Henry v. Cash Biz, LP

• Decision Date: 23 February 2018
• Docket Number: NO. 16–0854,16–0854
• Citation: 551 S.W.3d 111
• Parties: Hiawatha HENRY, Addie Harris, Montray Norris, and Roosevelt Coleman, Jr., on behalf of themselves and for all other similarly situated, Petitioners, v. CASH BIZ, LP, Cash Zone, LLC d/b/a Cash Biz, and Redwood Financials, LLC, Respondents
• Court: Texas Supreme Court

551 S.W.3d 111

Hiawatha HENRY, Addie Harris, Montray Norris, and Roosevelt Coleman, Jr., on behalf of themselves and for all other similarly situated, Petitioners,

v.CASH BIZ, LP, Cash Zone, LLC d/b/a Cash Biz, and Redwood Financials, LLC, Respondents

NO. 16–0854

Supreme Court of Texas.

Argued September 15, 2017

OPINION DELIVERED: February 23, 2018

Ricardo G. Cedillo, Davis Cedillo & Mendoza, Inc., San Antonio TX, for Amicus Curiae.

Daniel R. Dutko, H. Mark Burck, Laporte, L.L.P., Houston TX, for Petitioners.

Edward S. Hubbard, Patrick E. Gaas, Coats, Rose, PC, Houston TX, for Respondents.

Justice Johnson delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Guzman, Justice Lehrmann, Justice Boyd, Justice Devine, and Justice Brown joined.

Phil Johnson, Justice

This case involves an arbitration provision in short-term loan contracts. The questions presented are whether the borrowers' claims against the lender come within the arbitration provision and, if so, whether the lender waived its right to arbitrate by providing information to the district attorney that checks written to the lender by the borrowers had been returned for insufficient funds. The court of appeals answered the first question "yes," and the second, "no." We affirm.¹

I. Background

Cash Biz, LP is a registered Texas credit services organization that assists customers in obtaining short-term loans. See TEX. FIN. CODE ch. 393. Hiawatha Henry, Addie Harris, Montray Norris, and Roosevelt Coleman, Jr. (collectively, the Borrowers) contracted with Cash Biz for such loans. Each of the loan contracts contains an identical Waiver of Jury Trial and Arbitration Provision. It provides that "all disputes ... shall be resolved by binding arbitration only on an individual basis with you." The contracts further provide that

the words "dispute" and "disputes" are given the broadest possible meaning and include, without limitation (a) all claims, disputes, or controversies arising from or relating directly or indirectly to the signing of this Arbitration Provision, the validity and scope of this Arbitration Provision and any claim or attempt to set aside this Arbitration Provision; (b) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to this Disclosure Statement (including the Arbitration Provision), ... (c) all counterclaims, cross-claims and third party claims; (d) all common law claims, based on contract, tort, fraud, or intentional torts; (e) all claims based on a violation of any state or federal constitution, statute or regulation; ... (f) ... claims for money damages to collect any sum we claim you owe us and/or the Lender; (g) all claims asserted by you individually against us ... including claims for money damages and/or equitable or injunctive relief; (h) all claims asserted on your behalf by another person; (I) all claims asserted by you as a private attorney general, as a representative and member of a class of persons, or in any other representative capacity, against us ...; and/or (j) all claims arising from or relating directly or indirectly to the disclosure by us ... of any non-public personal information about you.

As security for the loans, the Borrowers provided postdated personal checks made out to Cash Biz for the amount of the loan plus a finance charge. After the Borrowers defaulted on the loans, Cash Biz deposited their checks. The checks, predictably, were returned for insufficient funds. The parties do not disagree that the Borrowers were charged with issuance of bad checks, see TEX. PENAL CODE § 32.41, and that the charges were eventually dismissed. But they disagree about what the record shows as to whether Cash Biz simply forwarded information about the Borrowers and their returned checks to the district attorney as Cash Biz maintains it did, or somehow actually filed criminal charges, as the Borrowers argue Cash Biz did.

