Barbagallo v. Niagra Credit Solutions, Inc. et al
Filing
38
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 12/4/12. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
RICHARD BARBAGALLO
:
v.
:
Civil Action No. DKC 12-1885
:
NIAGARA CREDIT SOLUTIONS, INC.,
ET AL.
:
MEMORANDUM OPINION
Presently pending and ready for review in this consumer
credit
case
is
the
motion
to
compel
arbitration
filed
Defendant Nissan Motor Acceptance Corporation (“NMAC”).
No. 15).
by
(ECF
The issues have been briefed, and the court now rules,
no hearing being deemed necessary.
following
reasons,
the
motion
to
Local Rule 105.6.
compel
arbitration
For the
will
be
denied.
I.
Background
A.
Factual Background
On
or
Barbagallo
around
purchased
December
a
2006
30,
Nissan
2006,
Altima.
Plaintiff
As
part
Richard
of
the
purchase, he entered into a retail installment sale contract
with Defendant NMAC to finance the purchase.
3-4).
(ECF No. 1-2, at
The contract included an arbitration clause, which states
in part:
Either you or we may choose to have any
dispute between us decided by arbitration
and not in court or by jury trial . . . .
You and we retain the
in small claims court
within that court’s
Neither you nor we
arbitrate by using
filing suit.
(ECF No. 15, at 2).1
right to seek remedies
for disputes or claims
jurisdiction . . . .
waive the right to
self-help remedies or
When Plaintiff was unable to repay the loan
in a timely manner, NMAC deemed him in default and repossessed
the car.
After it sold the car at auction, NMAC brought a
collection action against Plaintiff in the District Court of
Maryland for Montgomery County on October 8, 2009, to collect
the
amount
remaining
on
the
loan,
approximately
$13,665.59.
After exchanging discovery and filing discovery-related motions,
NMAC voluntarily dismissed the case on March 10, 2010, under Md.
Rule 3-506.
Inc.
NMAC then hired Defendant Niagara Credit Solutions,
(“Niagara”)
Niagara
began
to
collect
calling
and
collect the debt.
this
mailing
debt.
In
letters
to
November
2011,
Plaintiff
to
Plaintiff alleges that Defendants’ attempts
to collect this debt have harmed his credit.
B.
In
Procedural Background
response
to
Niagara’s
attempts
to
collect
the
debt,
Plaintiff filed a complaint in the Circuit Court for Montgomery
1
The content of the sale contract is somewhat unclear.
NMAC attaches an illegible copy of the contract to its motion to
compel arbitration.
(ECF No. 15-1).
Because neither party
disputes the existence of the arbitration clause or the
substance of the quoted language, it is included here.
2
County against NMAC and Niagara on February 3, 2012.2
2).
The
original
complaint
only
alleged
violations
Maryland Consumer Debt Collection Act (“MCDCA”).
(ECF No.
of
the
NMAC filed a
motion to dismiss on March 29, 2012 (ECF No. 4), which the
circuit court denied on April 23 (ECF No. 7).
After discovery
commenced, NMAC filed a motion to compel arbitration on May 24,
which
Plaintiff
opposed.
(ECF
Nos.
15,
18).
Shortly
thereafter, NMAC filed counterclaims against Plaintiff, seeking
to recover the underlying debt.
(ECF No. 16).
Plaintiff filed
an amended complaint on June 7, adding a claim that Niagara
violated the Fair Debt Collection Practices Act (“FDCPA”).
No. 17).
motion
(ECF
On June 25, before the state court ruled on NMAC’s
to
compel
arbitration,
Niagara
removed
the
federal court, based on federal question jurisdiction.
case
to
(ECF No.
1).
II.
Standard of Review
The parties assume that Maryland Uniform Arbitration Act,
Md. Code Ann., Cts. & Jud. Proc. § 3-201 et seq. (the “MUAA”)
governs
this
dispute,
and
agreement exists between them.
that
an
enforceable
arbitration
In cases that involve interstate
commerce, however, the Federal Arbitration Act, 9 U.S.C. § 1 et
2
Defendant Niagara settled with Plaintiff and was dismissed
on November 19, 2012. (ECF No. 35).
