Green Tree Servicing, L.L.C. v. Earnest Cla , 689 F. App'x 363 ( 2017 )

Case: 16-60726 Document: 00513998039 Page: 1 Date Filed: 05/18/2017
-60726
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 16-60726 May 18, 2017
Summary Calendar
Lyle W. Cayce
Clerk
GREEN TREE SERVICING, L.L.C.; WALTER INVESTMENT
MANAGEMENT CORPORATION; BEST INSURORS, INCORPORATED;
MID STATE CAPITAL, L.L.C.; MID STATE TRUST II; MID STATE TRUST
III; MID STATE TRUST IV; MID STATE TRUST V; MID STATE TRUST VI;
MID STATE TRUST VII; MID STATE TRUST VIII; MID STATE TRUST IX;
MID STATE TRUST X; MID STATE TRUST XI; WILMINGTON TRUST
COMPANY; MID-STATE CAPITAL CORPORATION 2004-1 TRUST; MID-
STATE CAPITAL CORPORATION 2005-1 TRUST; MID-STATE CAPITAL
CORPORATION 2006-1 TRUST; MID-STATE CAPITAL TRUST 2010-1,
Plaintiffs - Appellees
v.
EARNEST CLAYTON; SHELIA CLAYTON,
Defendants – Appellants
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 3:16-CV-59
Before KING, DENNIS, and COSTA, Circuit Judges.
PER CURIAM:*
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Defendants–Appellants Earnest and Shelia Clayton appeal the district
court’s order compelling this dispute over a home construction and financing
contract to arbitration. In doing so, the district court denied the Claytons’
request that this suit be consolidated with an earlier suit filed by the Claytons,
which was pending before the same district court judge as this suit. It also
rejected the Claytons’ argument that judicial estoppel applied to block the
motion to compel arbitration. Finding no error in the district court’s judgment
and concluding that the Claytons waived all of their remaining arguments by
failing to raise them in the district court, we AFFIRM.
I. FACTS AND PROCEEDINGS
This case involves the intersection of two separate suits, each involving
Defendants–Appellants Earnest and Shelia Clayton and Plaintiffs–Appellees,
who are various lending institutions and affiliated organizations 1 (collectively,
the lenders). For background, we describe each case in turn, but only the
second is the subject of this appeal.
A. Clayton I
The Claytons own a plot of land in Smith County, Mississippi. In 2001,
they contracted with a builder, Jim Walter Homes, Inc., for the construction
and financing of a home on that land. The Claytons executed a promissory
note for $198,432 that was secured by a deed of trust on the land. The contract
contained an arbitration agreement that provided that the parties would
1 More specifically Plaintiffs–Appellees are: (1) Green Tree Servicing, LLC (the
Claytons’ mortgage servicer); (2) Walter Investment Management Corp. (the parent company
of Green Tree Servicing, LLC); (3) Best Insurors, Inc. (Green Tree Servicing, LLC’s insurer);
(4) Mid-State Trusts II–XI, Mid State Capital Corporation 2004-1, 2005-1, 2006 Trusts, and
Mid State Capital Trust 2010-1 (a group of statutory trusts, one of which was the assignee of
the Claytons’ note and deed of trust); (5) Wilmington Trust Company (the owner–trustee of
the trusts); and (6) Mid State Capital, LLC (the depositor into the trusts).
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submit “any controversy or claim arising out of or relating to this contract, or
breach thereof,” to binding arbitration. The arbitration agreement further
provided that the arbitration would be conducted “in accordance with the
Comprehensive Arbitration Rules and Procedures administered by
J·A·M·S/Endispute.” 2
The Claytons eventually grew dissatisfied with the quality of their
completed home after they learned it was not built in accordance with the
building code, and they noticed latent defects, shoddy workmanship, and
substandard materials. In August 2015, they filed suit in Mississippi state
court against the lenders, all of whom had non-Mississippi citizenship and thus
were diverse for the purposes of federal jurisdiction (Clayton I). In addition to
naming the lenders as defendants, the Claytons also named two non-diverse
defendants (collectively with the lenders, the Clayton I defendants): W.
Steward Robison (the trustee named on the Claytons’ deed of trust) and D.J.
