards them a money judgment, a legal declaration that the consumer owes a specific amount of money. Having a judgment gives the creditor the right to garnish the consumer’s wages or property in order to fulfill the debt. To facilitate garnishment after a judgment, the courts can require a consumer to appear in person to answer questions about their income and assets. This is called an “oral examination”. The information about assets and income may be used to garnish consumers’ paychecks, bank accounts, and/or put liens on their property to collect the debt. If the individual doesn’t come to court to answer these questions, the creditor can request the judge to order the person to attend a hearing for contempt of court, called a “show cause” hearing. If the person fails to appear for the contempt hearing, the court may issue a “body attachment.” A body attachment is an order for arrest. Until recently, along with issuing the body attachment, the judge may have set the bail required for the individual to be released following their arrest. Once arrested, a person could languish in jail for days or weeks until they arrange to pay the bail bond set in the case. When the person pays bail, that bail money may be turned over to the plaintiff as a payment against the judgment. In these cases, when cash bail is applied to an outstanding civil debt, the process circumvents consumer protections that are in place to protect Social Security income and other income or assets that should be exempt. This practice incentivizes the use of body attachments as a collection method, rather than as a means to force defendants to appear in court to declare their assets. The result: modern day debtors’ prisons. In 2013, to limit the use of body attachments, the Maryland General Assembly passed legislation1 that changed the procedure for people arrested on body attachments in two important ways: • People arrested must be taken to a) the court that issued the body attachment, if it is in session, or b) to a judicial officer of the District Court (most likely a District Court Commissioner) if the court itself is not in session. • If the court (or judicial officer) does not release the arrested person on their own recognizance without any conditions, the conditions must be the least onerous to ensure the person’s attendance at the next hearing. Since the law went into effect, implementation has been inconsistent. Some clerks and judges are unaware of the changes, so that in some cases, cash bail continues to be set for body attachments. Efforts to reform the body attachment process continue. In 2019, the Court of Appeals established new standards for service to ensure that all defendants are aware of court summons and are therefore less likely to miss show cause hearings.

Chapter 622 of 2012, codified at Md. Code, Cts & Jud. Proc. 6-411

At the time of this brief, the Court of Appeals is considering the creation of a form which can be mailed to debtors to declare their assets and returned, rather than having to appear in person for a hearing. After a creditor has identified the debtor’s assets, the creditor may garnish those assets to satisfy the judgment. There are two types of garnishments: wage garnishment and property garnishment. Wage garnishments allow a creditor to take money from the debtor’s paycheck. Current Maryland law protects $217.50 per week, which translates to an annual income of $11,310 — far below the poverty line. In 2020, MCRC passed legislation to increase the amount of wages protected from garnishment for the first time in 30 years. The law goes into effect in October 2020. The increases are pegged to the state’s minimum wage which means the amount of wages protected will increase each year as the minimum wage increases. By January 2021 low-wage workers will be able to protect $352.50 per week and $18,330 per year. In 2025, low-wage workers will be able to protect $450 per week or $23,400 per year. Property garnishments allow a creditor to take funds from the debtor’s bank account. Maryland will allow a debtor to exempt up to $5,000 from being garnished from their bank account through filing forms with the court; however, few individuals are aware of this protection and fewer still know how to complete the form and claim this protection.

Findings Municipal Debt Collection through District Court Between 2015 and 2017, 4,013 civic debt collection suits were filed in Prince George’s County. Over that three-year period, 25 municipal entities attempted to collect $5,853,817 from Prince George’s County residents and won judgments totaling $2,098,384. Prince George’s County was the most active plaintiff with 2,658 cases filed, comprising more than two-thirds of all municipal debt collection cases. Twenty plaintiffs were local municipal entities like the City of Bowie (327 suits filed) and the Town of Capitol Heights (31 suits filed).

