Lucinda Vine v. PLS Financial Services, Inc , 689 F. App'x 800 ( 2017 )

Case: 16-50847 Document: 00514000883 Page: 1 Date Filed: 05/19/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-50847 FILED
May 19, 2017
Lyle W. Cayce
LUCINDA VINE; KRISTY POND, Clerk
Plaintiffs - Appellees
v.
PLS FINANCIAL SERVICES, INCORPORATED; PLS LOAN STORE OF
TEXAS, INCORPORATED,
Defendants - Appellants
Appeals from the United States District Court
for the Western District of Texas
USDC No. 3:16-CV-31
Before BARKSDALE, GRAVES, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Appellants PLS Financial Services, Inc., and PLS Loan Store of Texas,
Inc. (collectively “PLS”), appeal the district court’s denial of its motion to
dismiss and to compel arbitration. Because PLS substantially invoked the
judicial process to the detriment or prejudice of Appellees Lucinda Vine and
* 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
Case: 16-50847 Document: 00514000883 Page: 2 Date Filed: 05/19/2017
No. 16-50847
Kristy Pond when it submitted false worthless check affidavits, we AFFIRM
the judgment of the district court.
BACKGROUND
PLS’s business is to provide short-term loans to customers. To obtain
loans, PLS customers must present blank or post-dated checks for the amount
borrowed plus a finance charge and a credit-access-business fee. They must
also sign PLS’s Loan Disclosure, Promissory Note and Security Agreement and
a Credit Services Agreement (the “Agreement”), which requires arbitration of
all “disputes.” The Agreement states:
For purposes of this Waiver of Jury Trial and Arbitration
Provision . . . the words “dispute” and “disputes” are given
the broadest possible meaning and include, without
limitation (a) all claims, disputes, or controversies arising
from or relating directly or indirectly to signing of this
Arbitration Provision, the validity and scope of this
Arbitration Provision, the validity and scope of this
Arbitration Provision and any claim or attempt to set aside
this Arbitration Provision . . . .
Vine and Pond allege that during the loan application process, PLS
asked them for blank or post-dated checks, but assured them that the checks
would not be cashed and would only be used to verify checking accounts.
However, PLS cashed the checks as soon as Vine and Pond defaulted on their
loans, and then submitted worthless check affidavits to local district attorneys’
offices when the checks bounced. According to Vine and Pond, PLS’s actions
were part of a regular strategy whereby PLS submitted false worthless check
affidavits to achieve repayment of the loans and to avoid arbitrating any
collection actions. In addition, Vine and Pond allege that PLS knew that its
2
Case: 16-50847 Document: 00514000883 Page: 3 Date Filed: 05/19/2017
No. 16-50847
submission of false worthless check affidavits violated Texas law. See Tex. Fin.
Code §§ 393.201(c) and 292.301.
Soon after submission of the worthless check affidavits, Vine and Pond
received letters from their local district attorneys’ offices, notifying them that
they would need to pay restitution to PLS and statutory fees or face criminal
proceedings on theft by check charges.
On January 26, 2016, Vine and Pond initiated the present class action
against PLS on behalf of themselves and all similarly-situated plaintiffs,
alleging: (1) malicious prosecution; (2) Texas Deceptive Trade Practices Act
violations; (3) fraud; and (4) Texas Finance Code § 392.301 violations. On
March 23, 2016, PLS moved to dismiss the proceedings and compel Vine and
Pond to arbitrate their claims pursuant to the Agreement. On June 6, 2016,
the district court denied PLS’s motion to dismiss, stating that, even if Plaintiffs
had agreed to arbitration, PLS had waived its right to compel them to do so by
submitting the worthless check affidavits. PLS appeals from the district court’s
denial of their motion to dismiss and to compel arbitration.
STANDARD OF REVIEW
“We review the issue of whether a party’s conduct amounts to a waiver
of arbitration de novo.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324,
326 (5th Cir. 1999). A motion to compel arbitration is generally treated as a
motion to dismiss. See Suburban Leisure Ctr., Inc. v. AMF Bowling Prods., Inc.,
468 F.3d 523, 525 (8th Cir. 2006). Consequently, we accept Vine and Pond’s
well-pleaded facts as true and view them in the light most favorable to them.
Id.
