Zirpoli v. Midland Funding, LLC

• Decision Date: 01 September 2022
• Docket Number: 21-2438
• Citation: 48 F.4th 136
• Parties: Benjamin ZIRPOLI, individually and on behalf of all others similarly situated v. MIDLAND FUNDING, LLC; Midland Credit Management, Inc., Midland Funding, LLC., Appellant
• Court: U.S. Court of Appeals — Third Circuit

48 F.4th 136

Benjamin ZIRPOLI, individually and on behalf of all others similarly situated
v.
MIDLAND FUNDING, LLC; Midland Credit Management, Inc., Midland Funding, LLC., Appellant

No. 21-2438

United States Court of Appeals, Third Circuit.

Argued June 22, 2022
Filed: September 1, 2022

Kevin J. Abramowicz, Kevin W. Tucker, East End Trial Group, 6901 Lynn Way, Suite 215, Pittsburgh, PA 15208, Karla Girbride [ARGUED], Public Justice, 1620 L Street, N.W., Suite 630, Washington, DC 20036, John B. Keller, Keller Keller Beck & Ross, 1035 Wayne Avenue, Chambersburg, PA 17201, Counsel for Appellee

Lauren M. Burnette [ARGUED], Messer Strickler Burnette, 12276 San Jose Boulevard, Suite 718, Jacksonville, FL 32223, Counsel for Appellant

Before: McKEE, RESTREPO, and BIBAS, Circuit Judges

OPINION

McKEE, Circuit Judge.

Arbitration is a contractual obligation. Thus, parties to a contract may delegate questions of arbitrability to an arbitrator. If parties clearly and unmistakably make this choice, then district courts generally must send threshold questions of arbitrability to arbitration to comply with the parties' agreement.

Here, OneMain Financial Group legally contracted with Benjamin Zirpoli. This contract includes a clause that delegates any question of arbitrability to arbitrators. OneMain then assigned this contract to Midland Funding LLC. Litigation between Midland and Zirpoli ensued, and Midland filed a motion to compel arbitration. Zirpoli opposes that motion, arguing that Midland cannot compel arbitration because OneMain's assignment to Midland is void under Pennsylvania law. We must decide if the District Court erred in not granting the motion to compel and refusing to refer the dispute to an arbitrator. For the reasons that follow, we hold that the court did err and that the motion to compel should have been granted.

I.

OneMain is a consumer discount company: a non-bank finance company that makes, buys, or sells consumer loans in amounts under $25,000 with combined fees, interest, charges, and other amounts that aggregate in excess of 6% per year. Zirpoli applied for and received a loan from OneMain (the "Loan"). Under the terms of the Loan, Zirpoli was to borrow $6,200.08 and repay at a rate of 26.91% (for a total of $11,364.35). His Loan was issued under the Consumer Discount Company Act (CDCA), a consumer protection statute, which creates an exception to, and is a corollary of, Pennsylvania's usury law.¹ The obligations of the Loan are governed by a disclosure statement, note and security agreement, and an arbitration agreement.

The arbitration agreement states:

48 F.4th 139

You and We agree that either You or We have an absolute right to demand that any Claim be submitted to an arbitrator in accordance with this Arbitration Agreement. If either You or We file a lawsuit, counterclaim, or other action in court, the other party has the absolute right to demand arbitration following the filing of such action.²

The "Definitions for Arbitration Agreement" section provides:

"We" or "Us" or "Our" means the Lender under the Note listed above, its past, present or future respective parents, subsidiaries, affiliates, predecessors, assignees, successors, and their respective employees, agents, directors, and officers.... "Claim" means any case, controversy, dispute, tort, disagreement, lawsuit, or claim now or hereafter existing between You and Us.³

Pursuant to the terms of the agreement, a claim "includes, without limitation, anything related to":

The Note, this Agreement, or the enforceability, or the arbitrability of any Claim pursuant to this Agreement, including but not limited to the scope of this Agreement and any defenses to enforcement of the Note or this Agreement; ... [and] [a]ny federal or state statute or regulation, or any alleged violation thereof, including without limitation insurance, usury, and lending laws.

Midland is a Delaware limited liability corporation. Its sole business is purchasing defaulted consumer debt. After Zirpoli and OneMain executed the Loan, OneMain and Midland executed a sales agreement through which OneMain sold several delinquent accounts to Midland; those accounts included Zirpoli's Loan. Midland acquired these accounts in a sales agreement even though it did not possess a CDCA license or request approval from the Department of Banking.⁴ OneMain's records show that it had charged-off Zirpoli's account with an outstanding balance of $7,391.90.

After acquiring Zirpoli's Loan from OneMain, Midland sued Zirpoli to collect the amount Zirpoli owed on the Loan. Zirpoli hired counsel and entered a defense, but Midland thereafter dismissed the suit rather than litigating. Subsequent to dismissing the litigation, Midland allegedly attempted to collect the delinquent Loan by reporting it to various consumer agencies, thereby negatively impacting Zirpoli's credit. Midland also allegedly obtained and used Zirpoli's credit report from various consumer reporting agencies.

In response, Zirpoli filed this class action lawsuit in the Middle District of Pennsylvania. He alleged that Midland's collection activities including the since-dismissed lawsuit and reporting the Loan delinquency to credit agencies constituted an unlawful attempt to collect the Loan. Zirpoli contends that because Midland does not have a CDCA license and never obtained nor requested approval from the Department of Banking, Midland was not lawfully permitted to purchase the Loan. Accordingly, he argues, Midland's attempts to collect on the Loan violated several consumer protection acts.

Midland responded to the suit by filing a motion to compel arbitration and to stay the proceedings. The District Court denied this motion without prejudice, finding that it was not apparent from the face of the complaint that Zirpoli's claims were subject

48 F.4th 140

to a valid and enforceable arbitration agreement and that discovery was necessary. The District Court then ordered additional, limited discovery on the following issues:

• Whether the Secretary of Banking approved the purported transaction involving Midland Funding, an unlicensed consumer-discount company;

• Whether, in accordance with the terms of the sale agreement, Midland Funding obtained approval to compel arbitration with Zirpoli; and,

• Whether Midland Funding maintains a clear chain of title to the loan account.⁵

Thereafter, the District Court found that the discovery revealed that (1) the Pennsylvania Secretary of Banking did not approve the assignment between OneMain and Midland, and (2) Midland was not licensed under the CDCA during the time period at issue in this litigation.

Midland then filed a renewed motion to compel arbitration and to stay proceedings. It argued that it obtained the right to enforce Zirpoli's obligations under the Loan as part of the purchase agreement with OneMain, including the right to compel arbitration. Zirpoli renewed his objection to the motion, arguing that the assignment was illegal and void and that he was therefore not bound by the arbitration clause in the agreement between OneMain and Midland. The District Court denied Midland's motion to compel. In doing so, it focused on the validity of the assignment from OneMain and Midland and reasoned that was the dispositive question governing arbitrability. The District Court then denied as moot Midland's motion to stay. This appeal follows.

II.⁶

We are once again confronted with the "mind-bending issue" of arbitration about arbitration.⁷ Not too long ago, we answered the question of "[w]ho decides—a court or an arbitrator—whether an agreement exists, when the putative agreement includes an arbitration provision empowering an arbitrator to decide whether an agreement exists."⁸ We held that "questions about the ‘making of the agreement to arbitrate’ are for the courts to...