Forby v. One Technologies LP et al

Filing 69

MEMORANDUM OPINION AND ORDER granting 52 Motion to Compel, Motion to Dismiss filed by One Technologies Management LLC, One Technologies Capital LLP, One Technologies LP. Plaintiff's ICFA claim must be submitted to arbitration in accordance with the Terms and Conditions of the Agreement to arbitrate. As all claims are subject to arbitration, the court dismisses with prejudice this action. (Ordered by Judge Sam A Lindsay on 7/10/2017) (epm)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
VICKIE FORBY, individually and on
behalf of all others similarly situated,
Plaintiff,
v.
ONE TECHNOLOGIES, LP; ONE
TECHNOLOGIES MANAGEMENT
LLC; and ONE TECHNOLOGIES
CAPITAL LLP,
Defendants.

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Civil Action No. 3:16-CV-856-L

MEMORANDUM OPINION AND ORDER
Before the court is Defendants’ Motion to Compel Arbitration and Dismiss the Case (Doc.
52), filed April 17, 2017. After careful review of the motion, record, and applicable law, the court
grants Defendants’ Motion to Compel Arbitration and Dismiss the Case, and dismisses with
prejudice this action.
I.

Factual and Procedural Background
On April 24, 2015, Plaintiff Vickie Forby (“Plaintiff” or “Forby”) filed a class action

complaint in Illinois state court against One Technologies, LP; One Technologies Management
LLC; and One Technologies Capital LLP (collectively, “Defendants”), alleging claims for
violations of the Illinois Consumer Fraud Act (“ICFA”) and unjust enrichment. Specifically,
Plaintiff contends that Defendants’ website leads consumers to believe they are signing up for a
free credit report; however, once consumers sign up, they are enrolled in a credit monitoring
service that costs $29.95 per month.

Memorandum Opinion and Order – Page 1

On July 14, 2015, this action was removed to the Southern District of Illinois pursuant to
28 U.S.C. § 1332(d) and 28 U.S.C. § 1441(a). On July 21, 2015, Defendants moved to dismiss or
transfer the case. In its motion, Defendants contended that the parties entered into a valid contract
that requires their dispute to be resolved by arbitration in Dallas, Texas. Defendants contended
that pursuant to Seventh Circuit precedent the court could not compel arbitration outside of its
district. Defendants, therefore, requested that the court dismiss the action pursuant to the doctrine
of forum non conveniens, or transfer the action to the Northern District of Texas pursuant to 28
U.S.C. § 1404(a). In the alternative, Defendants requested that the court dismiss with prejudice
the action pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon
which relief can be granted. On March 25, 2016, Judge David R. Herndon issued a memorandum
and order that transferred this action to the Northern District of Texas pursuant to 28 U.S.C. §
1404(a).
On May 9, 2016, Defendants moved to dismiss all of Plaintiff’s claims under Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. On March
31, 2017, the court denied the motion with respect to Plaintiff’s ICFA claim; granted the motion
with respect to Plaintiff’s unjust enrichment claim; and dismissed with prejudice Plaintiff’s unjust
enrichment claim. On April 17, 2017, almost thirteen months after the case was transferred to the
Northern District of Texas, Defendants moved to compel arbitration and dismiss with prejudice
this case. Defendants also simultaneously moved to stay the proceeding and for a protective order
regarding discovery pending resolutions of the motion to compel. On April 24, 2017, the court
held a telephonic hearing and granted Defendants’ expedited motion to stay the proceedings and
issued a protective order. On May 8, 2017, Plaintiff filed her response to Defendants’ Motion to

Memorandum Opinion and Order – Page 2

Compel Arbitration and Dismiss the Case. On May 22, 2017, Defendants filed their reply to
Plaintiff’s response.
II.

Applicable Law
The Federal Arbitration Act (“FAA”) “embodies the national policy favoring arbitration.”

