We’ve seen a couple of rulings recently related to attempts to arbitrate claims after a lawsuit has been filed. The Court of Appeals for the Fifth Circuit has reversed a ruling denying a creditor’s attempt to arbitrate after it filed a collection lawsuit against the plaintiff, ruling that because the creditor ultimately didn’t pursue the lawsuit, it did not close the door to arbitration.
The background: The case arose from a dispute that began in 2016 when the plaintiff challenged charges that were made to her credit card account, asserting they were fraudulent. After repeated requests for documentation and no resolution, the creditor filed a state court lawsuit in 2019 to collect the unpaid balance. However, that suit was eventually dismissed due to the creditor’s failure to prosecute.
- In 2020, the plaintiff filed her own lawsuit in state court, alleging that the creditor violated the Fair Credit Reporting Act by failing to reasonably investigate the disputed charges.
- That case was removed to federal court, where the creditor moved to compel arbitration based on the account’s cardholder agreement. The district court denied the motion, finding the earlier collection suit waived the creditor’s right to arbitrate.
The ruling: The Fifth Circuit reversed, citing its own precedent in Forby v. One Technologies, LP. The court emphasized that waiver of arbitration requires a party to have “substantially invoked the judicial process” regarding the specific claim later sought to be arbitrated.
- The creditor’s earlier lawsuit involved a state law breach of contract claim, not the federal FCRA violations now at issue. Because the creditor “did not substantially invoke the judicial process as to [the plaintiff’s] FCRA suit,” the appellate court held arbitration was not waived.
- “For waiver purposes, a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate,” the panel wrote. It further clarified that “just because the two claims involved the same factual predicate…does not mean they are the same.”
- The court also dismissed the plaintiff’s argument that determining the accuracy of the charges would resolve both claims, stating that Forby rejected the idea that waiver applies simply because claims arise from the same nucleus of facts.
