Principal Investments v. Harrison

132 Net, Advance Opinion 2.
IN THE SUPREME COURT OF THE STATE OF NEVADA
PRINCIPAL INVESTMENTS, INC., No. 59837
D/B/A RAPID CASH; GRANITE
FINANCIAL SERVICES, INC., D/B/A
RAPID CASH; FMMR INVESTMENTS,
INC., D/B/A RAPID CASH; PRIME
FILE
GROUP, INC., D/B/A RAPID CASH; JAN 1 4 2016
AND ADVANCE GROUP, INC., D/B/A TRA 1E K. LINDEMAN
CLERK F UP E
RAPID CASH, BY I AP
Appellants, C 1E bEi CL
vs.
CASSANDRA HARRISON;
CONCEPCION QUINTINO; AND MARY
DUNGAN, INDIVIDUALLY AND ON
BEHALF OF ALL PERSONS
SIMILARLY SITUATED,
Respondents.
Appeal from a district court order denying a motion to compel
arbitration. Eighth Judicial District Court, Clark County; Elizabeth Goff
Gonzalez, Judge.
Affirmed.
Lewis Roca Rothgerber, LLP, and Daniel F. Polsenberg, Joel D. Henriod,
and Ryan T. O'Malley, Las Vegas; Gordon Silver and Mark S. Dzarnoski
and William M. Noall, Las Vegas,
for Appellants.
Kemp, Jones & Coulthard, LLP, and J. Randall Jones, Jennifer C. Dorsey,
and Carl L. Harris, Las Vegas; Legal Aid Center of Southern Nevada, Inc.,
and Dan L. Wulz, Venicia Considine, and Sophia A. Medina, Las Vegas,
for Respondents.
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BEFORE THE COURT EN BANC.'
OPINION
By the Court, PICKERING, J.:
This is an appeal from an order denying a motion to compel
arbitration. The district court held that the moving party waived its right
to arbitrate by litigating collection claims against its borrowers to default
judgment in justice court. We must decide whether the district court erred
in addressing waiver, instead of referring the question to the arbitrator.
We hold that litigation-conduct waiver is presumptively for the court to
decide, unless the arbitration agreement clearly commits the question to
the arbitrator, which the agreements here do not. On the merits, we
uphold the district court's finding of waiver and therefore affirm
I.
A.
Appellant Rapid Cash is a payday loan company that provided
short-term, high-interest loans to the named plaintiffs Mary Dungan,
Cassandra Harrison, and Concepcion Quintino, among others. 2 The
named plaintiffs and other borrowers did not repay their loans, prompting
Rapid Cash, over a seven-year period, to file more than 16,000 individual
collection actions in justice court in Clark County, Nevada. Rapid Cash
hired Maurice Carroll, d/b/a On-Scene Mediations, as its process server.
Relying on On-Scene's affidavits of service, Rapid Cash secured thousands
'The Honorable Ron D. Parrag -uirre, Chief Justice, voluntarily
recused himself from participation in the decision of this matter.
We refer to appellants collectively as "Rapid Cash," the name by
2
which they are all alleged to do business.
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of default judgments against the named plaintiffs and other borrowers
who failed to appear and defend the collection lawsuits.
At some point, a justice of the peace noticed that On-Scene's
affidavits attested to an improbably high number of same-day receipts and
service of process, and initiated an investigation. The investigation
revealed that Carroll and On-Scene had engaged in "sewer service"—the
practice of accepting summonses and complaints for service, failing to
serve them, then falsely swearing in court-filed affidavits that service had
been made when it was not. Carroll and On-Scene were cited for serving
process without a license, and a cease and desist order was entered
against them. Ultimately, Carroll was charged with and convicted of 17
counts of forgery and offering false instruments.