McNeil Electric and Plumbing, Inc. (a subcontractor of Jim Walter Homes). 3
In their state court complaint, the Claytons alleged that they had been victims
of a scheme jointly perpetrated by the Clayton I defendants and Jim Walter
2 JAMS refers to the Judicial Arbitration and Mediation Services, Inc. In full, the
relevant portion of the arbitration agreement provided:
The parties agree that, at the election of either party, any controversy or claim
arising out of or relating to this contract, or the breach thereof, whether
asserted as [sic] in tort or contract, or as a federal or state statutory claim,
arising before, during or after performance of this contract, shall be settled by
binding arbitration in accordance with the Comprehensive Arbitration Rules
and Procedures administered by J·A·M·S/Endispute, and judgment upon the
award rendered by the arbitrator may be entered in any Court having
jurisdiction thereof. The parties agree and understand that they choose
arbitration instead of litigation to resolve disputes.
3 In addition, the Claytons included among the Clayton I defendants John Does 1
through 25 who were “unknown and unnamed persons and/or entities who may be liable for
the claims asserted herein.” The citizenship of these John Doe defendants was not specified
and no specific defendants were ever substituted for them.
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Homes that involved constructing a substandard and defective home,
fraudulently inducing the Claytons to enter agreements, and making a myriad
of misrepresentations to the Claytons. The complaint in Clayton I raised
claims of, among other things, deceit and false statements/fraud, breach of
contract, civil conspiracy, negligence, and intentional infliction of emotional
distress and mental anguish. It sought remedies in the form of equitable
accounting and an injunction (1) preventing the Clayton I defendants from
assigning their interest in the Clayton property or seeking foreclosure on it and
(2) suspending the Claytons’ obligation to make further payments on the home
loan.
In October 2015, the lenders removed the case to federal court on the
basis of diversity jurisdiction, alleging improper joinder of the two non-diverse
defendants. The case was assigned to Judge William H. Barbour, Jr., sitting
in the Southern District of Mississippi. See Clayton v. Green Tree Servicing,
LLC, No. 3:15-cv-712 (S.D. Miss.). Shortly after removal, the lenders moved to
compel arbitration. In November 2015, the Claytons moved to remand the
action, arguing that the two non-diverse defendants were proper parties to the
action, and thus there was not complete diversity of citizenship for purposes of
federal jurisdiction. The next day, the lenders and the Claytons filed a joint
motion to stay briefing on the lenders’ motions to compel arbitration pending
Judge Barbour’s resolution of the Claytons’ motion to remand “[i]n order to
promote judicial economy and the efficient use of judicial resources.” That
same day, Judge Barbour entered an order granting the joint motion to stay.
From November 2015 through September 2016 the parties in Clayton I made
multiple remand-related filings, including supplemental briefs, supplemental
replies, and notices of supplemental authority.
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B. Clayton II
On January 29, 2016, while the remand briefing in Clayton I was
ongoing, the lenders filed a separate suit against the Claytons (Clayton II),
from which this appeal was taken. The lenders’ complaint alleged that all of
the claims the Claytons had brought in Clayton I were subject to the
arbitration agreement and accordingly requested that the district court compel
the matter to arbitration pursuant to Section 4 of the Federal Arbitration Act.
The lenders also requested a stay of all proceedings in Clayton I pending
arbitration. Like Clayton I, Clayton II was assigned to Judge Barbour. In
February 2016, the Claytons moved to dismiss the lenders’ complaint or, in the
alternative, to consolidate it with Clayton I. The Claytons argued, in relevant
part, that the first-to-file rule mandated that Clayton II, the later-filed case,
be dismissed or consolidated because the earlier-filed case, Clayton I, had not
yet been resolved. The lenders opposed this motion.
In April 2016, the lenders moved to compel arbitration in Clayton II and
for a stay of all proceedings in Clayton I. The Claytons did not respond to the
motion to compel arbitration. Instead, later that month, they moved to stay
all proceedings in Clayton II pending a ruling on their motion to dismiss or
consolidate with Clayton I. In June, after the lenders amended their complaint
in light of an intervening Supreme Court case, the Claytons reurged their
motion to dismiss with the inclusion of a new argument: the lenders were
judicially estopped from moving to compel arbitration in Clayton II because
they had previously taken the inconsistent position of agreeing to stay briefing
on the motion to compel in Clayton I.
