Novic v. Midland Funding, LLC, 271 F. Supp. 3d 778

Background

Novic opened a Credit One credit-card account in 2011; in 2013 the account mailing address was changed without her knowledge and fraudulent charges were incurred.
Credit One sold Novic’s account through a chain of assignments (to MHC, Sherman, then Midland); Midland began collection efforts and sued Novic in Maryland state court. Credit One supplied affidavits and bills of sale in support of Midland’s successor-in-interest claim.
After a state-court trial, judgment was entered for Novic. Novic then sued Credit One, Midland, and the credit bureaus in federal court under the Fair Credit Reporting Act; many defendants were later dismissed or settled, leaving Credit One as a defendant for this motion.
Credit One moved to compel arbitration and stay the litigation under an arbitration clause in the original cardholder agreement that defined “we” as “Credit One… its successors or assigns.”
Novic argued (1) Credit One assigned away all rights, so it no longer can compel arbitration; and (2) even if Credit One retained the right, that right was waived/defaulted because Midland litigated the same dispute in state court (with Credit One’s assistance).
The district court denied Credit One’s motion, holding (a) when Credit One assigned all rights to the account it ceased to be a party and lost the right to compel arbitration, and (b) alternatively, the right to arbitrate was waived/defaulted by the state-court litigation initiated and pursued by Midland with Credit One’s involvement.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Credit One can enforce the arbitration clause after assigning the account	Assignment transferred all rights; Credit One is no longer a party and cannot compel arbitration	The arbitration clause survives assignment (survival/severability language) and permits Credit One or its successors/assigns to compel arbitration	Held: Credit One lost the right to compel arbitration when it assigned all rights; it is no longer a party entitled to enforce arbitration
Whether the right to arbitrate was waived/defaulted by prior state-court litigation	Midland’s state-court collection action (pursued after assignment and with Credit One’s assistance) waived/confirms loss of arbitration right	Even if Credit One retained a right, it did not waive it and may still compel arbitration	Held: Alternatively denied — Credit One/defaulted its right to arbitration because litigation machinery was substantially used, prejudicing Novic; Maryland Cain decision reinforces waiver

Key Cases Cited

Galloway v. Santander Consumer USA Inc., 819 F.3d 79 (4th Cir.) (motion to compel arbitration standard described as akin to summary judgment)
Rota-McLarty v. Santander Consumer USA, Inc., 700 F.3d 690 (4th Cir.) (FAA applies broadly where transaction involves interstate commerce)
Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974 (4th Cir.) (using litigation machinery can preclude subsequent arbitration)
Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340 (4th Cir.) (loss of right to stay for arbitration when party is in default proceeding with litigation)
Cain v. Midland Funding, LLC, 452 Md. 141 (Md.) (Maryland Court of Appeals: defendant waived arbitration by litigating collection action)