Forby v. One Tech ( 2021 )

Case: 20-10088 Document: 00516013715 Page: 1 Date Filed: 09/14/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
September 14, 2021
No. 20-10088 Lyle W. Cayce
Clerk
Vickie Forby, individually and on behalf of all others similarly situated in
Illinois,
Plaintiff—Appellee,
versus
One Technologies, L.P.; One Technologies
Management, L.L.C.; One Technologies Capital, L.L.P.,
Defendants—Appellants.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:16-CV-856
Before Jones, Costa, and Duncan, Circuit Judges.
Stuart Kyle Duncan, Circuit Judge:
We again address a class action claiming that One Technologies, L.P.
(“One Tech”), duped consumers into signing up for “free” credit reports
that were not really free. The last time around, we ruled One Tech waived its
right to arbitrate the plaintiffs’ state-law claims. Forby v. One Technologies,
L.P., 909 F.3d 780 (5th Cir. 2018) [hereinafter Forby I]. Now, we consider
whether One Tech also waived its right to arbitrate federal claims added after
remand. Adhering to our precedent that waivers of arbitral rights are
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evaluated on a claim-by-claim basis, see Subway Equip. Leasing Corp. v. Forte,
169 F.3d 324, 328 (5th Cir. 1999), we hold that One Tech did not waive its
right to arbitrate the new federal claims. The district court erred by holding
otherwise. We therefore reverse and remand.
I.
In July 2014, Vickie Forby signed up for a free credit report on
Scoresense.com, a website operated by One Tech. She entered her credit
card information, authorizing a $1.00 charge ostensibly to verify her identity
and obtain her report. The website required Forby to navigate through five
enrollment pages, each containing a hyperlink to the Terms and Conditions
(the “terms”). She had to check a box to agree to the terms before
completing the process. The terms advise in all-caps that, by enrolling, “you
authorize us to charge your credit card . . . the stated enrollment or
transaction amount and/or processing fees . . . per month after your free trial
has expired,” and then, in regular text, that “[y]our enrollment will continue
month-to-month unless and until you cancel.” This is known as “negative
option billing” because customers must opt out to stop charges rather than
opting in to approve them. The terms also include this arbitration clause in
all-caps:
All claims, disputes or controversies . . . shall be resolved by
final and binding arbitration that will be held in Dallas, Texas,
pursuant to the rules of the American Arbitration Association.
Forby claims she did not realize she was enrolled in a negative-option
program until discovering multiple monthly charges of $29.95. She also
claims One Tech ignored her request to be removed from the program. Forby
filed a class action lawsuit in Illinois, claiming violations of the Illinois
Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 Ill.
Comp. Stat. 505/1 et seq., and also unjust enrichment under Illinois law. ICFA
is “a broad regulatory and remedial statute intended to protect consumers,
2
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borrowers, and business persons against fraud, unfair methods of
competition, and other unfair and deceptive business practices.” McIntosh v.
Walgreens Boots Alliance, Inc., 135 N.E.3d 73, 80 (Ill. 2019). Forby alleged her
experience was typical of other proposed class members, originally defined
as “[a]ll persons in Illinois whom [One Tech] enrolled in [its] credit
monitoring program from 2008 to [April 24, 2015].”
One Tech removed the case to the Southern District of Illinois, which
transferred it to the Northern District of Texas. 1 One Tech then moved to
dismiss for failure to state a claim, arguing that its website was not deceptive,
that it did not engage in unfair conduct, and that Forby had at most alleged a
breach of contract. The district court granted One Tech’s motion as to
Forby’s unjust enrichment claim but denied it as to her ICFA claim. Only
then did One Tech move to compel arbitration. The district court granted
the motion, but our court reversed on appeal. In Forby I, 909 F.3d at 784, we
concluded One Tech had waived its right to arbitrate. Although “One Tech
was fully aware of its right to compel arbitration when it filed its 12(b)(6)
motion to dismiss,” it “pursued and partially obtained a dismissal with
prejudice,” showing “a desire to resolve the dispute in litigation rather than
arbitration.” Ibid. And by doing so, it prejudiced Forby, who “[i]f this case
were to proceed to arbitration, [] would have to re-litigate” her claims “in
front of an arbitrator after One Tech already tested its arguments with a
1
Forby is an Illinois citizen. One Tech is a Delaware partnership headquartered in
Texas. The other named defendants—One Technologies Management, LLC, and One
Technologies Capital, LLP—are both Texas entities. Because Forby’s complaint sought
more than $5 million in damages, the district court had jurisdiction under 28 U.S.C.
