Hooper v. Advance America, Cash Advance Centers, Mo

• Decision Date: 16 December 2009
• Docket Number: No. 08-3252.,08-3252.
• Citation: 589 F.3d 917
• Parties: Trishia HOOPER; Josephine Vaughan, Appellees, v. ADVANCE AMERICA, CASH ADVANCE CENTERS OF MISSOURI, INC., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

589 F.3d 917

Trishia HOOPER; Josephine Vaughan, Appellees, v. ADVANCE AMERICA, CASH ADVANCE CENTERS OF MISSOURI, INC., Appellant.

No. 08-3252.

United States Court of Appeals, Eighth Circuit.

Submitted: October 22, 2009.

Filed: December 16, 2009.

Lewis S. Wiener, argued, Washington, DC, G. Brendan Ballard, Washington, D.C., Kurt D. Williams, Timothy R. West, on the brief, Kansas City, MO, for appellant.

John E. Campbell, argued, Erich Vieth, on the brief, St. Louis, MO, for appellee.

Before RILEY, BENTON, and SHEPHERD, Circuit Judges.

RILEY, Circuit Judge.

Litigation or arbitration? Patricia Hooper (Hooper)¹ and Josephine Vaughan (collectively, Plaintiffs) want to litigate a class action against their payday lender, Advance America, Cash Advance Centers of Missouri, Inc. (Advance America), in federal court. Advance America, invoking a clause in Plaintiffs' loans, wants to stay all litigation and compel Plaintiffs to binding arbitration. The district court² held Advance America waived its right to arbitration when it filed an extensive motion to dismiss. We affirm.

I. BACKGROUND

Plaintiffs and Advance America entered into a series of payday loan agreements.³ Each agreement contains a mandatory arbitration clause.

On March 10, 2008, Plaintiffs filed a seven-count, putative class-action complaint against Advance America. In Count I, Plaintiffs asked the district court to declare the loan agreements' arbitration clauses unconscionable and unenforceable under Missouri's Declaratory Judgment Act, Mo.Rev.Stat. § 527.010. In Counts II through VII, Plaintiffs alleged Advance America violated various provisions of Missouri's Merchandising Practices Act (MPA), Mo.Rev.Stat. §§ 407.010-407.1132, and payday loan law, Mo.Rev.Stat. §§ 408.500, 408.505, and 408.562. Plaintiffs complained Advance America was engaged in unfair, deceptive, and illegal lending practices to the detriment of its Missouri borrowers.

On April 30, 2008, Advance America moved to dismiss Plaintiffs' complaint. Advance America sought dismissal of Count I for want of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1), and Counts II through VII for failure to state a claim upon which relief could be granted, pursuant to Fed.R.Civ.P. 12(b)(6). In the last sentence of its brief, Advance America purported to "reserve[] the right" to enforce the arbitration clauses in Plaintiffs' loan agreements, if the court denied its motion to dismiss.

Plaintiffs resisted Advance America's motion. Although the merits of the parties' arguments are largely irrelevant for present purposes, it bears mention that Advance America's motion was extensive and required the district court to navigate through uncharted territory in Missouri's consumer protection laws. As the district court would later observe, "[t]here is a dearth of case law on the issues" Advance America raised in its motion to dismiss.

On July 15, 2008, the district court granted in part and denied in part Advance America's motion to dismiss. The court dismissed Count I for lack of subject matter jurisdiction, but granted Plaintiffs leave to amend their complaint to assert an analogous claim under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201. The court further dismissed Count VII as surplusage, but declined to dismiss Counts II through VI. The district court held Advance America had not shown Counts II through VI failed to state claims upon which relief could be granted. Plaintiffs later amended their complaint to comply with the district court's order.

On August 1, 2008, Advance America filed a motion to stay litigation and compel arbitration (motion for arbitration). Plaintiffs filed a resistance in which they argued Advance America had waived its right to arbitration. Plaintiffs recalled Advance America had filed a motion to dismiss and the parties had made initial discovery disclosures.⁴

The district court denied Advance America's motion for arbitration. Applying the tripartite test set forth in Dumont v. Saskatchewan Gov't Ins., 258 F.3d 880 (8th Cir.2001) and other cases, the district court found Advance America waived its right to arbitration because Plaintiffs had shown Advance America (1) knew it had a right to arbitration, (2) acted inconsistently with such right, and (3) prejudiced Plaintiffs. See id. at 886; Ritzel Commc'ns, Inc. v. Mid-Am. Cellular Tel. Co., 989 F.2d 966, 969 (8th Cir.1993); Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir.1991). Advance America appeals.

