United States District Court, D. Massachusetts
JOHNSON KHATH, on behalf of himself and all other persons similarly situated, Plaintiff,
MIDLAND FUNDING, LLC, Defendant. VIRGINIA NEWTON, on behalf of herself and all other persons similarly situated, Plaintiff,
MIDLAND FUNDING, LLC, Defendant.
MEMORANDUM AND ORDER
Johnson Khath and Virginia Newton in these consolidated cases
are Massachusetts residents with credit card debt who each
initiated a putative class action suit against defendant
Midland Funding, LLC ("Midland"), a debt collection
company. Plaintiffs claim that Midland has harmed
Massachusetts residents by wrongfully operating in the state
without a debt collector license. Khath and Newton filed their
cases against Midland in the Massachusetts Superior Court.
Midland removed the cases to federal court, where they were
consolidated. The cases were referred to the Magistrate Judge
for pretrial proceedings.
has twice moved to compel arbitration and stay the instant
proceedings or, in the alternative, to dismiss
plaintiffs' claims. On January 20, 2017, the Magistrate
Judge issued an Order denying without prejudice Midland's
first Motion to Compel Arbitration, finding that evidence
then in the record did not demonstrate an unbroken chain of
assignment to Midland of the plaintiffs' credit card
accounts. See Docket No. 82 at 11-12 (the "January 20,
2017 Order"). The Magistrate Judge also found a triable
issue existed concerning whether the credit card agreement
produced by Midland, which contains an arbitration clause,
governs Newton's account. Id. at 12 n.9.
August 14, 2017, the Magistrate Judge granted in part and
denied in part Midland's Renewed Motion to Compel
Arbitration. Docket No. 116 (the "August 14, 2017
Order"). The Magistrate Judge ordered Khath to
arbitrate, finding that Midland had presented sufficient
evidence to prove that Khath's credit account was
assigned to it, and that an agreement to arbitrate exists
between Khath and Midland. Id. at 6, 9. The
Magistrate Judge also held that the validity of the Class
Action Waiver provision found in Khath's credit card
agreement was an issue that the agreement reserved for the
court, as Midland conceded at oral argument. Id. at
9. However, she decided to stay litigation concerning the
validity of the Class Action Waiver provision until after
arbitration of Khath's individual claim. Id. The
Magistrate Judge denied the Renewed Motion to Compel with
respect to Newton, reaffirming her earlier ruling that a
triable issue remains concerning whether an agreement to
arbitrate exists between Newton and Midland. Id. at
pending before the court are the plaintiffs' objections
to the Magistrate Judge's January 20, 2017 Order, see
Docket No. 83, and both parties' objections to the
Magistrate Judge's August 14, 2017 Order, see Docket Nos.
117 & 118. For the reasons set forth below, the court is
affirming the Magistrate Judge's January 20, 2017 Order.
The court is modifying in part the August 14, 2017 Order
because the Magistrate Judge must decide whether the Class
Action Waiver in Khath's credit card agreement is valid
before ordering Khath to arbitrate because the Class Action
Waiver provides that if it is found to be invalid the
agreement to arbitrate is void.
following undisputed facts are taken from the Magistrate
Judge's January and August 2017 Orders, and the record as
cited in those Orders.
opened a credit card account with FIA Card Services, N.A.
("FIA") on or about October 11, 2007 (the
"Khath Account"). See Docket No. 46-1
("Burger-Khath Decl.") ¶11. The Khath Account
number originally ended in 5191, but was changed to end in
2958 after it was closed. See id. Khath incurred charges on
his account after opening it. See id., Ex. 1 (billing records
for Khath Account dated between September 2008 and May 2009).
The Khath Account was closed on April 30, 2009 with an
outstanding balance of $1, 028.56. See Burger-Khath
Decl. ¶14. Midland then allegedly purchased the rights
to the Khath Account and sought to collect the debt by suing
Khath in state court, which entered judgment in Khath's
favor. Midland has submitted a credit card agreement that it
argues governs the Khath Account and requires Khath to
arbitrate his claims against Midland. See id, ., Ex. 2 (the
"FIA Agreement") .
opened a credit card account with Chase Bank USA, N.A.
