Minnesota Attorney General Lori Swanson put a behemoth in the world of credit card arbitration out of that business over the weekend, but the seeds of her victory may have been laid in a year-old court battle in San Francisco.
City Attorney Dennis Herrera sued the National Arbitration Forum in March 2008, alleging that the corporation was “retained by debt collectors and serves their interests alone in a non-neutral, biased and unfair manner.” The NAF, represented by lawyers from Los Angeles’ Loeb & Loeb, claimed that the corporation was immune because it was an arbitrator, according to Deputy City Attorney Ronald Flynn.
Last week — about 16 months after S.F. sued — Minnesota swooped in with a complaint of its own, plus a new alleged link between NAF and one of the country’s largest debt collectors. The NAF settled with the state within days.
But Minnesota is still finding a way to get the best of both worlds. See what happens if S.F. does better in its suit, after the jump.
Superior Court Judge Richard Kramer ruled on July 10 that NAF was not immune, granting the city’s motion to compel discovery. “Here, the claim has to do with the integrity of the entire arbitration setup,” Kramer said at the time, according to a transcript.
The following Tuesday, the Minnesota attorney general filed suit, and three days later – on Friday – she settled with the NAF, earning an agreement from the corporation not to conduct any “business related to the arbitration of consumer disputes” except for those over Internet domain names.
Included in the attorney general’s complaint was the allegation that both the NAF and one of the country’s largest debt collectors were owned by a New York-based family of hedge funds called Accretive, LLC. San Francisco hadn’t yet gotten that detail, Flynn said, but it was due to start receiving discovery from the NAF on Aug. 27.
The attorney general also did not extract any civil penalties for the allegedly rigged arbitrations, something both she and San Francisco had asked for in their original complaints. But as part of Friday’s settlement, the NAF will have to pay Minnesota whatever it might end up paying San Francisco in the next six months.
Flynn said he thinks that the NAF, which is based in Minnesota, settled with the attorney general in its home state because those directing the litigation for the corporation felt they could get a better deal there.
“It certainly says that there’s an acknowledgement that we had worked on the case harder, and it was probably going to be a more difficult negotiation with us than someone who had just filed [a complaint] and hadn’t really worked on the case,” he said.
— Evan Hill