Melba Polk-King v. Discover Bank

FILED
Mar 14 2019, 5:29 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Andrea L. Ciobanu Kyle Michael
Indianapolis, Indiana Hebron, Kentucky
IN THE
COURT OF APPEALS OF INDIANA
Melba Polk-King, March 14, 2019
Appellant-Defendant, Court of Appeals Case No.
18A-SC-1772
v. Appeal from the Lawrence
Township Small Claims
Discover Bank, The Honorable Kimberly J. Bacon,
Appellee-Plaintiff Judge
Trial Court Cause No.
49K03-1406-SC-3436
Altice, Judge.
Case Summary
[1] Discover Bank (Discover) initiated a small claims action against Melba Polk-
King in 2014. Following a failed arbitration in 2015 and another year of
inaction by Discover, the court dismissed the action without prejudice in 2017
for failure to prosecute. Upon Discover’s motion, the court later reinstated the
action and then stayed the action for a second attempt at arbitration. Polk-King
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argued that the reinstatement was improper, the statue of limitations had run,
and Discover could not reinitiate arbitration. Despite her protests, the second
arbitration proceeded, and the arbitrator entered an award in favor of Discover.
The small claims court then confirmed the arbitrator’s award and denied Polk-
King’s request to vacate the award and dismiss with prejudice. On appeal,
Polk-King argues that the court erroneously reinstated the action after the
dismissal for failure to prosecute.
[2] We reverse and remand.
Facts & Procedural History
[3] On June 9, 2014, Discover filed a notice of claim against Polk-King in small
claims court. Discover alleged that Polk-King had an unpaid consumer credit
card balance of nearly $4000. Following a hearing in October 2014, the matter
remained pending while Discover conducted a fraud investigation and pursued
discovery. Discover eventually requested a bench hearing, which the small
claims court set for May 12, 2015. Before the scheduled hearing, however,
Polk-King filed a motion to compel arbitration. Thus, at the hearing, the court
continued the matter indefinitely to allow for the arbitration process to be
completed. The court noted that an arbitration claim had been filed with the
Judicial Arbitration and Mediation Services (JAMS).
[4] The JAMS case coordinator sent notices to Discover in July, August, and
September 2015 that the initial case management fee of $800 had yet to be paid.
On October 9, 2015, the case coordinator sent letters to the parties warning that
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if the fee is not received in thirty days, “we will assume Respondent is not
interested in pursuing arbitration and JAMS will close the file.” Appellant’s
Appendix at 20. The parties were notified on November 9, 2015 that the
arbitration had been closed due to non-payment of the fee. The following day,
Discover sent a letter to Polk-King attempting to reach a settlement outside of
arbitration to avoid the “large JAMS fee”. Id. at 47. On November 13, 2015,
Polk-King rejected any settlement except for a “mutual walk-a-way”, noting
that “JAMS closed the case, the statute of limitation has expired and Discover
failed to comply with the motion to compel”. Id. at 48. In December 2015,
new counsel was substituted to represent Discover.
[5] After nearly a year of inaction, on November 28, 2016, Discover filed a motion
to return the case to the court’s active docket. Discover (wrongly) alleged that
Polk-King had failed to pay the required arbitration fees and that the arbitration
had been terminated as a result of her inaction. Polk-King filed a motion to
dismiss on December 5, 2016. Polk-King asserted that Discover was the party
responsible for paying the fee and asked the court to dismiss the action with
prejudice due to Discover’s failure to pay the fee. The court set the motions for
a hearing.
[6] At a hearing on March 20, 2017, Discover admitted to failing in its obligation
to pay the arbitration fee, which caused closure of the arbitration process. The
court then dismissed the case without prejudice and made the following journal
entry: “Parties were ordered to arbitration and that has not occured [sic] by no
fault of defendant[;] leaving this open on her credit history is unduly prejudicial.
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Plaintiff may refile if arbitration is unsuccessful.” Id. at 6. Shortly thereafter,
on May 8, 2017, Discover filed a motion to vacate the dismissal and stay the
action until the completion of arbitration. In support of its motion, Discover
stated:
1. Where the parties agreed to arbitration, the Court dismissed
this matter without prejudice…and advised that “Plaintiff
may refile if arbitration is unsuccessful.”
2. However, per the Federal Arbitration Act, where a suit is
referable to arbitration, the court shall stay the trial of the
action until such arbitration has been completed. 9 U.S.C. § 3
(emphasis added).