Judge Barbour issued an order addressing these dueling motions on
September 28, 2016. The order denied the Claytons’ motion to dismiss or, in
the alternative, to consolidate and granted the lenders’ motion to compel
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arbitration. Judge Barbour first concluded that the first-to-file rule did not
require that Clayton II be dismissed. Nor could it be consolidated with Clayton
I because the two cases “rest[ed] on separate jurisdictional facts,” namely,
Clayton I may have been improperly removed on the basis of complete diversity
while Clayton II was filed in federal court to begin with and raised no issue
about the parties’ citizenship. If the two were consolidated and the case was
ultimately remanded, he noted, the claims in Clayton II would be shut out of
federal court even though federal jurisdiction was established. Judge Barbour
also rejected the Claytons’ judicial estoppel argument, concluding that the
lenders had not taken an inconsistent position in Clayton I, nor had he
accepted this position in the course of staying briefing in Clayton I. Finally, he
concluded that a valid arbitration agreement existed and, by virtue of its
incorporation of the JAMS rules, it contained a delegation clause under which
the parties agreed to arbitrate issues of arbitrability. Accordingly, Judge
Barbour compelled all of the Claytons’ claims to arbitration and stayed all
litigation in Clayton I pending arbitration. The Claytons timely appeal the
district court’s Clayton II order.
II. FIRST-TO-FILE RULE
The Claytons appeal the district court’s denial of their motion to dismiss,
arguing that the first-to-file rule mandated that Clayton II be dismissed or
consolidated with Clayton I. We review a district court’s application of the
first-to-file rule for abuse of discretion, Int’l Fid. Ins. Co. v. Sweet Little Mex.
Corp., 665 F.3d 671, 677 (5th Cir. 2011), and “the contours of the rule itself” de
novo, Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999).
The first-to-file rule is a discretionary doctrine that may be applied
“when related cases are pending before two federal courts.” Sweet Little Mex.
Corp., 665 F.3d at 677 (quoting Cadle Co., 174 F.3d at 603). If there is
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“substantial overlap” between the two cases, “the court in which the case was
last filed may refuse to hear it.” Id. at 677–78 (quoting Cadle Co., 174 F.3d at
603). This allows “the court in which the action is first filed . . . to determine
whether subsequently filed cases involving substantially similar issues should
proceed.” Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 920 (5th Cir. 1997)
(quoting Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir.
1997)). “The rule rests on principles of comity and sound judicial
administration.” Cadle Co., 174 F.3d at 603. It is aimed at “maximiz[ing]
judicial economy and minimiz[ing] embarrassing inconsistencies by
prophylactically refusing to hear a case raising issues that might substantially
duplicate those raised by a case pending in another court.” Id. at 604
(emphasis omitted).
Citing the first-to-file rule, the Claytons argue that, because Clayton I
was filed before Clayton II and the issues in the two cases substantially
overlapped, the district court should have dismissed Clayton II or consolidated
it with Clayton I. Yet this argument overlooks a crucial fact: Clayton I and
Clayton II were not “pending before two federal courts,” Sweet Little Mex.
Corp., 665 F.3d at 677 (quoting Cadle Co., 174 F.3d at 603); rather, they were
pending before the same district court judge—Judge Barbour. The Claytons
cite no authority for their contention that the rule applies to cases pending
before the same judge. Indeed, we have never applied the first-to-file rule to
two cases pending before the same judge. To the contrary, we have limited its
application to related cases “pending before two judges in the same district . .
. [or] related cases . . . filed in different districts.” Save Power Ltd., 121 F.3d
at 950.
This limitation makes sense because the concerns undergirding the first-
to-file rule are not triggered when the cases are before the same judge. The
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first-to-file rule is aimed at avoiding both conflicting rulings on similar issues
and duplicative rulings. Cadle Co., 174 F.3d at 604. But when the same judge
is deciding both cases, there is no danger of conflicting rulings. And it
increases, rather than diminishes, judicial economy to allow a district court
judge to choose which of two pending cases to rule on first. Indeed, we have
recognized the “inherent power” of a district court “to control the disposition of
the causes on its docket with economy of time and effort for itself, for counsel,
and for litigants.” United States v. Colomb, 419 F.3d 292, 299 (5th Cir. 2005)
(quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)); see also Marinechance
Shipping, Ltd. v. Sebastian, 143 F.3d 216, 218 (5th Cir. 1998) (recognizing
inherent authority of district court to decide the order in which to decide
pending motions). The district court utilized this inherent power here and did
not abuse its discretion in doing so.
We conclude that it was not an abuse of discretion for the district court
to decline to apply the first-to-file rule. 4 It was therefore not an error to deny
the Claytons’ motion to dismiss or consolidate on this basis.