("Chase") on or about September 9, 2001 (the
"Newton Account"). See Docket No. 46-2
("Burger-Newton Decl.") ¶11. The Newton
Account number ends in 0189. See id. Newton incurred
charges on her account after opening it. See id.,
Ex. 1 (billing records for Newton Account dated between
August 2007 and December 2008). On February 27, 2009, the
Newton Account was closed with an outstanding balance of $21,
798.45. See Burger-Newton Decl. ¶14. Midland
allegedly-purchased the rights to the Newton Account from
Chase and sought to collect the debt by suing Newton in state
court, where Midland obtained a default judgment against her.
Midland has submitted a credit card agreement that it
contends governs the Newton Account and requires Newton to
arbitrate her claims against Midland as well. See id., Ex. 2
(the "Chase Agreement").
Standard of Review
party timely objects to a non-dispositive ruling of a
magistrate judge on a pretrial matter, the district judge
must modify or set aside any part of the order that is
"clearly erroneous or contrary to law." 28 U.S.C.
636(b)(1)(A); Fed.R.Civ.P. 72(a). An order compelling
arbitration is a non-dispositive ruling. See PowerShare,
Inc. v. Syntel, Inc., 597 F.3d 10, 14-15 (1st Cir. 2010)
. In both of her Orders, the Magistrate Judge characterized
the motions to compel arbitration as non-dispositive and
held, therefore, that she could decide the motions subject to
appeal. See Jan. 20, 2017 Order at 2 n.2; Aug. 14, 2017 Order
at 2 n.2. No party objected to this conclusion, which is in
any event correct. Therefore, the Magistrate Judge's
rulings are reviewed under the foregoing standard.
"clearly erroneous" standard requires that the
district judge accept the magistrate judge's findings of
fact and the conclusions drawn from them "unless, after
scrutinizing the entire record, [the court] form[s] a strong,
unyielding belief that a mistake has been made."
Phinney v. Wentworth Douglas Hosp., 199 F.3d 1, 4
(1st Cir. 1999) (quotations omitted); see Cumpiano v.
Banco Santander P.R., 902 F.2d 148, 152 (1990). The
district judge reviews pure questions of law de
novo. See PowerShare, 597 F.3d at 15. Mixed
questions of law and fact are subject to a sliding scale of
review. See In re IDC Clambakes, Inc., 727 F.3d 58,
64 (1st Cir. 2013) . "The more fact intensive the
question, the more deferential the level of review (though
never more deferential than the clear error standard); the
more law intensive the question, the less deferential the
level of review." Id. (quotations omitted).
The Magistrate Judge's Findings That Both Accounts
Were Assigned to Midland Are Not Clearly Erroneous
January 20, 2017 Order, the Magistrate Judge found that
Midland failed to prove the threshold facts that it had been
assigned both the Khath and Newton Accounts, which would
allow Midland to enforce the agreements governing those
accounts. See Jan. 2017 Order at 11. The Magistrate
Judge, therefore, denied Midland's first Motion to Compel
Arbitration without prejudice, inviting the submission of
additional evidence. Subsequently, in her August 14, 2017
Order, the Magistrate Judge found that Midland had submitted
sufficient evidence in support of its Renewed Motion to prove
that both the Khath and Newton Accounts were assigned to
Midland. See Aug. 14, 2017 Order at 5. The parties made
numerous objections to the Magistrate Judge's rulings. As
explained earlier, the Magistrate Judge's factual
findings are reviewed for clear error, see Phinney,
199 F.3d at 4, while legal issues are reviewed de
novo, see PowerShare, 597 F.3d at 15.