Carroll's criminal convictions involved false affidavits of
service for clients other than Rapid Cash. Nonetheless, Carroll and On-
Scene were Rapid Cash's exclusive agent for service of process in southern
Nevada, and the named plaintiffs sued Rapid Cash, On-Scene, and others
in district court, alleging that Rapid Cash improperly obtained its default
judgments against them and other similarly situated borrowers without
their knowledge via On-Scene's "sewer service." The first amended
complaint is styled as a class action and asserts claims for fraud upon the
court, abuse of process, negligent hiring/supervision/retention, negligence,
civil conspiracy, and violation of Nevada's fair debt collection laws. The
relief requested includes declaratory relief deeming the justice court
default judgments void and uncollectable; injunctive relief; disgorgement,
restitution, or a constructive trust for funds already collected; forfeiture by
Rapid Cash of all loan amounts; return of all principal, interest, charges,
or fees associated with the loans; punitive damages and statutory
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penalties; and attorney fees and costs. The first amended complaint
disavows claims for individual tort or consequential damages, stating:
This Class action does not seek to, nor will it,
actually litigate any additional claims for
compensatory damage, which may include but not
be limited to damage to credit reputation, fear,
anxiety, mental and emotional distress, nor
damages arising from wrongful garnishment or
attachment, such as bank fees, bounced check
fees, finance charges or interest on bills which
would have otherwise been paid, and the like.
B.
Rapid Cash moved to compel arbitration based on the
arbitration provisions in its loan agreements, which take one of two forms,
depending on the date of the loan. The Dungan/Harrison form of
agreement provides that either party may elect binding arbitration of any
"Claim," and broadly defines "Claim" as follows:
2. DEFINITION OF "CLAIM." The term
"Claim" means any claim, dispute or controversy
between you and us (including "related parties"
identified below) that arises from or relates in any
way to Services you request or we provide, now, in
the past or in the future; the Application (or any
prior or future application); any agreement
relating to Services ("Services Agreement"); any of
our marketing, advertising, solicitations and
conduct relating to your request for Services; our
collection of any amounts you owe; our disclosure
of or failure to protect any information about you;
or the validity, enforceability or scope of this
Arbitration Provision. "Claim" is to be given the
broadest possible meaning and includes claims of
every kind and nature, including but not limited
to, initial claims, counterclaims, cross-claims and
third-party claims, and claims based on any
constitution, statute, regulation, ordinance,
common law rule (including rules relating to
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contracts, negligence, fraud or other intentional
wrongs) and equity. It includes disputes that seek
relief of any type, including damages and/or
injunctive, declaratory or other equitable relief.
The Dungan/Harrison form of agreement specifies that litigating one claim
does not waive arbitration as to other claims:
Even if all parties have elected to litigate a Claim
in court, you or we may elect arbitration with
respect to any Claim made by a new party or any
new Claim asserted in that lawsuit, and nothing
in that litigation shall constitute a waiver of any
rights under this Arbitration Provision.
Quintino's form of agreement differs. It includes a
preliminary "Mediation Agreement," requiring that before either party
proceeds with arbitration or litigation, the party must submit all
"Claims . . . to neutral, individual (and not class) mediation." If mediation
does not resolve the dispute, then the "Arbitration Agreement" controls:
If you and we are not able to resolve a Claim in
mediation, then you and we agree that such Claim
will be resolved by neutral, binding individual
(and not class) arbitration. You and we may not
initiate arbitration proceedings without first
complying with the Mediation Agreement.
The Quintino form of agreement also defines "Claims" broadly:
"Claims" means any and all claims, disputes or
controversies that arise under common law,
federal or state statute or regulation, or otherwise,
and that we or our servicers or agents have
against you or that you have against us, our
servicers, agents, directors, officers and
employees. "Claims" also includes any and all
claims that arise out of (i) the validity, scope
and/or applicability of this Mediation Agreement
or the Arbitration Agreement appearing below,
(ii) your application for a Loan, (iii) the
Agreement, (iv) any prior agreement between you
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and us, including any prior loans we have made to
you[,] or (v) our collection of any Loan. "Claims"
also includes all claims asserted as a
representative, private attorney general, member
of a class or in any other representative capacity,
and all counterclaims, cross-claims and third
party claims.
The Quintino agreement specifies that either party may "bring a Claim in
a small claims or the proper Las Vegas Justice Court, as long as the Claim
is within the jurisdictional limits of that court," without submitting the
claim to mediation or arbitration, but that "[a] 1l Claims that cannot be
brought in small claims court or Las Vegas Justice Court . .. must be
resolved consistent with. . . the Arbitration Agreement."
Both forms of agreement state that they are "made pursuant
to a transaction involving interstate commerce" and shall "be governed by
the Federal Arbitration Act, 9 U.S.C. Sections 1-16, as amended," or the
"FAA." They also include class-action and class-arbitration waivers.
