United States District Court, E.D. Michigan, Southern Division
FRANCES FORD, individually and on behalf of other persons similarly situated, Plaintiff,
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
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. 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.
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
Background and Procedural History
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
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.
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. 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.
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.
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.
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.
Standard of Review
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).
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)).
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.
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.
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 ...