A District Court judge in New York has rejected a plaintiff’s legal theory that a judgment obtained in a collection suit extinguishes the underlying debt and thus the underlying agreement, and instead granted a defendant’s motion to compel arbitration and dismissed a Fair Debt Collection Practices Act class-action lawsuit without prejudice.
A copy of the ruling in the case of Morrison v. Midland Funding can be accessed by clicking here.
The plaintiff filed suit, accusing the defendant of violating the FDCPA by making false statements in attempting to garnish the plaintiff’s wages and by failing to comply with state law in New York. The defendant responded to the plaintiff’s lawsuit by filing a motion to compel arbitration, invoking the arbitration provisions of the plaintiff’s agreement with the original creditor. But the plaintiff claimed that the arbitration provisions did not apply because the judgment obtained by the defendant in its collection suit extinguished the underlying agreement and there is no longer an “account” upon which to enforce an arbitration claim.
As Judge Frank Geraci of the District Court for the Western District of New York put it, he “disagrees.”
If the plaintiff’s theory were correct, Judge Geraci noted, “contracts would be rendered meaningless whenever a party breached any portion of an agreement and the other party obtained a judgment on such breach.”
Making things even more favorable for the defendant was the inclusion of specific provisions in the underlying agreement that spelled out this exact circumstance. The agreement notes that cases filed to collect money owed by the plaintiff will not be subject to arbitration, but that a response to such a suit that there was alleged wrongdoing may be subject to arbitration.
“Thus, regardless of whether an underlying court judgment merges with and extinguishes an underlying contractual debt, the contract itself and its obligations — including the ability to compel the arbitration of subsequent claims — do not similarly merge,” Judge Geraci wrote.