3. Without a case pending in this court, the parties will not be
able to file a Motion to Confirm Arbitration Award upon
completion of arbitration.
4. Moreover, while Plaintiff’s Complaint, filed on June 9, 2014,
was within the applicable statute of limitations, there may be
a question as to whether the statute of limitations would
preclude Plaintiff from refiling a new claim upon completion
of arbitration.
Id. at 24. One week later, the court entered an order granting the motion to
vacate the dismissal “for good cause shown” and staying the action until the
completion of arbitration. Id. at 25. Discover filed a demand for arbitration
with JAMS on July 18, 2017. Polk-King received notice of the new arbitration
filing on August 2, 2017.
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[7] Thereafter, on October 5, 2017, Polk-King filed a letter with the court. 1 She
alleged that she had not received a copy of Discover’s motion to vacate the
dismissal and argued that the case should be dismissed with prejudice because
the statute of limitations had run. The court set the matter for hearing on
November 6, 2017.
[8] In the meantime, Discover secured a hearing room for the arbitration for
November 13, 2017. Additionally, Discover filed with the court an opposition
to Polk-King’s motion to dismiss and a motion for the case to remain on the
inactive docket pending arbitration. Polk-King responded to these filings and
noted that Discover defaulted in the original arbitration proceedings by failing
to pay the fees, which resulted in JAMS terminating the arbitration. She argued
that because Discover failed to prosecute the case in a timely manner, the case
should be dismissed with prejudice under Ind. Trial Rule 41(E). She also
asserted that the statute of limitations had run and Discover could not “refile or
reopen a new case” following termination of the first arbitration. Appellant’s
Appendix at 35.
[9] Both parties appeared at the hearing on November 6, 2017, regarding Polk-
King’s motion to dismiss. The court reset the matter for a hearing on
November 13, 2017, to be held immediately after the scheduled arbitration
hearing. The arbitration hearing took place as scheduled, and both parties
1
This same day, the parties participated in a telephonic preliminary hearing in the arbitration proceedings.
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presented arguments and evidence. The arbitrator then took the matter under
advisement. At the court hearing later that same day, the court continued the
case and noted, “Parties will file motion for new court date.” Id. at 8.
[10] On November 28, 2017, the arbitrator issued the final arbitration award in favor
of Discover in the amount of $3,954.71 plus court costs. That same day, Polk-
King notified JAMS that she wished to appeal the decision. The JAMS case
manager, however, advised that Polk-King had “no avenue for appeal available
via JAMS.” Id. at 66.
[11] Discover filed a motion to confirm and enforce the arbitrations award on
December 8, 2017. Discover represented in its motion that “[p]er the governing
agreement of the parties and the JAMS Streamlined Rules, this is a final award
that cannot be appealed through JAMS.” Id. at 55. On December 14, 2017, the
court signed an order enforcing the arbitration award.
[12] Polk-King, who had been pro se until this point, retained an attorney on or
about January 22, 2018. On February 26, 2018, she filed, through counsel, a
motion to vacate the December 14, 2017 order, invalidate the arbitration award,
and dismiss the case with prejudice. Polk-King argued that the trial court
prematurely confirmed the arbitration award and that Discover’s default in the
first arbitration made the second arbitration invalid and outside the statute of
limitations. Discover objected to Polk-King’s motion.
[13] A hearing on the motion to dismiss was held on July 11, 2018. Polk-King was
once again proceeding pro se. In addition to presenting argument at the
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hearing, she filed a detailed memorandum arguing that she was entitled to relief
from judgment pursuant to Ind. Trial Rule 60(b) for several reasons, including:
(1) The arbitration award was prematurely confirmed by the trial court; (2)
Discover’s default in the first arbitration lifted any stay in the court proceedings,
resulted in “no case pending”, and waived Discover’s right to demand
arbitration; and (3) Discover was not entitled to vacation of the March 20, 2017
dismissal of the action. The court took the matter under advisement and then
issued its order on July 23, 2018, denying Polk-King’s motion to set aside and
vacate the arbitration. Polk-King now appeals. Additional information will be
provided below as needed.
Discussion & Decision
[14] The parties agree that the six-year statute of limitations found in Ind. Code § 34-
11-2-7 applies to Discover’s claim against Polk-King. Additionally, it is
undisputed that the claim accrued on March 1, 2010, and that Discover timely
initiated suit against Polk-King when it filed its notice of claim in the small
claims court on June 9, 2014.
[15] Thereafter, in May 2015, Polk-King requested arbitration, as was her
prerogative under her contract with Discover. The court proceedings were
continued indefinitely to allow for the arbitration process to be completed.
