Fifth Circuit Holds That Waiver of Right To Arbitrate Is Claim Specific

Goodwin
Contact

Goodwin

On September 14, 2021, the United States Court of Appeals for the Fifth Circuit held that One Technologies, L.P. (One Tech) did not waive its right to compel arbitration of plaintiff’s federal claim under the Credit Repair Organizations Act (CROA), even though One Tech had previously waived its right to arbitrate plaintiff’s state law claims based on the same underlying conduct.  The grounds for both the state and federal law claims are that One Tech “duped consumers into signing up for ‘free’ credit reports that were not really free.”

Plaintiff’s initial complaint was filed in state court and included only state law claims for violation of an Illinois consumer protection law and unjust enrichment.  She alleged that she signed up for a supposedly free credit report on Scoresense.com, but later discovered multiple monthly charges for $29.95.  The website required her to check a box that she agreed to the terms of service, and advised her in all caps that she would be charged a monthly fee after the free trial expired, and that any claims or disputes would be resolved by binding arbitration in Dallas, Texas.

One Tech removed the initial complaint and then moved to dismiss, which was granted in part and denied in part.  Only after securing a partial dismissal did One Tech move to compel arbitration.  The district court granted the motion, but the Fifth Circuit reversed, concluding that One Tech had waived its right to compel arbitration by pursuing the motion to dismiss.  On remand, plaintiff obtained leave to file an amended complaint, which added the new federal law claim for violation of the CROA.

Now faced for the first time with a federal law claim, One Tech again moved to compel arbitration, arguing that it could not have waived its right to arbitrate the federal law claim which was not the subject of its motion to dismiss.  The district court denied the motion, reasoning that while the amended complaint involved a new federal law claim, it did “not alter the scope of theory of the underlying litigation in an unforeseeable way.”  One Tech appealed.

This time, the Fifth Circuit sided with One Tech.  The Court found that while One Tech had “substantially invoked the judicial process” as to the state law claims by moving to dismiss, it had not done so with respect to the federal law claim.  The Court thereby clarified that waiver of a contractual right to arbitrate is “claim-specific,” such that “waiver as to originally asserted state claims does not extend to later-pled federal claims.”

Written by:

Goodwin
Contact
more
less

Goodwin on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.