Novic v. Midland Funding, LLC

• Citation: 271 F.Supp.3d 778
• Decision Date: 21 September 2017
• Docket Number: Civil Action No.: RDB–17–0177
• Parties: Charlene NOVIC, Plaintiff, v. MIDLAND FUNDING, LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

271 F.Supp.3d 778

Charlene NOVIC, Plaintiff,

v.MIDLAND FUNDING, LLC, et al., Defendants.

Civil Action No.: RDB–17–0177

United States District Court, D. Maryland.

Signed September 21, 2017

Peter A. Holland, Emanwel Josef Turnbull, The Holland Law Firm PC, Annapolis, MD, Scott C. Borison, Legg Law Firm LLP, San Mateo, CA, Christopher Ethan Kittell, pro hac vice, Kittell Law Firm LLC, Hernando, MS, for Plaintiff.

Lauren M. Burnette, Barron & Newburger, P.C., St. Johns, FL, Kevin T. Crocker, pro hac vice, Barron and Newburger PC, Austin, TX, for Defendants.

MEMORANDUM OPINION

Richard D. Bennett, United States District Judge

Plaintiff Charlene Novic ("Plaintiff" or "Ms. Novic") initially brought this action against Defendants Credit One Bank, N.A. ("Credit One"), Midland Funding, LLC and Midland Credit Management, LLC (collectively, "Midland"), Trans Union, LLC ("Trans Union"), Equifax Information Services, LLC, ("Equifax"), and Experian Information Solutions, Inc. ("Experian")¹ alleging violations of the Federal Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681, et seq. (Am. Compl. ECF No. 23.) Currently pending before this Court is Defendant Credit One's Motion to Compel Arbitration and Stay the Litigation. (ECF No. 52.) The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated herein, Defendant's Motion to Compel Arbitration and Stay the Litigation (ECF No. 52) is DENIED.

BACKGROUND

Ms. Novic opened an account with Credit One in September of 2011. (ECF No. 23 at ¶ 6.) In August of 2013, unbeknownst to Ms. Novic, the mailing address on her account was switched from her Maryland address to an address in Oregon. (ECF No. 23 at ¶¶ 16–19; ECF No. 54–1 at 11.) One month later, fraudulent charges began accumulating on Ms. Novic's account. (Id .) Ms. Novic, not yet realizing the fraud, continued to make monthly payments only in an amount sufficient to cover her usual spending. (ECF No. 23 at ¶ 25.) On March 22, 2014, Ms. Novic received a late notice from Credit One via email that stated "if you have already made your payment, please ignore this notice." (Id. at ¶ 26.) Believing that she had already paid her account, Ms. Novic ignored the notice. (Id .) Eight days later, Credit One sold Ms. Novic's account. (Id. at ¶ 27). Over the next month, Ms. Novic's account was sold from Credit One to MHC Receivables, LLC ("MHC"), from MHC to Sherman Originator III LLC ("Sherman"), and then from Sherman to Midland. (ECF No. 54–1 at 9.)

In late April of 2014, Midland began contacting Ms. Novic to collect the debt via letter and telephone calls. (ECF No. 23 at ¶¶ 28–29.) Ms. Novic, not yet aware of the fraud or that her account had been sold to Midland, initially thought the calls were a scam. (Id. at ¶ 31.) After the calls continued, Ms. Novic demanded proof that she owed the debt. (Id. ) After speaking with Midland representatives and contacting Credit One, Ms. Novic finally received an account statement showing the fraudulent address and unauthorized charges. (Id. at ¶¶ 20, 32.) Ms. Novic immediately reported the fraudulent Oregon address and unauthorized transactions to Midland. (Id. at ¶ 32.) When she checked her credit reports, Ms. Novic saw that both Credit One and Midland were reporting the same fraudulent account. (Id. at ¶¶ 34, 39.) Ms. Novic then began to dispute the debt with Equifax, Trans Union, and Experian. (Id. at ¶¶ 35–39.) When Credit One and Midland continued to report that Ms. Novic owed money on the fraudulent account, however, the credit bureaus refused to remove the false reporting. (Id. )

Despite Ms. Novic's disputes and reports of fraud, in 2016, Midland initiated collection proceedings against Ms. Novic in the District Court of Maryland for Washington County. (ECF No. 54–1 at 1–7.) Midland, in order to show that it was the successor-in-interest to Ms. Novic's account, had documentation and affidavits from Credit One. (Id. at 12–14, 16–17.) To show that Credit One originated Ms. Novic's account, Credit One's Vice President of Portfolio Services-Operations, Gary Harwood, noted on the bill from MHC to Sherman that Credit One acknowledged the sale and that the accounts were originated by Credit One and had previously been assigned to MHC. (Id. at 12.) Mr. Harwood also provided an affidavit detailing that Ms. Novic's account was "originated by Credit One and owned by MHC immediately prior to the sale to Sherman" and the sale "represent[s] all rights to the accounts and receivables previously owned and serviced by Credit One." (Id. at 13–14.) Midland then had a copy of the bills of sale from MHC to Sherman and from Sherman to Midland. (Id. at 8–25.) In addition, Credit One's Senior Vice President and Chief Financial Officer provided an affidavit similar to Mr. Harwood's detailing how Credit One assigns accounts and receivables "represent[ing] all rights to the accounts." (Id. at 16–17.)

