Cash Biz, LP v. Henry

539 S.W.3d 342

CASH BIZ, LP, Redwood Financial, LLC, Cash Zone, LLC dba Cash Biz, Appellants

v.Hiawatha HENRY, Addie Harris, Montray Norris, and Roosevelt Coleman Jr., et al., Appellees

No. 04-15-00469-CV

Court of Appeals of Texas, San Antonio.

Delivered and Filed: July 27, 2016

Review Granted June 23, 2017

Edward Hubbard, Patrick E. Gaas, Sumit Kumar Arora, Coats Rose Yale Ryman & Lee PC, 9 Greenway Plaza, Suite 1100, Houston, TX 77046, for Appellants.

Daniel Dutko, Hanszen Laporte, 11767 Katy Freeway, Suite 850, Houston, TX 77079, H. Mark Burck, Hanszen Laporte, Attorneys at Law, 11767 Katy Freeway, Suite 850, Houston, TX 77079, Philip A. Meyer, Hanszen Laporte, LLP, 11767 Katy Freeway, Suite 850, Houston, TX 77079, for Appellees.

Sitting: Karen Angelini, Justice, Rebeca C. Martinez, Justice, Jason Pulliam, Justice

MEMORANDUM OPINION

Opinion by: Jason Pulliam, Justice

INTRODUCTION

This appeal arises from the trial court's denial of a motion to compel arbitration and to enforce a class action waiver provision contained within loan documents between the Cash Biz appellants and its customers. The issues on appeal are: (1) whether the Plaintiff borrowing parties' alleged causes of action fall within the scope of the arbitration provision contained within the loan documents, and if so, (2) whether Cash Biz waived the right to enforce the arbitration provision because it substantially invoked the judicial process by filing criminal complaints against the borrowing parties. Dependent upon whether the arbitration provision applies, the parties also dispute whether the Plaintiff borrowing parties waived the ability to proceed through a class action.

We conclude the Plaintiff borrowing parties' causes of action fall within the scope of the parties' arbitration agreement, and Cash Biz's filing of a criminal complaint was not an act that substantially invoked the judicial process to constitute waiver of this agreement. We conclude the Plaintiff borrowing parties waived the right to bring a class action. Accordingly, we reverse the trial court's order denying Cash Biz's motion to compel arbitration and denying Cash Biz's motion to enforce the class action waiver provision. We render an order granting Cash Biz's motion. We remand for arbitration.

FACTUAL BACKGROUND

Cash Biz, LP, Redwood Financial, LLC, and Cash Zone, LLC d/b/a Cash Biz (collectively referred to as "Cash Biz") provide short-term consumer loans, also known as "payday loans." See TEX. FIN. CODE ANN. § 393.221 (defining a payday loan). As is normal practice with "payday loans", Cash Biz required all borrowers to provide a post-dated personal check in the amount of the loan plus the finance charge. As a general practice, if a borrower defaulted, Cash Biz deposited the post-dated check on the loan's due date in satisfaction of the loan.

Also as part of the process of obtaining the loan, borrowers signed written credit service agreements along with disclosure statements, promissory notes, and security agreements (collectively, "Loan Contracts"). Each written credit service agreement contained a provision entitled "Waiver of Jury Trial and Arbitration Provision" (hereinafter referred to as "arbitration provision"). This arbitration provision requires arbitration of any of the following "disputes":

the words "dispute and "disputes" are given the broadest possible meaning and include, without limitation

• (a) 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 ... arising from or relating directly or indirectly to this Agreement ..., any past and/or future claims or disputes between you and us and/or any Lender who provides you with a loan as a result of our services; ...

• (d) all common law claims, based upon contract, tort, fraud, or other intentional torts;

• (e) all claims based upon a violation of any state or federal constitution, statute, or regulation;

• (f) all claims asserted by us against you, including claims for money damages to collect any sum we claim you owe us; ...

• (g) all claims asserted by you individually against us ... including claims for money damages and/or equitable or injunctive relief; ...

• (i) all claims asserted by you as a private attorney general, as a representative and member of a class ... 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.

In addition, relevant to this appeal, the arbitration provision states:

You acknowledge and agree that by entering into this Arbitration Provision:

(a) YOU ARE GIVING UP YOUR RIGHT TO HAVE A TRIAL BY JURY TO RESOLVE ANY DISPUTE ALLEGED AGAINST US, THE LENDER AND/OR OUR/ITS RELATED THIRD PARTIES; ... and

(c) YOU ARE GIVING UP YOUR RIGHT TO SERVE AS A REPRESENTATIVE ... OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS IN ANY LAWSUIT FILED AGAINST US....

