MAHER v. NORTHLAND GROUP INC

Filing 60

OPINION. Signed by Judge Kevin McNulty on 7/19/2019. (ld, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

JENNIFER MAHER,
on behalf of herself and those
similarly situated,

Civ. No. 17-2957 (KM) (JBC)
.

OPINION
Plaintiff,
V.

NORTHLAND GROUP, INC.,
Defendant.

KEVIN MCNULTY. U.S.D.J.:
This putative class action, originally filed in state court, arises under the
Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C.

§

1692 et seq. The

plaintiff, Jennifer Maher, held a Macy’s credit card that had an outstanding
balance. The complaint attaches a collection letter (the “Letter”) that Northland
Group, Inc. (“Northland”), a debt collector, sent to Maher. This Letter contained
an allegedly misleading sentence that offered to settle the debt at a discount
but “misrepresented the tax consequences” of doing so.’
Some 22 months into this action, Northland obtained a copy of Ms.
Maher’s cardholder account agreement, which contained a provision requiring
arbitration of claims on an individual basis. In Januan’ 2019, Northland med

Items repeatedly cited will be abbreviated as follows:
Cplt.

=

Letter

Complaint (DE 1-2; clearer copy at DE 54-2 p.2)
=

Collection letter, dated March 11, 2016 (attached to complaint as
exhibit; clearer copy at DE 54-2 p.13)

New Card Agreement

=

Arbitration Agreement

Notice of Change in Terms and Right to Opt Out
(DE 44-5 pp. 50—53)
=

portion of New Card Agreement (DE 44-5 pp. 52—53)
1

the motion to compel arbitration that is now before the court. (DE 44) Because
I find that Northland has, by nearly two years of litigation conduct, waived
arbitration, its motion to compel arbitration will be denied.
I.

Background
A. Procedural history
On March 10, 2017, the plaintiff, Ms. Maher, commenced this action by

filing a complaint (DE 1-2) in the Superior Court of New Jersey, Law Division,
Bergen County. The defendant, Northland, was served with the complaint on
March 30, 2017. On May 1, 2017, Northland removed the action to this U.S.

§ 144 1(a). Because the complaint arises under a
federal statute, the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §
District Court under 28 U.S.C.

1692 et seq., this Court would have original federal-question jurisdiction under
28 U.S.C.

§ 1331. (DE 1)

After removal, on May 8, 2017, Northland answered the complaint. (DE
3) The following months were consumed by settlement conferences, status
conferences, and the like. Written discovery did proceed, however, subject to
various disputes and objections. (See, e.g., DE 28 (June 27, 2018).)
On January 16, 2019, Northland filed the motion to compel arbitration
(DE 44) that is now before the court. Ms. Maher has filed a response (DE 54)
and Northland has filed a reply (DE 55). Both sides’ submissions are
accompanied by declarations with exhibits.
B. Background Facts and Allegations
1. The collection Letter
The plaintiff, Ms. Maher, had a Macy’s credit card issued by Department
Stores National Bank (“DNSB”), a subsidiary of Citibank. Defendant Northland
is a collection agency which sought to collect the debt on DNSB’s behalf. On
March 11, 2016, in an attempt to collect the debt, Northland sent Maher a
collection Letter. The Letter states that the outstanding balance on the credit
card account is $629.10. The Letter makes a “settlement offer” of $471.84 (i.e.,
a discount of approximately 25%).
2

The body of the Letter reads as follows:
Macys has authorized an immediate settlement on the above referenced
account. Your account will be considered resolved and closed if you pay
the settlement of $471.94 by 04/01/2016. If you need additional time to
respond to this offer, please contact us. We are not obligated to renew this
offer. Upon receipt and clearance of $471.84, a letter will be sent
confirming the above referenced account has been resolved. Make check
payable to DSNB.
This is an attempt to collect a debt by a debt collector and any information
obtained will be used for that purpose.
Department Stores National Bank will report any discharge of
indebtedness as required by the Internal Revenue Code and

corresponding IRS regulations. Please contact your tax advisor if
you have any questions.
(Letter, DE 54-2 p. 13; emphasis added.)
The FDCPA claim arises from the language emphasized in bold type in
the quotation. This language was misleading and deceptive, according to the
Complaint, because it “misrepresented the tax consequences of a reduced
settlement. Such statement ‘does not accurately reflect the relevant law; in this
respect, it is not true. In addition, the statement’s invocation of the IRS is
deceptive and misleading.” (Cplt.

