The Court of Appeals for the Third Circuit has upheld a lower court’s ruling that a third-party collection agency can not invoke the creditor’s mandatory arbitration agreement because the defendant’s request to follow the choice-of-law clause in the original cardholder agreement does not provide the proper basis to allow the defendant to enforce the arbitration agreement.
A copy of the non-precedential ruling in Orn v. Alltran Financial can be accessed by clicking here.
The plaintiff opened a credit card with Citibank and subsequently fell behind on her payments. The account was placed with the defendant for collection. The defendant sent four collection letters to the plaintiff. The plaintiff contends that at least one of the letters violated the FDCPA because it did not inform her whether interest was continuing to accrue on the account.
Once the suit was filed against the defendant, it attempted to enforce the mandatory arbitration clause of the original cardholder agreement between the plaintiff and Citibank. A District Court judge did not buy the theory, because while “Alltran was Citibank’s agent,” … “Orn’s FDCPA claim did not bear a sufficient nexus to the credit-card agreement for Alltran to invoke the arbitration agreement.”
The defendant appealed the decision to the Third Circuit.
Instead of choosing to look at the laws of Pennsylvania, where the plaintiff lives, the defendant urged the Appeals Court to look at the laws of South Dakota, which was the choice-of-law location in the original cardholder agreement between the plaintiff and Citibank.
But the legal theory used by the defendant suffered from a “fundamental flaw,” the Appeals Court ruled.
It does not cite — and we have not found — South Dakota authority adopting a freestanding ‘agency’ theory of third-party enforcement. On appeal, the only South Dakota authority Alltran cites to bolster its agency theory does not address third-party enforcement of a contract at all.
