Reinsurance Focus

Arbitration was denied in a putative class action lawsuit for alleged violations of the Fair Debt Collection Practices Act brought by two cell phone users against Collecto Inc., a collection agency contracted by Verizon and AT&T. Collecto was not a party to the underlying cell phone service contracts between the plaintiffs and cell phone carriers, but sought to enforce the contracts’ respective arbitration provisions based on the doctrines of agency and estoppel. The court applied the two-prong test in the Supreme Court’s Stolt Nielsen decision, which requires a non-signatory seeking to compel arbitration to show (1) that there are “intertwined factual issues” between the claims asserted and the agreement, and (2) that there is a relationship among the parties that justifies estoppel. While the court found that the first pong was met, it found that the second prong failed because the relationship between Collecto and the cell phone carriers was not “sufficiently close” to warrant estoppel. The court made this determination because no corporate relationship existed between Collecto and the carriers, the underlying contracts between Collecto and the carriers expressly disclaimed any agency relationship, and plaintiffs contended that Collecto had acted without valid authorization from the carriers. The court concluded that although “the FAA strongly favors arbitration, the applicable rule recognized in this case – that a party cannot be forced to arbitrate without agreeing to do so – must succeed.” Butto v. Collecto, Inc., Case No. 10-cv-2906 (USDC E.D.N.Y. Aug. 15, 2011).

This post written by Michael Wolgin.