Butler et al v. Mariner Finance, LLC
Filing
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MEMORANDUM. Signed by Judge Catherine C. Blake on 12/6/2017. (krs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
CATHERINE BUTLER, et al.
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v.
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MARINER FINANCE, LLC
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Civil Action No. CCB-17-1738
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Memorandum
The plaintiffs, Catherine and James Butler, sued the defendant, Mariner Finance, LLC,
(“Mariner”) in state court claiming Mariner violated the Truth in Lending Act and committed
four state law violations: violation of Maryland’s Credit Grantor Closed End Credit Provisions,
MD. CODE ANN., COM. LAW § 12-1001, et seq.; Maryland’s Debt Collection Act, MD. CODE
ANN., COM. LAW § 14-202(8); Maryland Consumer Protection Act, MD. CODE ANN., COM. LAW
§ 13-301, et seq.; and fraud. Mariner successfully removed the case to federal court and now
moves to compel arbitration under a contract signed by the parties.
Background
In December 2006 the plaintiffs Catherine and James Butler entered into a retail
installment contract with Deer Automotive Group, LLC for the purchase of a 2003 Mercury
Mountaineer. (Compl. ¶ 7). The original purchase price for the truck was $23,900 but the total
financed amount over a six-year loan was $28,569.60. (Id.). The Butlers first payment was due
on January 23, 2007. (Id.).
The installment contract was assigned to Wells Fargo Auto Finance, Inc., to which the
Butlers made payments until around June 2012, when the defendant Mariner Finance contacted
the Butlers indicating that it had been assigned the rights under the contract. (Id. at ¶ 8-10).
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Mariner asked the Butlers to enter into a “Note, Security Agreement & Arbitration Agreement”
dated June 7, 2012. (Id. at ¶ 11). The agreement gave Mariner a security interest in the truck and
detailed the terms of the installment contract between the parties. (Id. at ¶ 12-17). In addition to
the original loan amount, Mariner charged the Butlers for life insurance on its interest, non-filing
insurance, and vendor’s single interest insurance. (Id. at ¶ 15).
Almost yearly, for the next three years, Mariner asked the Butlers to enter new
agreements.1 (Id. at ¶ 18-33). Despite at least three of the four agreements between the parties
including insurance costs, 2 the Butlers never received the insurance policies or certificates for
which they were purportedly paying. (Id. at ¶ 34). In fact, the Butlers allege that they “do not
recall separately applying for these insurances and it is unclear if these insurances were ever
purchased.” (Id.). The plaintiffs further allege that because the Fourth Agreement included a
refinance charge that was not prepaid “but . . . made part of the principal amount of the loan” it
should have been, but was not, included within Mariner’s Truth in Lending disclosure. (Id. at ¶
37). They also assert that they were not refunded for the amount they paid in credit life insurance
“even though the loans were refinanced or defaulted prior to the scheduled maturity date of the
indebtedness.” (Id. at ¶ 39).
Sometime in October 2016, the Butlers informed Mariner that their truck was no longer
working. (Id. at ¶ 41). The parties agreed that Mariner would transfer title of the truck to the
Butlers in exchange for $300. (Id.). The Butlers believed that this agreement extinguished their
obligations under the Fourth Agreement. (Id.). Mariner disagreed; it filed suit in the District
Court of Maryland for Baltimore City in February 2017 alleging that the Butlers breached the
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2
New agreements were allegedly entered into on July 5, 2013, November 29, 2014, and May 25, 2016.
The Butlers “do not possess a copy of the Third Agreement.” (Compl. ¶ 25).
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fourth loan agreement, (id. at ¶ 43), and seeking to collect principal and interest totaling
approximately $3,200. (Pls.’ Opp., ECF No. 9, 2).
Three months later the Butlers filed this suit in the Circuit Court for Baltimore City on
May 24, 2017. (Notice of Removal, ECF No. 1). The following month Mariner removed the suit
to federal court, (id.), and now moves to compel arbitration. (ECF No. 7).
Standard of Review
“Motions to compel arbitration exist in the netherworld between a motion to dismiss and
a motion for summary judgment” and “[w]hether the motion should be treated as a motion to
dismiss or a motion for summary judgment turns on whether the court must consider documents
outside the pleadings.” PC Const. Co. v. City of Salisbury, 871 F. Supp. 2d 475, 477-78 (D. Md.
2012); see also Iraq Middle Mkt. Dev. Found. v. Harmoosh, 848 F.3d 235, 240-41 (4th Cir.
2017) (adopting the summary judgment standard used by the district court). Because the court
need not consider documents outside the pleadings, Mariner’s motion to compel will be treated
as a motion to dismiss.3
To survive a motion to dismiss, the factual allegations of a complaint “must be enough to
raise a right to relief above the speculative level on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007) (internal citations omitted). “To satisfy this standard, a plaintiff need not ‘forecast’
evidence sufficient to prove the elements of the claim. However, the complaint must allege
sufficient facts to establish those elements.” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir.
2012) (citation omitted). “Thus, while a plaintiff does not need to demonstrate in a complaint
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The court is considering the May 25, 2016 agreement, however it may do so at the motion to dismiss stage because
the document is “integral to and explicitly relied on in the complaint” and the parties do not dispute its authenticity.
Zak v. Chelsea Therapeutics Intern., Ltd., 780 F.3d 597, 607 (4th Cir. 2015).
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that the right to relief is ‘probable,’ the complaint must advance the plaintiff’s claim ‘across the
line from conceivable to plausible.’” Id. (quoting Twombly, 550 U.S. at 570).
