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Kansas Courts Reluctant to Find Waiver of Arbitration

ABSTRACT: The Kansas Court of Appeals recently held that, even where a debt collector delayed its motion to compel arbitration until 2 years after the litigation was commenced, the trial court did not have the authority to decide that the delay was, in effect, a waiver of arbitration.

In Portfolio Recovery Assocs., LLC v. Dixon, the Kansas Court of Appeals recently reversed a trial court’s holding that a credit card debt collector had waived its right to arbitration by failing to file its motion to compel arbitration until 2 years after the subject litigation was filed against it.  Dixon, the consumer, allegedly defaulted under the terms of her credit card agreement.  Portfolio Recovery Associates (“Portfolio”) subsequently purchased the loan, and Portfolio brought suit in Rice County, Kansas, to recover the debt.

In November 2010, Dixon filed her answer, as well as a class-action counterclaim, whereby she alleged that Portfolio was improperly engaged in debt collection activities in Kansas without an appropriate license to do so.  While Portfolio timely filed an answer with affirmative defenses, it did not, at that time, seek to compel arbitration.  2 years later, after protracted discovery had been conducted, Portfolio moved to compel arbitration and sought an order staying the proceedings, pursuant to the arbitration agreement set forth in the terms of the credit card agreement.  Of note, the agreement contained a provision which stated: 

“If you or we do not elect arbitration or otherwise enforce this Arbitration Provision in connection with any particular claim, you or we will not waive any rights to require arbitration in connection with that or any other claim.”

Dixon opposed the motion, and the trial court held found that Portfolio’s delay was, essentially, its waiver of the right to arbitrate.  Portfolio appealed.

Citing the U.S. Supreme Court  from  BG Group, PLC v. Republic of Argentina, 572 U.S., 134 S. Ct. 1198, 1206, 188 L. Ed. 2d 220 (2014), the Kansas Court of Appeals reasoned that the courts presume procedural issues concerning arbitration will be decided by the arbitrator, not by the court.  Such procedural matters include claims of waiver, delay, or other like defenses to a motion to compel arbitration.  Therefore, it would ultimately be the decision of an arbitrator to decide whether or not the debt collector had waived any procedural right to resolve the claims through arbitration, even if the subject credit card agreement had not contained the aforementioned waiver provision.  

The Court’s decision to defer this procedural determination to an arbitrator in an instance where not only did the party seeking to compel arbitration initiate the litigation, but where that party also delayed its request to arbitrate until after years of litigation had passed, demonstrates the gravity of arbitration provisions in contracts and the need for parties to consider their options before entering into such agreements.