§ 1332(d)(2)(A) (providing jurisdiction over a “class action . . . in which any member of a
class of plaintiffs is a citizen of a State different from any defendant” and the matter in
controversy exceeds $5 million). The district court transferred the case under § 1404(a).
3
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district court judge.” Id. at 785–86. We therefore vacated the order
compelling arbitration and remanded. Id. at 786.
Forby was then granted leave to file a second amended complaint. In
it she added a new claim under the Credit Repair Organizations Act
(“CROA”), 15 U.S.C. § 1679 et seq., a consumer protection statute that
“regulates the practices of credit repair organizations” in various ways.
CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012); see also 15 U.S.C. §
1679a(3) (defining “credit repair organization”). Forby alleged One Tech
violated CROA by deceptively offering consumers “free” access to their
credit scores without disclosing they would be enrolled in a monitoring
program for $29.95 per month. 2 Forby also alleged One Tech violated CROA
by: (1) charging consumers for services before fully performing them,
§ 1679b(b); 3 (2) failing to give consumers notice of their rights, as required
2
See, e.g., id. § 1679b(a)(3) (providing “[n]o person may . . . engage, directly or
indirectly, in any act, practice, or course of business that constitutes or results in the
commission of, or an attempt to commit, a fraud or deception on any person in connection
with the offer or sale of the services of the credit repair organization”).
3
Section 1679b(b) provides that “[n]o credit repair organization may charge or
receive any money or other valuable consideration for the performance of any service which
the credit repair organization has agreed to perform for any consumer before such service
is fully performed.”
4
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by §§ 1679c(a) and 1679e(b); 4 and (3) trying to get consumers to waive their
CROA rights, in violation of § 1679f(b). 5
One Tech again moved to compel arbitration. It argued that because
Forby’s second amended complaint had “significantly reshape[d] and
broaden[ed] this case,” One Tech’s waiver should be rescinded. Relying on
Krinsk v. SunTrust Banks, Inc., 654 F.3d 1194, 1202–03 (11th Cir. 2011), One
Tech contended that a waived arbitration right may be “revived” if an
amended complaint “changes the scope or theory of the plaintiff’s claims.”
Alternatively, citing Collado v. J & G Transportation, Inc., 820 F.3d 1256, 1261
(11th Cir. 2016), One Tech argued it should at least be able to arbitrate the
CROA claim because it “could not possibly have waived its right to
arbitrate” that new claim, which was raised after the previous waiver
occurred.
Adopting the magistrate’s report, the district court denied One
Tech’s motion. It reasoned that our circuit had not adopted Krinsk and that,
even if it had, Forby’s second amended complaint “d[id] not alter the scope
or theory of the underlying litigation in an unforeseeable way.” To the
contrary, the added CROA claim turned on “the same core of operative
facts” underlying the ICFA claim. Moreover, “the potential class” was not
4
Section 1679c(a) requires informing consumers, inter alia, of their rights to
“dispute inaccurate information,” to “sue a credit repair organization that violates
CROA,” and to “cancel a contract with a credit repair organization for any reason within
3 business days from the date you signed it.” Section 1679e(b) requires each contract with
a credit repair organization be accompanied by a “Notice of Cancellation” form specifically
notifying the consumer in bold face type of their cancellation rights.
5
Section 1679f(b) prohibits “[a]ny attempt by any person to obtain a waiver from
any consumer of any protection provided by or any right of the consumer under this
subchapter.”
5
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“significantly expanded by [Forby’s] CROA claim.” 6 One Tech filed an
interlocutory appeal of the order denying arbitration, over which we have
jurisdiction. See In re Mirant Corp., 613 F.3d 584, 588 (5th Cir. 2020) (citing
Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir. 2009)).
II.
“We review whether a party’s conduct amounts to a waiver of
arbitration de novo, but we review any factual findings underlying the district
court’s waiver determination for clear error.” Republic Ins. Co. v. PAICO
Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004) (citation omitted).
III.