Table 1: District Court Debt Collection by Municipal Entities in Prince George’s County 2015-2017 Plaintiff Number of Claims Prince George’s County

2,658

Alleged Debt

Judgement Amount

$5,353,618

$1,740,329

City of Bowie

327

$70,100

$38,280

City of College Park

239

$52,745

$65,280

City of Seat Pleasant

234

$83,250

$65,130

City of Hyattsville

167

$37,650

$42,015

Montgomery County

$32,540

$40,966

Town of Forest Heights

$10,150

$9,890

Town of Cheverly

$4,250

$4,545

Town of Capitol Heights

$11,500

$10,950

Prince George’s County Board of Education

$142,118

$37,775

Metro Transit Police

$2,500

$2,465

City of District Heights

$11,750

$8,245

City of Greenbelt

$5,200

$5,610

Town of Fairmount Heights

$11,450

$11,600

City of Mount Rainier

$3,450

$3,225

City of New Carrollton

$2,125

$2,625

Town of Landover Hills

$550

$445

City of Laurel

$12,607

$2,250

Town of Riverdale Park

$300

Town of Morningside

$1,600

City of Glenarden

$400

$450

Prince George’s County Police Department

$300

$195

Mayor and City Council of Baltimore

$3,136

$3,163

Town of Landover Hills

$50

$100

Town of University Park

$200

$400

City of Forest Heights

$200

$400

City of Cheverly

$50

$100

$5,853,817

$2,098,384

Grand Total

4,013

Plaintiff: Prince George’s County With 2,658 cases filed, Prince George’s County was the most active plaintiff, with more than two-thirds of all municipal debt collection cases. The County sought $5,353,618 in debt and won $1,740,379 in judgments. To understand the role civic debt collection plays in the County’s budget, we compared the total dollars in claims filed and resulting judgments to annual revenues. As you can see in Table 2, the total dollar amount of claims filed by Prince George’s County consistently represented 0.05% of annual revenue. Similarly, the judgments won as a result of those claims account for 0.02% of annual revenue. The actual amount of annual revenue that is collected as a result of pursuing civic debt in District Court would be an even smaller percentage because some defendants will be judgment proof — meaning they have so little income and assets that they are protected from garnishment.

Table 2: Civic Debt Collection and the Prince George’s County Budget Fiscal Year Claims Judgments Claims Approved Revenue as a Percent of Revenue

Judgments as a Percent of Revenue

2015

$3,431,747,700

$1,872,697

$685,840

0.05%

0.02%

2016

$3,537,001,900

$1,943,107

$695,198

0.05%

0.02%

2017

$3,712,441,900

$1,984,187

$648,498

0.05%

0.02%

$10,681,191,500

$5,799,991

$2,029,537

0.05%

0.02%

TOTAL

Prince George’s County’s law firm for debt collection is Carl A. Harris & Associates PC, whose primary line of business is, according to their website, “Collecting Business Personal Property Taxes for Maryland Local Governments.” Carl A. Harris & Associates PC also collects taxes for Calvert County, Charles County, and the City of Annapolis. The firm’s website explains the process for assessing, levying, and collecting business personal property taxes from an individual. 2

Table 3: Types of Claims files by Prince George’s County 2015-2017 Claim Type Number Contract

2,656

Municipal Infraction

Confessed Judgment

GRAND TOTAL

2,658

Prince George’s County filed three types of debt collection suits: confessed judgment, contract, and municipal infraction. A confessed judgment can happen when a contract includes a provision allowing the creditor to automatically win a judgment if the consumer fails to pay. Contract cases often involve a failure to pay money owed. In all contract case files 2

https://www.cahassociates.com/

we reviewed, Prince George’s County was collecting unpaid property taxes. Municipal infraction suits are collecting fines levied for infractions such as parking illegally, speeding, and red light violations.

Table 4: Defendant Type Defendant Type Number of Claims Business Individual GRAND TOTAL

Median Alledged Debt

Judgement Amount

2,248

$751

$1,409,744

410

$733

$330, 635

2,658

$750

$1,740,379

At least eighty-five percent of cases filed by Prince George’s County were against a business. These cases name the resident agent or individual legally responsible for the business. In examining case files, we discovered that the data in CLUE did not always indicate that the defendant was being sued as the representative of a business. This is due to inconsistencies with how data is entered into the system. Therefore, it may be that an even greater proportion of the defendants were representing a business. We attempted to categorize the types of businesses who were named as defendants in cases filed by Prince George’s County.

