Cain v. Midland Funding, LLC

• Decision Date: 24 March 2017
• Docket Number: No. 45, Sept. Term, 2016,45, Sept. Term, 2016
• Citation: 452 Md. 141,156 A.3d 807
• Parties: Clifford CAIN, Jr. v. MIDLAND FUNDING, LLC
• Court: Court of Special Appeals of Maryland

452 Md. 141

156 A.3d 807

Clifford CAIN, Jr.

v.MIDLAND FUNDING, LLC

No. 45, Sept. Term, 2016

Court of Appeals of Maryland.

Filed: March 24, 2017

Karla Gilbride (F. Paul Bland, Jr. Public Justice, P.C., Washington, DC; Phillip Robinson, Consumer Law Center LLC, Silver Spring, MD; Scott Borison, Legg Law Firm, LLP, Frederick, MD), on brief, for petitioner.

Anthony J. May, Murnaghan Apellate Advocacy Fellow, Baltimore, MD, for amici curiae Public Justice Center, Civil Justice, Maryland Coalition for Consumer Rights, and Maryland Cash Campaign in support of Petitioner.

James P. Ulwick (Amy E. Askew, Steven A. Book, Kramon & Graham, P.A., Baltimore, MD), on brief, for respondent.

Barbera, C.J., Greene, Adkins, McDonald, Watts, Getty, Glenn T. Harrell, Jr. (Senior Judge, Specially Assigned), JJ.

Adkins, J.Contractual promises to arbitrate future disputes—in which parties forfeit their right to a trial in court and by a jury—have proven to be controversial. In this appeal we deal with an arbitration clause that seeks to preserve for a lender the right to sue a credit card debtor in small claims court, but insist on arbitration of all other claims relating to the debtor's account. Here, the lender's assignee, while operating as an unlicensed debt collector, obtained a $4,520.54 judgment against the debtor in the District Court of Maryland, sitting in Baltimore City. The assignee now seeks to arbitrate the debtor's later-filed class action suit collaterally attacking the judgment based on violations of Maryland consumer protection laws. We address whether the assignee, in pursuing its earlier district court suit, waived its right to arbitrate the debtor's claims.

FACTS AND LEGAL PROCEEDINGS

In 2003, Clifford Cain, Jr., opened an AT & T Universal Savings and Rewards Card account with Citibank. Cain's contract with Citibank included an arbitration provision that allowed either party to "elect mandatory, binding arbitration for any claim, dispute, or controversy between [Cain] and [Citibank]." Additionally, it provided that the arbitration clause would survive "any transfer, sale or assignment of [Cain's] account, or any amounts owed to [his] account, to any other person or entity." In 2007, Cain stopped making payments on his Citibank account. In 2008, Citibank sold all of the rights, title, and interest in Cain's account to Midland Funding, LLC ("Midland").

On March 30, 2009, Midland filed a small claims action against Cain in the District Court of Maryland, sitting in Baltimore City, for the outstanding balance on his Citibank account ("the collection action"). The court entered a default judgment against Cain for $4,520.54. Under the Maryland Collection Agency Licensing Act ("MCALA"), with limited exceptions, companies doing business as a "collection agency" must be licensed by the State. Md. Code (1957, 2015 Repl. Vol.), § 7–301 of the Business Regulation Article ("BR").¹ Although the MCALA required Midland to be licensed when it brought suit against Cain, it did not become licensed until almost a year later.²

On June 23, 2013, the Court of Special Appeals issued an opinion allowing debtors to collaterally attack judgments obtained by unlicensed collection agencies. In Finch v. LVNV Funding LLC , 212 Md.App. 748, 71 A.3d 193 (2013), the intermediate appellate court held that a "judgment entered in favor of an unlicensed debt collector constitutes a void judgment as a matter of law." Id. at 764, 71 A.3d 193. Thus, "appellants may collaterally attack these judgments in a circuit court action." Id.

On July 30, 2013, Cain filed a class action complaint against Midland in the Circuit Court for Baltimore City for its unlawful debt collection practices. Cain argued that the judgments Midland obtained against him and the other class members were void under Finch . He brought claims for declaratory and injunctive relief related to the enforcement of the void judgments, unjust enrichment, and violations of the Maryland Consumer Debt Collection Act ("MCDCA"), Maryland Code (1957, 2013 Repl. Vol.), § 14–202(8) of the Commercial Law Article ("CL"),³ and the Maryland Consumer Protection Act, Maryland Code (1957, 2013 Repl. Vol., 2016 Supp.), CL § 13–301(14)(iii).⁴ Cain requested a money judgment "for violations of the MCDCA ... and for purposes of a sum certain directly related to the judgment sums, pre- and post-judgment interest and costs (including attorney's fees)."

