Fifth Circuit Denies Payday Lender’s Motion to Reconsider Arbitration Motion Despite SCOTX Opinion

In an unpublished opinion, the United States Court of Appeals for the Fifth Circuit has denied a payday lender’s motion to reconsider a district court’s order refusing to send a class-action lawsuit to arbitration despite that the Supreme Court of Texas later issued an opposite holding in a similar dispute.  In Vine, et al. v. PLS Financial Services, Inc., No. 19-40353 (March 30, 2020), the Fifth Circuit originally affirmed a Texas federal court’s order denying arbitration because a short-term loan company, PLS, substantially invoked the judicial process when it attempted to cash post-dated checks and then provided information regarding checks that were returned for insufficient funds to the local district attorney.  (Additional background related to the case is discussed in greater detail in a previous Disputing blog post.)

Not long after, however, the Supreme Court of Texas held in Henry, et al. v. Cash Biz, LP, No. 16-0854 (Texas, February 23, 2018) a payday lender did not waive its right to compel arbitration against the company’s defaulting customers when it did the same thing.  In fact, the Supreme Court of Texas quoted the Vine case in its written opinion:

We recognize that our opinion does not accord with the decision in Vine v. PLS Financial Services, Inc., 689 F. App’x 800 (5th Cir. 2017) (per curiam). There, as did Cash Biz here, a short term lender had borrowers sign postdated checks, which were presented for payment after the borrowers defaulted. Id. at 801. When the checks were not paid, the lender submitted the unpaid checks and affidavits to the local district attorneys. Id. The Vine court declined to follow the decision of the court of appeals in this case. Id. at 806. Rather, it concluded that the lender’s actions in submitting affidavits to prosecuting attorneys waived its right to enforce the arbitration agreement. Id.

With due respect, and recognizing that it is important for federal and state law to be as consistent as possible in this area where we have concurrent jurisdiction, we agree with the dissenting justice in Vine. Id. at 807 (Higginson, J., dissenting). We conclude, as he did, that although some lenders may be “gaming the system” by taking actions like the lenders took there and as Cash Biz took here, more is required for waiver of a contractual right to arbitrate. Id.

(More on the Cash Biz case is also available in another Disputing blog post.)

After the Cash Biz opinion was issued, Vine and other plaintiffs filed a motion to certify the class.  PLS responded by filing a motion to reconsider the district court’s earlier ruling based on the Texas high court’s opinion in Cash Biz.  The district court certified the class of plaintiffs and PLS filed an appeal with the nation’s Fifth Circuit.

On appeal, the Circuit Court first addressed whether it had jurisdiction to consider the case.  The court dismissed the plaintiffs’ claim that PLS was merely attempting to circumvent jurisdictional time-limits for an appeal by stating:

Here, PLS had a good-faith argument that the Cash Biz decision constituted a change in the law that justified a renewed motion to compel arbitration. We do not believe that PLS filed the motion to reconsider for the purpose of evading Rule 4’s time restrictions. Thus, whether PLS’s motion to reconsider has merit or not, the district court’s order denying that motion was an order denying an application to compel arbitration, and we have jurisdiction to review the order pursuant to 9 U.S.C. § 16(a).

Next, the appellate court said:

Having confirmed our jurisdiction, we turn to the district court’s denial of PLS’s motion to reconsider the motion to compel arbitration. The Western District’s initial arbitration order concluded that PLS waived its right to arbitrate by “substantially invok[ing] the judicial process to the detriment or prejudice of the other party.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999) (quoting Miller Brewing Co. v. Ft. Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). Ordinarily, a district court is free to revise an interlocutory order like this one “at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.” FED. R. CIV. P. 54(b).

Here, however, given our previous decision in Vine I, the law-of-the-case doctrine potentially limited the district court’s review. “Under that doctrine, the district court on remand, or the appellate court on a subsequent appeal, abstains from reexamining an issue of fact or law that has already been decided on appeal.” United States v. Teel, 691 F.3d 578, 582 (5th Cir. 2012). Reexamination is permitted only if (1) there is a substantial change in the evidence, (2) there is a change in controlling law, or (3) the original decision was clearly erroneous and failing to correct it would be manifestly unjust. Fuhrman v. Dretke, 442 F.3d 893, 897 (5th Cir. 2006). Whether the law of the case precludes reconsideration is a question of law that we review de novo. Med. Ctr. Pharm. v. Holder, 634 F.3d 830, 834 (5th Cir. 2011). We agree with the district court that none of the exceptions applies here.

Two of the exceptions are quickly dismissed. First, Cash Biz is not an intervening change in controlling law. Whether PLS substantially invoked the judicial process is a question of federal substantive law. See Miller Brewing, 781 F.2d at 497 n.4 (“dismiss[ing] out of hand” the argument that it was a question of state contract law). The fact that the Texas Supreme Court disagreed with this court on a question of federal law cannot change the law of the case.

Second, PLS cannot show that Vine I was clearly erroneous or that relying on it would cause manifest injustice. For us to ignore the law of the case under this exception, the prior decision must be “dead wrong.” Hopwood v. Texas, 236 F.3d 256, 273 (5th Cir. 2000). Multiple courts have now issued thoughtful—though divergent—opinions on whether filing worthless-check affidavits waives arbitration. Even if Vine I was wrong, “the question is close.” Vine I, 689 F. App’x at 807 (Higginson, J., dissenting). Vine I was not dead wrong.

The Fifth Circuit then stated, “Only the new-evidence exception requires a closer look.”  Despite this, however, the court found the potential new facts were not relevant to the issue of PLS’s arbitration waiver.

The Court of Appeals next held “the district court did not abuse its discretion in concluding that class-wide issues will predominate over individual ones.”  Finally, the nations’ Fifth Circuit Court of Appeals affirmed the district court’s order denying PLS’s motion to reconsider as well as its class-certification order.

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