Collection Agency’s Long Delay Waives Right to Arbitrate


7and The Circuit Court of Appeals upheld the dismissal of a collection agency’s deferred motion to compel arbitration when it found that the agency had insufficient explanations for its delay and had waived any right to arbitration .

In 2014, Francina Smith applied for and received a Sam’s Club credit card from Synchrony Bank. The credit card agreement included an agreement to arbitrate all disputes arising from the account as well as a waiver of the right to seek class action.

In March 2016, Synchrony Bank engaged GC Services to collect an allegedly unpaid balance on the credit card. GC Services informed Smith that she would initiate collection proceedings unless she disputed the debt in writing. Smith refused and filed a class action lawsuit against GC Services, alleging the company violated the Fair Debt Collection Practices Act when it required him to dispute the debt in writing.

A year later, GC Services sent Smith a letter informing her of the arbitration agreement and requesting arbitration, which she refused. The correspondence was not entered into the docket and the District Court was not informed that GC Services had requested arbitration.

Thirteen months after the lawsuit began, GC Services decided to impose arbitration. The Southern District Court denied the petition, finding that as a non-signatory, GC Services could not enforce the arbitration agreement and that it also waived any right to arbitrate by not asserting this right diligently.

On appeal, GC Services argued whether it could bind Smith to the arbitration agreement as a non-signatory. 7and Circuit found that GC Services acted inconsistently with the law of arbitration when it took more than eight months for GC to ask Smith to arbitrate her claim after she had already filed a lawsuit. Following his refusal, the court added, GC waited another five months before moving to compel.

“GC Services’ explanation for these delays is wholly inadequate,” Circuit Judge Michael Kanne wrote. “The company argues that the initial eight-month delay occurred because the arbitration agreement was in the possession of Synchrony Bank and therefore “GC Services was unaware of [its] existence.'”

As a “sophisticated debt collection agency,” GC should have investigated whether Smith’s contract contained an arbitration agreement and could have found the agreement through a routine internet search, the 7th added. Short circuit.

The court noted that GC’s subsequent actions were “wrongful and manifestly inconsistent with an intent to arbitrate” when he further failed to notify the court of his intention to seek compulsory arbitration.

GC also asserted that Smith would not suffer any prejudice by proceeding with the arbitration, but the 7and The Circuit Court found this argument “not only false but irrelevant”.

In its motion to dismiss, GC focused on whether 15 USC § 1692g(a)(3) required that the debts be disputed in writing. 7and Circuit Court found that this issue was inconsistent with a desire to arbitrate and suspect under St. Mary’s Med. CT. of Evansville, Inc. c. Disco Aluminum Prod. Co., 969 F.2d 585, 590 (7th Cir. 1992), citing that “[a] a party cannot normally submit a claim for resolution in one forum and then, when disappointed with the outcome in that forum, seek another forum.

“The district court’s ruling that Smith was prejudiced when GC Services filed for arbitration after Smith denied a motion to dismiss, obtained class certification, and pleaded multiple discovery issues was not wrong,” a Kanne concluded. “Essentially, GC Services sought to erase Smith’s successes, including his victory on the crucial legal issue of whether 1692g(a)(3) contains a writing requirement. This attempt to ‘play tails I win, tails you lose’ is ‘the worst possible reason for delay’.

In the end, the 7and Circuit affirmed the District Court’s denial of GC Services’ motion to compel arbitration in Francina Smith v. GC Services Limited Partnership, 18-1361.


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