The Court of Appeals for the First Circuit has upheld a lower court’s ruling that the purchaser of a defaulted credit card debt is entitled to the same arbitration opportunity as the original creditor, even though the individual who owed the debt prevailed in a civil suit filed by the purchaser because it could not prove it owned the subject debt.
A copy of the ruling in the case of Barbosa v. Midland Credit Management and Schreiber/Cohen can be accessed by clicking here.
Midland purchased a pool of defaulted credit card debts from Barclays Bank, the original creditor, including the debt that was owed by the plaintiff in this case. Midland filed a lawsuit against the plaintiff to try and collect on the unpaid debt, but a Municipal Court judge in Boston issued a judgment in favor of the plaintiff, ruling that Midland could not prove it owed the debt.
That led the plaintiff to file a class-action lawsuit, alleging the defendants violated the Fair Debt Collection Practices Act by attempting to collect on the debt via a lawsuit after the statute of limitations had expired. The defendants filed a motion to compel arbitration, and a Magistrate Court judge filed a report and recommendation to enforce the arbitration clause of the cardholder agreement between the plaintiff and the original creditor. The report and recommendation were approved by a District Court judge, which led the plaintiff to file her appeal to the First Circuit.
The plaintiff attempted to argue that the defendants should not be able to force her into arbitration because they were not signatories of the original cardholder agreement. The language at issue in the cardholder agreement stated:
For purposes of this provision, “you” includes any authorized user on the Account, and any of your agents, beneficiaries or assigns; and “we” or “us” includes our employees, parents, subsidiaries, affiliates, beneficiaries, agents and assigns, and to the extent included in a proceeding in which Barclays is a party, its service providers and marketing partners.
As well, the following provisions were included in the bill of sale between the original creditor and Midland:
(1) Midland Funding now stands in the shoes of Barclays so Midland Funding’s affiliates, agents, and assigns, etc. are entitled to invoke the arbitration provision just as Barclays’ affiliates, agents, and assigns, etc. could have invoked the provision.
(2) MCM and Schreiber/Cohen fall within the definition of “us” in the language quoted above because both are agents of Midland Funding and, therefore, each has the authority to invoke the arbitration provision.
Ultimately, the Appeals Court ruled the defendants had legal authority to “stand in the shoes” of the original creditor and compel arbitration.
