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Ford v. Midland Funding, LLC

United States District Court, E.D. Michigan, Southern Division

September 8, 2017

FRANCES FORD, individually and on behalf of other persons similarly situated, Plaintiff,
v.
MIDLAND FUNDING, LLC.; MIDLAND CREDIT MANAGEMENT, INC.; ENCORE CAPITAL GROUP INC.; & LAW OFFICE OF MICHAEL R. STILLMAN, PC d/b/a/ THE STILLMAN LAW OFFICE Defendants.

          ORDER DENYING WITHOUT PREJUDICE DEFENDANTS' MOTIONS TO COMPEL ARBITRATION, DKTS. 25, 26, AND SETTING SUMMARY TRIAL UNDER 9 U.S.C. § 4.

          TERRENCE G. BERG UNITED STATES DISTRICT JUDGE

         Plaintiff-an individual and a member of a putative class- brings a claim under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, against Defendants (debt collectors) and their law firm.[1] Plaintiff contends that Defendants sued her in state court to collect a credit card debt, but that their lawsuit was time-barred by the statute of limitations and thus illegal under the FDCPA. Defendants' motions ask this Court, over Plaintiff's objection, to dismiss this case and compel Plaintiff to arbitrate her claims on an individual, non-class basis.

         For reasons explained in detail below, the question whether Defendants may compel arbitration is premature. Before deciding whether Defendants may compel arbitration, it is necessary to determine whether Plaintiff and Defendants actually entered into an arbitration agreement. The Federal Arbitration Act contains a summary trial procedure to make such a determination where the existence of a contract to arbitrate is in issue. The existence of such an agreement is at issue here, so the Court will deny Defendants' motions to compel arbitration without prejudice and set this case for summary trial.

         I. Background and Procedural History

         The record in this case shows that Plaintiff's credit card account was owned by several entities before Midland allegedly purchased it. In 2003, Plaintiff opened a credit card with Fleet Bank (“Fleet”), which merged into Bank of America (“BOA”) in 2005. Dkt. 30, Ex. A at Pg ID 392. In October 2006, BOA merged into FIA Card Services. (“FIACS”). Id. All FIACS credit card accounts are subject to a Credit Card Agreement. FIACS's 2006 agreement contained an arbitration clause and a “delegation provision, ” which reserved the threshold question of whether a dispute was arbitrable for an arbitrator instead of the court. That delegation provision provides in relevant part:

“Any claim or dispute by either you or us against the other …shall, upon election by either you or us, be resolved by binding arbitration. The arbitrator shall resolve any Claims, including the applicability of this Arbitration and Litigation Section or the validity of the Entire Agreement….”

Dkt. 26, Ex. 1 at Pg ID 195, ¶ 48. According to Defendants, Plaintiff last used her card on December 8, 2006 and FIACS charged-off her account for non-payment later that month. Dkts. 26, Ex. 2 at Pg ID 191; 30, Ex. 2 at Pg ID 393.

         Then, in September 2008, Midland allegedly purchased Plaintiff's charged-off account from FIACS. Dkt. 26, Ex. 1 at Pg ID 183. On December 26, 2015-more than seven years after purchasing Plaintiff's debt-Midland filed a collection lawsuit against Plaintiff in Michigan state court by and through Defendant Stillman Law Office. Plaintiff asserted that the statute of limitations had run on her debt as an affirmative defense. Dkt. 35, Ex. 7 at Pg ID 4. In April, 2016, at Stillman's request, the court entered a stipulated dismissal of Midland's case with prejudice. Id. at Pg ID 8.[2] The record is unclear whether Midland's case was dismissed with prejudice because Plaintiff's debt was in fact time-barred. However, Michigan's statute of limitations for debt collection is six years, M.C.L. § 600.5807(8), and Midland sued Plaintiff on December 15, 2015, Dkt. 35, Ex. 6 at Pg ID 749, more than nine years after Plaintiff's last account activity on December 8, 2006.