as a threshold matter, plaintiffs argue that the Magistrate
Judge erred by not deciding in her January 2017 Order whether
Midland is precluded from relitigating the issue of ownership
of the Khath Account by a judgment Khath obtained from the
Maiden District Court on September 3, 2014. See Docket No. 83
at 9-10. Plaintiffs objection has two dimensions:
that the Magistrate Judge should have addressed the issue,
and that the Magistrate Judge should have ruled in
Khath's favor. However, the Magistrate Judge did not act
"contrary to law" in declining to rule on the issue
preclusion argument at the time because she had discretion to
deny the motion to compel without prejudice. See Oliveira
v. New Prime, Inc., 857 F.3d 7, 12, 24 (1st Cir. 2017);
28 U.S.C. 636(b)(1)(A).
event, this court cannot now find on the present record that
issue preclusion applies and, therefore, that Khath was
entitled to a ruling in his favor. The burden of proving
issue preclusion "is always on the person raising the
bar." Fireside Motors, inc. v. Nissan Motor
Corp., 479 N.E.2d 1386, 1390 (Mass. 1985). Under
Massachusetts law, issue preclusion applies when:
(1) there was a final judgment on the merits in the prior
adjudication; (2) the party against whom preclusion is
asserted was a party ... to the prior adjudication; and (3)
the issue in the prior adjudication was identical to the
issue in the current adjudication. Additionally, the issue
decided in the prior adjudication must have been essential to
the earlier judgment.
In re Sonus Networks, Inc., 499 F.3d 47, 57 (1st
Cir. 2007) (quoting Kobrin v. Bd. of Reg, in Med.,
832 N.E.2d 628, 634 (Mass. 2005)). "Massachusetts courts
also require that appellate review must have been available
in the earlier case before issue preclusion will arise."
the court cannot now discern which issues were "actually
adjudicated" by the Maiden District Court judgment, as
would be required to determine that Midland is seeking to
relitigate the same issue that was previously decided.
Id. at 62. The Maiden District Court judgment is a
single-page form and does not explain the court's reasons
for entering judgment for Khath. On the present record, this
court cannot find that the Maiden District Court decided that
Midland did not own the Khath account, which is the issue
Khath seeks to preclude litigation of now. Although
Khath's attorney's affidavit asserts that the
ownership issue was his sole defense at the Maiden District
Court trial, Khath's answer filed in that case contains
numerous defenses. Therefore, it is not clear to this court
on what grounds Khath previously prevailed.
factors tending to support the conclusion that a decision is
"final" are lacking. See Tausevich v. Bd. of
App. of Stoughton, 521 N.E.2d 385, 387 (Mass.
1988) (citing Restatement (Second) of Judgments §13,
cmt. g (1982)); see also Jarosz v. Palmer, 766
N.E.2d 482, 489-90 (Mass. 2002). The Maiden District Court
judgment is not "supported by reasoned opinion"
explaining why judgment entered for Khath; it states the
judgment is not appealable, so it was not "subject to
review"; and the court cannot discern that the parties
"were fully heard" on the ownership issue.
Jarosz, 766 N.E.2d at 489-90. Therefore, Khath has
not now proven issue preclusion applies here. Khath may,
however, request that the Magistrate Judge reconsider, or
expressly address, the question of issue preclusion on a
fuller evidentiary record, and the Magistrate Judge will have
the discretion to decide whether to do so. See
addition, plaintiffs object to both of the Magistrate
Judge's Orders on the grounds that she should not have
considered Midland's evidence submitted in support of its
ownership claim because it lacked proper foundation and/or
was not newly discovered; and therefore, she should have
found that Midland was not assigned either account. See
Docket No. 83 at 4-5; Docket No. 118 at 3-7. The Magistrate
Judge's factual findings with respect to the Khath and
Newton Accounts are discussed below. The court must accept
the Magistrate Judge's factual findings "unless,
after scrutinizing the entire record, [the court] form[s] a
strong, unyielding belief that a mistake has been made."
Phinney, 199 F.3d at 4 (quotations omitted).
initially submitted the following evidence to demonstrate it
was assigned the Khath Account. According to the declaration
of Michael Burger, the Director of Operations for Midland
Credit Management, Inc., which maintains the business records
of Midland, Khath owed $1, 028.56 on his FIA account when it
was closed on April 30, 2009. See Burger-Khath Decl.
¶¶1-2, 14. A bill of sale dated May 18, 2009,
states that FIA transferred ownership of a portfolio of
unidentified accounts to Asset Acceptance LLC
("Asset") on that day. See id., Ex. 3 ("FIA
Bill of Sale") . According to the affidavit of Tracy