Finally, the arbitration provision contains a waiver of class action in arbitration provision, which states,

all disputes ... shall be resolved by binding arbitration only on an individual basis with you. THEREFORE, THE ARBITRATOR SHALL NOT CONDUCT CLASS ARBITRATION .... Notwithstanding any other provision herein to the contrary, the validity, effect, enforceability of this waiver of class action lawsuit and class-wide arbitration shall be determined solely by a court of competent jurisdiction and not by the arbitrator.

Hiawatha Henry, Addie Harris, Montray Norris, and Roosevelt Coleman, Jr. (the Borrowing Parties) obtained loans from Cash Biz and subsequently defaulted on their repayment obligations. Cash Biz attempted to deposit the post-dated checks written upon execution of the loan documents; however, the checks were declined based upon insufficient funds.

Cash Biz contacted the applicable local district attorneys and submitted information necessary to make a criminal complaint, stating these borrowers "engaged in criminal conduct during the formation and performance of the loan transactions, including the issuance of bad checks and check fraud." The district attorneys then filed criminal charges against each of the Borrowing Parties for violation of Texas Penal Code Section 32.41, which prohibits issuance of "bad checks". But see TEX. PENAL CODE ANN. § 32.41 (West Supp. 2015) (offense requires issuer's knowledge of insufficient funds at the time of issuance; knowledge may be presumed except for postdated check ).

The criminal charges against each of the Borrowing Parties were eventually dismissed; however, several of the Borrowing Parties were arrested and detained. In addition, other Cash Biz borrowers within the purported class faced criminal convictions for theft by check and were assessed jail time, restitution, and fines as punishment.

PROCEDURAL BACKGROUND

On January 30, 2015, the Borrowing Parties filed a class action petition on behalf of themselves and all others similarly situated in Texas,¹ alleging Cash Biz: (1) illegally and wrongfully used the criminal justice system to collect payday loans through the wrongful filing of criminal charges; (2) illegally and wrongfully threatened its customers with criminal prosecution for failure to repay payday loans in violation of the Texas Finance Code, Texas Penal Code, and Texas Constitution; and (3) illegally and wrongfully classified post-dated checks as bad checks and pursued criminal charges against its customers in violation of the Finance Code and Penal Code. The Borrowing Parties alleged Cash Biz engaged in the described conduct knowing it was in violation of the law.²

Based upon these allegations, the Borrowing Parties pled specific causes of action of malicious prosecution, fraud, violation of the DTPA, and violation of Finance Code Section 393.301. Cash Biz filed a motion to compel arbitration under the Loan Contracts and to enforce the class action waiver provision within the arbitration provision. Cash Biz requested that the trial court compel individual arbitration with each Plaintiff and stay the action pending completion of the individual arbitrations.

At the conclusion of the hearing on the motion, the trial court denied Cash Biz's motion to compel and enforce the arbitration and class action waiver provisions and signed a written order finding:

(1) the plaintiffs' claims "relate solely to Cash Biz's illegal use of the criminal justice system to enforce a civil debt";

(2) the challenged conduct occurred after the expiration of any contracts entered into by the Borrowing Parties; and

(3) all of the damages are "solely related to criminal fines, jail time, and loss of reputation related to plaintiffs' criminal convictions."

Based on these findings, the trial court concluded the arbitration provision and class action waiver within the Loan Contracts are "not applicable" to the type of action brought by the Borrowing Parties. In addition, the trial court concluded Cash Biz waived its right to arbitration by substantially invoking the judicial process when it "filed criminal charges against Plaintiffs, participated in criminal trials, obtained criminal judgments, and attempted to collect from Plaintiffs." Cash Biz perfected this interlocutory appeal pursuant to Texas Civil Practice and Remedies Code Sections 51.016 and 171.098.

ANALYSIS

Burden of Proof to Compel Arbitration

A party seeking to compel arbitration bears the burden to establish (1) the existence of a valid agreement to arbitrate; and (2) the claims in dispute fall within the scope of the arbitration agreement. In re Rubiola , 334 S.W.3d 220, 223 (Tex. 2011) ; J.M. Davidson v. Webster , 128 S.W.3d 223, 227 (Tex. 2003). If the party seeking arbitration meets its two-pronged burden to establish the agreement's validity and scope, the burden shifts to the party opposing arbitration to raise an...