         The record before the Court also shows that on September 3, 2015-approximately four months before Midland brought suit against Plaintiff in Michigan state court over a nine-year-old debt-Midland entered into a consent order with the United States Consumer Financial Protection Bureau (CFPB) that enjoined the company from among other things: (1) attempting to collect time-barred debt; (2) procuring and submitting misleading affidavits in debt collection litigation; and (3) attempting to collect debt based on potentially inaccurate data. Dkt. 36, Ex. C at Pg ID 358-64; 2015-CFPB-0022. In addition, as Plaintiff points out and Defendants do not contest, in August 2016, the American Arbitration Association (AAA)-a leading national provider of alternative dispute resolution services-indicated that it would no longer administer claims involving Midland because the company failed to comply with numerous AAA policies. Dkt. 29, Ex. D.

         Plaintiff alleges, individually and on behalf of a putative class, that Defendants attempted to collect time-barred debt in violation of: (1) the FDCPA, 15 U.S.C. §§ 1692(f)-(e); (2) the 2015 CFPB consent order; and (3) the Michigan Regulation of Collection Practices Act. M.C.L. § 445.252.

         Defendants contend that the arbitration clause and delegation provision in the FIACS 2006 credit card agreement govern Plaintiff's account and therefore, because Defendants so elect, this Court must compel Plaintiff to arbitrate (1) her claims (on an individual, non-class basis) and (2) all threshold questions of arbi-trability, including the question of whether an arbitration agreement exists between the parties. Plaintiff contends that there are issues of fact regarding whether Midland owns her account and, if it does, whether FIACS ever sent her the 2006 agreement. Thus, Plaintiff argues, notwithstanding the 2006 agreement's delegation provision, this case must proceed summarily to trial on the issue of whether the 2006 agreement is contractually binding on the parties. See 9 U.S.C. § 4.[3]

         II. Standard of Review

         The Federal Arbitration Act (FAA) “embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.” Buckeye Check Cashing, Inc. v. Cardena, 546 U.S. 440, 443 (2006) (citing 9 U.S.C. § 2). Despite this liberal federal policy favoring arbitration agreements, arbitration is a “matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Techs. v. Commc'ns Workers of Am., 475 U.S. 643 (1986).

         In most cases, before compelling an unwilling party to arbitrate, “the court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement.” Richmond Health Facilities v. Nichols, 811 F.3d 192, 195 (6th Cir 2016) (quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). And, “because arbitration agreements are fundamentally contracts, ” courts apply the “applicable state law of contract formation” in performing this limited review. Tillman v. Ma-cy's, Inc., 735 F.3d 453, 456 (6th Cir. 2013) (quoting Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 972 (6th Cir 2007)).

         Sometimes, however, an arbitration clause contains a delegation provision that allows parties to “arbitrate ‘gateway' questions of ‘arbitrability, ' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). Before a court can enforce a delegation provision, however, it must find that the parties “clearly and unmistakably” manifested their intent to delegate threshold questions of arbitrability to an arbitrator. Id. at n. 1.

         Where a party admits it assented to a contract containing an arbitration clause and delegation provision, gateway questions concerning the arbitration clause's enforceability (for example, whether the contract it is within is unconscionable), validity, or scope, are for an arbitrator to decide. See, e.g., Danley v. Encore Capital Group, Inc., 680 F. App'x. 394 (6th Cir. 2017) (where Plaintiff signed a contract with an arbitration clause and delegation provision, question of arbitration clause's validity under the Uniform Commercial Code (UCC) was for the arbitrator). But what if-as here-a party resisting arbitration contends that she never assented to a contract containing an arbitration clause and delegation provision? Is the gateway question of whether an arbitration agreement between the parties exists-as opposed to questions about its validity, enforceability, or scope-also for the arbitrator to decide? Neither the Sixth Circuit nor the Supreme Court have explicitly answered this question, though close reading of each court's precedent suggests that, in most cases, their answer would be no.

         In Granite Rock Co. v. Int'l Bhd. Of Teamsters, 561 U.S. 287 (2010), the majority stated in dictum that before a court can determine that parties agreed to arbitrate a dispute, it must find that their agreement “was validly formed and (absent a provision clearly and validly committing such issues to the arbitrator [that is, a delegation provision]) is legally enforceable and best construed to encompass the dispute.” Id. at 303. As Professor Karen Halverson points out, in that sentence the “placement of the parenthetical” suggests that the opinion “draws a distinction between the issue of contract formation and issues of contract enforceabil-ity and interpretation” and implies “that only the ...


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