A District Court judge in Maryland has denied a defendant’s motion to compel arbitration in a Fair Debt Collection Practices Act (FDCPA) case, ruling that the defendant waived its right to arbitrate by engaging in prior litigation.
The background: In August 2016, the plaintiff took out a personal loan that was sold and transferred through several financial entities, ultimately landing in the hands of the defendant. The plaintiff eventually defaulted on the loan, with her last payment made in October 2017. Following the default, the loan was charged off in early 2018.
- In November 2022, the defendant initiated a debt collection lawsuit against Roper in the District Court of Maryland. In response, the plaintiff moved to dismiss the case, arguing that the lawsuit violated the statute of limitations and was therefore prohibited by law. The court agreed with the plaintiff and dismissed the case. Following the dismissal, the plaintiff filed a new suit, claiming that the defendant’s actions in filing the time-barred lawsuit violated the FDCPA as well as Maryland consumer protection laws.
- The plaintiff’s new case, a putative class action, was originally filed in the Circuit Court for Prince George’s County in July 2023 but was removed to the District Court for the District of Maryland in August 2023. The defendant responded by filing a motion to compel arbitration based on the loan’s borrower agreement, which included an arbitration clause.
The ruling: In his decision, Judge Brendan A. Hurson ruled that although the parties had entered into a valid arbitration agreement, the defendant had waived its right to compel arbitration. The court found that the defendant’s decision to initiate a debt collection lawsuit in state court in 2022 was inconsistent with its later attempt to compel arbitration in the present case.
- The arbitration clause in the loan’s borrower agreement allowed either party to compel arbitration. However, the court determined that by engaging in prior litigation on the same matter — specifically, the debt collection claim — the defendant acted in a manner that was inconsistent with its right to arbitrate.
- Judge Hurson highlighted that the defendant had already litigated the same underlying claim in state court, where it lost on the basis that the lawsuit was filed outside the statute of limitations. The court emphasized that the claims in the current FDCPA case arose directly from the defendant’s conduct in the previous debt collection lawsuit. Thus, the defendant could not now invoke the arbitration agreement to defend against Roper’s FDCPA and state law claims.