3
Case: 16-50847 Document: 00514000883 Page: 4 Date Filed: 05/19/2017
No. 16-50847
DISCUSSION
PLS makes three arguments on appeal. It contends that the district court
erred by: (1) deciding whether PLS waived its right to compel arbitration by
participating in litigation conduct; (2) ignoring the parties’ express agreement
to arbitrate all disputes, including any litigation-conduct waiver claims; and
(3) concluding that PLS waived its right to arbitrate by submitting worthless
check affidavits. None of these arguments are persuasive.
I.
First, the district court did not err by deciding the litigation-conduct
waiver. In Tristar Fin. Ins. Agency v. Equicredit Corp. of Am., 97 F. App’x 465,
464 (5th Cir. 2004), we recognized that when “waiver . . . depends on the
conduct of the parties before the district court,” “the court, not the arbitrator,
is in the best position to decide whether the conduct amounts to a waiver under
applicable law.” Here, the district court’s waiver decision depended on the
conduct of PLS—a party to the litigation. Consequently, the district court was
“in the best position” to decide the litigation-conduct waiver. Id.
PLS contends that the Supreme Court’s decision in BG Group, PLC v.
Republic of Argentina, 134 S. Ct. 1198 (2014), abrogates any persuasive effect
of our Tristar decision. In BG Group, the Supreme Court stated that courts
should decide issues “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 Group, 134 S. Ct. at
1206 (quotations omitted). But arbitrators should decide questions “about the
meaning and application of particular procedural preconditions for the use of
arbitration.” Id. at 1207. Because BG Group defines “claims ‘of waiver, delay,
or a like defense to arbitrability’” as procedural, PLS argues that litigation-
4
Case: 16-50847 Document: 00514000883 Page: 5 Date Filed: 05/19/2017
No. 16-50847
conduct waiver should be decided by an arbitrator, and not a court. See id. at
1202 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 25 (1983)). PLS notes that in Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 84 (2002) (quoting Moses H. Cone Memorial Hospital, 460 U.S. at
25), the Supreme Court also stated that “claims ‘of waiver, delay, or a like
defense to arbitrability’” are procedural and thus arbitrator-committed.
Despite the surface appeal of this argument, a careful reading of BG
Group and Howsam demonstrates that it is misguided. When confronted with
the identical language in Howsam, the Third Circuit stated:
Properly considered within the context of the entire
opinion . . . we believe it becomes clear that the Court
was referring only to waiver, delay, or like defenses
arising from non-compliance with contractual
conditions precedent to arbitration . . . and not to
claims of waiver based on active litigation in court.
See Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 219 (3d Cir. 2007). Unlike
other types of waiver, litigation-conduct waiver “implicates courts’ authority to
control judicial procedures or to resolve issues . . . arising from judicial
conduct.” Id. (emphasis in the original). Consequently, because “parties would
expect the court to decide [litigation-conduct waiver] itself,” the Third Circuit
was unconvinced that the Supreme Court had meant for arbitrators, and not
courts, to presumptively decide litigation-conduct waiver. The majority of our
sister circuits agree. See Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 14 (1st
Cir. 2005) (“We hold that the Supreme Court . . . did not intend to disturb the
traditional rule that waiver by conduct, at least due to litigation-related
activity, is presumptively an issue for the court.”); Grigsby & Assocs., Inc. v. M.
Sec. Inv., 664 F.3d 1350, 1353 (11th Cir. 2011) (same); JPD, Inc. v. Chronimed
Holdings, Inc., 539 F.3d 388, 393 (6th Cir. 2008) (same); Martin v. Yasuda, 829
5
Case: 16-50847 Document: 00514000883 Page: 6 Date Filed: 05/19/2017
No. 16-50847
F.3d 1118, 1122-23 (9th Cir. 2016) (same). But see Nat’l Am. Ins. Co. v.
Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003)
(holding that all waiver challenges should be committed to an arbitrator). We
note that a majority of the decisions addressing litigation-conduct waiver pre-
date BG Group, but the logic of those decisions interpreting Howsam is equally
applicable to BG Group. Consequently, the district court did not err.
II.
Second, the parties’ express agreement does not address litigation-
conduct waiver. As a preliminary matter, PLS waived this issue by raising it
for the first time in its motion to reconsider. See LeClerc v. Webb, 419 F.3d 405,
412 n.13 (5th Cir. 2005) (“A motion for reconsideration may not be used to . . .
introduce new arguments.”). However, even if PLS had not waived the issue,
we would reach the same conclusion.
