Cain v. Midland Funding, LLC
452 Md. 141
| Md. | 2017Background
- Cain opened a Citibank credit card account containing an arbitration clause that survived assignment; Citibank later sold the account to Midland Funding, LLC.
- Midland sued Cain in small claims court in 2009 and obtained a default judgment for $4,520.54 while it was unlicensed under Maryland law.
- The Maryland Court of Special Appeals held in Finch that judgments obtained by unlicensed debt collectors are void and may be collaterally attacked.
- After Finch became final, Cain filed a putative class action in circuit court seeking to void and recover sums from judgments like his; Midland moved to compel arbitration under the contract.
- Trial and intermediate appellate courts found an arbitration agreement and held Midland had not waived arbitration; the Court of Appeals granted certiorari to decide whether Midland waived its right to arbitrate by pursuing the 2009 collection action (and by later waiting to invoke arbitration).
Issues
| Issue | Plaintiff's Argument (Cain) | Defendant's Argument (Midland) | Held |
|---|---|---|---|
| Whether Midland could have elected arbitration of the 2009 collection action | The arbitration clause covered all claims relating to the account; Midland’s filing in court was of an arbitrable claim | Contract expressly excepted “claims filed in small claims court,” so filing in small claims precluded arbitration of that filed claim | The clause allowed either party to elect arbitration until a claim was actually filed in small claims court; Midland could have elected arbitration prior to filing, so the 2009 suit was an arbitrable dispute it chose to litigate |
| Whether litigating the 2009 collection action waived Midland’s contractual right to arbitrate Cain’s later claims | Litigation of the 2009 action produced the very judgments and statutory causes of action Cain now asserts, so the claims are "related" and waiver follows under Frank | Waiver should be limited to issues actually litigated or decided in the earlier proceeding; Cain’s consumer-protection claims are distinct | The Court held the later claims are related because they depend on Midland’s prior collection suit and judgment; by litigating the 2009 action Midland waived arbitration of related claims |
| Whether Maryland requires a showing of prejudice to find waiver of arbitration | Cain argued prejudice is not required under Maryland contract-waiver principles | Midland argued prejudice is required (relying on federal cases under FAA §3) | The Court held prejudice is not required to establish waiver under Maryland law; waiver principles for contracts apply to arbitration clauses |
| Whether additional conduct (delay in invoking arbitration or participation in other litigation) independently established waiver | Cain argued Midland’s timing (waiting until Finch cert. denial) and pattern of litigation evidenced intent to waive | Midland argued its limited participation (consenting to a stay) and timing were reasonable and did not indicate waiver | The Court declined to decide the additional arguments because waiver was established by the 2009 collection action; it reversed lower courts and held waiver occurred based on that action |
Key Cases Cited
- Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc., 294 Md. 443 (Md. 1982) (waiver by participation in litigation limited to issues raised/decided unless disputes are interrelated)
- Finch v. LVNV Funding LLC, 212 Md. App. 748 (Md. Ct. Spec. App. 2013) (judgments obtained by unlicensed debt collectors are void and subject to collateral attack)
- Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (U.S. 1983) (FAA reflects federal policy favoring arbitration)
- Perry v. Thomas, 482 U.S. 483 (U.S. 1987) (state contract law governs defenses to arbitration agreements)
- Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (U.S. 1985) (arbitration agreements placed on same footing as other contracts)
- Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (generally applicable contract defenses apply to arbitration clauses)
- MicroStrategy, Inc. v. Lauricia, 268 F.3d 244 (4th Cir. 2001) (waiver inquiry considers whether claims are factually and legally distinct)