¶

2 (quoting Good u. Nationwide Credit, Inc.,

55 F. Supp. 3d 742, 749—50 (E.D. Pa. 2014)).
The statement is alleged to be misleading for the following reasons:
21.
The Department of Treasury regulations require an
“applicable entity” to report a discharge of indebtedness over $600
to the Internal Revenue Services if and only if there has been an
“identifiable event,” subject to seven exceptions. [fn. 3, 4, and 5,
citing 26 U.S.C. § 6050P(c)(1) (defining “applicable entity”); 26
Treas. Reg. § 1.6050P-1(b)(2); 26 Treas. Reg. § 1.6050P-1(a)(1), (d)]
22.
Such exceptions to the reporting requirement include
if the consumer files and obtains a bankruptcy discharge on a
consumer debt, or if the discharge is of interest or non-principal
amounts. Lfn. 6, citing 26 Treas. Reg. § 1.6050P-1(d)(1)—(3)]

3

A portion of the debt allegedly to be due by Plaintiff
23.
and putative class members was interest or non-principal
amounts.
The statement that “[the bank] will report any
24.
discharge of indebtedness as required by the internal Revenue
Code and corresponding IRS regulations” is false and misleading to
Plaintiff, as well as the least sophisticated consumer.
(Cplt.

¶4j

2 1—24)
2. The Arbitration Agreement

Ms. Maher opened her Macys charge account on June 29, 2014,
pursuant to an Opening Account Agreement. Her April 13, 2015, monthly
account statement contained a summary’ of changes to the account and a copy
of an amendment to the card agreement (“New Card Agreement,” DE 44-5 pp.
50—53) that would take effect on August 14, 2015. The New Card Agreement
provides that it will be governed by federal and South Dakota law.
Most pertinently here, the New Card Agreement contains an Arbitration
Agreement. The provisions most relevant here are as follows:
PLEASE READ THIS PRO VISION OF THE AGREEMENT CAREFULLY.
THIS SECTION PROVIDES THAT DISPUTES MAY BE RESOLVED BY
BINDING ARBITRATION. ARBITRATION REPLACES THE RIGHT TO
GO TO COURT, HAVE A JURY TRIAL OR INITIATE OR PARTICIPATE
IN A CLASS ACTION. IN ARBITRATION, DISPUTES ARE RESOLVED
BY AN ARBITRATOR, NOT A JUDGE OR JURY. ARBITRATION
PROCEDURES ARE SIMPLER AND MORE LIMITED THAN IN COURT.
THIS ARBITRATION PROVISION IS GOVERNED BY THE FEDERAL
ARBITRATION ACT (FAA), AND SHALL BE INTERPRETED IN THE
BROADEST WAY THE LAW WILL ALLOW.
Covered claims
•

You or we may arbitrate any claim, dispute or controversy between
you and us arising out of or related to your account, a previous
related account or our relationship (called Claims”).

•

If arbitration is chosen by any party, neither you nor we will have
the right to litigate that Claim in court or have a jury trial on that
Claim.
4

Except as stated below, all Claims are subject to arbitration, no mailer
what legal theory they’re based on or what remedy (damages, or
injunctive or declaratory relief) they seek, including Claims based on
contract, tort (including intentional tort), fraud, agency, your or our
negligence, statutory or regulatory provisions, or any other sources of law;
Claims made as counterclaims, cross-claims, third-party claims,
interpleaders or otherwise; Claims made regarding past, present, or future
conduct; and Claims made independently or with other claims. This also
includes Claims made by or against anyone connected with us or you or
claims through us or you, or by someone making a claim through us or
you, such as a co-applicant, authorized user, employee, agent,
representative or an affiliated/parent! subsidiary company.
(Arbitration Agreement, DE 44-5 p. 52)
The Arbitration Agreement further provides that Claims must be
arbitrated on an individual, not class, basis:
Claims brought as part of a class action, private attorney general or other
representative action can be arbitrated only on an individual basis. The
arbitrator has no authority to arbitrate any claim on a class or
representative basis and may award relief only on an individual basis.
(Id.)
II.