3
seq. (the “FAA”) governs arbitration agreements.3
Rota-McLarty
v. Santander Consumer USA, Inc., --- F.3d ----, No. 11-1597,
2012 WL 5936033, at *4 (4th Cir. Nov. 28, 2012).
This case
clearly involves interstate commerce.
Under
the
FAA,
a
written
arbitration
clause
is
valid,
enforceable, and irrevocable, “except upon grounds that exist at
law or in equity for the revocation of a contract.”
2.
9 U.S.C. §
The FAA favors the enforcement of arbitration agreements.
See EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002).
A
party may forfeit its right to compel arbitration if it “is in
default in proceeding with such arbitration.”
“[T]he
circumstances
giving
rise
3
to
a
9 U.S.C. § 3.
statutory
default
are
The only claim remaining against NMAC is a state law claim
under the MCDCA. NMAC’s motion to compel arbitration was filed
in state court, and the parties have not rebriefed the issues,
including whether the FAA or MUAA governs this dispute. Because
the case was removed on the basis of Plaintiff’s federal
question claim as to Niagara, jurisdiction over the state law
claim is supplemental, based on 28 U.S.C. § 1367.
The FAA
nonetheless governs the waiver/default analysis here, because
where the transaction relates to interstate commerce, “waiver of
the right to compel arbitration is a rule for arbitration such
that the FAA controls.”
Sovak v. Chugai Pharm. Co., 280 F.3d
th
1266, 1270 (9 Cir. 2002); see also Preston v. Ferrer, 552 U.S.
346, 349 (2008) (concluding that the FAA, because it is based on
Congress’s Commerce Clause power, “supplies not simply a
procedural framework applicable in federal courts; it also calls
for the application, in state as well as federal courts, of
federal substantive law regarding arbitration”); Choice Hotels
Int’l, Inc. v. Niteen Hotels (Rochester) LLC, 103 F.App’x 489,
493 (4th Cir. 2004) (concluding that the MUAA cannot trump the
procedural rules for arbitration when agreement requires
application of “the substantive laws of Maryland”) (citing
Sovak, 280 F.3d at 1269).
4
limited
and,
in
light
of
the
federal
policy
arbitration, are not to be lightly inferred.”
favoring
Maxum Founds.,
Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985).
“The
party opposing arbitration ‘bears the heavy burden of proving’”
MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 250 (4th
default.
Cir. 2001) (quoting Am. Recovery Corp. v. Computerized Thermal
Imaging, Inc., 96 F.3d 88, 95 (4th Cir. 1996)).
A party defaults on its right to compel arbitration under
the FAA where it “‘so substantially utilize[es] the litigation
machinery
that
to
subsequently
permit
prejudice the party opposing the stay.’”
Homes,
Inc.,
omitted).
553
F.3d
340,
343
(4th
arbitration
would
Forrester v. Penn Lyon
Cir.
2009)
(citations
To meet its burden, the opposing party must have
suffered actual prejudice as a result of the moving party’s
failure
to
proceedings.
demand
arbitration
Rota-McLarty,
at
2012
an
WL
earlier
5936033,
stage
at
*7
in
the
(citing
MicroStrategy, 268 F.3d at 249); Fraser v. Merrill Lynch Pierce,
Fenner & Smith, Inc., 817 F.2d 250, 252 (4th Cir. 1987) (“Where a
party fails to demand arbitration during pretrial proceedings,
and, in the meantime, engages in pretrial activity inconsistent
with an intent to arbitrate, the party later opposing a motion
to compel arbitration may more easily show that its position has
been
compromised,
omitted).
Under
i.e.,
the
prejudiced.”)
FAA,
two
5
factors
(internal
are
quotations
considered
in
analyzing actual prejudice:
“(1) the amount of the delay; and
(2) the extent of the moving party’s trial-oriented activity.”
Rota-McLarty, 2012 WL 5936033, at *7 (citing Microstrategy, 268
F.3d at 249).
III. Analysis
NMAC contends that, because the sale contract included an
arbitration
clause
pursuant
to
which
the
parties
agreed
to
arbitrate disputes arising under the contract, this dispute is
improperly before this court.4
Plaintiff argues that NMAC’s
history of litigating the dispute over Plaintiff’s debt under
the contract demonstrates that NMAC has waived its right to
arbitrate. (ECF No. 18).
default
on
its
right
to
NMAC neither argues that it did not
arbitrate,
nor
contests
the
facts
underlying Plaintiff’s argument.