The district court denied Rapid Cash's motions to compel
arbitration of the claims asserted in the original and first amended
complaints. It held that Rapid Cash waived its right to an arbitral forum
by bringing collection actions in justice court, employing Carroll and On-
Scene as its agent for service of process, and obtaining default judgments
allegedly based on On-Scene's falsified affidavits of service. Rapid Cash
appeals. We have jurisdiction under NRS 38.247(1)(a) and 9 U.S.C. §
16(a)(1)(B) (2012), which allow interlocutory appeals from orders denying
motions to compel arbitration, and affirm.
A.
As the loan documents stipulate, the arbitration agreements
evidence transactions involving commerce, so the Federal Arbitration Act
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(FAA) applies. See Tallman v. Eighth Judicial Dist. Court, 131 Nev., Adv.
Op. 71, 359 P.3d 113, 121-22 (2015). Under the FAA, arbitration
agreements "shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract." 9
U.S.C. § 2 This provision expresses "both a liberal federal policy favoring
arbitration, and the fundamental principle that arbitration is a matter of
contract." 3 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)
(quotations and internal citations omitted). Because arbitration is
fundamentally a matter of contract, "[w]hether enforcing an agreement to
arbitrate or construing an arbitration clause, courts and arbitrators must
'give effect to the contractual rights and expectations of the parties."
Stolt-Nielsen S.A. v. AnimalFeeds Intl Corp., 559 U.S. 662, 682 (2010)
(quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 479 (1989)).
The right to enforce an agreement to arbitrate, like any
contract right, can be waived. But the FAA "establishes that, as a matter
of federal law, any doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation of waiver,
delay, or a like defense to arbitrability." Moses H. Cone Mena Hosp. v.
3 Nevada has adopted the Uniform Arbitration Act of 2000 (UAA), see
NRS 38.206, which expresses Nevada's similarly fundamental policy
favoring the enforceability of arbitration agreements as written. See NRS
38.219(1); Tallman, 131 Nev., Adv. Op. 71, 359 P.3d at 119 ("As a matter
of public policy, Nevada courts encourage arbitration and liberally
construe arbitration clauses in favor of granting arbitration." (quoting
State ex rel. Masto v. Second Judicial Dist. Court, 125 Nev. 37, 44, 199
P.3d 828, 832 (2009))).
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Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Given the "strong
presumption in favor of arbitration[J . . . waiver of the right to arbitration
is not to be lightly inferred." Coca-Cola Bottling Co. v. Soft Drink &
Brewery Workers Union Local 812, 242 F.3d 52, 57 (2d Cir. 2001) (internal
quotations omitted); accord Tallman, 131 Nev., Adv. Op. 71, 359 P.3d at
123 (quoting Clark Cty. v. Blanchard Constr. Co., 98 Nev. 488, 491, 653
P.2d 1217, 1219 (1982)). Under the FAA, "any doubts concerning whether
there has been a waiver are resolved in favor of arbitration." Louis
Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 229
(2d Cir. 2001) (quoting Leadertex, Inc. v. Morganton Dyeing & Finishing
Corp., 67 F.3d 20, 25 (2d Cir. 1995)).
B.
We must decide whether Rapid Cash waived its right to
arbitrate the named plaintiffs' equitable, common-law and statutory
claims against them by its litigation activities in justice court. Before we
can do so, we must address the threshold issue of who decides the question
of waiver-by-litigation-conduct—the court or the arbitrator? The answer
depends on presumptions the Supreme Court has developed to guide
division-of-labor determinations under the FAA and the text of the
arbitration agreements themselves. See BG Grp. PLC v. Republic of
Argentina, 572 U.S. „ 134 S. Ct. 1198, 1206-07 (2014) (stating that
since arbitration is a matter of contract, "it is up to the parties to
determine whether a particular matter is primarily for arbitrators or for
courts to decide. . . . If the contract is silent on the matter of who primarily
is to decide 'threshold' questions about arbitration, courts determine the
parties' intent with the help of presumptions."); First Options of Chi., Inc.
v. Kaplan, 514 U.S. 938, 944-45 (1995).
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Despite the FAA's robust pro-arbitration presumption, Moses
H. Cone, 460 U.S. at 24-25, the Supreme Court has instructed that certain
issues—the kind that "contracting parties would likely have expected a
court to have decided"—are presumptively for the court, not the arbitrator,
to resolve. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).
