The Plaintiff, Hilton, a computer purchaser, entered into a repayment agreement with Dell Financial Services, LLC, which later sold the debt to Midland Funding, to purchase a Dell computer on credit. The underlying issue in the case concerned Hilton’s claim brought in federal court that Midland Funding attempted to collect on time-barred debt in violation of the Fair Debt Collection Practices Act (FDCPA) after Midland sued Hilton in state court to collect on the outstanding balance. Midland moved to compel arbitration and dismiss the district court case, citing the Dell credit agreement’s arbitration provision.
The District Court for the Eastern District of Michigan held that Hilton’s claim was arbitrable, and that Midland did not waive its right to arbitrate by bringing a debt collection action in state court. The district court ordered the parties to proceed with arbitration of plaintiff’s claims pursuant to the arbitration provision and further ordered that, in lieu of staying the proceedings, the case be dismissed without prejudice. Hilton appealed both the district court’s decision to dismiss the case rather than stay the proceedings and its holding that Midland had not waived arbitration.
The Sixth Circuit affirmed the district court’s dismissal of the case, finding that the FAA requires a court to stay proceedings pending arbitration only “on application of one of the parties.” The panel found that absent a direct request to stay by Hilton, and because “neither party did more than vaguely reference the possibility of staying the proceedings,” the district court did not err by dismissing the case without prejudice.
With regard to whether Midland waived its right to arbitrate, the Sixth Circuit held that the district court should not have ruled on this issue because the arbitration provision delegated this question to the arbitrator and Midland elected to arbitrate. The panel agreed with Hilton’s argument that Midland could not simultaneously argue first, that the arbitration provisions gave authority to the arbitrator to determine whether it waived the right to compel arbitration and second, that the courts should determine whether arbitration was waived. As such, the panel found that the district court erred by deciding the waiver issue.
Hilton v. Midland Funding, No. 16-1556 (6th Cir. Apr. 28, 2017).
This post written by Gail Jankowski.
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