A.
Length of Delay
The first factor in the prejudice analysis examines the
length of the delay from the beginning of litigation to the time
that the moving party asserts its right to arbitrate.
4
NMAC
The presence of a “no-waiver” clause in the contract,
which states, “Neither you nor we waive the right to arbitrate
by using self-help remedies or filing suit,” (ECF No. 15, at 2),
does not override the ordinary analysis used to determine
whether NMAC has defaulted on its right to arbitrate. See Gray
Holdco, Inc. v. Cassady, 654 F.3d 444, 452 (3d Cir. 2011) (citing
S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 86
(2d Cir. 1998)).
6
filed suit against Plaintiff in Montgomery County Circuit Court
on October 8, 2009.
on May 25, 2012.
It filed its motion to compel arbitration
This delay of nearly three years, i.e. thirty-
two months, tips the balance in favor of finding that Plaintiff
suffered actual prejudice.
343-44
(default
proper
See, e.g., Forrester, 553 F.3d at
where
party
sought
arbitration
after
litigation began more than two years prior); Fraser, 817 F.2d at
252-53 (same, with four-year delay).
Plaintiff, however, does not offer any evidence that he was
prejudiced by the length of the delay, in and of itself.
Rota-
McLarty, 2012 WL 5936033, at *7 (no actual prejudice where no
evidence is offered that non-moving party was “prejudiced by the
length of the delay itself”).
Without more, there cannot be a
finding of actual prejudice on the basis of the delay alone.
Fraser,
817
F.2d
at
252
(“Neither
delay
nor
the
filing
of
pleadings by the party seeking a stay will suffice, without
more,
to
establish
waiver
of
arbitration.”)
(citing
Carolina
Throwing Co. v. S & E Novelty Corp., 442 F.2d 329 (4th Cir.
1971)).
B.
Extent of Trial-Oriented Activity
The second factor in the prejudice inquiry examines the
nature and extent of NMAC’s litigation activities.
“‘To permit
litigants to participate fully in discovery, make motions going
to the merits of their opponent’s claims, and delay assertion of
7
a contractual right to compel arbitration until the eve of trial
defeats one of the reasons behind the federal policy favoring
arbitration.’”
Forrester,
553
F.3d
at
343
(quoting
ComTech
Assocs. V. Computer Assocs. Int’l, Inc., 938 F.2d 1574, 1577 (2d
Cir. 1991)).
NMAC
Before filing its motion to compel arbitration,
“utilized
the
litigation
important ways, in two lawsuits:
machinery”
in
a
number
of
(1) it filed suit against
Plaintiff in 2009 regarding the debt owed on the sale contract;
(2) it sought discovery and disputed Plaintiff’s requests in
that suit; (3) after voluntarily dismissing its 2009 case, it
filed a motion to dismiss in state court on Plaintiff’s current
suit, which it argued at a hearing and lost; and (4) it again
engaged in and disputed discovery with Plaintiff.
Taken as a
whole, these activities support a finding of actual prejudice to
Plaintiff and, therefore, a finding that NMAC is in default on
its rights under the FAA.
First, the suit that NMAC brought in state court supports a
finding of prejudice, because it was based on essentially the
same legal and factual issues currently disputed:
recover the underlying debt on the contract.
toward a finding of default.
(no
default
when
the
it sought to
This fact tends
See MicroStrategy, 268 F.3d at 250
party
seeking
arbitration
previously
initiated litigation on legally and factually distinct claims
from those for which arbitration was sought) (citing Doctor's
8
Assocs.,
Inc.
v.
Distajo,
107
F.3d
126,
133
(2d
Cir.
1997)
(“[O]nly prior litigation of the same legal and factual issues
as those the party now wants to arbitrate results in [default
on] the right to arbitrate.”)).
Second, NMAC’s filing and arguing of a motion to dismiss on
the merits of Plaintiff’s claim also tilts the balance in favor
of a finding of prejudice.
The Fourth Circuit has held “that a
party suffered actual prejudice because it was forced to respond
to a number of potentially damaging motions” including motions
to dismiss.
