Smith v. GC Servs. Ltd. P'ship

• Decision Date: 22 October 2018
• Docket Number: No. 18-1361,18-1361
• Citation: 907 F.3d 495
• Parties: Francina SMITH, Plaintiff-Appellee, v. GC SERVICES LIMITED PARTNERSHIP, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

907 F.3d 495

Francina SMITH, Plaintiff-Appellee,

v.GC SERVICES LIMITED PARTNERSHIP, Defendant-Appellant.

No. 18-1361

United States Court of Appeals, Seventh Circuit.

Argued September 17, 2018

Decided October 22, 2018

Leah M. Nicholls, Attorney, PUBLIC JUSTICE, Washington, DC, David J. Philipps, Attorney, PHILIPPS & PHILIPPS, Palos Hills, IL, for Plaintiff-Appellee.

William S. Helfand, Attorney, LEWIS BRISBOIS BISGAARD & SMITH LLP, Houston, TX, for Defendant-Appellant.

Before Easterbrook, Kanne, and Brennan, Circuit Judges.

Kanne, Circuit Judge.

Synchrony Bank hired GC Services Limited Partnership to collect a debt Francina Smith purportedly owed on her Sam’s Club credit card. In response, Smith sued GC Services for alleged violation of the Fair Debt Collections Practices Act ("FDCPA"), 15 U.S.C. § 1601 et seq . Eight months later, GC Services notified Smith that she signed an arbitration agreement with Synchrony Bank when she obtained the credit card. GC Services demanded arbitration. Smith promptly refused. Another five months passed before GC Services filed a motion to compel arbitration. The district court denied the motion after holding that GC Services could not enforce the arbitration agreement on Synchrony Bank’s behalf and finding that GC Services waived any right to arbitration. Because of GC Services’ gratuitous delay in seeking arbitration, we affirm the district court’s decision.

I. BACKGROUND

In 2014, Francina Smith applied for and received a Sam’s Club credit card from Synchrony Bank. The credit card contract included an agreement to arbitrate all disputes arising from the account. The arbitration agreement also contained a waiver of the right to seek class action relief. In March 2016, Synchrony Bank hired GC Services to collect an allegedly unpaid balance on the credit card. GC Services informed Smith that it would commence collection proceedings unless she disputed the debt in writing.

On July 15, 2016, Smith brought a class action suit against GC Services, alleging that the company violated the FDCPA when it required her to dispute the debt in writing. She concurrently requested class certification. In August 2016, GC Services filed a motion to dismiss for failure to state a claim, lack of standing, and lack of personal jurisdiction. The motion to dismiss did not mention the arbitration agreement.

Smith subsequently sought and received leave to file an amended complaint, thus resolving the personal jurisdiction deficiencies. At the same time, Smith renewed her motion for class certification. GC Services filed a second motion to dismiss. In that motion, the company again argued that Smith lacked standing to sue and that she failed to state a claim because the FDCPA requires consumers to dispute alleged debts in writing. GC Services also opposed the class certification motion. But the company did not mention the arbitration agreement in any of its briefing.

While these motions were pending, several discovery disputes arose. On February 17, 2017, Magistrate Judge Debra McVicker Lynch scheduled a discovery conference and directed the parties to file a joint report listing their discovery disputes. In that report, the parties identified five points of contention. The magistrate judge held the status conference and directed GC Services to produce the account histories for the putative class members. Several weeks later, GC Services requested a second status conference to decide an unresolved discovery dispute, but the company later withdrew its request after reaching an agreement with Smith.

On March 10, 2017, GC Services sent Smith a letter notifying her of the arbitration agreement and demanding arbitration. Three days later, Smith unequivocally refused to proceed to arbitration. This correspondence was not filed on the docket, and the district court was not notified that GC Services had demanded arbitration. GC Services filed an answer to the amended complaint on April 19, 2017. In the answer, the company denied all factual allegations and listed its affirmative defenses. Moreover, GC Services did not mention the newly discovered arbitration agreement.

Months passed, and GC Services made no attempt—on the docket or off—to compel arbitration. On June 19, 2017, the district court denied GC Services’ motion to dismiss. The court found both that Smith had standing to sue and that § 1692g(a)(3) "plainly does not" impose a writing requirement. Smith v. GC Servs. Ltd. P’ship , No. 1:16-cv-01897-RLY-DML, 2017 WL 2629476, at *4 (S.D. Ind. June 19, 2017) (quoting Clark v. Absolute Collection Serv., Inc. , 741 F.3d 487, 490 (4th Cir. 2014) ). Approximately one month later, the district court granted Smith’s motion to certify the class.