Waiver

Maher’s complaint was filed on March 10, 2017; Northland’s motion to
compel, however, was not filed until some 22 months later, on January 16,
2019. Maher argues that this motion to compel arbitration therefore comes too
late. By participating in federal-court litigation, says Maher, Northland has
waived an arbitral forum.
A. Ehleiter and prejudice

The issue of whether a party has waived arbitration by litigation conduct
is presumptively one to be decided by the court, not the arbitrator. Ehleiter v.
Grapetree Shores, Inc., 482 F.3d 207, 217—21 (3d Cir. 2007). Litigation conduct,
of course, generally cannot be ascertained from the face of the complaint, as it
consists primarily of matters occurring thereafter. Discovery has been ongoing
in this action, and both parties have submitted affidavits with exhibits in
support of their positions on this motion. I therefore analyze the submissions
5

under a Rule 56 summary judgment standard. That standard requires that
relief should be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.s.
242, 248, 106 S. Ct. 2505 (1986).2
Waiver of arbitration by litigation conduct is primarily a question of
prejudice, which is assessed in light of a number of factors:
In Hoxwodh Fv. Blinder, Robinson & Co., 980 F.2d 912 (3d Cir.
1992)], we observed that “prejudice is the touchstone for
determining whether the right to arbitrate has been waived” by
litigation conduct. 980 F.2d at 925. After surveying the case law of
our court and other circuits, we compiled a nonexclusive list of
factors relevant to the prejudice inquiry: “[1] the timeliness or lack
thereof of a motion to arbitrate
[; 2] the degree to which the
party seeking to compel arbitration [or to stay court proceedings
pending arbitration] has contested the merits of its opponent’s
claims; [3] whether that party has informed its adversary of the
intention to seek arbitration even if it has not yet filed a motion to
stay the district court proceedings; [4] the extent of its non-merits
motion practice; [5] its assent to the [trial] courts pretrial orders;
and [6] the extent to which both parties have engaged in
discovery.” Id. at 926—27 (internal citations omitted). Ifn. omitted]
...

Waiver aside, a motion to compel arbitration will be granted where there is no
genuine issue of fact, or where the decisionmaker finds factually, that (1) “a valid
agreement to arbitrate exists” and (2) “the particular dispute falls within the scope of
that agreement.” TdppeMfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.
2005); see also Far-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir.
1980). Those issues, too, are presumptively to be decided by the court. See AT&T
Techs., Inc. v. Comm’ns Workers of America, 475 U.S. 643, 651 (1986). The parties may
overcome that presumption by agreeing to commit issues of arbitrability of claims to
the arbitrator, but such an agreement must be clear and unmistakable. Chesapeake
Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 753 (3d Cir. 2016).

2

In general, issues of arbitrability, when decided by the court, will be considered
in the following manner. First, applying the familiar Rule 12(b)(6) motion-to-dismiss
standard, the court will consider whether the issue can be resolved from the face of
the complaint. If not, the court will apply a Rule 56 summary judgment standard,
affording the parties the opportunity for limited discovery as appropriate. Failing that,
the issue will be tried. See Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d
764, 771 (3d Cir. 2013). In considering waiver, I take that approach as a guide.
6

Ehiciter v. Grapetree Shores, Inc., 482 F.3d at 222—23.
The prejudice requirement, however, does not entail that rights have
been irretrievably lost:
Under the Hoxworth test, “[w]aiver will normally be found only
‘where the demand for arbitration came long after the suit
commenced and when both parties had engaged in extensive
discovery.”’ Faragalli, 61 F.3d at 1068—69 (quoting Gavhk., 526
F.2d at 783). Although waiver “is not to be lightly inferred,” Great
Western, 110 F.3d at 233 (citing Faragalli, 61 F.3d at 1068), we
will “not hesitate[ ] to hold that the right to arbitrate has been
waived” where a sufficient showing of prejudice has been made by
the party seeking to avoid arbitration. Hoxwonh, 980 F.2d at 926.
Id.
In Ehleiter itself, a waiver was found, under circumstances that bear
some extended discussion.