These court-committed issues involve gateway questions of arbitrability,
"such as 'whether the parties are bound by a given arbitration clause,' or
'whether an arbitration clause in a concededly binding contract applies to
a particular type of controversy." BG Grp., 572 U.S. at , 134 S. Ct. at
1206 (quoting Howsam, 537 U.S. at 84). Because "courts presume that the
parties intend courts, not arbitrators, to decide [gateway questions ofl
arbitrability," id., these gateway questions are for the court to decide,
unless the parties' agreement (or, possibly, conduct) provides "clear and
unmistakable evidence" that they intended to commit the questions to the
arbitrator in the first instance. First Options, 514 U.S. at 944 (internal
quotation omitted). But the Supreme Court applies an exactly opposite set
of rules to procedural gateway matters: "On the other hand, courts
presume that the parties intend arbitrators, not courts, to decide disputes
about the meaning and application of particular procedural preconditions
for the use of arbitration." BG Grp., 572 U.S. at , 134 S. Ct. at 1207.
Procedural gateway matters "include the satisfaction of prerequisites such
as time limits, notice, laches, estoppel, and other conditions precedent to
an obligation to arbitrate." Id. (internal quotations omitted).
In Howsam, and again in BG Group, the Supreme Court
characterized "waiver" as a procedural gateway question, not a gateway
"question of arbitrability," stating that, under the FAA, the arbitrator
presumptively "should decide `allegation[s] of waiver, delay, or a like
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defense to arbitrability." 537 U.S. at 84 (emphasis added) (alteration in
original) (quoting Moses H. Cone, 460 U.S. at 25); BG Grp., 572 U.S. at
, 134 S. Ct. at 1207. These pronouncements have generated
uncertainty in the lower courts as to who decides litigation-conduct
waiver. See Thomas J. Lilly, Jr., Participation in Litigation as a Waiver of
the Contractual Right to Arbitrate: Toward a Unified Theory, 92 Neb, L.
Rev. 86, 100-01 (2013). Before Howsam, most courts held that, under the
FAA, litigation-conduct waiver challenges were for the court to resolve.
Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 11-12 (1st Cir. 2005)
(noting the First Circuit's "long history of deciding such waiver claims
itself' and observing that "[t]his was in accord with the overwhelming
weight of pre-Howsam authority, which held that waiver due to litigation
conduct was generally for the court and not for the arbitrator"); see Nev.
Gold & Casinos, Inc. v. Am. Heritage, Inc., 121 Nev. 84, 90, 110 P.3d 481,
485 (2005) (judicially addressing litigation-conduct waiver without
questioning whether the arbitrator should have decided the matter); see
also Tallman, 131 Nev., Adv. Op. 71, 359 P.3d at 123 (upholding order
rejecting litigation-conduct waiver claim but noting that all parties
assumed "that waiver was for the court, not the arbitrator to decide").
After Howsam, courts have divided on who decides litigation-conduct
waiver. Compare Marie, 402 F.3d at 14 ("We hold that the Supreme Court
in Howsam . . . did not intend to disturb the traditional rule that waiver
by conduct, at least where due to litigation-related activity, is
presumptively an issue for the court."), Ehleiter v. Grapetree Shores, Inc.,
482 F.3d 207, 221 (3d Cir. 2007) ("[W]aiver of the right to arbitrate based
on litigation conduct remains presumptively an issue for the court to
decide [even] in the wake of Howsam."), and Grigsby & Assocs., Inc. v. M
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Sec. Inv., 664 F.3d 1350, 1353 (11th Cr. 2011) ("[I]t is presumptively for
the courts to adjudicate disputes about whether a party, by earlier
litigating in court, has waived the right to arbitrate."), with Nat'l Am. Ins.
Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir.
2003) (summarily holding that Howsam mandates that the court refer all
waiver challenges to the arbitrator, even litigation-conduct waiver).
Howsam considered a procedural rule of the contractually
chosen arbitral forum, the National Association of Securities Dealers
(NASD), which provided that "no dispute 'shall be eligible for submission
to arbitration ... where six (6) years have elapsed from the occurrence or
event giving rise to the ... dispute." Howsam, 537 U.S. at 81 (quoting
NASD Code of Arbitration Procedure § 10304 (1984)). The "waiver"
Howsam deemed the province of the arbitrator, not the court, thus did not
grow out of litigation conduct but, rather, delay in initiating arbitration, a
procedural matter the NASD rules controlled. The courts that have
retained the traditional rule that litigation-conduct waivers are for the
court to decide have distinguished Howsam by limiting its waiver
pronouncement to the context in which it arose, specifically, waiver
"arising from non-compliance with contractual conditions precedent to
arbitration." Grigsby, 664 F.3d at 1353 (internal quotation marks
omitted). That Howsam presumed the arbitrator would decide the NASD
time-limit bar makes sense: The NASD arbitrator was "comparatively
better able to interpret and to apply" the NASD's procedural rule, so the
parties would have expected that issue to go to the arbitrator as the
decision-maker with the better comparative expertise. Howsam, 537 U.S.