While the language of an arbitration agreement can displace the
presumption that a court should decide an issue, “[a]n 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.” See Ehleiter, 482 F.3d at 221
(quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).
Here, we do not find “clear and unmistakable evidence” that the parties
intended to arbitrate litigation-conduct waiver. Id. Though the parties’
agreement requires arbitration of “any claim or attempt to set aside this
Arbitration Provision,” it does not explicitly mention litigation-conduct waiver.
See Principal Investments, Inc. v. Cassandra Harrison, 366 P.3d 688, 696 (Nev.
2016) (“Had Rapid Cash intended to delegate litigation-conduct waiver to the
arbitrator, rather than the court, the agreements could and should have been
6
Case: 16-50847 Document: 00514000883 Page: 7 Date Filed: 05/19/2017
No. 16-50847
written to say that explicitly.”). Furthermore, we “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.’” Ehleiter, 482 F.3d at 222 (quoting First Options, 514
U.S. at 945). Because the Agreement does not contain “clear and unmistakable
evidence” of an intent to arbitrate the instant litigation-conduct waiver issue,
the district court did not err. Id. at 221.
III.
Third, the district court correctly found that Vine and Pond plausibly
alleged that PLS waived arbitration when it submitted false worthless check
affidavits. “The question of what constitutes a waiver of the right of arbitration
depends on the facts of each case.” Tenneco Resins, Inc. v. Davy Int’l AG, 770
F.2d 416, 420 (5th Cir. 1985). “Waiver will be found when the party seeking
arbitration substantially invokes the judicial process to the detriment or
prejudice of the other party.” Subway Equipment Leasing Corp., 169 F.3d at
326 (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497
(5th Cir. 1986)).
A.
A party substantially invokes the judicial process when it “engage[s] in
some overt act in court that evinces a desire to resolve the arbitration dispute
through litigation.” Id. “We use the term [invoke] to describe the act of
implementing or enforcing the judicial process, not the act of calling upon for
support or assistance, as say, one would invoke a spirit or the elements.” Id.
7
Case: 16-50847 Document: 00514000883 Page: 8 Date Filed: 05/19/2017
No. 16-50847
As the district court noted, whether PLS sufficiently implemented the
criminal justice system to its own benefit such that its conduct constitutes a
substantial invocation of the judicial process is a matter of first impression
before this Court. On this narrow issue, we find no guidance from any of our
sister circuits.
Here, Vine and Pond allege that PLS systematically engaged in a
strategy of submitting worthless check affidavits that falsely stated that
borrowers had committed theft by check. In addition, Vine and Pond claim that
PLS submitted these false affidavits solely to achieve repayment of loans and
to avoid arbitrating any collection actions. According to Vine and Pond, PLS
also knew that the affidavits violated Texas law. Texas law does not permit a
lender to “threaten or pursue criminal charges against a consumer related to
a check . . . in the absence of forgery, fraud, theft, or other criminal conduct.”
See Tex. Fin. Code § 393.201(c); see also Tex. Fin. Code § 392.301.
Documents incorporated by reference into Vine and Pond’s complaint
also show the mechanics of PLS’s alleged course of conduct. 1 One of the
affidavits submitted by PLS and a letter received by a borrower from her local
district attorney’s office show that the district attorney’s office sent out the
letter the day after it stamped the corresponding PLS affidavit as “received.”
This comparison plausibly suggests that when the local district attorney’s
office sent out its letter requesting restitution, it relied solely on PLS’s
representations that the customer had committed theft by check. These
documents also suggest that the district attorney’s office may not have
1In ruling on motions to dismiss, courts may examine documents incorporated into
the complaint by reference. See Lormand v. US Unwired, Inc., 565 F.3d 228, 251 (5th Cir.
2009).
8
Case: 16-50847 Document: 00514000883 Page: 9 Date Filed: 05/19/2017
No. 16-50847
exercised robust discretion in reviewing PLS’s affidavits before initiating
criminal proceedings against PLS customers. As the district court noted,
If what Plaintiffs allege is true, Defendants conduct is
merely a pretext to obtain a favorable ruling, which
Defendants can then use in either defending or
prosecuting a lawsuit brought by or against Plaintiffs
in an arbitration proceeding.
Moreover, if true, PLS’s conduct is inconsistent with a right to arbitrate.
