907 F.3d 495
7th Cir.2018Background
- Smith sued GC Services (debt collector) under the FDCPA after GC Services sought a written dispute for an alleged Sam’s Club credit‑card debt; suit filed July 2016 as a putative class action.
- Smith’s underlying credit‑card agreement with Synchrony Bank contained an arbitration clause with a class‑action waiver; GC Services was a nonsignatory collector hired by Synchrony.
- GC Services first notified Smith of the arbitration agreement and demanded arbitration in March 2017 (eight months after suit); Smith refused promptly.
- GC Services answered the amended complaint in April 2017 without asserting arbitration and did not move to compel arbitration until August 2017 (five months after the demand).
- The district court denied the motion to compel, holding GC Services could not enforce the arbitration agreement as a nonsignatory and, independently, had waived any right to arbitrate because of its prolonged, unjustified delay and litigation conduct; the Seventh Circuit affirmed on waiver grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether GC Services waived the right to arbitrate by delay and litigation conduct | Smith: GC Services delayed unreasonably and litigated claims, so it waived arbitration | GC Services: Any delay was justified; it discovered the agreement late and did not prejudice Smith | Held: Waiver — GC Services acted inconsistently with arbitration by delaying, answering, litigating motions, and failing to notify court promptly |
| Whether prejudice is required to find waiver | Smith: Prejudice not necessary; waiver can be inferred from conduct | GC Services: Waiver requires showing prejudice | Held: Prejudice not required in Seventh Circuit, though it is a relevant factor |
| Whether filing motions to dismiss precludes waiver finding | Smith: Filing dismissal on merits can show waiver when it submits issues to the court | GC Services: Filing a motion to dismiss should not count as waiver | Held: Motion content matters; a merits motion that could resolve the dispute supports waiver finding |
| Whether GC Services (a nonsignatory) could enforce Synchrony’s arbitration clause | Smith: GC Services cannot bind Smith as a nonsignatory | GC Services: Argues it can invoke the agreement | Held: Court affirmed on waiver, so nonsignatory enforcement question was not reached on appeal |
Key Cases Cited
- United States v. Olano, 507 U.S. 725 (waiver v. forfeiture distinction)
- Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prod., Inc., 660 F.3d 988 (7th Cir. 2011) (waiver may be inferred from inconsistent actions; diligence important)
- St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co., 969 F.2d 585 (7th Cir. 1992) (contractual right to arbitrate can be waived; prejudice not always required)
- Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388 (7th Cir. 1995) (proceeding in court is presumptive waiver of arbitration)
- Iowa Grain Co. v. Brown, 171 F.3d 504 (7th Cir. 1999) (standard of review for factual findings supporting waiver)
- Ernst & Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753 (7th Cir. 2002) (review standards: factual findings clear‑error; legal question de novo)
- Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801 (7th Cir. 2011) (motion to dismiss does not automatically waive arbitration; context matters)