VICKIE FORBY, individuаlly and on behalf of all others similarly situated in Illinois, Plaintiff - Appellant v. ONE TECHNOLOGIES, L.P., ONE TECHNOLOGIES MANAGEMENT, L.L.C.; ONE TECHNOLOGIES CAPITAL, L.L.P., Defendants - Appellees
No. 17-10883
United States Court of Appeals for the Fifth Circuit
November 28, 2018
Appeal from the United States District Court for the Northern District of Texas
Before GRAVES and COSTA, Circuit Judges, and BENNETT, District Judge.*
Plaintiff-Appellant Vicky Forby (“Forby“) appeals the district court‘s grant of Defendant-Appellee One Technologies, L.P.‘s (“One Tech“) motion to compel arbitration. Forby contends that the district court erred in finding she was not prejudiced by One Tech‘s substantiаl invocation of the judicial process. For the reasons set forth below, we conclude that the district court erred when it found One Tech had not waived its right to arbitration because Forby had not demonstrated that she was prejudiced. Accordingly, we reverse the district court‘s judgment.
I.
On April 24, 2015, Forby filed a class action in Illinois state court that was later removed to the United States District Court for the Southern District of Illinois on July 14, 2015. Forby brought claims against One Tech fоr violation of the Illinois
After the case was transferred, One Tech retained new counsel, who filed an unopposed extension of time tо answer the complaint to “investigate [Forby‘s] claims and prepare an appropriate response.” On May 9, 2016, One Tech filed a
On April 17, 2017, four days after attending a
On July 7, 2017, the district court issued an order granting One Tech‘s motion to compel arbitration and dismissed the case with prejudice. The district court found that One Tech had substantially invoked the judiсial process but that Forby had not suffered prejudice. Specifically, the district court stated that Forby had “suffered some prejudice” but not to “the extent required by existing precedent in the Fifth Circuit,” concluding that “the only prejudiсe that Forby has adequately demonstrated is delay, and delay alone is insufficient. . . .” Forby now appeals the decision of the district court.
II.
We review the district court‘s determination of a motion to compel arbitratiоn de novo, but review any factual findings underlying that determination for clear error. Janvey v. Alguire, 847 F.3d 231, 240 (5th Cir. 2017).
III.
“Although waiver of arbitration is a disfavored finding,” the right to arbitrate—like all contract rights—is subject to waiver. Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir. 2009). “[A] party waives its right to arbitrate if it (1) ‘substantially invokes the judicial рrocess’ and (2) thereby causes ‘detriment or prejudice’ to the other party.” Al Rushaid v. Nat‘l Oilwell Varco, Inc., 757 F.3d 416, 421 (5th Cir. 2014) (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986)).
We first examine whether One Tech substantially invoked the judicial process. To invoke the judicial process, a party “must, at the very least, еngage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.” In Re Mirant, 613 F.3d 584, 589 (5th Cir. 2010) (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999)). “A party waives arbitration by seeking a decision on the merits before attempting to arbitrаte.” Id. (quoting Petroleum Pipe Ams. Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir. 2009)). “A dismissal with prejudice for failure to state a claim is a decision on the merits and essentially ends the plaintiff‘s lawsuit.” Id. (quoting Mahone v. Addicks Util. Dist. of Harris County, 836 F.2d 921, 940 (5th Cir. 1988)).