Arbitration, however, stalled almost immediately when Discover failed to pay
the required case management fee for several months. Ultimately, Discover’s
failure to pay led to default and closure of the first arbitration on November 9,
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2015. Polk-King’s understanding was that this was the end of Discover’s case
against her.
[16] Aside from Discover substituting new counsel in December 2015, Discover
took no action in the small claims court proceedings for nearly a year after the
arbitration was closed. In November 2016, Discover filed a motion to return
the case to the active docket. Polk-King responded with a motion to dismiss
due to Discover’s default during the arbitration process. Essentially, Polk-King
argued that Discover had failed to prosecute and had violated the arbitration
provision in the contract. Following a hearing in March 2017, the court
dismissed the action without prejudice. Less than two months after the
dismissal, and apparently without Polk-King’s knowledge, Discover filed a
motion to vacate the dismissal and stay the action until the completion of
arbitration, which the trial court granted. Upon learning of the reinstatement,
Polk-King actively challenged it and argued for dismissal.
[17] Polk-King argues on appeal that when the trial court dismissed the action for
failure to prosecute, it could not later set aside the dismissal because the statute
of limitations had expired, and the court no longer had jurisdiction over the
case. Polk-King provides no authority for this novel proposition.
[18] Although filed in the small claims court, this case veered far off the path of the
typical informal small claims action and became procedurally complex. In this
vein, the court’s dismissal of the action in March 2017 was not based on Ind.
Small Claims Rule 10, which provides for dismissal where “the plaintiff fails to
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appear at the time and place specified in the notice of claim, or any continuance
thereof”. See Niksich v. Cotton, 810 N.E.2d 1003, 1006 (Ind. 2004) (“We do not
view Small Claims Rule 10 as setting out an exclusive list of grounds for
dismissal of a small claims action.”), cert. denied. Rather, the court based the
dismissal on Ind. Trial Rule 41(E) for Discover’s failure to prosecute. 2
[19] Dismissal pursuant to T.R. 41(E) was appropriate under the circumstances, as
Discovery had sat on its rights in both the arbitration (failing to pay the fee over
a period of several months) and the small claims action (failing to prosecute for
a year after the arbitration was closed). See Lee v. Pugh, 811 N.E.2d 881, 885
(Ind. Ct. App. 2004) (listing several factors that may be considered in
dismissing for failure to prosecute but observing “a lengthy period of inactivity
may be enough to justify dismissal under the circumstances of a particular case,
especially if the plaintiff has no excuse for the delay”). In sum, Discover failed
to prosecute its claim against Polk-King for nearly eighteen months after
arbitration was ordered. The court specifically found that this delay was due to
no fault of Polk-King and that leaving the claim open on her credit history was
unduly prejudicial. 3 Although Polk-King requested a dismissal with prejudice,
the court dismissed the case without prejudice.
2
“[T]he Trial Rules govern small claims proceedings to the extent the two sets of rules do not conflict, but
where the two conflict, the Small Claims Rules apply.” Niksich, 810 N.E.2d at 1005.
3
At the time the dismissal was entered, the case had been pending for almost three years.
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[20] Pursuant to T.R. 41(F), the court had discretion to set aside the dismissal
without prejudice “[f]or good cause shown and within a reasonable time”. Id.;
see also E&S Mems, L.L.C. v. Eagen, 795 N.E.2d 508, 511 (Ind. Ct. App. 2003)
(T.R. 41(F) provides a procedure by which the plaintiff may seek to invoke the
trial court’s continuing jurisdiction following an order of dismissal). Thus, the
question is not whether the trial court had authority to set aside the dismissal.
It did. Rather, we consider whether the trial court abused its discretion by
doing so.4
[21] The reinstatement of a case via T.R. 41(F) has been described by this court as
“extraordinary relief.” Estate of Mills-McGoffney, 78 N.E.3d at 706 (quoting
Natare Corp. v. Cardinal Accounts, Inc., 874 N.E.2d 1055, 1060 (Ind. Ct. App.
