May v. Midland Funding, LLC (In re May)
| Decision Date | 29 January 2019 |
| Docket Number | AP NO.: 4:18-ap-01057,CASE NO.: 4:17-bk-10970 |
| Parties | IN RE: Freddy MAY and Amber May, Debtors Freddy May and Amber May, Plaintiffs v. Midland Funding, LLC and Midland Credit Management, Inc., Defendants |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Arkansas |
William Thomas Crowder, Crowder McGaha, LLP, Thomas J. Diaz, William Marshall Hubbard, Rainwater, Holt & Sexton, P.A., Little Rock, AR, for Plaintiffs.
Mary-Tipton Thalheimer, Geoffrey B. Treece, Quattlebaum, Grooms & Tull PLLC, Little Rock, AR, Jason B. Tompkins, Balch & Bingham, LLP, Birmingham, AL, for Defendants.
The debtors, Freddy and Amber May, filed a Class Action Complaint ("Complaint") on May 4, 2018. The defendants, Midland Funding, LLC and Midland Credit Management, Inc. ("Midland"), filed Defendants' Motion to Compel Arbitration and to Strike Class Allegations and Memorandum in Support ("Motion") on June 25, 2018, which drew Plaintiffs' Memorandum in Opposition to Defendants' Motion to Compel Arbitration and Strike Class Allegations ("Response") on July 25, 2018, each supplemented by sur-replies. Reserving all other matters, the court heard the Motion and Response solely as to the request for arbitration on August 30, 2018, and took the matter under advisement. In its Memorandum Opinion and Order ("Order"), entered on October 3, 2018, this court denied Midland's request for arbitration.
Thereafter, in its Order Denying Motion to Dismiss , entered on November 1, 2018, this court denied the Defendants' Motion to Dismiss and Memorandum in Support filed on June 25, 2018, at docket entries 7 and 9, and directed Midland to file an answer within twenty-one days. Midland filed Defendants' Answer and Defenses to Plaintiffs' Class Action Adversary Complaint ("Answer") on November 23, 2018. Therein, Midland reasserted that "[p]laintiffs' claims are subject to the binding arbitration provision and class-action waiver included in the credit card account agreement that governs the Account, which Midland is entitled to enforce by virtue of its purchase and assignment of the Account from Synchrony." (Answer, Nov. 23, 2018, ECF No. 51, at 9.)
Thus, left unresolved is the class action issue raised in Midland's original Motion and renewed in their Answer. Between the Motion and Answer, this court, on November 7, 2018, issued its Order Setting Motion for Summary Judgment Deadlines indicating that Midland's request to strike the class action allegations contained in the original Complaint would be treated as a request for summary judgment under Federal Rule of Bankruptcy Procedure 7056. Pursuant to that order, all parties filed supplements on November 5, 2018. Specifically, Midland supplemented their original Motion and Answer by filing Defendants' Supplemental Letter Brief in Support of Motion to Strike Class Allegations at docket 46; the debtors filed their letter response at docket 45. The debtors expanded their initial letter response by filing Plaintiffs' Response to Motion to Strike Class Allegations on December 3, 2018, at docket 55. Completing the pleadings, Midland filed Defendants' Reply Brief in Support of Motion to Strike Class Allegations on December 12, 2018, at docket 56. The court took this matter under advisement. For the reasons stated herein, Midland's request for summary judgment solely as to the issue of the enforceability of the agreed contractual class action waiver is granted.
This court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157. This is a related and core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C), (O), and (c)(1). The following opinion and order constitute findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
Freddy May opened a Lowe's credit card account financed through Synchrony Bank ("Synchrony") on May 5, 2013. According to the debtors, Synchrony received notice of their bankruptcy filing and then "transferred data about those debts to Midland under a written agreement." (Complaint, May 4, 2018, ECF No. 1, at ¶ 15.) Thereafter, Midland filed a proof of claim for an amount in excess of the scheduled debt. Despite representations that the proof of claim amount did not include interest or other charges, the debtors assert that Midland "knows that interest and fees are in the claim amount, [but] Midland direct[s] its employees to file Proofs of Claim that assert no interest or fees are in the claim amount." (Compl., at ¶ 25.) The debtors contend that this practice violates three provisions of Federal Rule of Bankruptcy Procedure 3001 : (1) section (a) for "failing to file a Proof of Claim that conform[s] substantially to the Official Form because it failed to accurately disclose that interest, fees, expenses, or charges were included in the claim amount"; (2) section (c)(1) based on the alleged failure of Midland to adequately provide the written document underlying its claim;1 and (3) section (c)(2) for failure "to file with its Proof of Claim an itemized statement of the interest, fees, expenses or charges that were incurred."2 (Compl., at ¶¶ 29–30, 55–56.) Further, debtors assert that the aggregate of these alleged transgressions violate the Fair Debt Collection Practices Act, 15 U.S.C. § 1692.