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at 85. 4 But litigation-conduct "waiver implicates courts' authority to
control judicial procedures or to resolve issues . . . arising from judicial
conduct." Ehleiter, 482 F.3d at 219. Arbitrators are not comparatively
better able than courts to interpret and to apply litigation-conduct waiver
defenses, see Grigsby, 664 F.3d at 1354 (stating that a court is "the
decisionmaker with greater expertise in recognizing and controlling
abusive forum-shopping"), and, thus, it is reasonable to assume that
"parties would expect the court to decide [litigation-conduct waiver] itself."
Ehleiter, 482 F.3d at 219.
Litigation-conduct waiver questions commonly arise out of
proceedings before the court being asked to compel arbitration. Having
the court assess waiver not only comports with party expectations but also
is more efficient than reconstructing the litigation history before the
arbitrator and deferring the question to the arbitral forum, only to have
the dispute return if the arbitrator finds waiver.
Questions of litigation-conduct waiver are best
resolved by a court that "has inherent power to
control its docket and to prevent abuse in its
proceedings (i.e. forum shopping)," which has
"more expertise in recognizing such abuses, and in
4The Court's quotation of Howsam's waiver language in BG Group,
572 U.S. at , 134 S. Ct. at 1207, is not inconsistent with the distinction
Grigsby and other post-Howsam cases have drawn between waiver by
litigation-conduct and waiver by failure to comply with procedural
prerequisites to arbitration. In BG Group, the Supreme Court deemed a
foreign sovereign's local litigation provision the province of the arbitrators
because it constituted "a purely procedural requirement—a claims-
processing rule that governs when the arbitration may begin, but not
whether it may occur or what its substantive outcome will be on the issues
in dispute." Id. at , 134 S. Ct. at 1207.
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controlling ... them," and which could most
efficiently and economically decide the issue as
"where the issue is waiver due to litigation
activity, by its nature the possibility of litigation
remains, and referring the question to an
arbitrator would be an additional, unnecessary
step."
See Am. Gen. Home Equity, Inc. v. Kestel, 253 S.W.3d 543, 551-52 (Ky.
2008) (internal footnote omitted) (quoting David LeFevre, Note, Whose
Finding Is It Anyway?: The Division of Labor Between Courts and
Arbitrators With Respect to Waiver, 2006 J. Disp. Resol. 305, 313-14
(2006)); see UAA of 2000, § 6, cmt. 5, 7 U.L.A., part 1A 28 (2009) (stating
that litigation-conduct "[w]aiver is one area where courts, rather than
arbitrators, often make the decision as to enforceability of an arbitration
clause," and noting that "[a]llowing the court to decide this issue of
arbitrability comports with the separability doctrine because in most
instances waiver concerns only the arbitration clause itself and not an
attack on the underlying contract" and that "[it is also a matter of judicial
economy to require that a party, who pursues an action in a court
proceeding but later claims arbitrability, be held to a decision of the court
on waiver").
We therefore hold, as the majority of courts have, that
Howsam's reference to "waiver, delay, or a like defense" being for the
arbitrator encompasses "defenses arising from non-compliance with
contractual conditions precedent to arbitration, such as the NASD time
limit rule at issue in that case, [but] not ... claims of waiver based on
active litigation in court." Ehleiter, 482 F.3d at 219 (internal quotations
omitted); see Marie, 402 F.3d at 14. A party to an arbitration agreement
likely would expect a court to determine whether the opposing party's
conduct in a judicial setting amounted to waiver of the right to arbitrate.
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Thus, even post-Howsam, litigation-conduct waiver remains a matter
presumptively for the court to decide.
C.
We still must consider Rapid Cash's argument that its
arbitration agreements provide for the arbitrator to decide litigation-
conduct waiver, notwithstanding any presumption to the contrary. See
First Options, 514 U.S. at 943 ("Just as the arbitrability of the merits of a
dispute depends upon whether the parties agreed to arbitrate that
dispute, so the question 'who has the primary power to decide
arbitrability' turns upon what the parties agreed about that matter."