Table 5: Defendant Business Types Business Type Number Unknown and Other

895

Miscellaneous Services

263

Healthcare

245

Real Estate and Construction

185

Home and Building Services

144

Auto

142

Food and Beverage

136

Beauty Services

Real Estate and Construction

Home and Building Services

Auto

Food and Beverage

Legal Services

GRAND TOTAL

2,658

We categorized businesses named in suits filed by Prince George’s County based on the name of the business. This is an uncertain method of categorizing a business. That uncertainty is reflected by the size of the “Unknown and Other” category, which is the largest, containing 40% of all business defendants. Miscellaneous Services (including communications, consulting, and staffing services) and Healthcare (medical and dental practices, physical therapy, mental

health services, skilled nursing services) together make up more than 22% of all business defendants sued for civic debt by Prince George’s County. Given the timing of the filings, it is likely the debts were accrued during the Great Recession and the following recovery. It may be that these businesses were disproportionately impacted by the recession.

Table 6: Outcomes

Outcome Judgment Number Median Alleged Median Total Median Add’l Type of Claims Alleged Debt Judgment Judgments Add’l Court Debt Owed Owed Court Costs Costs Interest, Interest, etc. etc. Ceased Prosecution

Complaint Dismissed (RULE 3-507)

$954

$66,964

Total

$954

$66,964

In Favor of Defendant

Complaint Dismissed 2 $5,019 by Court

$10,038

Total

$5,019

$10,038

In Favor of Plaintiff

Affidavit Judgment 840 Entered

$804

$1,747,503

Default Judgment Entered

$1,285

$85,722

$1,089

$64,276

Municipal Infraction Judgment Entered

$500

Trial Judgment Entered

$2,950

$29,105

$1,269

$14,210

$59

$301

Total

$819

$1,862,830

Settled Out of Court

Complaint Dismissed 1,510 (RULE-3-506)

$685

$2,692,604

Consent Judgment 23 $1,183 Entered

$77, 349

$906

$53,179

$298

$27,687

Dismissal (Upon Stipulated 219 $1,063 Terms) (RULE 3-506(b))

$643,831

Total

$53,179

$27,687

Grand Total

862

$766 $1, 608,214

$769 $1,687,200

1,752

$696

$3,413,785

2,658

$750

$5,353,618

$0 $1,740,379

$238 $472,761

$237 $485,447

$0 $513,133

To file a contract claim, a creditor must 1) provide the court with documents like a contract, a bill, an invoice, or other correspondence detailing the judgment, and 2) swear in an affidavit that the money is owed. The court will then mail the defendant notice that they are being sued for debt. At this point, the case can have four basic outcomes: 1. When a case is dismissed under rule 3-507, it means the plaintiff did not proceed with the case. This usually indicates the plaintiff was unable to find the defendant and properly serve them. If the plaintiff is able to locate the defendant in the future, then the case can be reopened. Forty-two or 1.6% of cases examined were dismissed under rule 3-507. 2. The defendant could choose to settle the debt out of court by paying the debt outright. This results in the case being dismissed under court rule 3-506. Similarly, the defendant could agree to a payment plan. The details of this plan may be filed with the court. This situation could result in a dismissal under court rule 3-506(b) or a Consent Judgment, depending on the preference of the judge. If the defendant does not pay according to the agreement, the case can be reverted to an affidavit judgment or a default judgment, depending on the specifics of the settlement contract. Of the claims we examined, 65.9% were settled out of court. 3. The defendant may notify the court that they intend to defend themselves in the case, indicating they believe they owe less or none of the claimed debt. When this happens, the case goes to trial and the judge will render a verdict. There were seven trials among the cases we examined. In two cases, the claim was dismissed. In the remaining cases, while the plaintiff was awarded a money judgment, the judgment owed was reduced by 50% as compared to the alleged debt. Additionally, defendants who defended themselves against the charges paid less in additional costs than defendants who did not defend themselves. The median court costs for those who went to trial and still had a money judgment filed against them was $59, as compared to $237 for all defendants who had a money judgment filed against them. 4. The defendant may not respond to the notice they are being sued. When this happens, the judge assumes the defendant is accepting the debt. The judge will then review the documents detailing the debt to determine if they meet the legal threshold established by court rules. If the documents don’t meet the requirements, the plaintiff will be allowed to present additional evidence. If the documents are sufficient, the judge will award the creditor an affidavit judgment — so called for the affidavit sworn upon filing. Thirty-two percent of all cases resulted in affidavit judgments. Notably, the total debt owed in affidavit judgments, which includes interest, court costs, and attorney fees, is 19% more than the initial debt claimed. The assumption that no response from the defendant indicates they have accepted the debt is flawed. Businesses may be served through Maryland’s State Department of Assessment and Taxation (SDAT). If SDAT’s information is out of date, the resident agent, or individual who is legally responsible for the business, may never receive notice of the claim. No response may also mean that the defendant does not expect to get a fair hearing or win against the County. Prince George’s County won the one municipal infraction case filed between 2015 and 2017.