Shortly after Cain brought suit, Midland and Cain filed a consent motion to stay the class action pending the appeal of Finch to this Court. The Circuit Court granted the stay. On October 8, 2013, this Court denied certiorari in Finch , and two weeks later the Circuit Court lifted the stay in Cain's class action. Midland then moved to compel arbitration and stay the court proceedings,⁵ or, alternatively, dismiss Cain's complaint.

The Circuit Court stayed discovery and held a trial on the existence of an arbitration agreement between Cain and Midland. After finding that such an agreement did exist, the Circuit Court granted Midland's motion to compel arbitration. The Circuit Court rejected Cain's argument that Midland waived its right to arbitrate when it brought its 2009 collection action against Cain.⁶

Cain appealed to the Court of Special Appeals, which affirmed. The intermediate appellate court held that Midland did not waive its right to arbitrate by pursuing a small claims action against Cain, seeking court approval of two class settlements in Vassalle v. Midland Funding LLC , 708 F.3d 747 (6th Cir. 2013), or filing a consent motion to stay Cain's class action pending the appeal of Finch . Cain v. Midland Funding, LLC , 2016 WL 1597179, at *13 (Apr. 21, 2016). It concluded that the Circuit Court properly granted Midland's motion to compel arbitration.⁷ Id. at *14.

We granted certiorari to answer the following question:⁸

Did Midland waive its contractual right to arbitrate Cain's claims by either (1) filing a collection action against him in 2009 for outstanding credit card debt, or (2) filing a consent motion to stay the current proceeding pending the appeal of Finch ?

Because we answer this question in the affirmative, we shall reverse the judgment of the Court of Special Appeals.

STANDARD OF REVIEW

The parties disagree on the appropriate standard of review for this case. Cain argues that we should review the Circuit Court's determination that Midland did not waive its contractual right to arbitrate without deference. He contends that the question of whether Midland's 2009 collection action was "sufficiently related" to the claims before us to constitute a waiver of the right to arbitrate is a question of law that we should review afresh. By contrast, Midland argues that the question of whether it waived its right to arbitrate is a factual inquiry that we should review only for clear error.

When the determination of waiver turns on factual analysis, we inquire whether that finding was clearly erroneous. See Brendsel v. Winchester Constr. Co. , 392 Md. 601, 618–19, 898 A.2d 472 (2006) (applying clearly erroneous standard of review to question of whether a party waived the contractual right to arbitrate); BarGale Indus., Inc. v. Robert Realty Co. , 275 Md. 638, 646, 343 A.2d 529 (1975) (applying clearly erroneous standard to question of whether a party waived contract provision requiring minimum mortgage loan). But when a circuit court decision is premised on a conclusion of law, we review that determination without deference. Wholey v. Sears Roebuck , 370 Md. 38, 48, 803 A.2d 482 (2002). Thus, when questions of waiver turn on law rather than fact, we ask whether the trial court's decision was legally correct.

Holloman v. Circuit City Stores, Inc. , 391 Md. 580, 588, 894 A.2d 547 (2006) (reviewing trial court's decision that a party waived her right to a jury trial by signing arbitration agreement without deference); Sears, Roebuck & Co. v. Gussin , 350 Md. 552, 559–67, 714 A.2d 188 (1998) (implicitly conducting de novo review of whether debtor waived the statutory accountant-client privilege).

This approach mirrors that of federal courts, which review legal conclusions that a party waived its right to arbitration without deference to the trial court. See, e.g. , Marie v. Allied Home Mortg. Corp. , 402 F.3d 1, 9 (1st Cir. 2005) ("Given the nature of the issues in this case, the primary of which is waiver, our review of the district court's denial of a motion to compel arbitration and stay judicial proceedings is de novo."); Republic Ins. Co. v. PAICO Receivables, LLC , 383 F.3d 341, 344 (5th Cir. 2004) ("We review whether a party's conduct amounts to a waiver of arbitration de novo , but we review any factual findings underlying the district court's waiver determination for clear error." (citation omitted)); MicroStrategy, Inc. v. Lauricia , 268 F.3d 244, 250 (4th Cir. 2001) (same); Hoxworth v. Blinder, Robinson & Co. , 980 F.2d 912, 925 (3d Cir. 1992) (conducting "plenary" review of trial court decision to deny motion to stay proceedings and compel arbitration).

Here, the determination of whether Midland waived its right to arbitrate depends on two questions of law: (1) whether Midland had the option to arbitrate its 2009 collection action under its contract with Cain; and (2) whether, under Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc. , 294 Md. 443, 450 A.2d 1304 (1982), the 2009 collection action is "related" to Cain's current claims against Midland and thus constituted a waiver of the right to arbitrate.⁹ As to the first question, "[t]he interpretation of a written contract is ordinarily a question of law for the court and, therefore, is subject to de novo review by an appellate court." Wells v. Chevy Chase Bank, F.S.B. , 363 Md. 232, 250, 768 A.2d 620 (2001) (citations omitted). As to the second, when a trial court "order involves an interpretation and application of Maryland ... case law, our Court must determine whether the lower court's...