334 F. Supp. 3d 499
D.D.C.2018Background
- Two Massachusetts residents, Johnson Khath and Virginia Newton, sued Midland Funding, LLC claiming Midland unlawfully collected debts in Massachusetts without a debt-collector license; cases were removed to federal court and consolidated.
- Midland moved twice to compel arbitration; the Magistrate Judge denied the first motion without prejudice for insufficient proof of assignment and granted in part the renewed motion (compelling Khath to arbitrate but not Newton).
- Midland produced bills of sale, custodian affidavits, and raw electronic account data to show assignment chains from original creditors to Midland for both accounts.
- For Khath, the court found Midland proved assignment and that Khath’s FIA card agreement (bearing his name) contained an arbitration clause and class-action waiver.
- For Newton, the court found Midland proved assignment of the account but there remained a triable issue whether the specific Chase agreement Midland produced governed her account (no evidence it was sent to Newton).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Midland was assigned the Khath and Newton accounts | Midland lacks admissible proof of assignment; assignments unidentified in bills of sale | Bills of sale, custodian affidavits, and supplemental raw data establish assignment | Court affirmed Magistrate Judge: assignment to Midland proved for both accounts (factual findings not clearly erroneous) |
| Admissibility of original creditors' business records introduced via Midland/Asset custodians | Records are inadmissible hearsay because declarants did not create them | Midland/Asset integrated original records into their business and produced qualified custodial declarations | Court held custodial testimony and integration suffice; records admissible for assignment proof |
| Who decides gateway question whether an arbitration agreement exists / binds the parties | Plaintiffs: court must decide whether agreement was formed | Midland: delegation clauses mean arbitrator should resolve arbitrability | Court held court must decide whether an agreement was concluded (formation) before compelling arbitration; Magistrate properly addressed that question |
| Validity and timing of resolving the Class Action Waiver in Khath's agreement | Khath: court must determine waiver validity before compelling arbitration because if waiver is invalid the arbitration agreement is void | Midland: delegation clauses and general arbitration provisions should send validity issues to arbitrator | Court modified Magistrate Order: court must decide validity of the FIA class-action waiver as to Khath before compelling arbitration (waiver specifically reserved to court in contract) |
| Whether Newton is bound by the exemplar Chase agreement | Newton: no evidence Chase agreement was sent or connected to her account; genuine dispute exists | Midland: exemplar agreement and billing references suffice to show Newton was bound | Court held triable factual issue remains; summary (expedited) trial available to resolve whether Newton agreed to the produced Chase agreement |
Key Cases Cited
- PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10 (1st Cir.) (an order compelling arbitration is non-dispositive)
- Phinney v. Wentworth Douglas Hosp., 199 F.3d 1 (1st Cir.) (standard for reviewing magistrate factual findings for clear error)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (distinguishes challenges to arbitration clause specifically from challenges to the contract as a whole)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (court must decide challenges to the arbitration clause itself; delegation clauses may be enforced if clear and unmistakable)
- Awuah v. Coverall N. Am., Inc., 703 F.3d 36 (1st Cir.) (courts decide formation disputes; allocation to arbitrator depends on delegation language)
- Oliveira v. New Prime, Inc., 857 F.3d 7 (1st Cir.) (district court may deny motion to compel without prejudice to permit further development of the record)
- Grand Wireless, Inc. v. Verizon Wireless, Inc., 748 F.3d 1 (1st Cir.) (elements a party must show to compel arbitration)