(internal citations omitted)). In this regard, the Dungan/Harrison form of
agreement requires arbitration of "any claim, dispute or
controversy. . . that arises from or relates in any way to. . . the validity,
enforceability or scope of this Arbitration Provision," while the Quintino
form of agreement requires the parties to arbitrate "any and all claims
that arise out of. . . the validity, scope and/or applicability of
this. . . Arbitration Agreement." (Emphases added.)
Rapid Cash argues that the district court's finding of
litigation-conduct waiver defeats the "enforceability" of its arbitration
agreements and so, at minimum, Dungan's and Harrison's waiver
challenge should have been referred to the arbitrator under First Options
and its progeny. See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 66
(2010) (upholding district court's referral of substantive unconscionability
defense to the arbitrator based on a delegation clause that sent to the
arbitrator questions as to the "applicability, enforceability or formation of
this Agreement including, but not limited to any claim that all or any part
of this Agreement is void or voidable" (internal quotation omitted)). Rapid
Cash argues that Quintino's agreement, too, delegates litigation-conduct
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waiver to the arbitrator, since Quintino's waiver challenge amounts to a
defense to the "applicability" of her arbitration agreement. We do not
agree.
"An issue that is presumptively for the court to decide will be
referred to the arbitrator for determination only where the parties'
arbitration agreement contains 'clear and unmistakable evidence' of such
an intent." Ehleiter, 482 F.3d at 221 (quoting First Options, 514 U.S. at
944); see also Rent-A-Center, 561 U.S. at 70 n.1. The general language in
both forms of Rapid Cash agreements falls short of the "clear and
unmistakable evidence" required to overcome the presumption that
litigation-conduct waiver is for the court to decide. The presumption that
courts decide litigation-conduct waiver is rooted in presumed party intent
and probable expectations. The agreements between Rapid Cash and its
borrowers provide specifically for litigation of some claims in some courts
without loss of the right to arbitrate other claims in other courts, yet are
silent on the issue of who decides on which side of the line such later-
asserted claims fall. A corollary of the First Options rule requiring "clear
and unmistakable evidence" of contrary intent to overcome a division-of-
labor presumption is the rule that "silence or ambiguity" is resolved
against the party seeking to overcome the presumption. First Options,
514 U.S. at 944-45. Had Rapid Cash intended to delegate litigation-
conduct waiver to the arbitrator, rather than the court, the agreements
could and should have been written to say that explicitly. Absent an
explicit delegation, litigation-conduct waiver remains a matter for the
court to resolve. See Marie, 402 F.3d at 15 (declining to interpret
agreement delegating "arbitrability" determinations to the arbitrator as
"evinc[ing] a clear and unmistakable intent to have waiver issues decided
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by the arbitrator" and holding that "[n]either party should be forced to
arbitrate the issue of waiver by conduct without a clearer indication in the
agreement that they have agreed to do so"). 5
Here, as in Ehleiter, "fflitigants would expect the court, not an
arbitrator, to decide the question of waiver based on litigation conduct,
and the Agreement. . . does not manifest a contrary intent." 482 F.3d at
222. We thus "cannot interpret the Agreement's silence regarding who
decides the waiver issue here 'as giving the arbitrators that power, for
doing so . . . [would] force [an] unwilling part [y] to arbitrate a matter he
reasonably would have thought a judge, not an arbitrator, would decide."
Id. (alteration in original) (quoting First Options, 514 U.S. at 945).
D.
We turn to Rapid Cash's contention that the district court
erred in finding it waived its right to arbitrate. Waiver is not a favored
finding and should not be lightly inferred. Coca-Cola Bottling, 242 F.3d at
57; Clark Cty., 98 Nev. at 491, 653 P.2d at 1219. "A party seeking to prove
the waiver of a right to arbitrate must demonstrate these elements:
knowledge of an existing right to compel arbitration; acts inconsistent
with that existing right; and prejudice to the party opposing arbitration
5Rent-A-Center is not to the contrary. In Rent-A-Center, the party
opposing arbitration conceded that the text of the delegation clause—
referring to the arbitrator claims that the arbitration agreement was "void
or voidable" and so not enforceable or applicable—encompassed his
substantive unconscionability challenge. See Rent-A-Center, 561 U.S. at
66 (internal quotation omitted). In this case, by contrast, the parties
opposing arbitration hotly contest the delegation clauses in their
agreements, which, unlike the Rent-A-Center clause, stop at
"enforceability" and "applicability" without adding a description of what
the term means.