Analysis
The parties do not contest that their dispute is subject to arbitration under the terms of
their underlying contract but they do disagree over whether Mariner’s right to compel arbitration
was waived after it brought a state court suit to collect on its loan agreement with the Butlers.
They also disagree about which waiver law, federal or state, the court should apply to decide the
motion.
Because the Federal Arbitration Act (“FAA”) controls this case, federal waiver law
applies. Applying that law, the court will grant Mariner’s motion to compel arbitration because
the Butlers have not been prejudiced within the meaning of the FAA.
1. Applicable Law4
Mariner argues that because this case was removed to federal court and its motion to
compel was brought under the Federal Arbitration Act, 9 U.S.C. §§ 3-4, the court should look
only to federal law when deciding the issue of waiver. (Def.’s Reply to Pls.’ Opp., ECF No. 12,
2).
The defendant’s position is well-supported by Fourth Circuit precedent, which has
consistently applied the FAA’s “default” doctrine to cases involving potential waivers of
arbitration agreements. See Harmoosh, 848 F.3d at 241; Rota-McLarty v. Santander Consumer
USA, Inc., 700 F.3d 690, 702 (4th Cir. 2012); Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340,
342-43 (4th Cir. 2009); Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 981-82 (4th Cir.
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The Court is aware of, and has considered, the supplemental authority submitted by each party.
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1985). The Butlers insist instead that the waiver rule developed in a recent opinion from the
Maryland Court of Appeals, Cain v. Midland Funding, LLC, 452 Md. 141 (2017), controls this
case, arguing that in Cain, the Court of Appeals applied state law to decide whether an
arbitration agreement was waived. Cain, 452 Md. at 153-54. While the Butlers are correct that
Cain applied state waiver law to an arbitration agreement, it did so on grounds inapplicable to
the Butlers’ case.
The Cain court explained why state law applied to the case before it: (1) the parties
assumed that Maryland law applies; (2) the party moving to compel arbitration filed its motion
under the “Maryland Uniform Arbitration Act, not the Federal Arbitration Act;” and, in any
event, (3) in state court the Supreme Court has held that state law may apply to waiver issues.
Cain, 452 Md. at 151, 153 nn.9-10. These reasons were offered to explain the Maryland Court of
Appeal’s departure from the “federal circuit courts’” practice of “address[ing] the question of
waiver under § 3 of the Federal Arbitration Act . . . rather than § 2.” Id.
There is no reason to depart from that practice here. None of the factors above are
relevant to this case. The parties do not assume state law applies, the defendant’s motion was
filed under the FAA, and this case is in federal, rather than state, court. Fourth Circuit precedent
controls; the parties’ waiver arguments will be analyzed under §§ 3 and 4 of the FAA rather than
under state law.
2. Waiver under the Federal Arbitration Act
Under the FAA’s waiver standard Mariner’s motion to compel arbitration will be granted.
The FAA has it that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to
arbitrate under a written agreement for arbitration may petition any United States district court . .
. for an order directing that such arbitration proceed in the manner provided for in such
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agreement.” 9 U.S.C. § 4. The court shall grant such an application when it satisfies itself that a
valid arbitration agreement exists. 9 U.S.C. § 3. But a party may lose its right to compel
arbitration under a valid agreement if it is in “default.” Id.
Default under the FAA is a narrower version of waiver, limited by “the strong federal
policy favoring arbitration” represented by the statute. Forrester, 553 F.3d at 342. A party
defaults under the FAA only if it “so substantially utiliz[es] the litigation machinery that to
subsequently permit arbitration would prejudice” the opposing party. Harmoosh, 848 F.3d at 241
(quoting Maxum Founds., 779 F.2d at 981). “Delay and the extent of the moving party’s trialoriented activity” are material facts in assessing prejudice. Wheeling Hosp., Inc. v. Health Plan
of the Upper Ohio Valley, Inc., 683 F.3d 577, 587 (4th Cir. 2012) (quoting MicroStrategy, Inc. v.
Lauricia, 268 F.3d 244, 249 (4th Cir. 2001)). Under this standard, even a party who, in the same
case, spends six months litigating through discovery before requesting arbitration does not waive
its right to arbitration without more. See Rota-McLarty, 700 F.3d at 703-04.
The Butlers rest their waiver argument on the Cain test developed by the Maryland Court
of Appeals, which does not require a showing of prejudice. Cain, 452 Md. at 154-55. They argue
that because Mariner filed suit in small claims court to collect the debt related to the Butlers’
claims,5 it has waived its right to arbitration. As the court has already decided, however, § 3 of
the FAA controls the waiver issue in this case.
Nor is there any likelihood that an attempt to show prejudice would be successful. There
is no indication that Mariner’s state court suit, which is stayed, has either delayed the Butlers’
own claims or unduly saddled the Butlers with useless litigation costs or other disadvantages.
See MicroStrategy, 268 F.3d at 250-51 (finding that an arbitration agreement was not waived
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Mariner’s small claims court action is not subject to arbitration under the arbitration agreement. (Def.’s Mot. to
Compel, Ex. 1, ECF No. 7).
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because “the bulk of the activity” in the moving party’s separate litigation-focused suits “was
directed toward . . . state-law claims, and no decision on the merits . . . was ever made” despite
those separate actions involving “many motions, responses, and other procedural maneuvers”).
Accordingly, the Butlers fail to show that they were prejudiced, within the meaning of the FAA,
by Mariner’s litigation behavior. Mariner’s motion to compel arbitration will be granted.
Conclusion
For these reasons, the defendant’s motion to compel arbitration will be granted. The
plaintiffs’ suit will be stayed as requested. A separate order follows.
____December 6, 2017_____
Date
/s/
Catherine C. Blake
United States District Judge
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