On appeal, One Tech presses only the argument that its prior waiver
of arbitral rights, addressed in Forby I, does not extend to the federal claims
Forby raised for the first time in her second amended complaint. 7 We agree
with One Tech that it has not waived its right to arbitrate these new claims. 8
Because “there is a strong presumption against finding a waiver of
arbitration,” Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d 534, 542
6
The effect of the CROA claim on the class size is not an issue before us. After
One Tech appealed, the district court struck Forby’s class allegations to the extent they
raised claims on behalf of absent class members. As One Tech acknowledges, the
“expanded class definition is no longer relevant in light of the district court’s order striking
Forby’s class claims.”
7
So, we do not address the district court’s rejection of One Tech’s argument that
the amended complaint “revived” its right to compel arbitration of the entire dispute under
the Eleventh Circuit’s Krinsk decision. We therefore need not consider whether adding the
CROA claim “unexpectedly change[d] the scope or theory of [Forby’s original] claims.”
Krinsk, 654 F.3d at 1202.
8
We disagree with Forby that One Tech failed to raise this argument in the district
court. For instance, in its motion to compel arbitration, One Tech argued that, “in the
alternative,” it “would, at the very least, be entitled to compel individual arbitration of the
CROA claim that Forby included for the first time in her Second Amended Complaint.”
6
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(5th Cir. 2016) (cleaned up), the party asserting waiver carries a “heavy
burden of proof.” Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir.
1991); see also Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897
(5th Cir. 2005) (noting presumption against waiver is “a well-settled rule in
this circuit”). A party waives arbitration by “substantially invok[ing] the
judicial process to the detriment or prejudice of the other party.” Subway,
169 F.3d at 326 (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781
F.2d 494, 497 (5th Cir. 1986)). We evaluate waiver under a two-step test,
asking first whether a party substantially invoked the judicial process and,
second, whether it caused the other party prejudice. See Forby I, 909 F.3d at
784–86.
Here, we can stop at step one. For waiver purposes, “a party only
invokes the judicial process to the extent it litigates a specific claim it
subsequently seeks to arbitrate.” Subway, 169 F.3d at 328 (emphasis added);
see also Cooper, 832 F.3d at 542 (waiver occurred when party “sued . . . on the
very claims it wished to arbitrate” (emphasis added) (citing Miller Brewing
Co., 781 F.2d at 497)). 9 But One Tech has never tried to litigate Forby’s
CROA claims. To the contrary, once Forby amended her complaint to add
those federal claims, One Tech moved to compel their arbitration. One Tech,
then, has not taken any “overt act in court that evinces a desire to resolve
9
Accord In re Cox Enters., Inc. Set-Top Cable Television Box Antitrust Litig., 835 F.3d
1195, 1205–09 (10th Cir. 2016) (“As for waiver by conduct, a party cannot be said to
manipulate the judicial process by seeking to arbitrate a claim unless the party has litigated
the same claim.” (emphasis added)); Doctor’s Assoc., Inc. v. Distajo, 107 F.3d 126, 133 (2d
Cir. 1997) (observing a defendant’s “explicit waiver of its right to arbitrate certain claims
would not necessarily waive arbitration of other claims raised in an amended complaint filed
after [the defendant] agreed to th[e] waiver” (emphases added) (discussing Gilmore v.
Shearson/Am. Express, Inc., 811 F.2d 108 (2d Cir. 1987))).
7
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[this] arbitrable dispute through litigation rather than arbitration,” 10 nor has
it attempted to “seek[] a decision on the merits [of the CROA claims] before
attempting to arbitrate [them].” Forby I, 909 F.3d at 784 (quoting Mirant, 613
F.3d at 589) (other citations omitted). Therefore, One Tech has not waived
its right to arbitrate Forby’s CROA claims and the district court erred by
concluding otherwise.
To be sure, One Tech previously sought to dismiss Forby’s ICFA and
unjust enrichment claims. This action, we held, “demonstrated a desire to
resolve the dispute in litigation rather than arbitration.” Ibid. But that
invocation of judicial process pertained only to the claims One Tech sought
to dismiss. Obviously, those claims did not (and, indeed, could not) include
the CROA claims. Forby raised the CROA claims only after we remanded
and after the district court permitted her to amend her complaint. Our
repeated statements that waiver of arbitral rights is claim-specific, Cooper,
832 F.3d at 542; Subway, 169 F.3d at 328, 11 preclude our holding that waiver
as to the ICFA and unjust enrichment claims extends to the distinct CROA
10
It is undisputed that the CROA claims fall within the scope of the arbitration
clause, which covers “all claims, disputes or controversies.”
