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A federal district court in Missouri held that a law firm collecting debt on behalf of a payday lender could invoke the lender’s arbitration agreement even though the law firm was not a party to the agreement.
In Nichelson v. Soeder, 2006 WL 3079109 (E. D. Mo. Oct. 27, 2006), Soeder, an attorney, obtained a judgment for unpaid debt on behalf of his client, a payday lender. Nichelson, the borrower, subsequently sued Soeder, alleging a violation of the Fair Debt Collection Practices Act (FDCPA).
Soeder moved to compel arbitration pursuant to an arbitration clause in the loan agreement. The motion raised two issues: (1) whether Soeder, a nonsignatory, could invoke the arbitration agreement; and (2) whether Soeder waived any right to arbitrate by suing in court for the unpaid debt.
On the first issue, the Court found that Soeder could invoke the arbitration agreement despite being a nonsignatory. The Court cited two reasons for reaching this conclusion. First, the language of the arbitration clause applied to disputes between the borrower and an agent of the lender. Second, the Court found that the circumstances allowed Soeder to invoke the arbitration agreement either to avoid “evisceration” of the arbitration agreement or because Nichelson was relying on the terms of the underlying contract in asserting claims against Soeder.
On the second issue, the Court found no waiver of the right to arbitrate because the action for unpaid debt and Nichelson’s FDCPA claims involved different factual and legal issues. Under those circumstances, there could be no prejudice. Accordingly, the Court ordered arbitration.
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