Use of Debtors’ Prisons by Prince George’s County Between 2015 and 2017, on behalf of Prince George’s County, Carl A. Harris & Associates PC requested and received at least 41 body attachments.

Table 7: Body Attachments Sought by Prince George’s County 2015-2017 Defendant Type Number of Claims Business

Average JudgmentAmount

Judgement Amount

$2,577

$67,009

Individual

$2,284

$34,253

GRAND TOTAL

$4,861

$101,262

In these cases, at least 26 defendants were being sued on behalf of a business. The court records do not consistently identify whether the defendant is a business or an individual, so it is possible that many of the defendants classified as individuals, in fact, represent businesses.

Graph 1: Judgment Amount by Case

GRAPH 1: Judgment Amount by Case $12,486

$14,000 $13,000 $12,000 $11,000

Judgment Amount

$10,000 $9,000 $8,000 $7,000 $6,000 $5,000

$776

$651

$1,000

$329

$2,000

$1,176

$3,000

$1,711

$4,000

$0 Despite the overall wealth of Prince George’s County, these residents faced arrest over relatively small amounts of money. The judgments in these cases ranged from $329 to $12,486. In 30% of cases examined, the judgment was for less than $1000. In 72.5% of cases, the judgment was less than $3000. As of June, 2020, at least 21 body attachments remain active, meaning these defendants are currently at-risk for arrest over unpaid civic debt. We compared the defendant’s location with the racial demographics and income demographics of the census tract and found no patterns.

Body Attachments Mapped Against Number of White Residents per Census Tract 2018 White Population 0 to 1,600 1,600 to 2,550 2,550 to 3,450 3,450 to 4,630 4,630 to 44,000

Map based on Longitude and Latitude. Map coloring shows 2018 White Population by Census Tract.

Body Attachments Mapped Against Census Tract Per Capita Income

Map based on Longitude and Latitude. Map coloring shows 2018 White Population by Census Tract.

2018 Per Capita Income 42 to 20,000 20,000 to 25,700 25,700 to 31,700 31,700 to 41,700 41,700 to 227,000

We identified 11 instances of a bond being set after the law was passed ending this practice in 2013. In most cases, bond was set higher than the judgment owed, meaning had the defendant been arrested, they would have had to pay more than they owe — and had thus far been able to pay — in order to be released from jail. The average age of these cases at the time of the body attachment was three years old. Given the lag time between when the debt was first accrued and the time the case was filed, it is likely the debts are much older. Seven of the 11 defendants were representing businesses, meaning they were at-risk for illegal imprisonment over a professional debt.

