Lucinda Vine v. PLS Financial Services, Inc
689 F. App'x 800
| 5th Cir. | 2017Background
- PLS provides short-term loans, takes blank or post-dated checks, and requires borrowers to sign an arbitration agreement covering all "disputes."
- Vine and Pond allege PLS told borrowers checks would only verify accounts but cashed them on default and then submitted worthless-check affidavits to local district attorneys.
- Plaintiffs claim PLS systematically submitted false affidavits to trigger criminal proceedings and collect debts while avoiding arbitration, in violation of Texas statutes.
- After receiving letters from district attorneys demanding restitution, Vine and Pond filed a class action alleging malicious prosecution, DTPA violations, fraud, and violations of the Texas Finance Code.
- PLS moved to dismiss and compel arbitration; the district court denied the motion, finding PLS waived arbitration by submitting the worthless-check affidavits. PLS appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a court may decide litigation-conduct waiver or whether the arbitrator should | Waiver based on a party's in-court or litigation-oriented conduct is for the court to decide | BG Group/Howsam suggest procedural arbitrability questions go to arbitrator | Court: litigation-conduct waiver that depends on parties' court conduct is for the court to decide |
| Whether the parties' broad arbitration clause clearly and unmistakably delegates litigation-conduct waiver to an arbitrator | The clause requires arbitration of all disputes but does not clearly delegate waiver issues | Agreement's silence means no clear-and-unmistakable delegation | Court: no clear-and-unmistakable evidence; court decides waiver |
| Whether submission of allegedly false worthless-check affidavits constitutes substantial invocation of the judicial process (waiver) | PLS engaged the criminal process as part of a strategy to collect and avoid arbitration; this substantially invoked judicial process and prejudiced plaintiffs | Submission of affidavits and contacting prosecutors was not a substantial invocation; initiation of criminal process is prosecutor's discretion (Cash Biz) | Court: plausible allegations that PLS substantially invoked judicial process by submitting false affidavits and caused prejudice; waiver found plausible and district court correctly denied motion to compel arbitration |
| Whether plaintiffs showed detriment or prejudice from PLS's conduct sufficient for waiver | Plaintiffs would incur expense and risk criminal prosecution and preclusive effects of convictions, demonstrating prejudice | PLS argued that plaintiffs can't show the requisite prejudice from preliminary contact with prosecutors | Court: delay, expense, and risk of preclusion sufficiently alleged as prejudice supporting waiver |
Key Cases Cited
- Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324 (5th Cir.) (litigation-conduct waiver standard)
- BG Group v. Republic of Argentina, 134 S. Ct. 1198 (2014) (distinguishing who decides certain arbitrability issues)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (procedural questions for arbitrator)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) ("clear and unmistakable" delegation rule)
- Principal Invs., Inc. v. Harrison, 366 P.3d 688 (Nev. 2016) (waiver where lender secured many default judgments via false affidavits)
- In re Christus Spohn Health Sys. Corp., 231 S.W.3d 475 (Tex. App.) (conduct in criminal proceedings can be inconsistent with arbitration)
- Tenneco Resins, Inc. v. Davy Int’l AG, 770 F.2d 416 (5th Cir.) (waiver depends on facts of each case)
- Nicholas v. KBR, Inc., 565 F.3d 904 (5th Cir.) (prejudice in waiver context means delay, expense, or damage to legal position)