Smith v. Credit Acceptance Corp.

Panel: Fader, C.J., Wright, Shaw Geter, JJ. Shaw Geter, J. ⁷¹¹ This appeal arises from an order issued by the Circuit Court for Baltimore City to compel arbitration in a contract action for the purchase of an automobile. Following Appellee's voluntary dismissal of its action against Appellants in the District Court of Maryland for failure to make required payments under the same contract, Appellants filed a class action complaint in the Circuit Court for Baltimore City. Appellants alleged Appellee charged impermissible "convenience fees" and failed to sufficiently notify Appellants regarding the repossession ⁷¹² and sale of the vehicle in contravention of Maryland's Credit Grantor Closed End Credit Provisions.

Appellee then petitioned the circuit court to compel arbitration of Appellants' claim. Appellants opposed the motion, arguing Appellee waived its right to arbitration when it ⁷²⁴ previously filed its claim in the District Court. On January 12, 2018, the circuit court granted Appellee's petition. Appellants timely appealed and present the following question for our review: 1.

Whether the Maryland Court of Appeals in Cain v. Midland Funding, LLC , 452 Md. 141 , 156 A.3d 807 (Md. 2017) limited the waiver of the right to arbitrate "related" claims as defined by Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc. , 294 Md. 443 , 450 A.2d 1304 (Md. 1982) to include only those claims that are "dependent" on the claims raised in a prior action? BACKGROUND On November 15, 2013, Appellants, Thomas Smith and Timothy Smith, entered into a Retail Installment Contract (the "Contract") to purchase a 2003 Cadillac Escalade (the "Vehicle") from Anderson Automotive Group, Inc. (the "Dealership"). The Dealership assigned all of its rights, title, and interest, including its security interest, in and to the Contract and the Vehicle to Appellee, Credit Acceptance Corporation (hereafter, "Credit Acceptance"). Within the Contract was an arbitration clause, which provided: AGREEMENT TO ARBITRATE This Arbitration Clause describes how a Dispute (as defined below) may be arbitrated ...

A "Dispute" is any controversy or claim between [Appellants] and [Credit Acceptance] arising out of or in any way related to this Contract, including, but not limited to, any default under this Contract, the collection of amounts due under this Contract, the purchase, sale, delivery, set-up, quality of the Vehicle, advertising for the Vehicle or its ⁷¹³ financing, or any product or service included in this Contract. "Dispute" shall have the broadest meaning possible, and includes contract claims, and claims based on tort, violations of laws, statute, ordinances or regulations or any other legal or equitable theories ... * * * Either [Appellants] or [Credit Acceptance] may require any Dispute to be arbitrated and may do so before or after a lawsuit has been started over the Dispute ... If [Appellants] or [Credit Acceptance] elect to arbitrate a Dispute, neither [Appellants] nor [Credit Acceptance] will have the right to pursue that Dispute in court or have a jury resolve that dispute ... * * * It is expressly agreed that this Contract evidences a transaction in interstate commerce. This Arbitration Clause is governed by the FAA and not by any state arbitration law.

Beginning in 2015, Appellants failed to remit the required monthly installment payments to Credit Acceptance as required. After Credit Acceptance attempted to obtain payment from Appellants unsuccessfully, Credit Acceptance repossessed and sold the Vehicle, which resulted in a deficiency balance of $ 12,957.30. On November 30, 2016, Credit Acceptance filed a lawsuit in the District Court of Maryland, seeking to recover the unpaid deficiency balance (the "District Court Action"). Credit Acceptance claimed Appellants were liable for failing to pay amounts owed under the Contract.

In response, Appellants filed a Notice of Intention to Defend, which stated, "Plaintiff is not entitled to a judgment in its favor and Defendants deny the allegations of the Complaint and demands [sic] strict proof thereof." Credit ⁷²⁵ Acceptance served limited interrogatories, which Appellants answered. In response to one interrogatory, Appellants stated, "Plaintiff did not provide Defendants with adequate notice related to the repossession ( i.e. redemption, sale and account). Plaintiff charged Defendants fees to make payments by phone." Prior to receiving the interrogatory ⁷¹⁴ answers, Credit Acceptance also filed a notice of intent to rely upon business records. The parties did not engage in additional discovery, file motions, or otherwise take any further action in the District Court Action.

On July 11, 2017, just prior to trial, Credit Acceptance voluntarily dismissed the District Court Action. On July 19, 2017, Appellants filed a Class Action Complaint in the Circuit Court for Baltimore City (the "Circuit Court Action"), which was subsequently amended (the "Amended Complaint"). The Amended Complaint alleged Credit Acceptance violated the Credit Grantor Closed End Credit Provisions, Md. Code Ann., Com. Law §§ 12-1001 , et seq.

("CLEC") by charging impermissible "convenience fees" when collecting payments from Appellants by telephone or through the internet, and failing to provide adequate notice of the repossession and sale of the Vehicle. Appellants sought statutory damages for the asserted CLEC violations. Before filing its response to the Amended Complaint, Credit Acceptance invoked the arbitration clause in the Contract and demanded Appellants submit their claims to arbitration. Appellants refused this demand.

Credit Acceptance then petitioned the circuit court for an order to arbitrate Appellants' claims. Appellants opposed the petition, arguing that Credit Acceptance had waived its right to arbitrate by filing the District Court Action. On January 12, 2018, the circuit court granted the petition and stated, Now, I will find that the claims in the amended complaint are not dependent on the claims in the [District Court Action] and therefore no waiver occurred. Just because Credit Acceptance went ahead with the [District Court Action] does not mean that they waived arbitration in this case ...

The fact that Credit Acceptance could have arbitrated its [District Court Action] but did not would not preclude them from arbitration in this case[.] Appellants timely appealed the circuit court's ruling to this Court. ⁷¹⁵ STANDARD OF REVIEW The parties disagree on the appropriate standard of review. Appellants assert we should review the circuit court's determination without deference. They claim the question of whether Credit Acceptance waived its right to arbitrate by filing the District Court Action is a question of law, which we should review afresh. On the other hand, Credit Acceptance argues that the question of whether it waived its right under the circumstances is a factual inquiry that we should only reverse upon clear error.

In Cain v. Midland Funding, LLC , the Court of Appeals was presented with a question of law similar to the one sub judice , namely "whether, under Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc. , 294 Md. 443 , [ 450 A.2d 1304 ] (1982), the 2009 collection action [was] 'related' to [the appellant]'s current claims against [the appellee] and thus constituted a waiver of the right to arbitrate." 452 Md. 141 , 151-52, 156 A.3d 807 (2017). The Court noted that this was a question of law and "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 ⁷²⁶ novo standard of review." Id. at 152 , 156 A.3d 807 (internal quotations omitted). In this case, the circuit court's decision entailed an interpretation of applicable caselaw. Accordingly, our review of the circuit court's decision is de novo .

DISCUSSION I. Whether the circuit court erred in granting Credit Acceptance's petition to compel arbitration. Appellants