Table 8: Cases in Which Prince George’s County Requested Cash Bail After 2013 Law Defendant Year Case Age of Case When Judgement Body Type Was Filed Body Attachment Owed Attachment Was Filed Business 2010 5 $775.76

Bond set at $2,300.00 on 11/09/2016

Business 2013 2 $798.00

Bond set at $1,500.00 on 10/14/2015

Individual 2015 1 $1,175.56

Bond set at $1,800.00 on 11/09/2016

Individual 2013 2 $1,246.33

Bond set at $1,500.00 on 10/14/2015

Business 2011 4 $1,711.19

Bond set at $3,200.00 cash only on 05/13/2015

Business 2013 2 $2,060.60

Bond set at$1,250.00 cash only, payable to plaintiff on 02/11/2015

Business 2013 2 $2,404.86

Bond set at $5,000.00 on 08/09/2017

Individual 2011 3 $3,342.88

Bond set at $7,474.00 cash only on 10/08/2014

Individual 2013 2 $3,557.34

Bond set at $500.00 on 08/12/2015

Business 2012 6 $5,699.07

Bond set at $2,500.00 on 05/09/2018

Individual 2011 5 $8,062.40

Bond set at $10,000.00 on 11/09/2016

Debt Collection in Low-Income Communities and Black Communities Using geographic data, we analyzed whether Prince George’s County’s debt collection was correlated with the median income of a zip code or the racial makeup of a zip code.

MAP 1: Claims and People of Color by Zip

We found no meaningful relationship between the number of municipal debt collection suits or the total amount of debt sought and race.

MAP 1: Claims and Median Income by Zip

We found a strong positive correlation (R=0.9349) between the median income of a zip code and the number of claims filed in that zip code. We found no meaningful correlation between the total alleged debt in a zip code and the median income. Given that the vast majority of all defendants are businesses, this likely illustrates that businesses are more likely to be located in wealthier neighborhoods.

TABLE 9: Type of Claims Filed by Other Plaintiffs Claim Type Plaintiff Number Alleged of Claims Debt CONTRACT

Median Total Judgment Judgments Owed

Prince George’s County Board of Ed.

$142,118

$37,775

Montgomery County

$26,645

$468

$25,771

City of Laurel

$11,357

Mayor and City Council of Baltimore

$3,163

$1,582

$3,163

City of Bowie

$30,000

Total

$213,284

$215

$66,710

MUNICIPAL

City of Bowie

326

$40,100

$100

$38,280

INFRACTION

City of College Park

239

$52,745

$200

$65,280

City of Seat Pleasant

234

$83,250

$400

$65,130

City of Hyattsville

167

$37,650

$200

$42,015

Montgomery County

$5,895

$100

$15,195

Town of Forest Heights

$10,150

$200

$9,890

Town of Cheverly

$4,250

$50

$4,545

Town of Capitol Heights

$11,500

$100

$10,950

Metro Transit Police

$2,500

$100

$2,465

City of District Heights

$11,750

$500

$8,245

City of Greenbelt

$5,200

$148

$5,610

Town of Fairmount Heights

$11,450

$750

$11,600

City of Mount Rainier

$3,450

$113

$3,225

City of New Carrollton

$2,125

$150

$2,625

City of Landover Hills

$550

$50

$445

Town of Riverdale Park

$300

$75

$300

Town of Morningside

$1,600

$450

$1,600

City of Glenarden

$400

$100

$450

City of Laurel

$1,250

$200

$2,250

Prince George’s County Police Dept.

$300

$98

$195

Town of Landover Hills

$50

$100

Town of University Park

$200

$400

City of Forest Heights

$200

$400

City of Cheverly

$50

$100

Total

1,295

$286,915

$100

$291,295

1,355

$500,199

$100

$358,005

GRAND TOTAL

Montgomery County pursued debt from 85 Prince George’s County residents. Of those, 61 are municipal infractions. The City of Baltimore pursued two civic debt cases in Prince George’s County. The remaining plaintiffs were Metro Transit Police (26 suits filed) and the Prince George’s County Board of Education (31 suits filed). Examination of case files revealed that Prince George’s County Board of Education was collecting mistakenly overpaid wages. We analyzed whether there was a relationship between the median income or racial demographics of Town and Cities and the number of cases filed to collect civic debt. We found no meaningful relationship.