One Tech was fully aware of its right to compel arbitration when it filed its
The cаses One Tech cites in which courts found no invocation of the judicial process are distinguishable from its full-throated attempt to win this case on the merits in federal court. Some of those cases found that the party seeking arbitration did not invoke the judicial process because its motion to dismiss was filed concurrently with a motion to seek arbitration. See, e.g., Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897 (5th Cir. 2005) (motion for summary judgment filed concurrently with motion to compel arbitration). In others, the party seeking arbitration did not wait for the court‘s merit ruling—and thus get a sense of the court‘s view of the case—before moving to compel arbitration. Pacheco v. PCM Const. Servs., L.L.C., 602 F. App‘x 945, 948 (5th Cir. 2015) (motions to dismiss dealt with narrow ancillary issues and had not been ruled on when the motion tо compel arbitration had been filed.). Even further afield are cases in which the party seeking arbitration never sought a merits ruling in court but only delayed or raised procedural concerns. See Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 485 (5th Cir. 2002); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat‘l Oil Co., 767 F.2d 1140 (5th Cir. 1985). In contrast, One Tech sought a full dismissаl on the merits—prejudice attaches to a
B.
“In addition to invocation of the judicial process, the party opposing arbitration must demonstrate prejudice beforе we will find a waiver of the right to arbitrate.” Nicholas, 565 F.3d at 910. Prejudice “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.” Republic Ins. Co. v. PAICO Receivables, L.L.C., 383 F.3d 341, 346 (5th Cir. 2004) (quoting Subway Equip., 169 F.3d at 327)). It is true that delay in asserting the right to arbitrate alone will not result in waiver. Nicholas, 565 F.3d at 910 (citing Gulf Guar. Life Ins. Co., 304 F.3d at 484). However, “such [a] delay ‘does bear on the question of prejudice, and may, along with other cоnsiderations, require a court to conclude that waiver has occurred.‘” Id. (quoting Republic Ins., 383 F.3d at 346 (citation omitted)). When a party fails to demand arbitration and engages in activity inconsistent with the intent to arbitrate, the party later opposing a motion to compel may more easily show that its position has been prejudiced. Id.
One Tech received a transfer to Texas for the sole purpose of compelling arbitration but waited thirteen months before moving to compel arbitration while it attempted to obtain a dismissal with prejudice from the district court. The district court correctly concluded that Forby experienced prejudice from One Tech‘s delay in invoking arbitration. “A party cannot keep its right to demand arbitration in reserve indefinitely while it pursues a decision on the merits before the district court.” Mirant, 613 F.3d at 591. However, the district court failed to find prejudice for damage to Forby‘s legal position or from additional expenses incurred litigating her case in the district court.1
The district court erred in concluding that Forby failed to establish prejudice to her legal position. When a party will have to re-litigate in the arbitration forum an issue already decided by the district court in its favor, that party is prejudiced. Nicholas, 565 F.3d at 911; see also Petroleum Pipe, 575 F.3d at 482 (citing Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991) (“Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invоking arbitration.“)). A party does not get to learn that the district court is not receptive to its arguments and then be allowed “a second bite at the apple through arbitration.” Petroleum Pipe, 575 F.3d at 482.
One Tech‘s motion to dismiss included the attachment оf declarations and exhibits detailing One Tech‘s website and went directly to the merits of Forby‘s ICFA claim. Specifically, the motion requested that the district court find the disclosures present on One Tech‘s website meant that the website wаs not deceptive as a matter of law. The district court was not receptive to One Tech‘s argument and declined to find that the website was not deceptive as a matter of law. To be sure, the Rule 12 ruling did not finally resolvе whether the website was deceptive. However, it was not a motion seeking dismissal because of a technical pleading deficiency—it asked the court to look at the key question the case presents concerning adequacy of the website disclosures. If this case were to proceed to arbitration, Forby would have to re-litigate whether One Tech‘s website was deceptive in front of an
IV.
For the foregoing reasons, the district court‘s determination that One Tech did not waive its right to аrbitration was in error. We hold that One Tech substantially invoked the judicial process and that Forby was prejudiced thereby. Accordingly, the order of the district court finding Forby had not suffered enough prejudice to establish waiver is REVERSED. The district court‘s order granting One Tech‘s motion to compel arbitration is VACATED. The case is hereby REMANDED to the district court for further proceedings consistent with this opinion.
* District Judge for the Southern District of Texas, sitting by designation.