In determining whether PLS’s alleged actions are consistent with a right
to arbitrate, three state-court decisions are instructive. In Principal
Investments, 366 P.3d at 690–91, the Nevada Supreme Court found that
Defendant Rapid Cash waived its right to arbitrate when it secured thousands
of default judgments against the named plaintiffs and other borrowers by
submitting false affidavits prepared by its process server. The court explained:
“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.” Id. at 697. It also stated:
If the judgment Rapid Cash obtained was the project
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.
Id. at 697–98.
The Texas Court of Appeals decision in In re Christus Spohn Heath Sys.
Corp., 231 S.W.3d 475 (Tex. App.—Corpus Christi 2007, no pet.), is also
instructive here. Christus Spohn was a premises liability case arising out of a
murder in a hospital parking lot. When the murder victim’s husband filed a
9
Case: 16-50847 Document: 00514000883 Page: 10 Date Filed: 05/19/2017
No. 16-50847
civil lawsuit against the hospital, the hospital moved to compel arbitration. Id.
at 481. However, the court denied the hospital’s motion because the hospital
had sought an order of contempt against the husband’s counsel during the
criminal proceedings. Id. The court explained that while “ordinarily [it] would
not consider actions in a separate cause as indicative of waiver,” the hospital’s
actions were “part of its strategic plan of defense in the underlying matter that
would be inconsistent with a right to arbitrate.” Id.
As in Christus Spohn, PLS allegedly submitted the false worthless check
affidavits as “part of its strategic plan of defense in the underlying matter” to
achieve loan repayment. See Christus Spohn, 231 S.W.3d at 481. As in
Principal Investments, PLS allegedly derived benefit by engaging the criminal
justice system through improper conduct. If it is true that PLS’s submission of
worthless check affidavits was fraudulent, “it would be unfairly prejudicial to
[Vine, Pond, and similarly situated borrowers] to require arbitration of claims
. . . to remediate [the] improper entry” of the affidavits. See Principal
Investments, 366 P.3d at 690. Thus, Vine and Pond have plausibly alleged that
PLS waived its right to arbitrate when it submitted false worthless check
affidavits.
Nevertheless, PLS argues that we should follow the Texas Court of
Appeals decision in Cash Biz, LP v. Henry et al., 2016 WL 4013794 (Tex. App.—
San Antonio 2016, pet. filed). In Cash Biz, the court found that Defendant Cash
Biz did not waive its right to arbitrate when it “contacted the applicable local
district attorneys and submitted information necessary to make a criminal
complaint.” Cash Biz, 2016 WL 4013794, at *2. The court stated that “courts
consistently evaluate a party’s conduct after suit is filed to determine whether
it waived its right to arbitration. Here, the parties focus on Cash Biz’s conduct
in a separate proceeding before the underlying litigation was filed by the
10
Case: 16-50847 Document: 00514000883 Page: 11 Date Filed: 05/19/2017
No. 16-50847
Borrowing Parties.” Id. at *8 (emphasis in the original). The court also
reasoned that “[i]n Texas, the filing of criminal charges and initiation of
criminal process is the discretion of the prosecuting attorney.” Id.
Consequently, the preliminary act of “filing of suit or initiation of litigation is
not ‘substantial invocation of judicial process.’” Id. (quoting G.T. Leach
Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015)).
However, despite the obvious factual similarities between Cash Biz and
this case, we decline to follow Cash Biz for the following reasons: As the dissent
in Cash Biz aptly noted, here, “we are presented with the unique situation of
a civil lawsuit and a criminal proceeding, both of which arise out of the same
civil debt.” Cash Biz, 2016 WL 4013794, at *10 (Martinez, J., dissenting).
Moreover, it is alleged that the criminal proceedings were an integral
component of PLS’s litigation strategy to collect on outstanding debt. If PLS
attempted to “game the system” by initiating theft by check proceedings in
place of submitting collection actions to an arbitrator, PLS should not be
allowed “a second bite at the apple through arbitration” to resolve related
issues. See Cargill Ferrous Int’l v. SEA PHX. MV, 325 F.3d 695, 701 (5th Cir.
2003) (“Under the facts of this case, it is clear Serene is not gaming the system
by seeking a win at trial, and in the case of loss, anticipating a second bite at
the apple through arbitration.”).