Garnishments by Municipal Entities Three of the plaintiffs we examined garnished bank accounts in order to collect a civic debt: Prince George’s County (101 cases), Prince George’s Board of Education (three cases), and the City of Greenbelt (two cases).

Table 10: Property Garnishment by Plaintiff Plaintiff Number Total of Claims Alleged Debt Prince George’s County

101

Median Alleged Debt

$274,704$1,234

Prince George’s County Board of Education

$18,100

$7,265

City of Greenbelt

$1,000

$34,253

The municipal entities examined as part of this research did not use wage garnishment as a debt collection tactic between 2015 and 2017.

The Value of Legal Representation Our analysis found that just 1 percent of defendants who were being sued by municipal entities were represented by an attorney. To determine the impact of attorney representation, we compared the outcomes of defendants with representation to those without.

Table 11: Outcomes With and Without Representation With Attorney Without Attorney Representation Representation Defendants

3,856

74%

46%

Average alleged debt (excluding cases without judgment)

$4,914.79

$1,030.63

Average judgment amount

$2,891.47

$964.93

Judgment as a percent of alleged debt

59%

94%

Cases dismissed without judgment

Our analysis shows that attorney representation is valuable for defendants. Without an attorney, the majority of defendants had a monetary judgment filed against them. With an attorney, 74% of cases were dismissed without a monetary judgment. For cases with a monetary judgment, having a defense attorney was still valuable. Defendants represented by an attorney

had money judgments that were just 59% of the alleged debt. Defendants without an attorney were found to owe almost the full amount — 94% of the alleged debt.

Putting it all together: Noteworthy Cases Prince George’s County, Maryland vs. Mr. Davis Mr. Davis readily admits, “There was a lot that I did not understand about running a business.”3 But when his Pastor recommended he make his side job cutting lawns for elderly members of the congregation more official, Mr. Davis formed Quality Care Lawn Service. The business had limited success. When Mr. Davis’ wife put him out of the house, he was “pretty much homeless,” so he gave the mower to a lawnmower shop and moved in with a friend in Houston, Texas in 2005. Mr. Davis had a hard time getting a job in Houston. He occasionally did scrap work and cable work when he could. Mr. Davis couldn’t afford to see a doctor or a dentist to get help with his knee issues, bad back, and the “teeth falling out of [his] head.” Mr. Davis was unemployed and unable to find a job he could physically do long term. After several years of this, Mr. Davis was able to qualify for Social Security Disability. In 2015, Mr. Davis moved back home to Maryland. Prince George’s County was waiting for him. In 2010, Prince George’s County filed a suit alleging that Mr. Davis failed to pay Business Personal Property Tax on behalf of Quality Care Lawn Service in fiscal years 2007, 2008, and 2009 — years in which Mr. Davis owned no equipment, did no business, and did not even live in Maryland.

Table 12: Taxes Owed According to the Initial Filing in November, 2010 Fiscal Year Tax Owed Interest/Penalty

% Increase Due to Interest/Penalty

Amount Due

2007

$147.00

$120.05

18%

267.05

2008

$283.55

$174.86

38%

$458.41

2009

$345.21

$143.85

58%

$489.06

TOTAL

$775.76

$438.76

43%

$1,214.52

Because Mr. Davis did not live in Maryland, he could not be served a court summons. Process servers who attempted to serve Mr. Davis at his old addresses noted that “[r]esident states that defendant does not live at location,” and “[u]nable to serve [because the] [defendant] no longer lives in Maryland and [the resident] will not accept the paperwork.” Prince George’s County’s debt collection attorneys renewed the summons every few months — usually using either a private servicer or the Prince George’s County sheriff to attempt to serve Mr. Davis. In person service costs $50 per attempt. Carl A. Harris and Associates renewed the summons for Mr. Davis a total of 12 times for an estimated cost of $600 before successfully serving him in June of 2015. By then, Mr. Davis’ alleged debt had ballooned to $2,016.18, a 60% increase over the original total from 2010 and more than double the initial taxes Mr. Davis allegedly owed.

Davis, Berlin. Personal interview by phone. February 25, 2020.

