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