CLIFFORD CAIN, JR.
MIDLAND FUNDING, LLC
Argued: January 9, 2017
Court for Baltimore City Case No.: 24-C-13-004869
Barbera, C.J. Greene Adkins McDonald Watts Getty Harrell,
Glenn T., Jr. (Senior Judge, Specially Assigned), JJ.
promises to arbitrate future disputes-in which parties
forfeit their right to a trial in court and by a jury-have
proven to be controversial. In this appeal we deal with an
arbitration clause that seeks to preserve for a lender the
right to sue a credit card debtor in small claims court, but
insist on arbitration of all other claims relating to the
debtor's account. Here, the lender's assignee, while
operating as an unlicensed debt collector, obtained a $4,
520.54 judgment against the debtor in the District Court of
Maryland, sitting in Baltimore City. The assignee now seeks
to arbitrate the debtor's later-filed class action suit
collaterally attacking the judgment based on violations of
Maryland consumer protection laws. We address whether the
assignee, in pursuing its earlier district court suit, waived
its right to arbitrate the debtor's claims.
AND LEGAL PROCEEDINGS
2003, Clifford Cain, Jr., opened an AT&T Universal
Savings and Rewards Card account with Citibank. Cain's
contract with Citibank included an arbitration provision that
allowed either party to "elect mandatory, binding
arbitration for any claim, dispute, or controversy between
[Cain] and [Citibank]." Additionally, it provided that
the arbitration clause would survive "any transfer, sale
or assignment of [Cain's] account, or any amounts owed to
[his] account, to any other person or entity." In 2007,
Cain stopped making payments on his Citibank account. In
2008, Citibank sold all of the rights, title, and interest in
Cain's account to Midland Funding, LLC
March 30, 2009, Midland filed a small claims action against
Cain in the District Court of Maryland, sitting in Baltimore
City, for the outstanding balance on his Citibank account
("the collection action"). The court entered a
default judgment against Cain for $4, 520.54. Under the
Maryland Collection Agency Licensing Act ("MCALA"),
with limited exceptions, companies doing business as a
"collection agency" must be licensed by the State.
Md. Code (1957, 2015 Repl. Vol.), § 7-301 of the
Business Regulation Article ("BR"). Although the
MCALA required Midland to be licensed when it brought suit
against Cain, it did not become licensed until almost a year
23, 2013, the Court of Special Appeals issued an opinion
allowing debtors to collaterally attack judgments obtained by
unlicensed collection agencies. In Finch v. LVNV Funding
LLC, 212 Md.App. 748 (2013), the intermediate appellate
court held that a "judgment entered in favor of an
unlicensed debt collector constitutes a void judgment as a
matter of law." Id. at 764. Thus,
"appellants may collaterally attack these judgments in a
circuit court action." Id.
30, 2013, Cain filed a class action complaint against Midland
in the Circuit Court for Baltimore City for its unlawful debt
collection practices. Cain argued that the judgments Midland
obtained against him and the other class members were void
under Finch. He brought claims for declaratory and
injunctive relief related to the enforcement of the void
judgments, unjust enrichment, and violations of the Maryland
Consumer Debt Collection Act ("MCDCA"), Maryland
Code (1957, 2013 Repl. Vol.), § 14-202(8) of the
Commercial Law Article ("CL"),  and the Maryland
Consumer Protection Act, Maryland Code (1957, 2013 Repl.
Vol., 2016 Supp.), CL §
13-301(14)(iii). Cain requested a money judgment
"for violations of the MCDCA . . . and for purposes of a
sum certain directly related to the judgment sums, pre- and
post-judgment interest and costs (including attorney's
after Cain brought suit, Midland and Cain filed a consent
motion to stay the class action pending the appeal of
Finch to this Court. The Circuit Court granted the
stay. On October 8, 2013, this Court denied
certiorari in Finch, and two weeks later
the Circuit Court lifted the stay in Cain's class action.
Midland then moved to compel arbitration and stay the court
proceedings,  or, alternatively, dismiss Cain's
complaint. The Circuit Court stayed discovery and held a
trial on the existence of an arbitration agreement between
Cain and Midland. After finding that such an agreement did
exist, the Circuit Court granted Midland's motion to
compel arbitration. The Circuit Court rejected Cain's
argument that Midland waived its right to arbitrate when it
brought its 2009 collection action against
appealed to the Court of Special Appeals, which affirmed. The
intermediate appellate court held that Midland did not waive
its right to arbitrate by pursuing a small claims action
against Cain, seeking court approval of two class settlements
in Vassalle v. Midland Funding LLC, 708 F.3d 747
(6th Cir. 2013), or filing a consent motion to stay
Cain's class action pending the appeal of Finch.