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006); Neal v. Hardee’s Food Sys.,
Inc., 918 F.2d 34, 37 (5th Cir. 1990). In deciding whether to grant a motion to compel arbitration,
the court first considers whether the parties agreed to arbitrate the dispute at issue. See Webb v.
Instacorp., Inc., 89 F.3d 252, 258 (5th Cir. 1996) (per curiam). The court next determines whether
there are any legal restraints external to the agreement that would foreclose arbitration of the
dispute. See OPE Int’l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445-46 (5th Cir.
2001) (per curiam). There is a strong presumption against a finding that a party waived arbitration,
and the party contending that the right to arbitration has been waived bears a heavy burden. Al
Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416, 422 (5th Cir. 2014) (quoting Republic Ins. Co.
v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004)).
“Under this circuit’s precedent, a party waives its right to arbitrate if it (1) ‘substantially
invokes the judicial process’ and (2) thereby causes ‘detriment or prejudice’ to the other party.”
Id. (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986)). To
invoke the judicial process, “the party seeking arbitration must have taken acts in the lawsuit
sufficient to ‘demonstrate[ ] a desire to resolve the arbitrable dispute through litigation rather than
arbitration.’” Pacheco v. PCM Const. Servs., L.L.C., 602 F. App’x 945, 948 (5th Cir. 2015)
(alteration in original) (quoting Republic Ins. Co., 383 F.3d at 345).

Memorandum Opinion and Order – Page 3

Invocation of the judicial process alone does not constitute waiver. Republic Ins. Co., 383
F.3d at 346. There must also be prejudice to the party opposing arbitration. Id. Prejudice in this
context refers to “inherent unfairness in terms of delay, expense, or damage to a party’s legal
position that occurs when the party’s opponent forces it to litigate an issue and later seeks to
arbitrate that same issue.” Id. (citation omitted). Delay alone is insufficient to establish waiver of
the right to arbitration. Walker v. J.C Bradford & Co., 938 F.2d 575, 578 (5th Cir. 1991) (“The
mere failure to assert [timely] the right of arbitration does not alone translate into a waiver of that
right.”). Delay does, however, “bear on the question of prejudice, and may, along with other
considerations, require a court to conclude that waiver has occurred.” Id. “Once a defendant has
put the plaintiff on notice of its intent to demand arbitration, the plaintiff’s burden of showing
waiver by subsequent acts of the defendant is heavier.” Pacheco v. PCM Const. Servs., L.L.C.,
602 F. App’x 945, 948 (5th Cir. 2015) (citing Keytrade USA, Inc. v. Ain Temouchent M/V, 404
F.3d 891, 897 (5th Cir.2005)). “Waiver of an arbitration right will not be lightly inferred without
some showing of prejudice” and “plaintiffs’ failure to bring forth more than generalized
protestations about the costs of delay are insufficient to overcome the strong federal presumption
in favor of arbitration.” Walker, 938 F.2d at 578.
III.

Discussion
Defendants move to compel arbitration of the parties’ dispute and dismiss this action.

Defendants contend that the arbitrator should determine the enforceability of the arbitration clause,
not the courts. Further, Defendants contend that even if the court decides the enforceability of the
arbitration provision, the court ought to compel arbitration, as a valid arbitration provision exists
and the dispute falls within the scope of that provision. Plaintiff counters that Defendants have
waived their right to arbitration by invoking the jurisdiction of the courts, which has caused
Memorandum Opinion and Order – Page 4

Plaintiff to suffer prejudice. The court will first address Defendants’ argument regarding the
enforceability of the arbitration clause, and then it will discuss whether the Defendants have
waived their right to arbitration.
A.

Enforceability of the Arbitration Provision

Plaintiff fails to respond to Defendants arguments regarding the enforceability of the
arbitration provision. Plaintiff, therefore, does not dispute that she assented to the Terms and
Conditions on the Defendants’ website, which contained the arbitration provision at issue.
Accordingly, there does not appear to be any dispute over the existence of a valid arbitration clause
or whether the parties’ dispute falls within that clause. As this issue is not in dispute, it is no longer
before the court, and there is no reason for the court to address enforceability.
B.

