Fifth Circuit Holds Waiver of Right to Arbitrate is Claim Specific | Goodwin
On September 14, 2021, the United States Court of Appeals for the Fifth Circuit tenuous that One Technologies, LP (One Tech) did not waive its right to seek arbitration of the plaintiff’s federal claim under the Credit Repair Organizations Act (CROA), even though One Tech had previously waived its right to arbitrate claims of claimant state law on the basis of the same underlying conduct. The grounds for the claims in state and federal law are that One Tech “tricked consumers into signing ‘free’ credit reports that weren’t really free.”
The plaintiff’s initial complaint was filed in state court and included only state law claims for violating an Illinois consumer protection and unjust enrichment law. She alleged that she signed up for a supposedly free credit report on Scoresense.com, but later discovered several monthly fees of $ 29.95. The website asked her to check a box stating that she agreed to the Terms of Service and wrote to her that she would be billed a monthly fee after the free trial expired and that any complaints or any dispute would be resolved by binding arbitration in Dallas, Texas.
One Tech withdrew the original complaint and then decided to dismiss, which was granted in part and denied in part. It was only after obtaining a partial dismissal that One Tech decided to force arbitration. The district court allowed the petition, but the Fifth Circuit reversed, finding that One Tech had waived its right to demand arbitration by continuing the dismissal petition. While in pre-trial detention, the plaintiff was granted leave to file an amended complaint, which added the new claim under federal law for CROA violation.
Faced for the first time with a federal lawsuit, One Tech again requested forced arbitration, arguing that it could not have waived its right to arbitrate the claim under federal law which did not make the claim. subject of his motion to dismiss. The district court dismissed the petition, finding that although the amended complaint involved a new claim under federal law, it “did not alter the scope of the underlying litigation theory in an unforeseeable manner.” . One Tech appealed.
This time, the fifth circuit sided with One Tech. The court found that although One Tech had “substantially invoked legal process” regarding the state law claims in requesting the dismissal, it had not done so with respect to the federal law claim. The Court thus clarified that the waiver of a contractual right of arbitration is “specific to the claim”, so that “the waiver of state claims initially invoked does not extend to federal claims subsequently invoked”.