Wheeling Hosp., Inc. v. Health Plan of the Upper
Ohio Valley, Inc., 683 F.3d 577, 587 (4th Cir. 2012) (citing
Fraser, 817 F.2d at 252) (finding no actual prejudice, because,
inter alia, the motion did not request relief on the merits));
see also Rota-McLarty, 2012 WL 5936033, at *8 n. 15 (“Whether a
party was required to respond to dispositive motions [on the
merits] may factor into our prejudice analysis”).
dispositive
claim,
to
motion
which
to
dismiss
Plaintiff
on
the
responded.
merits
(ECF
of
Nos.
NMAC filed a
Plaintiff’s
4-5).
The
circuit court held a hearing on the motion and ultimately denied
NMAC’s motion to dismiss.
prevailing
necessarily
on
a
(ECF No. 7).
dispositive
dispositive
of
motion
the
While responding to and
on
prejudice
the
merits
question,
is
not
it
also
strongly leans in favor of a finding of actual prejudice.
See
Hasco, Inc. v. Schuyler, Roche & Zwirner, No. 97-2618, 1998 WL
9
957454, at *2 (4th Cir. Sept. 22, 1998) (“The actual prejudice
required to support a finding of [default] ‘can be substantive
prejudice
to
the
legal
position
of
the
party
opposing
arbitration.’”) (citing Distajo, 107 F.3d at 131 (noting that a
finding of default may be supported by substantive prejudice
resulting “when the party seeking arbitration loses a motion on
the merits and then attempts, in effect, to relitigate the issue
by invoking arbitration”)).
By
contrast,
NMAC’s
participation
in
discovery
does
not
support actual prejudice because the parties never moved beyond
written discovery.
Patten Grading & Paving, Inc. v. Skanska USA
Bldg., Inc., 380 F.3d 200, 206 (4th Cir. 2004) (rejecting the
argument that prejudice arose from discovery when, at the time
the
motion
discovery
to
compel
efforts
interrogatories
and
arbitration
were
confined
requests
for
was
to
filed,
the
production
“the
parties’
exchange
of
of
documents;
significantly, the parties had not noticed depositions”).
On balance, NMAC’s trial-oriented activities – filing suit
against Plaintiff, actively participating in not one, but two
lawsuits on the contract, and filing and losing a motion to
dismiss on the merits of Plaintiff’s claims – support a finding
of prejudice.
Taken together with NMAC’s three-year delay in
asserting its right to arbitrate, the evidence demonstrates that
10
Plaintiff suffered actual prejudice.
Therefore, NMAC defaulted
on its right to enforce the arbitration clause under the FAA.
Even if the MUAA applied here, the result would not change.
Maryland courts have affirmed that the MUAA is to be construed
in
accord
with
the
FAA.
See
Thompson
v.
Witherspoon,
197
Md.App. 69, 80 (2011) (noting that “the MUAA and the FAA were
adopted to achieve the same goals . . . when construing the
MUAA, Maryland courts look to federal decisions interpreting the
FAA”) (internal citations omitted).
Although the principle of
“default” under the FAA is similar to that of “waiver” under the
MUAA, the circumstances giving rise to default under the FAA are
more limited than Maryland’s waiver doctrine.
See Rota-McLarty,
2012 WL 5936033, at *7. The factors that Maryland courts weigh
in determining waiver of an arbitration right under the MUAA are
analogous to those outlined by the Fourth Circuit in determining
default.
See
Abramson
v.
Wildman,
184
Md.App.
189,
200-01
(2009) (considering delay, prejudice to non-moving party, and
the extent to which the moving party participated in litigation
to determine whether right to arbitration was waived).5
5
NMAC alternatively argues that, by virtue of the
arbitration clause, Plaintiff has waived his right to a jury
trial. In stating that “either you or we may choose to have any
dispute between us decided by arbitration and not in court or by
jury trial,” the arbitration clause merely explains what the
parties would be giving up if they arbitrate. (ECF No. 15, at
11
IV.
Conclusion
For the foregoing reasons, the motion to compel arbitration
filed by Defendant NMAC will be denied.
A separate order will
follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
2).
This language does not constitute a waiver of Plaintiff’s
right to a jury trial.
12
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