In ordering arbitration of a lawsuit brought by a credit card holder against a law firm that filed collection lawsuits on the cards, a federal district court in Ohio rejected the argument that the law firm waived its right to demand arbitration by filing the collection lawsuits. Even though it didn't rise to the level of waiver in this case, the filing of a collection lawsuit may jeopardize the enforceability of an arbitration agreement under other legal doctrines.

In Hodson v. Javitch, Block & Rathbone, LLP, No. 1:07 CV 2085, 2008 WL 191062 (N.D. Ohio Jan. 18, 2008), Hodson obtained two Capital One credit cards by filling out an on-line application. When Hodson defaulted on his payment obligations, Capital One hired Javitch, Block & Rathbone (JBR) to act as attorney in its collection efforts.

JBR filed two collection lawsuits, one for each card. Both cases were ultimately dismissed for improper venue, and following dismissal, Hodson sued JBR for allegedly violating the Fair Debt Collection Practices Act (FDCPA).

In response, JBR filed a motion to compel arbitration pursuant to an arbitration clause in the cardholder agreement. Hodson opposed the motion on various grounds.

As a preliminary matter, the Court determined that JBR was entitled to invoke the arbitration agreement, which conferred the right to arbitrate on "authorized representatives" of Capital One. The Court found that JBR was an "authorized representative" of Capital One as the attorney hired to pursue collection efforts.

The Court thus turned to Hodson's arguments for not enforcing the arbitration agreement. First, Hodson argued that JBR waived the right to demand arbitration by filing a lawsuit on each of the cardholder agreements. In rejecting this argument, the Court found that JBR's filing of the collection lawsuits did not meet the Sixth Circuit standard for waiver -- namely, conduct that is "completely inconsistent with an intent to arbitrate" and prejudicial to the opposing party.

Hodson also argued that the arbitration agreement was unconscionable and therefore unenforceable. The Court rejected this argument because the arbitration agreement was "not one-sided" but instead gave either party the right to demand arbitration. Moreover, as the Court noted, Hodson did not forfeit any rights by agreeing to arbitrate "but simply agreed to resolve the dispute in an arbitral rather than judicial forum."

Having rejected Hodson's arguments for not enforcing the arbitration agreement, the Court issued an order compelling arbitration of the FDCPA dispute.

In this case, JBR retained the benefits of arbitration because its filing of the collection lawsuits did not meet the controlling definition of waiver. Even if it doesn't rise to the level of waiver, the filing of a collection lawsuit may jeopardize the enforceability of an arbitration agreement under other legal doctrines.

For example, in Tillman v. Commercial Credit Loans, Inc., No. 360A06, 2008 WL 201750 (N.C. Jan. 25, 2008), the North Carolina Supreme Court held that an arbitration agreement and class waiver were unenforceable partly because the lender's routine filing of collection lawsuits evinced a lack of mutuality.