Waiver of the Right to Arbitrate
1.

Invocation of the Judicial Process

Forby contends that Defendants waived their arbitration right by substantially invoking the
judicial process. To support her argument, Forby compares this case to In Re Mirant Corp., 613
F.3d 584 (5th Cir. 2010). In Mirant, the court determined that the defendants invoked the
jurisdiction of the court by “filing multiple motions to dismiss, seeking and partially obtaining a
dismissal with prejudice, and waiting eighteen months before invoking arbitration.” Mirant, 613
F.3d at 588. The Mirant court stated that defendants’ “request for a dismissal with prejudice
reinforce[d] [the court’s] conclusion that it sought a decision on the merits in [the] case,” because
“[a] dismissal with prejudice for failure to state a claim is a decision on the merits and essentially
ends the plaintiff’s lawsuit.” Id. at 589 (internal quotation omitted). Plaintiff contends that, similar
to the defendants in Mirant, “Defendants sought to adjudicate the merits of Plaintiff’s claims by
filing a stand-alone 12(b)(6) motion to dismiss with prejudice,” and they waited to move to compel
Memorandum Opinion and Order – Page 5

arbitration until after the court ruled on the motion to dismiss. Pl.’s Resp. to Mot. to Compel Arb.
7-8 (hereinafter, “Pl.’s Resp.”).
Defendants counter that they have not substantially invoked the judicial process, and even
if they did, Forby has failed to establish any resulting prejudice. Defendants contend that Forby
has failed to meet the heavy burden placed on her to demonstrate Defendants’ waiver of arbitration.
Defendants contend that “simply fil[ing] a defensive or ‘perfunctory’ motion to dismiss” is not a
substantial invocation of the judicial process. Defs.’ Reply to Mot. to Compel Arb. 2 (hereinafter,
“Defs.’ Reply”). Defendants contend that other cases have had “more participation in the judicial
process than has occurred here and still not found waiver of the right to arbitrate.” Id. Defendants
further support their contention by distinguishing the facts of the present case from the primary
authority Forby relies on, Mirant. Defendant contends that Mirant is not applicable, as the
defendants in that case filed affirmative defenses in their motion to dismiss.
The court determines that Defendants have invoked the jurisdiction of the court “by seeking
a decision on the merits before attempting to arbitrate.” Mirant, 613 F.3d at 589. Defendants did
not file a perfunctory motion to dismiss, as their motion to dismiss did not involve a procedural or
routine matter. 1 Instead, Defendants motion argued that Plaintiff’s claims ought to be dismissed
with prejudice, because, as a matter of law, the webpage was not fraudulent. Defendants’ 12(b)(6)
motion to dismiss, therefore, was not perfunctory, as it sought a ruling on the merits that could
have led to the court dismissing with prejudice this action. Moreover, Defendants also invoked
the jurisdiction of the court by waiting until after the court ruled on the motion to dismiss to compel
arbitration. The case was transferred to the Northern District of Texas, which could have

1

Perfunctory is defined as “characterized by routine or superficiality : MECHANICAL.” Merriam-Webster’s Collegiate
Dictionary 920 (11th ed. 2014).
Memorandum Opinion and Order – Page 6

immediately enforced the parties’ arbitration clause upon transfer. Instead of moving to compel
arbitration, Defendants moved to dismiss the action with prejudice for failure to state a claim upon
which relief can be granted. Unlike the motion to dismiss filed in Illinois pursuant to the forum
non conveniens doctrine, the motion to dismiss that Defendants filed in this court sought a ruling
on the merits and did not move to compel arbitration. Moreover, Defendants did not seek
arbitration until April 17, 2017, almost thirteen months after the action was transferred to this
district.
Accordingly, the court determines that Defendants substantially invoked the judicial
process by: (1) filing a substantive motion to dismiss; (2) seeking and partially obtaining dismissal
with prejudice of Plaintiff’s claims; (3) waiting until after the court’s ruling on the motion to
dismiss to compel arbitration; and (4) waiting almost thirteen months after the transfer of this case
to compel arbitration. 2
2.