Ms. Novic filed a notice of intention to defend on the grounds that someone had stolen her identity, changed the address on her account, and ran up charges. (ECF No. 54 at 2, ¶ 2; ECF No. 54–1 at 3.) The state district court, after a trial on the merits on October 3, 2016, entered judgment in favor of Ms. Novic. (ECF No. 23 at ¶¶ 46–52.)

On December 27, 2016, Ms. Novic filed the instant action in the Circuit Court for Anne Arundel County. (ECF No. 2.) Defendant Trans Union removed the case to federal court based on federal question jurisdiction. (ECF No. 1.) On June 15, 2017, this Court ordered a Stipulation of Dismissal with Prejudice between Ms. Novic and Defendant Trans Union. (ECF No. 63.) On September 11, 2017, by agreement of the parties, this Court dismissed Defendants Equifax and Experian from this action. (ECF No. 93.)

On March 24, 2017, Credit One filed a Motion to Compel Arbitration and Stay the Litigation. (ECF No. 52.) Initially, Midland also filed a Motion to Compel Arbitration and Stay the Proceedings. (ECF No. 61.) Following a teleconference with the parties, this Court granted Credit One and Midland leave to file Supplemental Memorandum in Support of their Motions to Compel Arbitration regarding the Maryland Court of Appeals' March 24, 2017 decision in Cain v. Midland Funding, LLC , 452 Md. 141, 156 A.3d 807 (2017). (ECF Nos. 72, 74.) Five days after the teleconference, Midland filed a Consent Motion to Withdraw its Motion to Compel Arbitration and Stay Proceedings, ECF No. 75, which this Court granted. (ECF No. 77.)

STANDARD OF REVIEW

Defendant Credit One has filed the pending Motion to Compel Arbitration (ECF No. 52) pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq . The standard of review on a Motion to Compel Arbitration pursuant to the FAA is " ‘akin to the burden on summary judgment.’ "² Galloway v. Santander Consumer USA, Inc. , 819 F.3d 79, 85 (4th Cir. 2016) (quoting Chorley Enterprises, Inc. v. Dickey's Barbecue Restaurants, Inc. , 807 F.3d 553, 564 (4th Cir. 2015) ). Therefore, motions to compel arbitration "shall [be] grant[ed] ... if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Rose v. New Day Financial, LLC , 816 F.Supp.2d 245, 251–52 (D. Md. 2011).

A party seeking to apply the FAA must demonstrate four elements: " ‘(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the defendant to arbitrate the dispute.’ " Galloway , 819 F.3d at 84 (quoting Rota–McLarty v. Santander Consumer USA, Inc. , 700 F.3d 690, 696 n. 6 (4th Cir. 2012) ). Therefore, "although arbitration has a favored place, there still must be an underlying agreement between the parties to arbitrate.’ " Adkins v. Labor Ready, Inc. , 303 F.3d 496, 501 (4th Cir. 2002) (quoting Arrants v. Buck , 130 F.3d 636, 640 (4th Cir. 1997) ). The Supreme Court has directed courts to "apply ordinary state-law principles that govern the formation of contracts" and "federal substantive law of arbitrability." Hill v. Peoplesoft USA, Inc. , 412 F.3d 540, 543 (4th Cir. 2005) ; see also Heller v. TriEnergy, Inc. , 877 F.Supp.2d 414, 423–24 (N.D.W.V. 2012) (explaining that the "one important caveat to the reach of the FAA" is that state law governs the formation of the contract (citing Hill , 412 F.3d at 543 )).

ANALYSIS

Ms. Novic does not contest that the Agreement between herself and the Defendant Credit One once contained a valid agreement to arbitrate. Rather, Ms. Novic's argument is two-fold: First, that Credit One ceased to be a party to the arbitration agreement when it assigned all of its right, title and interest to Ms. Novic's account. Therefore, it no longer holds the right to compel arbitration. Second, that even if the arbitration agreement between Ms. Novic and Credit One survived the assignments, the right to arbitrate was waived as the result of the state court litigation. This Court addresses these arguments in turn.³

I. Defendant assigned its right to arbitrate

Ms. Novic first argues that there is no longer a binding and enforceable agreement to arbitrate as a result of Credit One's assignment of its right, title and interest to her account. (ECF No. 79 at 5.) "[A]rbitrability is at bottom a question of contract interpretation; a party cannot be required to arbitrate a dispute if it has not contractually agreed to do so." Sierra Roach v. Navient Solutions, Inc. , 165 F.Supp.3d 343, 346 (D. Md. 2015). Therefore, "[w]hile ambiguities in the language of [an] agreement should be resolved in favor of arbitration, Volt [Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ. , 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ], [the Court does] not override the clear...