Midland Funding LLC v. Hilliker
2016 IL App (5th) 160038
| Ill. App. Ct. | 2016Background
- Hilliker obtained a Chase credit card in 2001. Midland Funding sued in 2013 claiming it owned the charged-off Chase account and sought $8,809.38. Midland attached an affidavit but did not attach the assignment documents or the specific Cardmember Agreement signed by Hilliker.
- The case was assigned to St. Clair County’s nonbinding court-annexed arbitration docket. Hilliker answered and filed counterclaims alleging violations of the Illinois Collection Agency Act, the Consumer Fraud Act, and the FDCPA based on Midland’s alleged lack of ownership and deficient pleadings.
- Midland moved repeatedly to dismiss Hilliker’s counterclaims under sections 2-615 and 2-619 and resisted discovery; the court twice ordered Midland to comply with discovery. Midland provided limited discovery and sought protective orders for certain documents.
- After 18 months of litigation activity (complaint, motions to dismiss, discovery disputes, status hearings), Midland moved to compel arbitration and dismiss, relying on an exemplar Chase Cardmember Agreement and asserting it had not waived arbitration.
- The trial court denied Midland’s motion, finding Midland waived arbitration by substantial participation in litigation, the arbitration provisions were unconscionable/unenforceable, and Midland had not shown legal ownership of the account. The appellate court affirmed on the waiver/prejudice ground and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Midland waived its right to arbitrate by litigating in court | Midland: participation was minimal, filing in county arbitration docket demonstrated intent to arbitrate, and demand was timely | Hilliker: Midland substantially invoked the judicial process for 18 months before seeking arbitration, showing waiver and abandonment | Held: Midland waived arbitration by substantial participation and delay |
| Whether Hilliker was prejudiced by Midland’s delay in demanding arbitration | Midland: no prejudice; discovery and activities were limited | Hilliker: expended time, fees, and costs litigating in court that arbitration would have avoided | Held: Hilliker was prejudiced by Midland’s delay and incurred unnecessary expense |
| Whether Midland could rescind any waiver after Hilliker’s third amended counterclaim | Midland: third amended counterclaim materially changed the case (class claims) justifying rescission | Hilliker: claims arose from same facts; class allegations foreseeable | Held: Rescission denied; amended counterclaim did not justify reviving arbitration right |
| Whether trial court erred in denying arbitration on other grounds (e.g., unconscionability, enforceability) | Midland: arbitration clause (and class-waiver) enforceable | Hilliker: clause unconscionable and unenforceable | Held: Court did not reach these issues on appeal because waiver disposition was dispositive |
Key Cases Cited
- Woods v. Patterson Law Firm, P.C., 381 Ill. App. 3d 989 (appellate standard on interlocutory appeal and waiver analysis)
- LAS, Inc. v. Mini-Tankers, USA, Inc., 342 Ill. App. 3d 997 (waiver by substantial participation test)
- Kostakos v. KSN Joint Venture No. 1, 142 Ill. App. 3d 533 (arbitration favored but waiver available when conduct inconsistent with arbitration)
- Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388 (forum-selection and timing: failure to timely demand arbitration is compelling evidence against arbitration)
- Cabinet Service Tile, Inc. v. Schroeder, 255 Ill. App. 3d 865 (finality rules for appealability of nonfinal orders)