The debtors seek relief primarily in the context of statutory damages and fees attendant to a class action. (Compl., at 11.) The bankruptcy specific prayer is in the nature of injunctive relief preventing inaccurate proofs of claim being filed in the future, requiring an amended proof of claim with supporting documentation in the instant case, and disallowing the claim if not properly amended. (Compl., at 12.)
Contained in the debtors' Complaint is a request for class action certification. In its Order, the court denied Midland's effort to compel arbitration. That left outstanding the severable but somewhat intertwined issue of whether the class action waiver contained in the account agreement is enforceable. The debtors seek certification as a class action under Federal Rule of Civil Procedure 23.3 Midland interposes waiver language that they argue is dispositive.
Plaintiffs "AGREE[D] NOT TO PARTICIPATE IN A CLASS, REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL ACTION AGAINST US IN COURT OR ARBITRATION ," and that they also "MAY NOT BRING CLAIMS AGAINST US ON BEHALF OF ANY ACCOUNTHOLDER WHO IS NOT AN ACCOUNTHOLDER ON YOUR ACCOUNT, AND YOU AGREE THAT ONLY ACCOUNTHOLDERS ON YOUR ACCOUNT MAY BE JOINED IN A SINGLE ARBITRATION WITH ANY CLAIM YOU HAVE. "
(Motion to Compel Arb., June 25, 2018, ECF No. 8, at 13.)
Contextually, this waiver language is included in the full arbitration section.4 This section of the contract is clear. It contains: a contractual waiver of the right to seek or enjoy class action status in arbitration or court; the debtors/account holders have the right to opt out; the arbitration clause in its entirety, including the waiver clause, is governed by the Federal Arbitration Act ("FAA"); only a court "will decide disputes about the validity, enforceability, coverage or scope of this section or any part thereof"; and Utah law is applicable "to the extent state law is relevant under the FAA." (Lowe's Agreement, at 4–5.)
(Lowe's Credit Card Account Agreement, June 25, 2018, ECF No. 8-1, at 4–5) (emphasis added).
The debtors chose not to opt out and do not contest Midland's assertion that Utah law permits clauses of this nature, as follows:
UTAH CODE ANN. § 70C–4–105 (West 2018) (emphasis added). The debtors now seek to be excused from their contract and from their failure to opt out.
Were the inquiry to end here, it might be simple. Utah law permits class action waivers, and the parties contracted accordingly. However, we are in federal court with a class action prayer that drew a request to compel arbitration and enforce a class action waiver directly in the shadow of the FAA. Accordingly, Midland and the debtors principally cited cases dealing with arbitration clauses that included class action waivers. Yet, in this instance, the court has already denied Midland's request for arbitration.5 (Memorandum Opinion and Order, Oct. 3, 2018, ECF No. 33.) The cases cited by the parties, however, retain their efficacy both in the context of a class action waiver conjoined with an arbitration clause and a waiver contractually separated by a severability clause.
Further complicating—or perhaps simplifying—matters, the class action waiver, even if severed, is contractually still governed by the FAA. Fortunately, the inquiry and analysis along all trails independently and collectively compel the same result.
The debtors contend that the class action waiver is unenforceable.
While arbitration agreements have been subject to recently-developed federal "pro-arbitration policy," no such policy exists for class waivers. The U.S. Supreme Court has held that a state rule was unenforceable when it conflicted with a valid federal procedural rule ( Federal Rule of Civil Procedure 23 ). See Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Company , 59[559] U.S. 393, 130 S.Ct. 1431 (2010). Under a similar analysis, federal district courts have refused to enforce contractual bars to class actions, holding that whether a private...
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Campbell v. Jacob
...enforce the terms ofthe Arbitration Provision includes the right to enforce the Class Action prohibition. See, May v. Midland Funding, LLC, 595 B.R. 894, 903 (E.D. Ark, 2019)( enforcing a class action waiver contained in an arbitration provision, stating "[t]his court must respect the parti......
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Campbell v. Jacob
...enforce the terms of the Arbitration Provision includes the right to enforce the Class Action prohibition. See, May v. Midland Funding, LLC, 595 B.R. 894, 903 (E.D. Ark, 2019)( enforcing a class action waiver contained in an arbitration provision, stating "[t]his court must respect the part......
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Campbell v. Jacob
...enforce the terms of the Arbitration Provision includes the right to enforce the Class Action prohibition. See, May v. Midland Funding, LLC, 595 B.R. 894, 903 (E.D. Ark, 2019)( enforcing a class action waiver contained in an arbitration provision, stating "[t]his court must respect the part......