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Richard Barbagallo v. Niagara Credit Solutions

December 4, 2012


The opinion of the court was delivered by: Deborah K. Chasanow United States District Judge


Presently pending and ready for review in this consumer credit case is the motion to compel arbitration filed by Defendant Nissan Motor Acceptance Corporation ("NMAC"). (ECF No. 15). The issues have been briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to compel arbitration will be denied.


A.Factual Background

On or around December 30, 2006, Plaintiff Richard Barbagallo purchased a 2006 Nissan Altima. As part of the purchase, he entered into a retail installment sale contract with Defendant NMAC to finance the purchase. (ECF No. 1-2, at 3-4). 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 right to seek remedies in small claims court for disputes or claims within that court's jurisdiction . . . .

Neither you nor we waive the right to arbitrate by using self-help remedies or filing suit. (ECF No. 15, at 2).*fn1 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. NMAC then hired Defendant Niagara Credit Solutions, Inc. ("Niagara") to collect this debt. In November 2011, Niagara began calling and mailing letters to Plaintiff to collect the debt. Plaintiff alleges that Defendants' attempts to collect this debt have harmed his credit.

B.Procedural Background

In response to Niagara's attempts to collect the debt, Plaintiff filed a complaint in the Circuit Court for Montgomery County against NMAC and Niagara on February 3, 2012.*fn2 (ECF No. 2). The original complaint only alleged violations of the Maryland Consumer Debt Collection Act ("MCDCA"). 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"). (ECF No. 17). On June 25, before the state court ruled on NMAC's motion to compel arbitration, Niagara removed the case to federal court, based on federal question jurisdiction. (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 that an enforceable arbitration agreement exists between them. In cases that involve interstate commerce, however, the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the "FAA") governs arbitration agreements.*fn3 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." 9 U.S.C. § 2. 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." 9 U.S.C. § 3. "[T]he circumstances giving rise to a statutory default are limited and, in light of the federal policy favoring arbitration, are not to be lightly inferred." Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985). "The party opposing arbitration 'bears the heavy burden of proving'" default. MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 250 (4th 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 arbitration would prejudice the party opposing the stay.'" Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 343 (4th Cir. 2009) (citations omitted). To meet its burden, the opposing party must have suffered actual prejudice as a result of the moving party's failure to demand arbitration at an earlier stage in the proceedings. Rota-McLarty, 2012 WL 5936033, at *7 (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, i.e., prejudiced.") (internal quotations ...

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