It is not uncommon for lenders to exempt small claims actions from their arbitration provisions. The question confronted by the Court of Appeals of Maryland in a recent case was: when a lender opts for small claims court, does that waive any later right to enforce the arbitration clause? The court’s answer was yes, if the claims are related.
In Cain v. Midland Funding, LLC, __ A.3d__, 2017 WL 1101804 (Md. Mar. 24, 2017), the lender pursued its collection action against the credit card holder in small claims court in 2009. It obtained a default judgment for $4,520. In 2013, that same credit card holder filed a class action complaint against the lender, arguing the lender had been an unlicensed collection agency. The lender moved to compel arbitration. The trial court compelled arbitration, finding the lender had not waived its right to arbitrate by bringing the 2009 case, and the intermediate appellate court agreed.
