Court Opinion

ID: 4910967
Source: CourtListenerOpinion
Date Created: 2021-09-15 00:00:35.831767+00
Date Added: 2024-06-11T08:13:28.668793
License: Public Domain

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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                                    No. 20-10088

   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,

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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).

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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.”

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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.”

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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.”

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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))).

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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)).

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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.”

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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.

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