Cain v. Midland Funding, LLC, 2016 WL 1597179, at
*13 (Apr. 21, 2016). It concluded that the Circuit Court
properly granted Midland's motion to compel
arbitration. Id. at *14.
granted certiorari to answer the following
Did Midland waive its contractual right to arbitrate
Cain's claims by either (1) filing a collection action
against him in 2009 for outstanding credit card debt, or (2)
filing a consent motion to stay the current proceeding
pending the appeal of Finch?
we answer this question in the affirmative, we shall reverse
the judgment of the Court of Special Appeals.
parties disagree on the appropriate standard of review for
this case. Cain argues that we should review the Circuit
Court's determination that Midland did not waive its
contractual right to arbitrate without deference. He contends
that the question of whether Midland's 2009 collection
action was "sufficiently related" to the claims
before us to constitute a waiver of the right to arbitrate is
a question of law that we should review afresh. By contrast,
Midland argues that the question of whether it waived its
right to arbitrate is a factual inquiry that we should review
only for clear error.
the determination of waiver turns on factual analysis, we
inquire whether that finding was clearly erroneous. See
Brendsel v. Winchester Constr. Co., 392 Md. 601, 618- 19
(2006) (applying clearly erroneous standard of review to
question of whether a party waived the contractual right to
arbitrate); BarGale Indus., Inc. v. Robert Realty
Co., 275 Md. 638, 646 (1975) (applying clearly erroneous
standard to question of whether a party waived contract
provision requiring minimum mortgage loan). But when a
circuit court decision is premised on a conclusion of law, we
review that determination without deference. Wholey v.
Sears Roebuck, 370 Md. 38, 48 (2002). Thus, when
questions of waiver turn on law rather than fact, we ask
whether the trial court's decision was legally correct.
Holloman v. Circuit City Stores, Inc., 391 Md. 580,
588 (2006) (reviewing trial court's decision that a party
waived her right to a jury trial by signing arbitration
agreement without deference); Sears, Roebuck & Co. v.
Gussin, 350 Md. 552, 559-67 (1998) (implicitly
conducting de novo review of whether debtor waived
the statutory accountant-client privilege).
approach mirrors that of federal courts, which review legal
conclusions that a party waived its right to arbitration
without deference to the trial court. See, e.g.,
Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 9
(1st Cir. 2005) ("Given the nature of the issues in this
case, the primary of which is waiver, our review of the
district court's denial of a motion to compel arbitration
and stay judicial proceedings is de novo.");
Republic Ins. Co. v. PAICO Receivables, LLC, 383
F.3d 341, 344 (5th Cir. 2004) ("We review whether a
party's conduct amounts to a waiver of arbitration de
novo, but we review any factual findings underlying the
district court's waiver determination for clear
error." (citation omitted)); MicroStrategy, Inc. v.
Lauricia, 268 F.3d 244, 250 (4th Cir. 2001) (same);
Hoxworth v. Blinder, Robinson & Co., 980 F.2d
912, 925 (3d Cir. 1992) (conducting "plenary"
review of trial court decision to deny motion to stay
proceedings and compel arbitration).
the determination of whether Midland waived its right to
arbitrate depends on two questions of law: (1) whether
Midland had the option to arbitrate its 2009 collection
action under its contract with Cain; and (2) whether, under
Charles J. Frank, Inc. v. Associated Jewish Charities of
Baltimore, Inc., 294 Md. 443 (1982), the 2009 collection
action is "related" to Cain's current claims
against Midland and thus constituted a waiver of the right to
arbitrate. As to the first question, "[t]he
interpretation of a written contract is ordinarily a question
of law for the court and, therefore, is subject to de
novo review by an appellate court." Wells v.
Chevy Chase Bank, F.S.B., 363 Md. 232, 250 (2001)
(citations omitted). As to the second, when a trial court
"order involves an interpretation and application of
Maryland . . . case law, our Court must determine whether the
lower court's conclusions are 'legally correct'
under a de novo standard of review." Walter
v. Gunter, 367 Md. 386, 392 (2002). Thus, we will review
the trial court's determination that Midland did not
waive its right to arbitrate without deference.
arbitration agreement between Cain and Midland states that it
is "governed by the Federal Arbitration Act."