In the oft-cited (if oft-distinguished) case of Cabinet ree of Wis., Inc. v. Kraftmaid
Cabinetnj, Inc., 50 F.3d 388 (7th Cir. 1995) (Posner, J.), the Seventh Circuit rejected a
rigid requirement of prejudice. Judge Posner, placing more emphasis on procedural
regularity, applied an analysis akin to that of election of remedies. Id. at 390 (“[W]e
have deemed an election to proceed in court a waiver of a contractual right to
arbitrate, without insisting on evidence of prejudice beyond what is inherent in an
effort to change forums in the middle (and it needn’t be the exact middle) of a
litigation.”)
The divergence between the Third and Seventh Circuit approaches, however, is
not so great as it might appear. Under Cabinetree, such an initial election would give
rise to no more than a “presumptive waiver.” Id. (emphasis in original). Under the
circumstances of a particular case, invocation of litigation procedures might not
signify an election of an exclusive judicial forum. In dictum, Judge Posner posed a
hypothetical case in which arbitrability is doubtful and the expiration of the statute of
limitations is imminent, or one in which unexpected developments in discovery
undercut the original election/waiver. The prejudice analysis, he wrote, would come
into play in such an “abnormal” case:
In such a case prejudice to the other party, the party resisting
arbitration, should weigh heavily in the decision whether to send the
case to arbitration, as should the diligence or lack thereof of the party
seeking arbitration—did that party do all it could reasonably have been
expected to do to make the earliest feasible determination of whether to
proceed judicially or by arbitration?
Id. at 391.
7

The opinion in Ehleiter discloses that litigation had been pending for four
years when the defendant first moved to compel arbitration. During that fouryear delay, the parties had actively litigated the case, and trial dates had been
set:
During the intervening four-year period, the parties engaged in
extensive discovery, with both sides exchanging several sets of
interrogatories, requests for production of documents, and expert
witness reports, as well as participating in the depositions of
numerous witnesses. After the parties were unable to resolve the
case in mediation, GSI flied a motion for summary judgment,
requiring Ehleiter to defend his claims on the merits and inviting
final resolution of the case in a judicial forum. GSI engaged in
substantial non-merits motion practice as well, including filing a
motion to implead a third party defendant.
GSI scrupulously assented to the trial court’s procedural orders. At
the court’s request, OSI and Ehleiter submitted a joint stipulation
certifying their readiness for trial by a certain date. When the court
later scheduled the case for trial, GSI promptly sought a
continuance and proposed new trial dates, yet again reaffirming its
amenability to judicial resolution of the parties’ dispute.
Id. at 223.
“Although delay alone does not constitute sufficient prejudice to support
waiver,” the Ehleiter Court did find that this four-year delay “dwarfledl” those
found acceptable in prior Third Circuit cases. Id. (citing Palcko v. Airborne
Express, Inc., 372 F.3d 588, 598 (3d Cir. 2004) (38 days); Wood v. Prudential
Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir.2000) (one and one half months);
Paine Webber Inc. v. Faragalli, 61 F.3d 1063, 1069 (3d Cir. 1995) (two months);
Gaulik Constr Co. v. ELF. Campbell Co., 526 F.2d 777, 783—84 (3d Cir. 1975)
(motion to compel arbitration “immediately” after removal of action to federal
court)).4

The court also cited Restoration Pres. Masonry, Inc. v. Grove Europe Ltd., 325
F.3d 54, 61(1st Cir. 2003) (while “[t]here are no per se rules as to the length of delay
encompassing a period of
the four years’ delay
necessary to amount to waiver
acceptable in this circuit”).
litigation, greatly exceeds that found
active
...,

...