In any event, the Borrowers sued Cash Biz, Redwood Financials, LLC, and Cash Zone LLC, d/b/a Cash Biz (collectively, Cash Biz) on behalf of themselves and a proposed class of similarly situated borrowers. They claimed that Cash Biz wrongfully used the criminal justice system to collect unpaid loans by filing false charges against them. The Borrowers asserted causes of action for malicious prosecution, fraud, and violations of the Deceptive Trade Practices Act, Consumer Protection Act, and the Finance Code. Cash Biz responded by filing a motion to compel arbitration. It argued that the loan documents—including the contracts—comprised the basis of the Borrowers' claims because the claims arose out of Cash Biz's attempts to collect the loans. Further, according to Cash Biz, the broad arbitration provision waived the Borrowers' right to file a class action lawsuit. The Borrowers countered that the arbitration clause was inapplicable because they were not suing on the contract. Rather, their allegations related solely to Cash Biz's illegal use of the criminal justice system to enforce civil debts. The Borrowers also contended that even if the arbitration and class action waiver provisions applied, Cash Biz's "filing of criminal charges," participating in criminal trials, and obtaining "criminal judgments" substantially invoked the judicial process and therefore waived its right to enforce the provisions.

The trial court denied Cash Biz's motion. The court agreed with the Borrowers that (1) their allegations related solely to Cash Biz's use of the criminal justice system so the arbitration clause was inapplicable, and (2) Cash Biz waived its right to arbitration by substantially invoking the judicial process.

Cash Biz filed an interlocutory appeal. The court of appeals reversed. 539 S.W.3d 342, ––––, 2016 WL 4013794 (Tex. App.–San Antonio 2016). The appeals court first determined that the Borrowers' claims fell within the scope of the arbitration provision because the Borrowers' allegations were factually intertwined with the loan contracts. Thus, the broad definition of "dispute" in the arbitration provision encompassed the claims. Id. at ––––. The court next concluded that Cash Biz did not waive its right to enforce the arbitration provision because "Cash Biz's filing of a criminal complaint [did] not rise to the extent of active engagement in litigation that Texas courts have consistently held to be specific and deliberate actions inconsistent with a right to arbitrate or that display an intent to resolve a dispute through litigation." Id. Justice Martinez disagreed, maintaining that Cash Biz substantially invoked the judicial process by deliberately and repeatedly invoking the criminal justice system. Id. at 354-59 (Martinez, J., dissenting).

In this Court, the Borrowers assert the same substantive arguments that they did in the court of appeals. That is, they first argue that Cash Biz failed to meet its burden to prove their claims are within the scope of the arbitration agreement. In the alternative, they maintain that if the claims fall within the scope of the agreement, Cash Biz waived its right to arbitration by substantially invoking the judicial process to their prejudice by filing criminal charges against them.

Cash Biz responds, as it did in the courts below, that it met its burden to prove the arbitration agreement encompasses the claims and that the Borrowers failed to meet their burden to prove it waived its right to arbitrate. Further, it contends that the Borrowers produced no evidence to prove they were actually prejudiced by any of its actions. Finally, Cash Biz asserts that the trial court erred by not enforcing the contractual waiver-of-class-action provision.

II. Law and Standard of Review

The Federal Arbitration Act (FAA) generally governs arbitration provisions in contracts involving interstate commerce. In re Rubiola , 334 S.W.3d 220, 223 (Tex. 2011) (citing 9 U.S.C. § 2 ). The loan contracts specifically provide that the arbitration provision at issue here is governed by the FAA, and neither party argues otherwise. Under the FAA, a presumption exists favoring agreements to arbitrate. In re FirstMerit Bank, N.A. , 52 S.W.3d 749, 753 (Tex. 2001). A party seeking to compel arbitration must establish the existence of a valid arbitration agreement and that the claims at issue fall within the scope of that agreement. Venture Cotton Coop. v. Freeman , 435 S.W.3d 222, 227 (Tex. 2014). If the party seeking to compel arbitration meets this burden, the burden then shifts, and to avoid arbitration, the party opposing it must prove an affirmative defense to the provision's enforcement, such as waiver. Id. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." In re Serv. Corp. Intern. , 85 S.W.3d 171, 174 (Tex. 2002) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ).

We review a trial court's order denying a motion to compel arbitration for abuse of discretion. In re Labatt Food Serv., L.P. , 279 S.W.3d 640, 642–43 (Tex. 2009). We defer to the trial court's factual determinations if they are supported by evidence but review its legal determinations de novo. Id. Whether the claims in dispute fall within the scope of a valid arbitration agreement and whether a party waived its right to arbitrate are questions of law, which are reviewed de novo. Id. ; Perry Homes v. Cull , 258 S.W.3d 580, 598 & n.102 (Tex. 2008).

III. Analysis

A. Are the Claims Within the Scope of the Arbitration Agreement?

The Borrowers assert that their claims are not within the scope of the arbitration provision because the claims relate solely to Cash Biz's illegal use of the criminal justice system. They also contend that all the damages claimed are based solely on criminal fines, jail time, and loss...