Table 13: Taxes Owed at the time of Judgment in January, 2016 Fiscal Year Tax Owed Interest/Penalty

% Increase Due to Interest/Penalty

Amount Due

2007

$147.00

$271.95

85%

$418.95

2008

$283.55

$467.87

65%

$751.42

2009

$345.21

$500.60

45%

$845.81

TOTAL

$775.76

$1,240.42

60%

$2,016.18

In January 2016, an affidavit judgment was entered against Mr. Davis for $2,016.18 (unpaid taxes + penalty interest) plus $223 in court costs for a grand total of $2,239.18. In total, the debt collection and affidavit judgment process increased the amount Mr. Davis owed by 189%. In February 2016, Mr. Davis sent the court a letter explaining his circumstances, filing a motion to vacate the judgment and requesting advice on additional steps required. His motion was denied and he was referred to unrepresented litigant resources on the ground floor of the courthouse. In November 2016, 11 years after his business failed, Prince George’s County requested and received a body attachment for Mr. Davis with a cash bail of $2,300. This compelled Mr. Davis to agree to a payment plan with the County. Because Mr. Davis’ only income was Social Security, his income was protected from debt collection. However, without funds for a lawyer, Mr. Davis was not aware that Prince George’s County could not force him to pay the debt. Each month after receiving his $1,000 payment from Social Security, Mr. Davis would head to the offices of Carl A. Harris and Associates to pay down his judgment. “It stressed the hell out of me,” he says.

Prince George’s County vs. Mr. Spann From 2009 to 2012, ACME Management, Inc. failed to pay $2,060.60 in property taxes to Prince George’s County. In 2013, Prince George’s County filed suit against Mr. Spann, age 68, as the Director of the ACME Management corporation for unpaid taxes and $1,045.28 in penalty interest. In April 2013, an affidavit judgment for $3,208.93 plus $38 in court costs was entered against Mr. Spann. In April 2014, upon the request of Prince George’s County, a body attachment was issued for Mr. Spann. The body attachment authorized the commissioner to set a bond as they deemed necessary. On December 9, 2014, Mr. Spann was arrested, brought before the commissioner, completed an “Initial Appearance Questionnaire,” and was released on his own recognizance. In the questionnaire, Mr. Spann affirms that he is unemployed and his sole income is $1,007 per month in Social Security. These circumstances make Mr. Spann judgment proof — his income is protected from garnishment by law. Mr. Spann then fails to appear at the rescheduled show cause hearing. In March 2015, after this practice was explicitly outlawed by legislation taking effect October 2013, Prince George’s County requests and a judge approves another body attachment, this time setting a cash bond of $1,250 payable to the plaintiff, despite the fact that Mr. Spann is judgment proof and living in poverty. On August 29, 2015, Mr. Spann was arrested. He was released the next day on his own recognizance after again completing an Initial Appearance Questionnaire affirming that Social Security is his only income. During this time, the initial unpaid tax of $2,060 accrued interest at a rate of 20% per period beginning April 2013. By April 2016, Mr. Spann owed a total of $2,384.71 in penalty interest — more than doubling the alleged debt. At this time, Prince George’s County filed paperwork to garnish $4,533 from Mr. Spann’s checking account at PNC bank. In May 2016, PNC Bank submitted paperwork affirming that Mr. Spann’s bank account had no funds beyond the legally protected amount. In June 2016, for the third time, Prince George’s County requests and a judge approves a body

attachment. This time, the bond is set at $1,500. Mr. Spann submitted documentation describing his assets and the body attachment was recalled in September 2016. In February 2017, Prince George’s County once again filed paperwork to garnish Mr. Spann’s checking account. In March 2017, PNC responded that Mr. Spann’s account contained exclusively protected funds because his income comes from Social Security. In October 2017, the judgment was marked satisfied, and the case was closed.