III. JUDICIAL ESTOPPEL
The Claytons next argue that the district court erred in denying their
motion to dismiss or consolidate because the lenders were judicially estopped
from seeking to compel arbitration in Clayton II by their agreeing to stay
arbitration briefing in Clayton I. We review the district court’s decision
regarding the applicability of judicial estoppel for abuse of discretion. Kane v.
Nat’l Union Fire Ins. Co., 535 F.3d 380, 384 (5th Cir. 2008) (per curiam).
4 We do not address whether a district court judge can ever properly invoke the first-
to-file rule in these circumstances.
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Judicial estoppel is an equitable common law doctrine “that prevents a
party from assuming inconsistent positions in litigation.” Id. at 385 (quoting
Superior Crewboats, Inc. v. Primary P & I Underwriters, 374 F.3d 330, 334 (5th
Cir. 2004)). “The purpose of the doctrine is to protect the integrity of the
judicial process by preventing parties from playing fast and loose with the
courts to suit the exigencies of self interest.” Id. (quoting Superior Crewboats,
Inc., 374 F.3d at 334). In order for judicial estoppel to apply, we generally
require three elements be met: (1) the party’s position is clearly inconsistent
with one it previously took in judicial proceedings; (2) the court accepted the
previous purportedly inconsistent position; and (3) the party would derive an
unfair advantage or impose an unfair detriment on the opposing party if the
position is accepted. Id. at 385–86; DK Joint Venture 1 v. Weyand, 649 F.3d
310, 318 n.10 (5th Cir. 2011).
The district court concluded that the first two elements were not satisfied
and thus judicial estoppel did not apply to the lenders’ motion to compel
arbitration in Clayton II. This was not an abuse of discretion. First, the
lenders’ positions in Clayton I and Clayton II were not inconsistent but rather
reflect the distinct procedural posture of each case. In Clayton I, the lenders
agreed to stay briefing on their motion to compel arbitration because the
Claytons had moved for remand, arguing that federal diversity jurisdiction did
not exist. The lenders’ position in Clayton I was merely an acknowledgement
of the fact that the district court first had to determine whether it had
jurisdiction over the parties’ dispute before it could compel arbitration in the
matter. See Vaden v. Discover Bank, 556 U.S. 49, 62–63 (2009) (holding that
a court must have subject matter jurisdiction over the “underlying dispute”
between the parties in order to compel arbitration). In contrast, in Clayton II,
there was no pending motion to remand nor was there any dispute over the
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district court’s subject matter jurisdiction. Given the distinct jurisdictional
status of each case, the lenders’ motion to compel arbitration in Clayton II was
not inconsistent with its agreement to stay consideration of its motion to
compel arbitration in Clayton I. Cf. Weyand, 649 F.3d at 318 (concluding that
judicial estoppel did not bar party that had moved to compel arbitration in a
previous suit from opposing arbitration because the previous suit involved
“distinct[]” facts).
Second, as the district court explained in its order denying the Claytons’
motion to dismiss, the district court did not accept the lenders’ purportedly
inconsistent position in Clayton I. Pursuant to the district court’s local rule,
the court must “give priority to . . . motions to remand, and other jurisdictional
motions.” S.D. Miss. L. U. Civ. R. 7(b)(7). This rule would have counseled the
district court to rule on the Claytons’ motion to remand prior to the lenders’
motion to compel arbitration regardless whether the lenders agreed to a stay
of briefing on the latter. Accordingly, in staying briefing on the lenders’ motion
to compel arbitration in Clayton I, the district court did not “accept” the
lenders’ position but rather followed the dictates of its local rules. In sum, the
conditions for judicial estoppel were not met, and therefore the district court
did not abuse its discretion in declining to apply judicial estoppel to bar the
lenders’ motion to compel arbitration in Clayton II.
IV. ORDER COMPELLING ARBITRATION
Finally, the Claytons raise several challenges to the district court’s order
compelling all of their claims to arbitration. They attack the validity of the
arbitration agreement, arguing that they did not knowingly assent to the
delegation clause in the arbitration agreement. They note that the clause was
“extrinsic” to the arbitration agreement and, as mere “ordinary consumer[s],”
they could not be expected to have knowledge of it. In addition, they fault the
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district court for relying on the current version of the JAMS rules in concluding
that the parties agreed to delegate the issue of arbitrability, rather than the
version of the rules in effect in 2001 when the arbitration agreement was
signed. Finally, they challenge the district court’s failure to consider their
allegations of fraud in the inducement of the contract containing the
arbitration agreement.
