Today, the Supreme Court held that a debt collector does not violate the Fair Debt Collections Practices Act (FDCPA) by knowingly attempting to collect a debt in bankruptcy proceedings after the statute of limitations for collecting that debt has expired. As explained in Mayer Brown’s Decision Alerts, the FDCPA generally prohibits a debt collector from using false, deceptive, or misleading representations or means in collecting debts. In the opinion for the Court, Justice Breyer looked to state law to determine whether the creditor had a right to payment. Under Alabama law, a creditor has the right to payment of a debt even after the limitations period has expired. Accordingly, a creditor may legitimately claim the existence of a debt even if the debt is no longer enforceable in a collection action. Likewise, the streamlined rules of bankruptcy proceedings mean that it is not obviously “unfair” for a creditor to inject an additional claim into the proceedings, even if it would be unfair for a creditor to file a standalone civil action to collect a time-barred debt.
In addition, the Court today also held that the Federal Arbitration Act (FAA) preempts any state law that discriminates against arbitration on its face, and any rule that disfavors contracts with features of an arbitration agreement. Mayer Brown, which represented the petitioner before the Court, explained the case in its Decision Alerts. The FAA requires courts to place arbitration provisions on an equal footing with other contract terms. However, the Kentucky Supreme Court had refused to enforce two arbitration provisions executed by individuals holding powers of attorney, because the power-of-attorney documents did not specifically mention arbitration or the ability to waive the principals’ right to trial by jury. The Supreme Court held that Kentucky’s rule violates the FAA by singling out arbitration agreements for disfavored treatment, explaining that “the waiver of the right to go to court and receive a jury trial” is a “primary characteristic of an arbitration agreement.” The Court explained that the FAA “cares not only about the ‘enforce[ment]’ of arbitration agreements, but also about their initial ‘valid[ity]’—that is, about what it takes to enter into them.” The Court also pointed out that a contrary interpretation would make it “trivially easy” for courts hostile to arbitration to undermine the FAA—“indeed, to wholly defeat it.”
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