8

In addition, the extent of proceedings and the proximity of trial rendered
other Circuits’ case law distinguishable:
Courts have not hesitated to find waiver under similar (and
arguably less egregious) circumstances. See, e.g., Restoration Pres.,
325 F.3d at 61—62 (waiver where, over four-year period, parties
were involved in numerous depositions and pretrial conferences
and trial was less than two months away); Corn—Tech Assocs. v.
ComputerAssocs. Int’l, Inc., 938 F.2d 1574, 1576—78 (2d Cir. 1991)
(waiver where defendant actively participated in discovery and filed
dispositive motions over course of eighteen months and trial was
only three months away); S & H Contractors, Inc. v. A.]. Taft Coal
Co., Inc., 906 F.2d 1507, 1514(11th Cir. 1990) (waiver where
defendant delayed eight months, engaging in merits and nonmerits motion practice and taking several depositions in the
interim).
Id. at 223.
Ehleiter identified two kinds of prejudice: One is prejudice to a party’s

“legal position,” where, for example, a defendant reaped an unfair procedural
benefit or invoked arbitration to reopen an unfavorable substantive ruling. The
other, more pedestrian form of prejudice is the expenditure of time, effort, and
money in prosecuting the action. Id. at 224. It is not necessary, however, to
“demonstrate the presence of both types of prejudice to prevail. To the
contrary, we recognized that ‘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

...

arbitration

may more easily show that its position has been compromised, i.e.,
prejudiced.” Id.5 The Court rejected a claim of legal prejudice, i.e., that the
defendants had unfairly obtained discovery unavailable in arbitration. It readily
found without further evidence, however, that the plaintiff had “already
invested considerable time and expense in litigating the case in court, and
would be required to duplicate its efforts, to at least some degree, if the case

Here, the Court was quoting Honuorth, which in turn was quoting Price u.
Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161 (5th Cir. 1986).
9

were now to proceed in the arbitral forum.” Id. At least some of that discovery,
the Court found, was “case-specific” and so would not inevitably have occurred
elsewhere. Id.
Weighing the circumstances, the Ehiefter found sufficient prejudice and
held that the defendant had waived an arbitral forum.
B. Application of Ehieiter factors to this case
With that background, I consider the six Ehleiter/Hoxworth “prejudice”
factors in relation to the facts of this case. (See p.6. supra.)
[1] The timeliness or lack thereof of a motion to arbitrate.
This action was commenced on March 10, 2017, by the filing of a
complaint which was served on March 30, 2017. Northland filed its motion to
compel arbitration on January 19, 2019. This represents a lapse of
approximately 22 months. While not approaching the four-year delay in
Ehleiter, it nevertheless far exceeds the delays found acceptable in the cases
Ehleiter cited.
In fairness, however, I must consider Northland’s proffered reasons for
the delay. Northland blames the plaintiff: “Here, any alleged delay, and any
asserted prejudice, resulted directly from Plaintiff’s failure to produce her
arbitration agreement in discovery.” (Northland Reply Brf. 4) Indeed, says
Northland, the plaintiff was guilty’ of “discovery misconduct.” It was only upon
receiving a copy of the New Card Agreement/Arbitration Agreement, says
Northland, that it was in a position to move to compel arbitration.
It is true, as Northland says, that a motion to compel arbitration may be
regarded as timely if filed “as soon as [the partyj became aware that the
[plaintiffs} contract contained an arbitration clause.” Schall v. Adecco U.S.A.,
Inc., No. 10-2526, 2011 U.S. Dist. LEXIS 8884, at*68 (E.D. Pa. Jan. 28,
2011). Still, I am not persuaded.
On August 9, 2017, Northland served discovery requests on the plaintiff,
requesting documents relating to the credit card account, including account
statements and card agreements. On January 17, 2018, the plaintiff responded

10

that she did not possess relevant documents. Over the ensuing year, in letters
and conferences, the plaintiff repeated that she did not possess responsive
documents. I fail to see the “misconduct.” There has been no judicial ruling to
that effect. At any rate, I do not find it implausible that a person would not
have maintained copies of cardholder agreements.
Eventually, on Januanr 9, 2019, Northland got around to subpoenaing
DSNB for the cardholder account agreements. DSNB responded six days later
with copies of, inter cilia, the relevant Arbitration Agreement. This production,
says Northland, “reveals” the existence of the agreement.6 (DE 44-8) Days later,
on January 19, 2019, Northland filed its motion to compel.
Maher points out that she sought from Northland discovery about the
defense—pled by Northland, mind you—that a written agreement provided for
arbitration of claims. (Decl. ofY. Kim, DE 54-1