II. DISCUSSION

A. Jurisdiction

The district court had subject matter jurisdiction over this putative class action because the amount in controversy exceeds $5,000,000, exclusive of interest and costs, and Plaintiffs are citizens of Missouri and Advance America is a Delaware corporation with its principal place of business in South Carolina. See 28 U.S.C. § 1332(d)(2)(A). Cf. Johnson v. Advance Am., 549 F.3d 932, 935-38 (4th Cir.2008) (holding district court lacked jurisdiction under 28 U.S.C. § 1332(d)(2)(A) absent minimal diversity between the parties). The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-307, grants us jurisdiction over Advance America's interlocutory appeal. See 9 U.S.C. § 16(a)(1); Indus. Wire Prods., Inc. v. Costco Wholesale Corp., 576 F.3d 516, 518 (8th Cir.2009) (declaring "[a]n order denying a motion to compel arbitration is immediately appealable under the [FAA]").

B. Standard of Review

"We review de novo the legal determination of waiver but examine the factual findings underlying that ruling for clear error." Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1090 (8th Cir.2007) (citations omitted). "`[I]n light of the strong federal policy in favor of arbitration, any doubts concerning waiver of arbitrability should be resolved in favor of arbitration.'" Id. (quoting Dumont, 258 F.3d at 886).

C. Analysis

As the district court correctly observed, we routinely apply a tripartite test to determine whether a party has waived its right to arbitration. We find waiver when the party "(1) knew of its existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by its inconsistent actions." Dumont, 258 F.3d at 886 (citing Ritzel, 989 F.2d at 969). We now apply this test to the record before us.

1. Knowledge

Advance America does not squarely dispute the district court's finding that Advance America knew of its right to arbitration when Advance America filed its motion to dismiss.⁵ In any event, we find no reason to disturb the district court's finding. Plaintiffs attached the arbitration clauses to their complaint. Advance America drafted the arbitration clauses and discussed them in its motion to dismiss.

2. Inconsistent Action

The district court found Advance America acted inconsistently with its right to arbitration when it filed its motion to dismiss before its motion for arbitration. The district court noted the motion to dismiss was extensive and asked for judgment on the merits of Plaintiffs' claims, concluding Advance America "substantially invoked litigation machinery" before filing its motion for arbitration.

Advance America argues the district court erred in finding Advance America substantially invoked the litigation machinery and acted inconsistently with its right to arbitration. Advance America emphasizes (1) Plaintiffs—not Advance America—initiated this litigation; (2) only three months elapsed between the filing of Advance America's motion to dismiss and its motion for arbitration; (3) Advance America filed its motion for arbitration ten days after Plaintiffs amended their complaint; and (4) the parties did not engage in discovery or participate in any hearings.

"A party acts inconsistently with its right to arbitrate if the party `substantially invokes the litigation machinery before asserting its arbitration right.'" Lewallen, 487 F.3d at 1090 (quoting Ritzel, 989 F.2d at 969). We agree with the district court. Advance America's motion to dismiss was extensive and exhaustive, and substantially invoked the litigation machinery. Advance America drew the district court's attention to multiple matters of first impression, asserted Plaintiffs failed to state claims upon which relief could be granted, and encouraged the district court to resolve the parties' entire dispute in Advance America's favor. See, e.g., id. at 1092 (holding a motion to dismiss for failure to state a claim, arguing the merits, substantially invoked the litigation machinery); Kelly v. Golden, 352 F.3d 344, 349-50 (8th Cir. 2003) (affirming district court's finding of waiver in part because the party asserting the right to arbitration had "consistently encouraged the district court to resolve the entire dispute"); Ritzel, 989 F.2d at 969 (stating the motion to dismiss for failure to state a claim "represent[ed] a substantial, active invocation of the litigation process" and supported a finding of waiver). In other words, Advance America sought a final decision from the district court upon the merits of the parties' dispute, see Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 399 n. 3, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (noting a "dismissal for failure to state a claim" under Rule 12(b)(6) is a "judgment on the merits" (internal marks omitted)), even though a request to dispose of a case on the merits before reaching arbitration "is inconsistent with resolving the case through arbitration." Lewallen, 487 F.3d at 1092 (citation omitted); see also Petrol. Pipe Ams. Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir.2009) ("A party waives arbitration by seeking a decision on the merits before attempting to arbitrate.") (citation omitted); St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 589 (7th Cir.1992) ("Submitting a case to the district court for decision is not consistent with a desire to arbitrate.").

Not every motion to dismiss is inconsistent with the right to...