However, the Claytons failed to raise any of these arguments in the
district court in Clayton II. As the district court noted, the Claytons did not
respond to the lenders’ motion to compel arbitration, and thus the motion was
unopposed. Indeed, the Claytons concede that they did not oppose the lenders’
motion to compel. Nor did the Claytons raise these arguments in their other
filings in Clayton II: the motion to stay, motion to dismiss, or the renewed
motion to dismiss. Therefore all of the Claytons’ arguments attacking the
validity of the arbitration agreement are raised for the first time on appeal.
As a “general rule, arguments not raised before the district court are
waived and will not be considered on appeal.” AG Acceptance Corp. v. Veigel,
564 F.3d 695, 700 (5th Cir. 2009). One exception to this general rule is if the
party “can demonstrate ‘extraordinary circumstances,’” which exist “when the
issue involved is a pure question of law and a miscarriage of justice would
result from our failure to consider it.” Id. (quoting N. Alamo Water Supply
Corp. v. City of San Juan, 90 F.3d 910, 916 (5th Cir. 1996)). However, the
Claytons do not argue that such extraordinary circumstances exist here. See
AG Acceptance Corp. v. Veigel, 564 F.3d 695, 700 (5th Cir. 2009) (stating that
the party seeking review bears the burden of establishing extraordinary
circumstances). Accordingly, our general rule applies and we decline to
consider these challenges to the arbitration agreement for the first time on
appeal.
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Seeking to avoid this conclusion, the Claytons argue that they “plainly
sought to preserve” their opposition to the motion to compel in their motion to
stay. In the motion to stay, the Claytons asked, in the event the motion was
denied, for an additional 14 days to respond to the motion to compel
arbitration. The district court nominally granted the Claytons’ motion to stay
on August 31, but rather than staying all proceedings pending a ruling on the
Claytons’ motion to dismiss or consolidate—as the Claytons had requested—
the district court stayed proceedings pending a ruling on the lenders’ motion
to compel arbitration. It did not rule on the Claytons’ request for additional
time to respond to the motion to compel arbitration, but because this order was
inconsistent with the Claytons’ requested relief, it implicitly denied this
request. See Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir. 1994) (“The
denial of a motion by the district court, although not formally expressed, may
be implied by the entry of . . . an order inconsistent with the granting of the
relief sought by the motion.”). By the time the district court ruled on the
motion to compel arbitration on September 28—one month later—the Claytons
had not responded to the motion nor had they re-urged their request for more
time to do so. In the order compelling arbitration, the district court noted that
the Claytons “did not respond to the Motion to Compel Arbitration and the
time for so doing has expired.” The Claytons do not dispute this, nor do they
offer any basis for finding the district court’s denial of their request for
additional time in error. Therefore, their request for additional time was
insufficient to preserve the arguments against the arbitration agreement that
they now make on appeal.
As a final argument for why they preserved these challenges to the
arbitration agreement, the Claytons point to statements they made in their
state court complaint regarding fraud on the part of the lenders. They argue
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that these statements were sufficient to “ma[ke] known” their challenges to the
arbitration agreement. Their state court complaint noted that the Claytons
were “unsophisticated and unsuspecting” purchasers who were “preyed upon”
by the Clayton I defendants and “deceived into executing” “complex legal
documents” that they “either did not understand or were not given a
reasonable opportunity to read, review or consult [about].” However, these
arguments were made in the Claytons’ state court complaint, which was only
in the record in Clayton II because the lenders included it as an attachment to
their complaint, as evidence of the claims that the lenders were moving to
compel to arbitration. In order for an argument to be properly raised in the
district court such that it is preserved for appeal, “the litigant must press and
not merely intimate the argument during the proceedings before the district
court . . . [and] raise[] [it] to such a degree that the district court has an
opportunity to rule on it.” Belt v. EmCare, Inc., 444 F.3d 403, 408 (5th Cir.
2006) (quoting FDIC v. Mijalis, 15 F.3d 1314, 1327 (5th Cir. 1994)). The
Claytons did not raise the challenges that they now make against the
arbitration agreement in a form that the district court could rule on. The mere
inclusion of these arguments in an exhibit—which was not even proffered by
the Claytons—on which the district court was not required to rule does not
meet this standard. Accordingly, the Claytons have waived all of the
challenges to the arbitration agreement that they now raise on appeal, and we
therefore decline to address them.
V. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
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