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resulting from such inconsistent acts." 3 Thomas H. Oehmke, Commercial
Arbitration § 50:28, at 28-29 (3d ed. Supp. 2015); see Nev. Gold, 121 Nev.
at 90, 110 P.3d at 485.
Rapid Cash knew of its arbitration rights and acknowledges
that it waived its right to arbitrate its collection claims by bringing them
in justice court. Its point is that the claims the named plaintiffs have
asserted against Rapid Cash in district court are separate and distinct
from the collection claims Rapid Cash sued on in justice court. Especially
since its arbitration agreements permit it to litigate a collection claim in
justice court without losing the right to arbitrate other, distinct claims,
Rapid Cash sees no inconsistency in enforcing arbitration of the named
plaintiffs' claims despite its prior litigation in justice court. Rapid Cash
also disputes whether the class representatives have made a sufficient
showing of prejudice to justify a finding of waiver.
Consistent with the policy disfavoring waiver, caselaw teaches
that "only prior litigation of the same legal and factual issues as those the
party now wants to arbitrate results in waiver of the right to arbitrate."
Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 133 (2d Cir. 1997); see
MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 250 (4th Cir. 2001); Subway
Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th Cir. 1999);
Cottonwood Fin., Ltd. v. Estes, 810 N.W.2d 852, 860-61 (Wis. Ct. App.
2012). The reasoning underlying these cases is that litigating one claim is
not necessarily inconsistent with seeking to arbitrate another, separate
claim and does not prejudice rights of the opposing party that the
arbitration agreement protects. See Distajo, 107 F.3d at 133 ("Finding
waiver where a party has previously litigated an unrelated yet arbitrable
dispute would effectively abrogate an arbitration clause once a party had
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litigated any issue relating to the underlying contract containing the
arbitration clause."). Thus, the franchisor in Distajo did not waive its
right to arbitrate its franchisees' claims for breach of the franchise
agreement by obtaining eviction orders against its franchisees in state
court because the eviction actions did not prejudice rights secured by the
arbitration agreement, as required to find waiver of arbitration rights
under the FAA. 107 F.3d at 134 ("[Pirejudice as defined by our [waiver]
cases refers to the inherent unfairness—in terms of delay, expense, or
damage to a party's legal position—that occurs when the party's opponent
forces it to litigate an issue and later seeks to arbitrate that same issue.").
Similarly, the payday lender in Cottonwood Financial did not waive its
right to compel arbitration of its borrower's counterclaim alleging violation
of the Wisconsin Consumer Act by bringing a collection action in small
claims court; the arbitration agreement provided that a small claims
action did not waive the right to compel arbitration of other claims and the
borrower's counterclaim converted the case from a small to a large claims
action, triggering the arbitration agreement. 810 N.W.2d at 860-61; see
Fid. Nat'l Corp. v. Blakely, 305 F. Supp. 2d 639, 642 (S.D. Miss. 2003)
(holding lender's state-court collection action did not waive its right to
seek arbitration of counterclaim asserting tort claims associated with the
transaction).
This case differs from the cases just cited in one crucial
respect: The claims the named plaintiffs have asserted in district court
arise out of, and are integrally related to, the litigation Rapid Cash
conducted in justice court. By initiating a collection action in justice court,
Rapid Cash waived its right to arbitrate to the extent of inviting its
borrower to appear and defend on the merits of that claim. The entry of
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default judgment based on a falsified affidavit of service denied the
defendant borrower that invited opportunity to appear and defend.
