In Barbosa v. Midland Credit Mgmt., No. 19-1896, 2020 U.S. App. LEXIS 37174 (1st Cir. Nov. 25, 2020), the First Circuit Court of Appeal affirmed referring a matter to arbitration.
A resident of Massachusetts, Barbosa opened a credit card account with Barclays Bank Delaware (“Barclays”) in April 2011. The last payment she made on the account was in November 2012. By June 2013 (the last month for which we have a statement from this account), Barbosa was carrying an overdue, unpaid balance of $3,423.24. In June 2015, Barclays sold this unpaid balance to Midland Funding LLC. To be more precise, Barclays sold Midland Funding a “series of accounts that originated with” it, à la bundling practice we referred to above. Midland Funding is an empty corporate shell entity (meaning it has no employees) which buys charged-off consumer debt from other entities. For example, when Midland Funding bought Barbosa’s account from Barclays, her account was part of a “pool of charged-off accounts.” Midland Credit Management, Inc. (“MCM”) manages the accounts purchased by Midland Funding, acting as its servicer and agent. The rights to Barbosa’s account were assigned to MCM pursuant to a Servicing Agreement between Midland Funding and MCM. Schreiber/Cohen LLC is the law firm retained by MCM on behalf of Midland Funding to assist in MCM’s debt collection efforts, including filing lawsuits against credit card debtors. In August 2017, Midland Funding, as assignee of Barclays and represented by Schreiber/Cohen, filed a statement of small claim against Barbosa in the Boston Municipal Court, seeking to collect the unpaid credit card account balance plus court costs. The Municipal Court ultimately issued judgment in Barbosa’s favor, concluding Midland Funding had not proved it owned the subject debt. About a year later, Barbosa, along with two other individuals who similarly experienced the credit card collection practices of Midland Funding and MCM, sued MCM and Schreiber/Cohen (as well as one other law firm not involved with Barbosa’s account) in federal district court, claiming the corporate entities violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692e and 1692f, by attempting to collect the credit card debt in the Massachusetts state court after the statute of limitations for the collection action had expired pursuant to Delaware state law. The plaintiffs also claimed the violation of the FDCPA was a per se violation of Massachusetts General Laws, chapter 93A, § 2.34 MCM and Schreiber/Cohen each responded to the complaint with a motion asking the district court to compel arbitration pursuant to the arbitration election provision in each plaintiff’s credit card agreement, to strike the class action allegations, to dismiss the complaint for failure to state a claim, and/or to stay the litigation pursuant to a variety of theories. MCM primarily relied on the arbitration provision of the Barclays Cardmember Agreements. While Schreiber/Cohen argued that the complaint was worthy of dismissal for failure to state a claim on several grounds, it also argued the district court should compel arbitration. After a hearing, a magistrate judge issued a report and recommendation (an “R&R” to use court lingo) in which she focused primarily on the arbitration provision in the Barclays Cardmember Agreement. The magistrate judge concluded the agreement contained a valid arbitration provision which MCM and Schreiber/Cohen were authorized to enforce and recommended the district judge send the parties off to arbitration. In addition to suggesting the district judge grant the motion to compel arbitration, the R&R also suggested the district judge: (1) strike the class action claim, and (2) dismiss the amended complaint without prejudice. The plaintiffs filed a timely objection to the R&R but the district judge ultimately agreed with the magistrate judge, accepting and adopting her R&R in its entirety using a margin decision and issuing an order dismissing the plaintiffs’ claims. Barbosa was the only plaintiff to file a notice of appeal. Her challenge to the district court’s order focuses exclusively on the district court’s conclusion that MCM and Schreiber/Cohen are authorized to compel Barbosa to arbitrate her claims against them. As we explain below, the legal principles at play here lead us to affirm.