NJ Court Finds No Waiver of Arbitration Rights in FDCPA Case, Grants Motion to Compel

In Hejamadi v. Midland Funding LLC, the U.S. District Court for the District of New Jersey, on remand from the Third Circuit Court of Appeals, addressed whether the defendants waived their rights to compel arbitration of the plaintiffs’ putative class action claims alleging violations of the Fair Debt Collection Practices Act (FDCPA).

The court’s opinion notes that the case involved a lengthy procedural history set forth in two prior opinions and in the Third Circuit’s decision remanding the matter to the district court. In sum, in 2017, the defendants purchased various credit card accounts from Citibank and then filed a debt collection action against plaintiff Shanthi Hejamadi, who in turn filed a counterclaim against the defendants pursuant to the FDCPA. The defendants dismissed the collection claim, removed the remaining counterclaim to federal court, and moved to compel arbitration under the mandatory arbitration and class action waiver provisions in the plaintiff’s original credit card agreements with Citibank. After amendments to the class action complaint, the court denied the motion to compel arbitration without prejudice and ordered limited discovery on the arbitrability issue. The defendants renewed their motion to compel arbitration, which was granted by the court on March 31, 2022. The court found that the defendants “had the right to arbitrate plaintiff’s claims … and had not waived that right.” The court based its opinion on Third Circuit precedent at that time, which focused on analyzing prejudice to the party opposing arbitration in analyzing a motion to compel like the one before the court.

The plaintiffs appealed the court’s March 31 opinion and while the appeal was pending, the U.S Supreme Court issued its opinion in Morgan v. Sundance Inc., 596 U.S. 411 (2022), which, as noted by the district court, held that “whether a party waived a contractual right to arbitrate is decided by the same standard as waiver of any other contractual right” and that “there are no arbitration-specific variants of federal procedural rules, like those concerning waiver, based on the Federal Arbitration Act’s policy favoring arbitration.” The Third Circuit remanded the plaintiffs’ pending appeal of the order compelling arbitration to the district court to address the waiver issue now governed by the decision in Morgan.

On remand, the district court noted that Morgan “rejected the case law of various circuits, including the Third Circuit, that conditioned arbitration waiver on a showing of prejudice” and that the Third Circuit’s test in determining whether a party waived its right to arbitrate will now focus “on the actions of the party seeking to arbitrate, rather than the effects of those actions on the party opposing arbitration.” Applying this new standard to the defendants’ renewed motion to compel arbitration in the Hejamadi action, the court noted that the “waiver inquiry — whether a party has intentionally relinquished or abandoned its rights to arbitrate — is informed by the circumstances and context of each case.” After a thorough review of the record, the court found that the defendants’ conduct did not establish a waiver of their right to arbitrate and ordered that the parties proceed to arbitration.

Hejamadi v. Midland Funding LLC, No. 2:18-cv-13203 (D.N.J. June 25, 2024).