Allowing the borrower to litigate its claim to set aside the judgment and
be heard on the merits comports with the waiver Rapid Cash initiated. If
the judgment Rapid Cash obtained was the product of fraud or criminal
misconduct and is unenforceable for that reason, it would be unfairly
prejudicial to the judgment debtor to require arbitration of claims seeking
to set that judgment aside, to enjoin its enforcement, and otherwise to
remediate its improper entry. We recognize that the arbitration
agreements specify that bringing one claim does not result in waiver of the
right to arbitrate another, but a no-waiver clause can itself be waived, see
Silver Dollar Club v. Cosgriff Neon Co., 80 Nev. 108, 111, 389 P.2d 923,
924 (1964), and should not be applied to sanctify a fraud upon the court
allegedly committed by the party who itself elected a litigation forum for
its claim. Cf. S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80,
86 (2d Cir. 1998) (declining to enforce a "no waiver" clause where to do so
would hamper a judge's authority to control the proceedings and correct
any abuse in them); Gen. Elec. Capital Corp. v. Bio-Mass Tech, Inc., 136
So. 3d 698, 703 (Fla. Dist. Ct. App. 2014) (holding that an "antiwaiver or
'no waiver' provision is not itself determinative and does not operate as a
complete bar to finding a waiver of the right to arbitration").
E.
Rapid Cash urges us to differentiate among the claims the
named plaintiffs have brought, arguing that the named plaintiffs have an
adequate remedy under Rule 60(c) of the Nevada Justice Court Rules of
Civil Procedure, which provides:
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When a default judgment shall have been taken
against any party who was not personally served
with summons and complaint, either in the State
of Nevada or in any other jurisdiction, and who
has not entered a general appearance in the
action, the court, after notice to the adverse party,
upon motion made within six months after the
date of service of written notice of entry of such
judgment may vacate such judgment and allow
the party or the party's legal representatives to
answer to the merits of the original action,
and that all other claims should be dismissed or sent to arbitration. Rapid
Cash did not make this argument to the district court before that court
entered its order denying Rapid Cash's second motion to compel
arbitration, and thus, this argument is not properly before us on appeal.
See Old Aztec Mine, Inc. v. Brown, 97 Nev. 49, 52, 623 P.2d 981, 983 (1981)
("A point not urged in the trial court. . . is deemed to have been waived
and will not be considered on appeal."). 6 More to the point, while we do
not pass upon the validity of any of the named plaintiffs' claims and we
recognize that the FAA "requires that we rigorously enforce agreements to
arbitrate, even if the result is 'piecemeal' litigation," Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985), we do not accept Rapid
Cash's view of their separability for waiver purposes. The named
plaintiffs' claims all concern, at their core, the validity of the default
judgments Rapid Cash obtained against them in justice court, as to which
6A separate proceeding regarding this issue whereby Rapid Cash
seeks original writ relief from the district court's orders partially granting
class certification and declining to dismiss certain claims for relief is
pending before this court as Principal Investments, Inc. v. Eighth Judicial
District Court, Docket No. 61581.
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issue the district court correctly concluded that Rapid Cash waived its
right to an arbitral forum.
We therefore affirm.
We concur:
C4 ert.
Hardesty
Gibbons
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SAITTA, J., concurring:
In large part, I agree with the majority's opinion. However, I
disagree with the majority's inclusion as dicta of two cases, Cottonwood
Financial, Ltd. v. Estes, 810 N.W.2d 852 (Wis. Ct. App. 2012), and Fidelity
National Corp. v. Blakely, 305 F. Supp. 2d 639 (S.D. Miss. 2003). The
Cottonwood court based its decision on its interpretation of the arbitration
clause in that case and did not perform an analysis of whether the "same
legal and factual issues" were at issue in the lender's collection action as
the borrower's counterclaim. Compare Cottonwood Financial, 810 N.W.2d
at 860-61, with Majority Opinion at 17-18 (holding that 'only prior
litigation of the same legal and factual issues as those the party now
wants to arbitrate results in waiver of the right to arbitrate." (quoting
Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 133 (2d Cir. 1997))).
Therefore, I believe that Cottonwood is inapposite to the majority's
analysis under the standard it set out in its opinion.
In the case of Blakely, I respectfully note that the holding in
that case directly contradicts the majority's holding in the current case.
Compare Blakely, 305 F. Supp. 2d at 642 (holding lender's state court
collection action did not waive its right to seek arbitration of counterclaim
asserting tort claims associated with the transaction), with Majority
Opinion at 20-21 (holding that lender's state-court collection action waived
its right to seek arbitration of claims associated with the transaction).
Therefore, I am puzzled by its inclusion in the majority's opinion.
Lastly, I note that the above caselaw originates from the
Wisconsin Court of Appeals and a federal district court in Mississippi.
Thus, beyond the issue of their applicability to the current case, I question
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their persuasiveness as authority in Nevada. Therefore, although I concur
with most of the majority's opinion, I do not join with them as to the use of
those two cases as dicta.
J.
Saitta
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