Prejudice to Plaintiff

Forby contends Defendants’ actions were to her detriment because she has been prejudiced
by the delay, expenses, and damage to her legal position. Forby contends that delay has occurred,
as Defendants waited almost thirteen months after the case was transferred to this court to compel
arbitration. Further, Forby contends that by “[p]ermitting a defendant to compel arbitration after
it strategically seeks a ruling that would greatly exceed any relief ultimately available in arbitration
would permit Defendants [] to ‘test the waters’ in federal courts and keep a potentially less risky

2

At some point the deference that district courts are required to take becomes a mockery. This court does not believe
that deference goes so far as to require the court to take an unreasonable or sycophantic position. To hold that
Defendants have not invoked the judicial process in this case “encourage[s] litigants to delay moving to compel
arbitration until they [can] ascertain ‘how the case [is] going in federal district court.” Mirant, 613 F.3d at 590 (quoting
Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc, 589 F.3d 917, 922 (8th Cir. 2009)). A party should not be
allowed to “play ‘heads I win, tails you lose,’ which is the worst possible reason for failing to move for arbitration
sooner than it did.” Id. (citation omitted).

Memorandum Opinion and Order – Page 7

arbitration proceeding in reserve, as needed.” Pl.’s Resp. 10. Forby also contends that if
arbitration is granted, she would lose the benefits of the time and expense spent opposing the Rule
12(b)(6) motion, as well as her legal position because the proceedings would essentially begin
anew. Further, Forby contends that “Defendants are blatantly trying to game the system and stack
the deck against her.” Pl.’s Resp. 12. Finally, Forby contends Defendants have waived the right
to invoke arbitration because the facts of this case indicate that Forby would suffer prejudice if the
court compelled arbitration.
Defendants counter that Forby failed to establish the three important factors relevant to
determine prejudice: “(1) whether discovery occurred relating to arbitrable claims; (2) the time
and expense incurred in defending against a motion for summary judgment; and (3) a party’s
failure to timely assert its right to arbitrate.” Defs.’ Reply 7-8. Defendants contend discovery has
not occurred here. Defendants assert that “Forby’s unilateral decision to serve expansive discovery
requests on [Defendants] hours before the parties’ Rule 26(f) conference [could not] have
prejudiced her[,]” and as such, this factor is absent. Defs.’ Reply 10, n.8. Defendants also contend
Forby failed to show prejudice because she had knowledge of Defendants’ plan to arbitrate since
they expressed that intention in their initial motion to dismiss, which was filed in the Southern
District of Illinois. Further, Defendants contend Forby, not Defendants, caused the delay because
she filed this matter in the wrong venue. Defendants also contend that Forby’s “‘skeletal
allegations of expense’” are insufficient to demonstrate prejudice. Defs.’ Reply 14. Finally,
Defendants contend they will not seek to relitigate the sufficiency of Forby’s remaining claim in
arbitration, if granted, and, therefore, Forby has not been prejudiced by the loss of a “defective
claim.” Defs.’ Reply 15.

Memorandum Opinion and Order – Page 8

While the court agrees that Forby has suffered some prejudice, the court determines that
she has not suffered prejudice to the extent required by existing precedent and Fifth Circuit
authority. The only prejudice that Forby has adequately demonstrated is delay, and delay alone is
insufficient to establish that Forby has been prejudiced by Defendants’ invocation of the judicial
process. Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 F. App’x 462, 465 (5th Cir.
2004) (“Delay by itself ‘falls far short’ of establishing a waiver.”) (quoting Texaco Exploration &
Prod. Co. v. AmClyde Engineered Prods. Co., 243 F.3d 906, 912 (5th Cir. 2001)).
With respect to delay, the court disagrees with Defendants’ argument that the delay was
caused by Forby, as Defendants waited almost thirteen months after the case was transferred to
this court to move to compel arbitration.