2007)). We review a trial court’s ruling on a motion to reinstate an involuntary
dismissal for abuse of discretion. Id. at 705. “Judicial discretion has been
defined as a judge’s privilege to decide and act in accordance with what is fair
and equitable within the confines of justice.” Cloyd v. Pasternak, 791 N.E.2d 757,
759 (Ind. Ct. App. 2003). Our review, therefore, is made in light of and
confined to the facts and circumstances of the particular case. Estate of Mills-
McGoffney, 78 N.E.3d at 705. “In other words, we will uphold the trial court’s
decision unless it ‘is clearly against the logic and effect of the facts and
4
When a motion for reinstatement is filed beyond the thirty-day mark for filing an appeal, as in this case, any
subsequent appeal will pertain to whether the trial court abused its discretion in denying or granting the
motion to reinstate. Estate of Mills-McGoffney v. Modesitt, 78 N.E.3d 700, 705 (Ind. Ct. App. 2017).
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circumstances before it or if the court has misinterpreted the law.’” Id. at 705-
06 (quoting Natare Corp., 874 N.E.2d at 1058).
[22] In its motion to vacate the dismissal, Discover made no attempt to explain the
lengthy delays it had caused. There is no indication why the requests from the
arbitrator for payment of the initial fee went unanswered between July and
November 2015, but the record suggests that the non-payment was intentional,
as Discover preferred not to arbitrate. Further, the day after the arbitration was
closed, Discover sent a lengthy letter to Polk-King regarding Discover’s desire
to settle the matter outside of arbitration. Polk-King, keenly aware of the
closure, responded that Discover had defaulted under the arbitration agreement
and that the statute of limitations – which she believed at the time to be three
years – had expired. 5 Despite knowing that the arbitration had been closed,
Discover took no action in the matter for another year. Again, in its motion to
vacate the dismissal, Discover failed to explain its lack of diligence following
closure of the first arbitration.
[23] In support of its motion, Discover first asserted that both parties had agreed to
arbitrate. The record, however, establishes that although Polk-King initially
requested arbitration, she consistently sought dismissal of the entire matter and
argued that reinitiating arbitration was improper after the first arbitration had
been closed due to Discover’s default.
5
In fact, as Polk-King acknowledges on appeal, the applicable statute of limitations was actually six years.
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[24] Next, Discover implied in its motion that the Federal Arbitration Act (FAA)
required the court to stay the action while the second arbitration was initiated
and completed. On the contrary, 9 U.S.C.A. § 3 provides:
If any suit or proceeding be brought in any of the courts of the
United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such
suit is pending … shall on application of one of the parties stay
the trial of the action until such arbitration has been had in
accordance with the terms of the agreement, providing the
applicant for the stay is not in default in proceeding with such
arbitration.
(Emphasis supplied). Because Discover had been in clear default of the
arbitration agreement, it was not entitled to a stay of the court proceedings or to
demand re-initiation of arbitration two years after the first arbitration was filed.
See Sink v. Aden Enterprises, Inc., 352 F.3d 1197, 1200-02 (9th Cir. 2003) (holding
that FAA does not require a court to stay an action and order arbitration when
the party seeking to compel arbitration has previously defaulted in proceeding
with arbitration); see also Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287, 1294
(10th Cir. 2015) (“Failure to pay arbitration fees constitutes a ‘default’ under §
3.”), cert. denied.
[25] Finally, and obviously the impetus for the motion, Discover noted the
probability that it would be unable to file a new claim due to the statute of
limitations. In other words, the dismissal without prejudice was in effect a
dismissal with prejudice in light of the statute of limitations. This certainly
appears to be the case, but that belated observation by Discover does not
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amount to “good cause” as required by T.R. 41(F) to receive the extraordinary
relief of reinstatement. Cf. Cloyd, 791 N.E.2d at 759 (affirming denial of motion
to reinstate following dismissal without prejudice where statute of limitations
prevented plaintiffs from refiling their claim).
[26] Under the circumstances of this specific case, we hold that the small claims
court abused its discretion by granting Discover’s motion and reinstating the
action against Polk-King three years after the complaint had been filed and two
years after the matter had been sent to arbitration. Discover’s dilatory conduct
resulted in an unnecessarily lengthy cloud over Polk-King’s credit history. In its
motion to set aside the dismissal, Discover offered no explanation for its
inaction and no good cause for reinstatement. “Ultimately, reinstatement is a
matter of equity”, and the equities were not with Discover here. See Baker &
Daniels, LLP v. Coachmen Indus., Inc., 924 N.E.2d 130, 143 (Ind. Ct. App. 2010),
trans. denied. Accordingly, the action should not have been reinstated by the
court and the dismissal should have been the end to the case.
[27] On remand, the court is directed to vacate its confirmation of the arbitration
award and dismiss the case with prejudice.
[28] Judgment reversed and remanded.
Najam, J. and Pyle, J., concur.
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