11
Forby tries to distinguish Subway and Cooper, arguing they are limited to cases
where a party previously litigated only non-arbitrable claims. We disagree. Those decisions
plainly recognize that prior litigation waives arbitration as to the specific claims litigated,
without asking whether those claims were arbitrable. See Subway, 169 F.3d at 328 (“As we
make clear today, in order to invoke the judicial process, a party must have litigated the
claim that the party now proposes to arbitrate.”); Cooper, 832 F.3d at 542 (“Because the
TRO suit did not involve the same claims pursued in arbitration, the WestEnd Parties
neither sought a decision on the merits before attempting to arbitrate, nor attempted to
litigate a specific claim [they] subsequently sought to arbitrate.” (cleaned up) (quoting
Republic Ins. Co., 383 F.3d at 344)).
8
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claims. 12 This is especially so given the CROA claims were not even part of
the lawsuit at the time of the waiver.
We find instructive the Eleventh Circuit’s decision in Collado v. J &
G Transportation, 820 F.3d 1256 (11th Cir. 2016). The plaintiff initially
brought an FLSA claim but, before trial, filed an amended complaint raising
related state law claims. Id. at 1258. The defendant conceded it had waived
its right to arbitrate the FLSA claim but argued it could still compel
arbitration of the state claims. Id. at 1259. Our sister circuit agreed. It held the
defendant “did not waive the right to arbitrate the state law claims raised in
the second amended complaint because those claims were not in the case
when it waived by litigation the right to arbitrate the FLSA claim.” Id. at
1260–61. The court also rejected the argument that the defendant
“must . . . have known” the state claims were “lurking in the case”: to the
contrary, “a defendant will not be held to have waived the right to insist that
previously unasserted claims be arbitrated once they are asserted.” Id. at
1261. Otherwise, defendants would be “in an awkward if not absurd
12
One of our unpublished decisions suggests a “claim” in this context means “any
allegation stemming from the ‘same nucleus of operative facts,’ whatever the theory of
recovery.” Sabatelli v. Baylor Scott & White Health, 832 F. App’x 843, 849 (5th Cir. 2020)
(per curiam). But our published decisions in Subway and Cooper do not contain this
refinement. Nor do the relevant background principles support it. The “same nucleus of
operative facts” language in Sabatelli comes from the transactional test used in claim
preclusion. See, e.g., OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487, 504 (5th
Cir. 2020). But that doctrine teaches that “a final judgment precludes the parties . . . from
relitigating issues that were or could have been raised in that [previous] action.” Allen v.
McCurry, 449 U.S. 90, 94 (1980) (emphasis added). By contrast, the “strong presumption
against waiver of arbitration” means that “a party only invokes the judicial process to the
extent it litigates a specific claim it subsequently seeks to arbitrate.” Subway, 169 F.3d at
326, 328. Thus, Sabatelli’s suggestion that the transactional test applies in the context of
arbitration waivers fits awkwardly with our precedent. We therefore decline to adopt
Sabatelli’s framework for evaluating whether a party has invoked the judicial process as to
a “specific claim.”
9
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position.” Ibid. Even if willing to litigate pled claims, defendants would have
to specify they were not waiving arbitration as to “all of the possible claims
that could have been but weren’t pleaded against [them].” Ibid.The present case presents the flip side of Collado. There, waiver as to
originally-asserted federal claims did not extend to later-pled state claims.
Here, waiver as to originally-asserted state claims does not extend to later-
pled federal claims. Either way, the result is the same: “[One Tech] did not
waive the right to arbitrate the [CROA] claims raised in the second amended
complaint because those claims were not in the case when it waived by
litigation the right to arbitrate the [ICFA] claim.” Ibid. 13
IV.
We hold that One Tech did not waive its right to arbitrate Forby’s
CROA claims. We therefore reverse the district court’s order denying One
Tech’s motion to compel arbitration and remand for further proceedings
consistent with this opinion.
REVERSED and REMANDED.
13
Given our conclusion, we need not proceed to step two and ask whether Forby
was prejudiced by One Tech’s prior litigation conduct. See Republic Ins., 383 F.3d at 346.
10