A change in precedent has led the Court of Appeals for the Third Circuit to remand a case back to the District Court to determine whether the owners of a debt that was purchased from the original creditor can compel arbitration after being sued for allegedly violating the Fair Debt Collection Practices Act.
A copy of the ruling in the case of Hejamadi and Varela v. Midland Funding and Midland Credit Management can be accessed by clicking here.
Both plaintiffs opened up retail credit cards which were purchased by the defendants. The agreement transferred the original creditor’s rights to the defendant while also allowing the defendant to assume all rights, responsibilities, and obligations that resulted from the purchase of the accounts. The defendant sent collection letters to the plaintiffs and then filed a collection lawsuit against one of them. That plaintiff filed a counterclaim, after which the defendant dismissed its collection lawsuit.
A District Court judge dismissed the lawsuit, which the plaintiffs appealed because they argued that removal of the original lawsuit to federal court — it was filed first in state court and then removed to federal court by the defendants — was improper and that the District Court judge did not have subject matter jurisdiction.
While this appeal was progressing, the Supreme Court issued a ruling in Morgan v. Sundance that ruled courts must apply general waiver inquiry and must ask whether a party has intentionally relinquished or abandoned a known right.
“We must focus on the actions of the party who held the right — not on prejudice to the opposing party — and consider the circumstances and context of each case,” the Third Circuit wrote. “Because the District Court has not had an opportunity to address arbitration waiver using the inquiry required by Morgan