Section 2 of the Federal Arbitration Act ("FAA")
provides that arbitration clauses "shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract." 9 U.S.C. § 2 (2012). The United
States Supreme Court has described § 2 as the
representation of "a liberal federal policy favoring
arbitration agreements, notwithstanding any state substantive
or procedural policies to the contrary." Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24 (1983). But the Supreme Court has instructed state
courts to apply state contract law to arbitration clauses
when enforceability is at issue. Perry v. Thomas,
482 U.S. 483, 492-93 n.9 (1987). It has explained that in
response to judicial non-enforcement of arbitration clauses,
Congress passed the FAA to elevate arbitration agreements to
"the same footing as other contracts, where [they]
belong." Dean Witter Reynolds Inc. v. Byrd, 470
U.S. 213, 219 (1985) (quoting H.R. Rep. No. 96, at 1 (1924)).
Therefore, under the FAA, "state law, whether of
legislative or judicial origin, is applicable if
that law arose to govern issues concerning the validity,
revocability, and enforceability of contracts
generally." Perry, 482 U.S. at 493 n.9
(emphasis in original). This body of law includes
"generally applicable contract defenses, such as fraud,
duress, or unconscionability." Doctor's Assocs.,
Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
waiver is a "generally applicable contract defense,
" we analyze whether the arbitration clause was waived,
and is therefore unenforceable, under state-not federal-law.
As the U.S. Court of Appeals for the Ninth Circuit has
explained, under the FAA, "contract-based
challenges" to the enforcement of an arbitration clause,
such as waiver, "are governed by applicable state
law." Cox v. Ocean View Hotel Corp., 533 F.3d
1114, 1121, 1124 (9th Cir. 2008) (holding that the federal
district court erred in applying federal law to the question
of waiver); see also Walther v. Sovereign Bank, 386
Md. 412, 423 (2005) (citing Southland Corp. v.
Keating, 465 U.S. 1, 16 (1984)) (applying Maryland law
to the question of whether arbitration agreement is
unconscionable and therefore unenforceable); Sanderson
Farms, Inc. v. Gatlin, 848 So.2d 828, 835, 837-38 (Miss.
2003) (applying state law to question of whether party waived
a contractual right to arbitrate governed by the FAA because
waiver is a "usual defense[ ] to a contract");
Parsons v. Halliburton Energy Servs., Inc., 785
S.E.2d 844, 853 ( W.Va. 2016) (applying state law to
determine whether party waived right to arbitrate because,
under the FAA, the "rights and liabilities of the
parties are controlled by the state law of contracts"
Maryland law, the waiver of the contractual right to
arbitrate "may result from an express agreement or be
inferred from circumstances." BarGale, 275 Md.
at 643. To waive the right to arbitrate without express
agreement, a party must take action "inconsistent with
an intention to insist upon enforcing" the arbitration
clause. Id. In Frank, we addressed for the
first time the question of "whether participation as a
party in a judicial proceeding constitutes a waiver of the
right to arbitrate issues raised and/or decided in that
proceeding." 294 Md. at 449. We concluded that it did,
but that such a waiver did not extend to "other
unrelated issues arising under the contract."
Id. at 450 (emphasis added). Here, we must first
determine whether Midland could have arbitrated its 2009
collection action. If so, we then must address whether
Midland's 2009 collection action is related to Cain's
claims under the standard set forth in Frank, and
thus constituted a waiver of the right to arbitrate the
current dispute. If not, Midland's litigation of that
claim was not "inconsistent with an intent[ ] to insist
upon" its contractual right to arbitration, and it did
not waive its right to arbitrate Cain's claims. See
BarGale, 275 Md. at 643.
argues that under the terms of the arbitration agreement,
claims that fall within the jurisdiction of a small claims
court are not arbitrable. Therefore, it was required to
litigate its collection action against Cain in district
court, and the fact that it did so cannot constitute a waiver
of its right to arbitrate. We disagree.
arbitration is a matter of contract, we use contract
principles to determine whether an agreement to arbitrate
exists. Ford v. Antwerpen Motorcars Ltd., 443 Md.
470, 477 (2015) (citations omitted). When a contract's
language is unambiguous, as it is here, we give effect to its
plain meaning without considering what the parties intended.
Rourke v. Amchem Prod., Inc., 384 Md. 329, 354
(2004) (citation omitted). Therefore, only "the
intention of the parties as expressed in the language of the
contract controls the analysis." Antwerpen, 443
Md. at 477 (citation omitted).
arbitration clause at issue provides:
Agreement to Arbitrate:
Either you or we may, without the other's consent, elect
mandatory, binding arbitration for any claim, dispute, or
controversy between you ...