2022 Ohio 4506
Ohio Ct. App.2022Background
- In 2016 Schwarzmer opened a Sears/Citibank credit card; he later defaulted and Citibank charged off a $1,039.82 balance and assigned the account to Midland Funding in June 2018.
- Midland Funding (plaintiff-appellant) sued in Cleveland Municipal Court in July 2020 to collect the debt; Schwarzmer answered and filed FDCPA and OCSPA counterclaims, later amended into putative class claims and adding Midland Credit Management (MCM).
- The original cardholder agreement between Schwarzmer and Citibank contained an arbitration clause and a class-action waiver; Midland attached that agreement and affidavits of assignment and mailing to its motion to compel arbitration.
- Midland initially litigated in court (complaint, motion for default, answered counterclaim, responded to discovery) and raised arbitration as a defense only after Schwarzmer amended to a putative class action.
- The municipal court denied Midland’s motion to compel arbitration, finding Midland waived the right to arbitrate by litigating and that Midland failed to show enforceability/assignee standing under the agreement; the trial court’s denial of the motion to strike class allegations (alternative relief) was interlocutory.
- The appellate court affirmed: it held Midland waived arbitration under Ohio waiver standards and declined to reach other arguments; it also found it lacked jurisdiction to review the interlocutory motion-to-strike ruling.
Issues
| Issue | Plaintiff's Argument (Midland) | Defendant's Argument (Schwarzmer) | Held |
|---|---|---|---|
| Whether Midland waived the right to arbitrate | Midland argued the card agreement permits filing a collection action (it need not begin in arbitration) and it later timely asserted arbitration when the counterclaim became a putative class action | Schwarzmer argued Midland invoked court jurisdiction, litigated (including discovery), and therefore waived arbitration | Held: Midland waived arbitration — answering counterclaims and participating in litigation before moving to compel was inconsistent with its right to arbitrate |
| Whether an assignee (Midland Funding/MCM) can enforce arbitration clause | Midland argued Citibank assigned the account to Midland Funding and the arbitration clause binds assignees/affiliates like MCM | Schwarzmer argued Midland was not a named assignee in the agreement and under governing (South Dakota) law an assignee must be identified to enforce arbitration | Held: Appellate court did not decide assignee/enforceability issues because waiver was dispositive; it also rejected MCM’s independent standing because assignment was to Midland Funding, not MCM |
| Whether Schwarzmer assented to the card agreement/arbitration clause | Midland relied on affidavits showing the agreement was mailed and that Schwarzmer continued to use the card, establishing assent | Schwarzmer disputed receipt/assent and contested Midland’s proof | Held: The court did not decide the merits of assent because Midland’s waiver of arbitration rendered those arguments unnecessary |
| Whether appellate court can review Midland’s alternative motion to strike class allegations | Midland asked the court to enforce the class-waiver by striking class allegations now | Schwarzmer and the court noted class certification/maintainability had not been resolved | Held: Appellate court lacked jurisdiction to review the interlocutory denial of the motion to strike class allegations; the issue is premature until class-certification rulings are final |
Key Cases Cited
- Taylor Bldg. Corp. of Am. v. Benfield, 884 N.E.2d 12 (Ohio 2008) (contract language controls parties’ intent)
- Gembarski v. PartsSource, Inc., 134 N.E.3d 1175 (Ohio 2019) (waiver requires knowledge of right and inconsistent action)
- Debois, Inc. v. Guy, 161 N.E.3d 99 (Ohio 2020) (trial court best positioned to assess arbitration waiver; anti‑waiver clauses can be waived)
- Morgan v. Sundance, Inc., 142 S. Ct. 1708 (U.S. 2022) (waiver focuses on actions of the party holding the right)
- Bank One, Columbus, N.A. v. Palmer, 579 N.E.2d 284 (Ohio Ct. App. 1991) (issuance and use of a credit card can form a binding contract)
- United States v. Olano, 507 U.S. 725 (U.S. 1993) (definition of waiver as intentional relinquishment of a known right)