¶J

16, 18, and referenced

exhibits). Northland produced nothing in response to those discovery requests,
claiming that it was in “no better position than Plaintiff to obtain such
information.” (DE 43 p.2)
Northland’s complaint that it could not have been required to obtain
such documents from “out-of-state non-parties” is hyperbolic. The reference is
evidently to Northland’s own principal or client, DSNB (or its parent
corporation, Citibank), who had every reason to cooperate.
In January 2019, when it wanted to do so, Northland obtained the
relevant agreement from DSNB with ease and within days of its request. And
no wonder. DSNB is Northland’s principal; Northland was collecting overdue
bills on DSNB’s behalf. (See Northland Brf. (“Northland

.

.

.

was acting as

DSNB’s agent when it sent the Letter.”)). So I am inclined to take with a grain of
salt Northland’s pious protestation that the Federal Rules barred it from
obtaining this information, because a third-party subpoena might impose an

The language fails to clarify whether, in advance of this production, Northland
knew about the Arbitration Agreement, even if it did not physically possess a copy. If it
did not know about the agreement, it becomes harder to discern the basis for its
pleading in its Answer that such a written agreement existed. See infra.

6

11

unnecessary “burden” on DSNB. (Northland Reply Brf. 5 (citing Fed. P. Civ. P.
45(d)(1), 26(b)(1); Roosevelt Irrigation Dist. v. Salt River Project Agric.
Improvement&PowerDist., No. 2:1O-CV-00290-DAE-BGM, 2016 U.S. Dist.
LEXIS 5674, at *71 (D. Ariz. Jan. 14, 2016) (quashing third party subpoena on
burden” where the requested
the basis that it imposed an “inappropriate
...

documents “would also be in the possession of a party defendant”)).7
I give little credit to Northland’s pose of helplessness. I find it highly
unlikely that DSNB—the creditor—would have moved to quash a subpoena
from the debt collector acting on its behalf. But assume for a moment that
Northland wished to first seek the documents from Maher. Even so, it learned
in January 2018 that the plaintiff possessed no responsive documents. Yet
Northland waited another year before serving a subpoena on DSNB. And
DSNB, of course, did not move to quash, but swiftly furnished the documents
within days.
All of the foregoing, moreover, ignores the real-world likelihood that
Northland could have confirmed the terms of the New Cardholder
Agreement/Arbitration Agreement with a phone call to DSNB. The documents,
unavailable in discovery, suddenly became available when Northland wanted
them. I do not propose to rule on Northland’s position under the discovery
rules; my point here is that Northland was less than diligent in pursuing the
arbitration issue on its own behalf.
This factor, then, I find to be quite unfavorable to Northland.
[2} The degree to which the party seeking to compel athitration has
contested the merits of its opponent’s claims.
True, the matter was in litigation for 22 months before the motion to
compel arbitration was made. There were, however, no dispositive motions
made by either side. The matter remained in the discovery stages.

Nor has it escaped my attention that Northland has submitted with its motion a
substantial affidavit from an employee of Citibank, who is conveniently voluble about
the business practices of DNSB, the credit card agreements, the details of Ms. Maher’s
account, and so forth. (DE 44-3)
7

