District Court rules nonsignatory to credit card agreement cannot compel arbitration in debt collection case

Courts State Issues South Dakota FDCPA Debt Collection Credit Cards Consumer Finance Arbitration

On July 11, the U.S. District Court for the Central District of California denied a law firm defendant’s motion to compel arbitration in an FDCPA case. According to the order, the plaintiff’s credit card, opened with a South Dakota-based bank, was stolen and charged more than $8,500. The plaintiff claimed that the original creditor did not investigate, refused to remove the charges, and attempted to collect on the debt. The creditor filed suit against the plaintiff to collect, and the plaintiff sought to move the case to arbitration. The creditor placed the account with the defendant, a debt collection law firm, whom the plaintiff then sued in federal court alleging unlawful collection attempts. The defendant sought to compel arbitration, based on the arbitration clause in the original agreement between the plaintiff and the creditor. The district court held that South Dakota law governed the card agreement, and a court ruling from that state’s Supreme Court held that nonsignatories to an arbitration agreement can compel arbitration only where (i) the plaintiff alleged “substantially interdependent and concerted misconduct” between the signatory and nonsignatory; or (ii) the plaintiff’s claims against the nonsignatory arises out of the agreement. The district court stated that the plaintiff did not allege, nor could the district court infer, that the defendant worked “in concert” with the creditor to unlawfully collect the debt, but rather that it did not follow reasonable procedures under the FDCPA. Additionally, the district court held that the plaintiff’s claims did not arise out of the arbitration provision. Therefore, the nonsignatory defendant could not rely on the provision to compel arbitration.