Another Win for Debt Settlement Companies: Court of Appeals REVERSES Trial Court and Compels Arbitration

Winter Capriola Zenner’s (“WCZ”) commercial litigation attorneys Richard J. Capriola and David B. Weinberg, secured another favorable outcome for debt settlement class action defendants. On October 15, 2013, the Georgia Court of Appeals reversed a Georgia trial court’s denial of class action defendants’ Motion to Compel Arbitration based on the arbitration agreement in the Plaintiff’s consumer contract. The underlying contract was for so-called “debt settlement” or “debt adjustment” services. The plaintiff initially filed a class action lawsuit on behalf of every Georgia consumer who previously did business with the debt settlement company alleging the debt settlement company violated Georgia’s statues regulating the debt adjusting business (O.C.G.A. § 18-5-1, et. seq.).  

In its well-reasoned opinion, the Court of Appeals held that the debt adjustment statutes do not prohibit arbitration. It also cleared up some long-disputed issues holding that arbitration is not a contractual defense, and statutory claims may be subject to contractual arbitration provisions. The Court reasoned that claims for violation of the debt adjusting statutes were “related to” the debt adjustment agreement and subject to the broad arbitration provision applying to “all disputes or claims related to this agreement.” In addition, the Court, relying on the contract’s “severability” clause, further rejected the plaintiff’s attempts to void the arbitration provision as unconscionable. After the Court of Appeals issued its decision, WCZ successfully prevented the plaintiff from proceeding as a class-action in arbitration by advancing recent court opinions that prohibit class-wide arbitration except in very limited circumstances.

As in many of the more than 20 debt adjustment class action lawsuits that WCZ has defended, the issue of arbitration agreements is a threshold defense which has been consistently and successfully asserted to compel the parties to arbitration as they agreed. The lesson to learn is that well-drafted arbitration and severability clauses can mean the difference between defending a one-on-one claim in arbitration or defending a class action in state court.

For further information, please contact Winter Capriola Zenner LLC, Atlanta, Georgia.  (404) 844-5700 or email David at dweinberg@wczlaw.net or Rich at rcapriola@wczlaw.net

Georgia Court of Appeals to Decide Arbitration Issue in Debt Settlement Case

On December 20, 2012, the Georgia Court of Appeals granted an application for interlocutory appeal filed on behalf of a debt settlement company by Richard J. Capriola and David B. Weinberg, commercial litigation and class action defense attorneys at Winter Capriola Zenner, LLC (“WCZ”).  In doing so, the Court of Appeals took an uncommon action and agreed to review a trial court’s denial of a motion to compel arbitration in the middle of the litigation instead of waiting until a final judgment in the case.  

The issue in the appeal addresses whether the Federal Arbitration Act preempts a Georgia trial court’s ruling that statutory claims under Georgia’s Debt Adjustment Act, O.C.G.A. § 18-5-1, et. seq., do not have to be arbitrated even though the plaintiff entered into a debt adjustment contract containing a broad arbitration provision applying to “all disputes or claims.”  

If the Court of Appeals reverses and directs the trial court to enforce the arbitration agreement, the putative class action lawsuit will be dismissed and the matter will be referred to the American Arbitration Association, (“AAA”) for arbitration as provided in the parties’ agreement. 

As in many of the almost 20 Georgia debt adjustment class action lawsuits WCZ has defended, the issue of arbitration agreements is a threshold defense which has been consistently and successfully asserted to compel the parties to arbitration as they agreed.  

“We believe the law clearly supports the enforcement of arbitration provisions in debt settlement and similar consumer contracts, and we look forward to the Court of Appeals clarifying this important issue for litigants and trial courts” said Capriola.  “The United States Supreme Court, Georgia Court of Appeals and the 11^th Circuit routinely reverse trial courts’ denials to compel arbitration just like the one in this case, and we are prepared to appeal this matter until we achieve justice for our client” added Weinberg.  A ruling is expected before the end of 2013.  Check back here or contact WCZ for updates. 

For further information, please contact Winter CapriolaZenner LLC, Atlanta, Georgia.  (404) 844-5700 or email David or email Rich.

Georgia Debt Settlement Class Action Defeated

Winter Capriola Zenner LLC’s (“WCZ”) commercial litigation attorneys, Richard J. Capriola and David B. Weinberg secured a significant victory on behalf of long-time client, DebtXS, in defense of a class action lawsuit alleging DebtXS violated the Georgia Debt Adjustment Act (O.C.G.A § 18-5-1, et. seq.).  Superior Court Judge Linda Warren Hunter, entered an Order enforcing an arbitration provision in the debt settlement consumer’s agreement.  Despite the complaining parties’ reliance on several prior court decisions refusing to enforce almost identical arbitration provisions, Atlanta based WCZ adapted recent developments in national and state arbitration law to secure the win.  In response to the order compelling arbitration, the plaintiff dismissed his case and did not file an arbitration. 

“We are most pleased with the Court’s well-reasoned ruling in this matter.  The law is clearly on our side on this one and was expertly articulated by Rich and David,” said Douglas K. Williams, in-house counsel for DebtXS. 

Debt Settlement companies have been under attack since Georgia revised its laws in 2003 to provide consumers the ability to obtain the return of all fees, charges or contributions paid by the consumer plus a $5,000.00 penalty if they can prove a violation of the law.  Georgia’s Debt Adjustment Act is one of the strictest in the nation, providing a cap on the fees debt settlement companies can charge and requiring trust funds, annual audits, state reporting and liability insurance.  Plaintiff’s attorneys have seized on the statute’s rigid requirements and hefty statutory penalty and continue to file aggressive class actions at a relentless pace.

Any company providing debt settlement, debt management or debt negotiation services, including companies providing support services, such as payment processing and account management, should consult with legal counsel to ensure they comply with Georgia’s strict laws.  Likewise, service agreements should be well crafted to protect settlement and servicing companies in the event they are sued. 

Winter Capriola Zenner LLC, Atlanta, Georgia.  (404) 844-5700 or email David at dweinberg@wczlaw.net or Rich at rcapriola@wczlaw.net