A District Court judge in Maryland has denied a defendant’s motion to dismiss and a motion to compel arbitration in a Fair Debt Collection Practices Act class-action lawsuit, ruling the defendant waived its right to arbitration by filing a collection lawsuit first.
The background: The dispute began when the defendant filed a collection lawsuit in November 2023 against the plaintiff in Maryland state court.
- The plaintiff moved to dismiss the state case as time-barred, and although that motion was denied, the defendant ultimately dismissed the case with prejudice in May 2024.
- The plaintiff then filed this class action, alleging that filing lawsuits on time-barred debt was part of a broader scheme targeting consumers.
The ruling: While the defendants sought to enforce an arbitration clause embedded in the original promissory note, Judge Lydia Kay Griggsby of the District Court for the District of Maryland found the debt buyer had waived its right to arbitrate by first initiating litigation.
- Judge Griggsby wrote that “each of the claims asserted in this case relate to [the debt buyer’s] alleged decision to bring a state debt collection lawsuit… after the statute of limitations… had expired.” Because the claims in the federal case were “created by the filing of the State Court Case,” they were deemed related. That relationship triggered Maryland case law recognizing that litigating an arbitrable claim waives the right to later compel arbitration on those same issues.
- The judge also dismissed the law firm’s motion to compel arbitration, noting it was not a party to the arbitration agreement and had not demonstrated it was servicing the loan in a way that would bring it under the agreement’s terms.
- While the court acknowledged the existence and validity of the arbitration clause between the plaintiff and the debt buyer, it concluded the right to invoke it had been forfeited.
