As we have said in the past, determining when a party waives its right to arbitrate is never easy and the nuanced standards vary among the circuits. Now a case that has come to the U.S. Court of Appeals for the Fifth Circuit a second time confirms our belief. The Fifth Circuit opinion in Forby v. One Technologies, L.P. (No. 20-10088, decided Sept. 14, 2021) (Forby II), arises from a class action asserting that One Technologies, L.P. (One Tech), deceived customers into signing up for purportedly “free” credit reports that weren’t. In the first Forby decision, reported at 909 F. 3d 780, 784 (5th Cir. 2018) (Forby I), the appellate court ruled that One Tech waived its ability to arbitrate plaintiffs’ state law claims when it filed a motion to dismiss rather than seeking arbitration. See our Dec. 4, 2018 blog article on the Forby I decision.
The Forby I panel declared, “One Tech was fully aware of its right to compel arbitration when it filed its 12(b)(6) motion to dismiss, it pursued and partially obtained a dismissal with prejudice, showing a desire to resolve the dispute in litigation rather than arbitration.”
The Fifth Circuit then vacated the order requiring arbitration and remanded the case to the lower court. Once there, Forby was given leave to file a second amended complaint – this time with a federal claim under the Credit Repair Organizations Act (CROA), 15 U.S.C. § 1679 et seq., a consumer protection law. As might be expected, One Tech filed a second motion to compel arbitration. But the district court denied the motion, finding Forby’s second amended complaint “d[id] not alter the scope or theory of the underlying litigation in an unforeseeable way.” Indeed, the CROA claim “turned ‘on the same core of operative facts’” as the state law claim. And the putative class was not increased by adding the CROA claim.
One Tech again appealed, raising only one argument – that the waiver considered in Forby I did not include federal claims first asserted in the second amended complaint. The Fifth Circuit in Forby II agreed. Step one of the waiver analysis requires that “a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate.” See Subway Equip. Leasing Corp. v. Forte, 169 F. 3d 324, 328 (5th Cir. 1999). One Tech did not attempt to litigate Forby’s CROA claim. Indeed, the prior motion to dismiss “did not (and, indeed, could not) include the CROA claim. Forby raised the CROA claim only after we remanded and after the district court permitted her to amend her complaint.” The waiver of the right to arbitrate is “claim specific” and does not extend to federal CROA claims, which “were not even part of the lawsuit at the time of the waiver.” The panel in Forby II declined to follow the definition of a “claim” as arising from the “same nucleus of operative facts” as referred to in the unpublished Sabatelli v. Baylor Scott & White Health decision, 832 F. App’x 843, 849 (5th Cir. 2020) (per curium). We blogged about the Sabatelli decision on Oct. 28, 2020.
The panel, however, found the Eleventh Circuit’s decision in Collado v. J&G Transportation, 820 F. 3d 1256 (11th Cir. 2016), “instructive.” In Collado, the plaintiff first brought a Fair Labor Standards Act (FLSA) claim, but before trial filed an amended complaint with state law claims. While the defendant in Collado agreed it waived the right to arbitrate the FLSA claim, it asserted that arbitration of the state claim was still possible.
The Eleventh Circuit agreed. It found that a defendant did not waive its right to arbitrate state law claims raised in an amended complaint as “those claims were not in the case when it waived by litigation the right to arbitrate the FLSA claims.”
The Forby II case was the “flip side of Collado,” where waiver of original federal claims did not apply to newly pled state claims. And in Forby II, waiver of the original state claims did not apply to federal claims made in an amended complaint. (emphasis added) The waiver of arbitral rights is “claim specific.” And while Forby II did not involve employment-related claims, its analysis of the waiver issue is instructive.
A defendant does not waive its right to arbitrate claims made in an amended complaint when they were not in the case when the original waiver took place.