The Court of Appeals for the Third Circuit has vacated an order compelling arbitration and directed a lower court to dismiss a Fair Debt Collection Practices Act class action, ruling that the plaintiff who filed it never had standing to sue in the first place.
The background: The dispute began as a routine credit card collection and grew into roughly eight years of litigation.
- The plaintiff’s account began as a credit card issued by a lender. In 2017, a debt buyer acquired a pool of those accounts, including hers, then sent collection letters and sued her in New Jersey state court to recover the balance.
- The plaintiff answered with a class action under the FDCPA, alleging the collection letters falsely warned that flexible payment options might no longer be available even though the debt buyer was still offering them. The plaintiff did not claim the statement caused her any harm or changed anything she did.
- The debt buyer dropped its state collection case, moved the FDCPA claim to federal court, and asked the court to compel arbitration under the card agreement. The plaintiff amended her complaint to add a second account holder as a plaintiff and the debt buyer’s affiliated collection company as a defendant.
- After limited discovery and a first trip to the appeals court, a Supreme Court decision changed the standard for deciding whether the defendants had waived their right to arbitrate. On remand, the District Court found no waiver, compelled arbitration, and dismissed the case, prompting the plaintiff to appeal a second time.
The ruling: The Appeals Court never reached the arbitration question. Instead, it found it lacked jurisdiction because the plaintiff had never alleged a concrete injury.
- Judge Jane Roth of the Court of Appeals for the Third Circuit, who wrote that “the passage of time alone cannot confer the jurisdiction Article III requires,” explained that a bare claim that a letter contained a false statement, with no allegation of resulting harm or reliance, is not the kind of injury a federal plaintiff must show.
- In an unusual twist, the plaintiff was the one who raised the standing problem, and only after the District Court had ordered the arbitration she was trying to avoid. The defendants argued that letting her escape that way would reward gamesmanship, pointing to an earlier decision that had imagined this very scenario: “a plaintiff [who] deliberately submits an on-the-fence complaint and later argues she lacks standing in order to void an arbitration order.”
- Judge Roth was not persuaded. The court’s “independent obligation” to confirm standing, she wrote, could not be set aside for the defendants’ equitable concerns, and the plaintiff’s conduct did not amount to gamesmanship because the governing standing requirements had not been clarified when she filed her amended complaint.
- Judge Roth vacated the order compelling arbitration and returned the case with instructions to dismiss it for lack of standing.