12

The docket shows motion practice over confidentiality and sealing; status
conferences; written submissions in advance of a settlement conference in
December 2017; entry of a schedule for discovery, with fact discovery to be
completed by April 30, 2018 (DE 21, later extended); written submissions and
conferences with the Magistrate Judge to resolve discovery disputes and an
order for a Rule 30(b)(6) deposition (see, e.g., DE 30, dated 6/28/18); further
conferences and an extension of the fact discovery deadline to January 31,
2019 (DE 37).
Certainly this does not approach the Hoxworth “wait and see” scenario in
which a defendant received an unfavorable ruling on the merits and then
sought an arbitral forum in which to undo it. See Ehleiter, 482 F.3d at 224
(contrasting the Hoxworth facts). This factor, then, is more favorable to
Northland. See, e.g., FCMA, LLC v. Fujifilm Recording Media US.A., Inc., Civ. A.
No. 09-4053, 2010 U.S. Dist. LEXIS 79129 (D.N.J. Aug. 5, 2010) (granting
motion to compel arbitration relying in part on the defendants having filed no
prior motions for affirmative relief).
[3] Whether that party had informed its adversary of the intention to seek
arbitration even if it had not yet filed a motion to stay the district court
proceedings.
On May 8, 2017, shortly after removing the case, Northland filed its
answer. Among the defenses pled was the following:
2. Plaintiff’s claims are or may be subject to binding and
individual arbitration in accordance with the xvritten arbitration
agreement of the parties. Defendant therefore reserves its right to
compel individual arbitration.
(DE 3 p. 10)
I give only limited weight to the Answer’s early assertion of this defense.
One of twenty-one affirmative defenses,8 it bears all the indicia of boilerplate. It
They are, in brief, (1) failure to state a claim; (2) arbitration; (3) statute of
limitations; (4) estoppel, release, and waiver; (5) no injury connected to acts of
defendant; (6) lack of proximate or legal cause; (7) good faith; (8) lack of intent; (9) lack
(10) lack of standing; (11) no entitlement to claimed damages; (12) damages
of

8

injury;

13

does not identify any “written arbitration agreement.” If the defendant had any
relevant information about an arbitration agreement, then presumably it would
have said so, made a motion, or at least obtained a copy from its principal,
DSNB. If it knew nothing about the Arbitration Agreement, then the inclusion
of this defense was mere boilerplate. Pled as one among many and without any
facts, this defense did not reasonably place the defendant on notice that a
motion to compel arbitration was coming.9
Further, as discussed above, the plaintiff’s efforts in discovery to
ascertain the basis, if any, for this arbitrability defense were met with silence.
Northland gave no indication of its intention to actually invoke arbitration until
it filed its motion to compel in January 2019.
This factor, mildly favorable to Northland when the Answer is viewed in
isolation, is wholly undercut by Northland’s conduct.

[4] The extent of non-merits motion practice.
Northland began its participation in this case by removing it to federal
court instead of simply moving in state court to compel arbitration. Removal,
standing alone, will not establish waiver, but it can be considered as one
objective indicator of intent to litigate, rather than arbitrate. See Halim v. Great

Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 562 (7th Cir. 2008).
Once in federal court, as is typical, discovery motion practice was
informal, consisting of letters, conferences, and oral argument before the
Magistrate Judge. Northland participated in (1) executing a joint discovery
plan, in which it stated the intent to bring various merits-based applications

attributable to plaintiff’s fault; (13) failure to mitigate; (14) unconstitutionality of
statutory damages without actual damages; (15) failure to meet Rule 23 requirements
for class action, specifically: (16) numerosity/ascertainability; (17) no common
question of law or fact; (18) lack of typicality; (19) inadequate representative of class;
(20) individual questions predominate; (21) class action not superior. All other
defenses are reserved.
Nor (whether or not it is the case) would a plaintiff naturally deduce that an
arbitration provision in a cardholder’s agreement between herself and Macys/DSNB
would cover a claim that a third-party debt collector’s language in a collection letter
violated the FDCPA.
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and sought early mediation; (2) submitting an agreed discovery confidentiality
order, (3) submitting joint status reports. (4) participating in five telephonic
status conferences; (5) participating in a settlement conference; and (6) drafting
associated written submissions.’° At no time in the course of these proceedings
did Northland raise the possibility that it would render them moot by asserting
its right to arbitrate. See also discussion of factor [2], supra.
[5] Defendant’s assent to the trial court’s pretrial orders.
Northland complied with pretrial orders. Where deadlines loomed, the
parties sought and obtained revised schedules from the Magistrate Judge. The
parties seemingly were on schedule to complete discovery under the amended
pretrial scheduling order. Of course I do not fault Northland or its counsel for
their professionalism. The point here is that Northland gave every objective
indication that it intended to litigate the matter in court.
[6] The extent to which both parties have engaged in discovery.
Discovery seems to have been substantial. To all appearances, fact
discovenr was within weeks of completion at the time Northland filed its motion
to compel arbitration (at which time further discovery was stayed).
A joint submission from late December 2018 gives some idea of the scope
of issues outstanding on the eve of the motion to compel arbitration. (DE 43) In
that letter, Northland implies that, setting aside a few disputed items, fact
discovery is in a “late stage” and should be nearly finished: “Defendant remains
willing to provide the information if Plaintiff will agree that it will satisfy
Defendant’s discovery obligations and no further information will be requested
at this late stage.” (DE 43 p. 5)
As of that time, the close of fact discovery was scheduled for January 31,
2019, about a month in the future. (DE 37) It was just two to three weeks in
advance of that deadline that Northland requested and obtained the documents
from DSNB, and then filed its motion to compel arbitration. At Northland’s