Summary Prince George’s County is going to extraordinary lengths to collect small amounts of unpaid taxes from already struggling and indebted residents. Businesses make up the majority of defendants — at least 85% — pursued for contract claims. Collecting delinquent personal property taxes from individuals representing businesses appears to be the signature service of Prince George’s County’s debt collection attorney firm. Fifteen percent of businesses come from the real estate, construction, or home services sectors. These businesses were hit especially hard by the housing crisis and the Great Recession, which ravaged Prince George’s County beginning in 2008. Given the size of the claims, the nature of the defendants, and the timing of the lawsuits it appears that Prince George’s County collected debt accrued during the Great Recession from the owners of small businesses who were already disproportionately impacted by the recession. Aside from the personal trauma this practice visits upon the owners of failed or struggling businesses, this is also a flawed decision economically. Small and locally-owned businesses are key to the long-term economic vitality of Prince George’s County. Small businesses are job-creation engines all the time, but during a recession, small businesses are better at retaining jobs than large employers.4 Additionally, numerous studies have documented that small businesses produce a multiplier effect in local economies.5 One analysis found that “[Salt Lake City] retailers return a total of 52 percent of their revenue to the local economy, compared to just 14 percent for the national chain retailers,” and “local restaurants recirculate an average of 79 percent of their revenue locally, compared to 30 percent for the chain eateries.” 6 It is counterintuitive to collect small business debts from entrepreneurs years after the debt is accrued, as this impedes financial recovery and discourages exploration of further business ventures. Despite comprising just 0.02% of its annual revenue, Prince George’s County aggressively pursues civic debt collection in District Court. In Mr. Davis’ case, Prince George’s County spent an estimated $600 to serve notice on a $775 alleged debt. When you include the staff time it took to file the claim, renew service attempts 11 times, and pursue a body attachment, the County spent more on debt collection than they were allegedly owed. In the end, these efforts pressured Mr. Davis to pay the debt despite being judgment proof. In the case of Mr. Spann, Prince George’s County’s debt collection attorneys continued to pursue garnishment for almost three years after he first filed paperwork with the court indicating he was judgment proof. Because they could not legally collect, the County’s efforts had no financial return. The County should carefully consider both the human and financial costs incurred when they use the District Court to collect taxes.

“The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment.” Moscarini and Fabien Postel-Vinay. American Economic Review. 2012

Key Studies: Why Local Matters. Institute for Local-Self Reliance. Accessed June, 2020.

Indy Impact Study Series: Salt Lake City, Utah. Civic Economics. Aug. 2012.

Recommendations Programs • Provide training on current law related to body attachments to Judges and Hearing Examiners (who preside over oral examinations in some jurisdictions) to ensure that the relevant rules and legislation are followed. • Provide financial counseling, coaching, and capacity building for small business owners that includes how to file taxes, how to appeal personal property tax assessments completed by SDAT, and how to effectively shut down a business so you have no continued liabilities. • Reach out to small businesses closing or facing closure due to COVID-19 and launch pilot program to assist them with financial and tax counseling. • Develop a rental assistance program for small businesses to assist with rent payments on their businesses during COVID-19 pandemic. Policy • Establish a right to legal counsel for civic debt collection cases in small claims court. • Require post-judgment discovery to include a list of all types of exempt income and assets. The discovery form should explain how to claim exemptions. • Develop a hardship personal property tax credit for small businesses. • Eliminate the use of body attachments for consumer debts. • Lower or eliminate interest on civic debt and judgments. • Grant a one-time amnesty for unpaid property tax for years when Prince George’s County was most impacted by the foreclosure crisis and for small businesses that close as a result of COVID-19 pandemic. Research • Investigate how much Prince George’s County is spending on municipal debt collection to determine whether it is a reasonable expenditure. • Research to identify defendants who are being sued by multiple plaintiffs for debt at the same time. – How often are those being sued for civic debt also being sued for private debt? Medical debt? – What protections exist for those who have multiple judgments against them? • In 2021, evaluate whether new court rules improving service requirements have had an impact on the number of body attachments requested. • Evaluate small business closures in Prince George’s County due to COVID-19 pandemic and track outcomes in terms of collection activity.

MARYLAND consumer RIGHTS COALITION 2209 Maryland Avenue Baltimore, MD 21218 410.220.0494 marylandconsumers.org