On August 7, 2017, thirteen months after the suit began, GC Services moved to compel arbitration. The district court denied the motion on two independent grounds. First, the court held that, as a nonsignatory, GC Services could not enforce the arbitration agreement. Second, the court found that GC Services had waived any right to arbitrate by not diligently asserting that right. This appeal followed.

II. ANALYSIS

GC Services frames this appeal as one involving the "novel issue" of whether GC Services can bind Smith to the arbitration agreement as a nonsignatory. (Appellant’s Br. at 1.) But that question of state law need be reached only if the district court erred in finding that the company waived any right to arbitrate.

Before we reach the merits, we must address an initial question of terminology. In the criminal context, we distinguish between "forfeiture" and "waiver." See United States v. Woods , 301 F.3d 556, 560 (7th Cir. 2002) (explaining that waiver of an argument precludes review, while mere forfeiture of an argument permits plain error review). Forfeiture "is the failure to make the timely assertion of a right," while "waiver is the ‘intentional relinquishment or abandonment of a known right.’ " United States v. Olano , 507 U.S. 725, 733, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993) (quoting Johnson v. Zerbst , 304 U.S. 458, 464, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938) ). Our prior cases discussing the loss of a right to arbitrate uniformly consider whether "waiver" occurred. But the concept encompasses both intentional relinquishments and implicit abandonments of the right. See, e.g., Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prod., Inc. , 660 F.3d 988, 994 (7th Cir. 2011) (explaining that waiver can occur explicitly or be inferred from inconsistent actions). For consistency’s sake, we will consider whether GC Services "waived" any right to arbitration. But that analysis necessarily includes the concept of forfeiture as defined above.

Like any other contractual right, the right to arbitrate can be waived. St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co. , 969 F.2d 585, 590 (7th Cir. 1992). In this case, the arbitration agreement also included a waiver of the right to bring a class action suit. If GC Services waived any right to arbitrate, the company necessarily waived any right to oppose class certification premised on the agreement. See A.D. v. Credit One Bank, N.A. , 885 F.3d 1054, 1065 n.17 (7th Cir. 2018). "The factual determinations that a district court predicates a finding of waiver upon are reviewed for clear error, while the legal question of whether the conduct amounts to waiver is reviewed de novo ." Ernst & Young LLP v. Baker O’Neal Holdings, Inc. , 304 F.3d 753, 756 (7th Cir. 2002) (citing Iowa Grain Co. v. Brown , 171 F.3d 504, 509 (7th Cir. 1999) ). If the district court applied "the applicable law" in weighing the evidence, the result turns on "whether the district court clearly erred in its assessment" that waiver occurred. Iowa Grain Co. , 171 F.3d at 509.

Smith does not contend that GC Services expressly waived any right to arbitrate. The question is whether we should infer that forfeiture occurred, which requires us to "determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate." Kawasaki , 660 F.3d at 994. Many factors are relevant to this analysis, but diligence or the lack thereof is particularly important. Id. Did "the party seeking arbitration ... do all it could reasonably have been expected to do to make the earliest feasible determination of whether to proceed judicially or by arbitration?" Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc. , 50 F.3d 388, 391 (7th Cir. 1995). We also consider "whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery." Kawasaki , 660 F.3d at 994. We need not find that the nonmoving party was prejudiced by the delay in seeking arbitration. See St. Mary’s , 969 F.2d at 590 ("[W]here it is clear that a party has forgone its right to arbitrate, a court may find waiver even if that decision did not prejudice the non-defaulting party."). "[A]n election to proceed before a nonarbitral tribunal for the resolution of a contractual dispute is a presumptive waiver of the right to arbitrate." Cabinetree , 50 F.3d at 390.

A. GC Services Acted Inconsistently with the Right to Arbitrate

The district court found that GC Services did not act diligently because the company did not mention the arbitration agreement in its answer, provided an inadequate explanation for the five-month delayin seeking arbitration after learning of the agreement, and prejudiced Smith by (unsuccessfully) engaging in motions practice.

GC Services did not privately demand that Smith arbitrate her claim until eight months after she filed suit. After Smith’s prompt refusal, the company waited another five months before moving to compel. GC Services’ explanation for these delays is entirely inadequate. The company contends that the initial eight-month delay occurred because the arbitration agreement was in Synchrony Bank’s possession and so "GC Services was unaware of [its] existe...