I note that the stay of discovery pending the settlement conference was
relatively brief, and was lifted the day after the conference. (See DE 18, 21)
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request, further discovery was stayed pending the determination of its motion
to compel arbitration. (DE 48)
As a factor, cases have considered whether the defendant prolonged its
stay in court in order to receive discovery to which it would not have been
entitled in arbitration. This particular factor does not tip strongly either way.
No unfair advantage to the defendant is apparent; indeed, the plaintiff does not
seem to have possessed much in the way of discoverable material at all. Any
discovery relating to class issues presumably would not have occurred in
arbitration, which was to proceed on an individual basis. Still, it would have
been plaintiff, not defendant, who sought class treatment and class-based
discovery; the defendant had no incentive to delay its request for arbitration
and expose itself to such federal-court discovery demands. In short, the most
that can be said is that there was some waste of time and ener’.
*

*

*

Balancing all of the factors, I find that Northland, by its litigation
conduct, has waived arbitration. I do not say that this is an egregious case: the
delay is 22 months, not four years; Northland pled the existence of an
arbitration agreement as an affirmative defense in its answer; Northland did
not have physical possession of the relevant Agreement; and there have been
no rulings on the merits of the case.
Still, I give greater weight to the following factors:
(a)

Northland at all times, beginning with its notice of removal,

participated in the case in a manner that conveyed intent to litigate in court
and oppose class certification (which, under the Arbitration Agreement, would
presumptively have not been an issue).
(b)

The defense of arbitrability was pled in a boilerplate manner, as

one of 21 affirmative defenses.
(c)

The delay of 22 months in bringing the motion to compel

arbitration was substantial.
(d)

Fact discovery was on the brink of completion when Northland

subpoenaed the Arbitration Agreement from its client, DSNB, in January 2019.
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(e)

Northland resisted the plaintiff’s request for discovery regarding

the basis of its arbitration defense, claiming that the documents were not in its
control.

(0

Northland nevertheless easily obtained the Arbitration Agreement

within days after service of a subpoena on DSNB, and its arguments regarding
the difficulty of doing smack of post hoc rationalization.
(g)

Indeed, the Arbitration Agreement could probably have been

obtained for the asking at any time, as Northland’s principal, DNSB, had every
incentive to cooperate.
(h)

Some expenditure of time and money in litigation may, as in

Ehleiter itself, be presumed, and some limited amount of that expenditure
might not have occurred in arbitration of Ms. Maher’s claim on an individual
basis.
“Under the Hoxworth test, [w]aiver will normally be found only where the
demand for arbitration came long after the suit commenced and when both
parties had engaged in extensive discovery.” Ehlciter, 482 F.3d at 222—23
(internal quotations omitted). Here, there are additional factors at play,
including a lack of diligence by Northland that borders on willfulness. I
therefore find that Northland has, by its participation in this litigation, waived
its right to compel arbitration of Ms. Maher’s claims.
I close with a few words about issues not being discussed or decided
here. First, the onh’ agreement before the court is that of Ms. Maher; I do not
speculate about other cardholders’ agreements. Second, because the matter
will not be referred to arbitration, I will deny as moot the defendant’s motion
for a stay of this action under the FAA, 9 U.S.C.

§

3. Third, arbitration having

been waived, I do not reach the remaining issues regarding the scope and
enforceability of the Arbitration Agreement.

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CONCLUSION

For the reasons stated above, the motion of the defendant, Northland, to
compel arbitration and stay this action (DE 44) is DENIED. An appropriate order
accompanies this opinion.
Dated: July 19, 2019

H n. Kevin McNulty
United States District Judge

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