On May 18, the U.S. Court of Appeals for the 4th Circuit affirmed a district court’s decision denying a debt collection law firm’s motion to compel arbitration, holding that the firm was not a party to the borrower’s promissory note with the underlying creditor, which contained the arbitration clause, and therefore could not enforce it. The case arose from a $30,000 consumer loan originally extended by a bank, which was later sold on the secondary market to a debt purchaser. When the borrower allegedly failed to pay, the purchaser retained the law firm to sue the borrower in state court to collect the debt. The purchaser subsequently dismissed its own suit with prejudice, and the borrower then filed a class action challenging the practice of suing on a time-barred debt against both the purchaser and the law firm. Both defendants moved to compel arbitration under the borrower’s original promissory note. The district court held that the debt purchaser had waived its right to arbitrate by previously filing suit in state court, and also ruled that the law firm was not a party to the agreement at all. Only the law firm appealed, arguing it qualified as an entity “servicing” the note within the agreement’s definition.

The 4th Circuit rejected this argument. Applying Maryland contract law, the court examined dictionary definitions of “servicing” and concluded that the term, as used in the promissory note, refers specifically to collecting payments and maintaining a payment schedule for a loan — not providing legal representation in collection litigation. The court noted that a contemporaneously executed borrower registration agreement reinforced this interpretation by designating a specific entity as the loan’s “servicer.” The court emphasized that the arbitration agreement was drafted to protect creditors and loan servicers, not lawyers, and that while attorneys play an important role in debt collection, the attorney-client relationship does not transform a lawyer into a party to the client’s contracts. The court observed that the arbitration agreement could have been written broadly enough to cover the law firm — for example, by extending to the creditor’s agents — but it plainly was not, and the firm could have declined the representation if dissatisfied with the protection the agreement afforded.