North Carolina Appeals Court: Original creditors’ intent required for assignment of arbitration rights

Courts State Issues Debt Collection Arbitration Appellate

On November 3, the Court of Appeals of North Carolina issued a pair of orders (see here and here) affirming lower courts’ decisions denying a debt collector’s (defendant) motion to compel arbitration. According to the orders, the defendant purchased charged-off accounts belonging to the plaintiffs and filed individual lawsuits in several state courts seeking to collect on the debt. Default judgments were obtained against the plaintiffs in each of the actions. The plaintiffs filed suit, alleging the defendant violated certain sections of North Carolina’s Consumer Economic Protection Act by “not comply[ing] with certain statutorily enumerated prerequisites to obtain default judgments.” The defendant eventually moved to compel arbitration pursuant to an underlying agreement between the plaintiffs and the original creditor. The lower court denied the motion, ruling that the defendant—“as a nonsignatory to the credit card agreements”—had not shown it was assigned the right to arbitrate claims when it purchased the charged-off accounts. The defendant appealed the decision.

The Appeals Court considered whether there was a valid arbitration agreement between the plaintiffs and the defendant and agreed with the trial court, holding that “without any showing of the additional intent by the original creditors to assign to [the defendant], at the very least, ‘all of the rights and obligations’ of the original agreements, the right to arbitrate was not assigned in the sale and assignment of the Plaintiffs’ Accounts and Receivables as set forth in the Bills of Sale.” Moreover, the Appeals Court determined that the “trial court correctly concluded [the defendant] has not met its burden of showing a valid arbitration agreement between each Plaintiff and [the defendant] and did not err” by denying the defendant’s motion to compel arbitration.