Forby v. One Technologies, L.P., No. 17-10883 (5th Cir. Nov. 28, 2018) [click for opinion]

On April 24, 2015, Vickie Forby filed a class action in state court in Illinois against One Technologies, L.P. (“One Tech”) for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA“). The case was later removed to the United States District Court for the Southern District of Illinois. In the notice of removal, One Tech did not reference arbitration, but rather, that the claims were baseless and no class should be certified.

A few months later, One Tech filed a motion to dismiss for failure to state a claim, and in the alternative, to transfer the case for forum non conveniens, arguing that the claims were subject to arbitration in Texas. On March 25, 2016, the case was transferred to the Northern District of Texas. Subsequently, One Tech filed a motion to dismiss but made no mention of arbitration in the motion or its reply. The motion to dismiss was granted in part and denied in part.

After attending a discovery conference, on April 17, 2017, One Tech finally filed a motion to compel arbitration and stay all discovery pending resolution. The district court granted One Tech’s motion to compel arbitration and dismissed the case with prejudice. The district court determined that although One Tech had substantially invoked the judicial process, Forby had not suffered sufficient prejudice, to the extent required by the Fifth Circuit, to deny the motion to compel arbitration. Specifically, the district court stated that the only prejudice demonstrated was delay, and delay alone was insufficient.

Forby appealed the district court’s decision. On appeal, the court agreed that One Tech had substantially invoked the judicial process. One Tech was fully aware of its right to compel arbitration when it filed its motion to dismiss, invoking its right to arbitration as the reason it sought to transfer the case from Illinois to Texas. Nonetheless, once in Texas, One Tech did not move to compel arbitration, even in the alternative in its motion to dismiss. Instead it sought a decision on the merits—a dismissal with prejudice for failure to state a claim—demonstrating One Tech’s desire to resolve the dispute in litigation and not arbitration.

The court also determined that Forby had established prejudice to her legal position. One Tech’s motion to dismiss was not confined to technical pleading deficiencies, but went directly to the merits of Forby’s ICFA claim. Specifically, One Tech had asked the district court to find that the disclosures present on One Tech’s website meant that the website was not deceptive as a matter of law. Although the district court had declined to resolve the issue on the motion, the court found that One Tech should not be permitted to move the case to a forum that may prove more favorable after having checked the district court’s temperature on the disclosure issue.

The court therefore reversed the district court’s decision, finding that Forby had suffered enough prejudice to establish waiver by One Tech’s delay in moving to compel arbitration, and vacated the order granting arbitration.

A version of this post originally appeared in the January 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.