The Court of Appeals for the Fourth Circuit has affirmed a lower court’s ruling preventing a debt buyer from invoking the underlying credit agreement’s arbitration clause because it chose to file a lawsuit to collect on the debt even though the statute of limitations had expired.
The background: The dispute began when the plaintiff defaulted on a personal loan originated by the defendant’s predecessor. The defendant, which had purchased the debt from the original creditor, filed suit in state court to collect the unpaid balance.
- The state court dismissed that action as time‑barred, finding the statute of limitations had run on the debt.
- In response, the plaintiff filed this class action, alleging that the defendant’s decision to sue on an expired claim violated federal and Maryland consumer‑protection statutes.
- When the defendant moved to compel arbitration under the loan’s arbitration provision, the district court held that by initiating litigation on an expired debt, the defendant had waived its right to arbitrate.
The ruling: The Fourth Circuit agreed, applying Maryland law to rule the defendant waived its right to arbitration because it knew of its arbitration right and acted “inconsistently with the intention of enforcing the right” by litigating the same claims it now seeks to arbitrate.
- The court rejected the defendant’s argument that some consumer‑protection claims arose before the lawsuit, clarifying that all of the plaintiff’s claims centered on the decision to sue after the limitations period ended.
- As the panel put it, “the illegal actions complained of…do not constitute actions taken prior to the suit, but the filing of the suit beyond the statute of limitations”.
- In short, once the defendant chose court litigation over arbitration for an expired debt, it could not later force arbitration.