In addition, we also agree with the Cash Biz dissent that the majority in
that case did not sufficiently consider the critical role that the Defendant
played in the criminal proceedings as the complainant. See Cash Biz, 2016 WL
4013794, at *10 (Martinez, J., dissenting) (“[W]hile the formal parties in a
criminal proceeding are the defendant and the State of Texas, the victim or
complaintant [sic] has a personal interest in the prosecution and thus plays a
unique role in criminal proceedings.”). Here, Vine and Pond allege that PLS
11
Case: 16-50847 Document: 00514000883 Page: 12 Date Filed: 05/19/2017
No. 16-50847
had a great “personal interest in the prosecution” as it constituted a means to
achieve repayment of its loans while avoiding arbitration. Furthermore,
documents incorporated by reference into Vine and Pond’s complaint arguably
show that PLS drove all theft by check criminal proceedings when it submitted
the worthless check affidavits to local district attorneys’ offices. In other words,
had PLS not submitted the worthless check affidavits, “no criminal prosecution
would have occurred.” See id. at *9 (Martinez, J., dissenting).
Therefore, by allegedly submitting false worthless check affidavits, PLS
“invoke[d] the judicial process to the extent it litigate[d] a specific claim it
subsequently [sought] to arbitrate.” See Subway Equip. Leasing Corp., 169
F.3d at 328. As the district court made clear, “Defendants have initiated a
process that invites Texas district attorneys’ offices to address issues that are
at stake in the instant action.” Most obviously, all claims involve whether PLS
misled or threatened Vine, Pond, and the class of PLS customers they purport
to represent in order to obtain outstanding debt owed to PLS.
B.
Vine and Pond have also demonstrated detriment or prejudice from
PLS’s submission of worthless check affidavits. “Prejudice in the context of
arbitration waiver refers to delay, expense, and damage to a party’s legal
position.” Nicholas v. KBR, Inc., 565 F.3d 904, 910 (5th Cir. 2009). Here, Vine
and Pond would have borne the costs of defending against any theft by check
prosecution. In addition, they would have suffered the preclusive effect of a
conviction in any subsequent litigation. Consequently, they have sufficiently
shown detriment or prejudice. See Subway Equip. Leasing Corp., 169 F.3d at
327.
12
Case: 16-50847 Document: 00514000883 Page: 13 Date Filed: 05/19/2017
No. 16-50847
CONCLUSION
For the reasons stated above, we AFFIRM the judgment of the district
court.
13
Case: 16-50847 Document: 00514000883 Page: 14 Date Filed: 05/19/2017
No. 16-50847
STEPHEN A. HIGGINSON, Circuit Judge, dissenting:
Although I agree with the majority that the district court did not err by
deciding litigation-conduct waiver, I would hold that PLS’s conduct did not
amount to waiver of arbitration. I believe the question is close, due largely to
the unique procedural nature of theft-by-check cases—especially here, where
there is evidence that PLS not only intended to force repayment of these loans
by submitting worthless check affidavits, but in fact achieved that result.
However, my read of our law in Subway Equipment is that more is required
for a party to have “substantially invoke[d] the judicial process.” Subway
Equipment Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999).
To the extent it applies, my read of Texas law is the same. See Cash Biz,
LP v. Henry, No. 04-15-00469-CV, 2016 WL 4013794, at *6 (Tex. App.—San Antonio
July 27, 2016, pet. filed) (“To waive arbitration, the party must engage in some
overt act in court that evince[s] a desire to resolve the arbitrable dispute
through litigation rather than arbitration.” (internal quotation marks and
citations omitted)). Furthermore, even accepting its legal framework, I view
the Nevada Supreme Court’s decision in Harrison as distinguishable due to the
particularly overt and affirmative steps taken by the lender in that case,
namely, “fil[ing] . . . individual collection actions in justice court” and
“secur[ing] thousands of default judgments against . . . borrowers who failed
to appear and defend the collection lawsuits.” Principal Invs., Inc. v. Harrison,
366 P.3d 688, 690–91 (Nev. 2016).
I share the majority’s discomfort that PLS may be gaming the system
through its submission of the worthless check affidavits, which is inconsistent
with the company’s current pro-arbitration stance. As Appellees note,
attempting to secure repayment through the local district attorney’s office not
14
Case: 16-50847 Document: 00514000883 Page: 15 Date Filed: 05/19/2017
No. 16-50847
only provides PLS with two bites at the apple, but also allows it to avoid
potential costs associated with arbitration, such as arbitrator and attorney’s
fees. Nevertheless, I believe our law requires something more than the actions
alleged here.
Accordingly, I respectfully dissent.
15