Moreover, the court disagrees with Defendants’

contention that Plaintiff was on notice of their intention to compel arbitration. Defendants’
motions to dismiss, which was based on an arbitration provision, was filed in Illinois in July 2015,
and when Defendants filed their motion to dismiss in this court in May 2016, they did not assert
arbitration as a basis to dismiss. As their May 2016 motion to dismiss sought dismissal with
prejudice on all of Plaintiff’s claims, it is reasonable that Plaintiff would not have notice of
Defendants intention to compel arbitration. As Defendants did not refer to arbitration or include
it as a basis to dismiss, a reasonable person could conclude that Defendants were no longer seeking
arbitration. See Mirant, 613 F.3d at 587-88, 91 (noting that an oblique reference that a party was
reserving its right to arbitrate in a footnote was insufficient to preserve the arbitral process.).
Defendants “cannot keep [their] right to demand arbitration in reserve indefinitely while it pursues
a decision on the merits before the district court.” Id. at 591. Delay is the only prejudice Plaintiff
has established.

Memorandum Opinion and Order – Page 9

Forby fails to establish prejudice to her legal position, as she primarily relies on conclusory
statements to support her position. While Forby contends that her “full legal strategy and legal
position were revealed through her response to Defendants’ 12(b)(6) motion,” she does not set
forth the basis for this argument. Forby’s contention she was still “prejudiced by Defendants’
actions because the court dismissed one of her claims with prejudice[,]” is incorrect, as her unjust
enrichment claim was not arbitratable since it was barred by law. Pl.’s Resp. 12, n.5. Martis v.
Perkin Mem’l Hosp. Inc., 917 N.E.2d 598, 606 (2009) (“Where there is an express contract that
governs the relationship of the parties, the doctrine of unjust enrichment has no application.”).
Moreover, Forby cites to Mirant as authority to support her argument that she suffered prejudice
to her legal position from the exposure of her legal strategy. The court disagrees. As a preliminary
matter, this case is easily distinguishable from Mirant, as in that case, the plaintiff suffered
significantly more prejudice in responding to the defendant’s motion to dismiss. The court in
Mirant determined the plaintiff suffered prejudice to its legal position because it “gave [defendant]
a full preview of [plaintiff’s] evidence and litigation strategy, particularly its arguments and
evidence in response to [defendant’s] affirmative defenses.” 613 F.3d at 592. In her Response in
Opposition to Defendants’ Rule 12(b)(6) Motion to Dismiss on her ICFA claim, Forby simply
pointed out that questions of fact existed and that Defendants’ authorities were distinguishable.
Pl.’s Resp. to Mot. to Dismiss. 7-14. As such, the court cannot determine that Forby suffered
prejudice to her legal position.
With respect to legal expenses, the court cannot determine whether Forby incurred
significant legal expenses, as she does not state the costs that she incurred while responding to
Defendants’ Motion to Dismiss. While Forby has demonstrated prejudice from Defendants’ delay
in seeking to compel arbitration, she has failed to demonstrate prejudice to her legal position and
Memorandum Opinion and Order – Page 10

that she expended significant legal expenses. Since the Fifth Circuit has made clear that delay
alone is insufficient to demonstrate the necessary prejudice, the court cannot conclude that
Defendants have waived their right to compel arbitration.
IV.

Conclusion
For the reasons stated herein, the court determines that Plaintiff has not satisfied both

requirements for waiver, and her waiver argument fails; and the court concludes that Defendants
have not waived their right to arbitrate. Accordingly, the court grants the Defendants’ Motion to
Compel Arbitration and Dismiss the Case. Plaintiff’s ICFA claim must be submitted to arbitration
in accordance with the Terms and Conditions of the Agreement to arbitrate. As all claims are
subject to arbitration, the court dismisses with prejudice this action. Alford v. Dean Witter
Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
It is so ordered this 10th day of July, 2017.

_________________________________
Sam A. Lindsay
United States District Judge

Memorandum Opinion and Order – Page 11