Sometimes financial institutions want to arbitrate putative class claims but end up waiving their right to do so. In Vine v. PLS Financial Services Inc., 807 F. App’x 320 (5th Cir. 2020), borrowers brought a putative class action against short-term lenders, which arose from allegations that the lenders, which had asked borrowers for blank or post-dated checks and allegedly assured them that the checks would be used only to verify checking accounts, submitted false worthless-check affidavits to local district attorneys’ offices after borrowers had defaulted on their loans. The Fifth Circuit affirmed the district court’s denial of PLS’s motion to compel arbitration, holding that PLS “substantially invoked the judicial process by ‘submitting false worthless[-]check affidavits’ to the DA’s office, thereby ‘initiat[ing] a process that invite[d] [the DA] to address issues that [were] at stake in the instant action.’” Id. at 327. The Fifth Circuit held that “once PLS waived the arbitration provision, the Borrowers were free to select another form of dispute resolution, including a class action.”
In addition, the loan agreements with the borrowers in Vine included the following language:
2. 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 . . .;
(b) You are giving up your right to have a court, other than a small claims tribunal, resolve any dispute alleged against us . . . ;
(c) You are giving up your right to serve as a representative, as a private attorney general, or in any other representative capacity, or to participate as a member of a class of claimants, in any lawsuit filed against us. . . . Your dispute may not be consolidated with the dispute of any other person(s) for any purpose(s).
The Fifth Circuit agreed with the district court that “the most plausible way to interpret a class action waiver in the middle of an arbitration provision is as part of the explanation of the rules, rights, and procedures that apply if a dispute is arbitrated—‘not as an independently effective waiver of the right to pursue a class action outside the arbitration context.’” Id. at 328 (emphasis in original). The Fifth Circuit noted that “the loan agreement’s jury-trial waiver provision confirm[ed]” its conclusion. “The right to a jury trial, like a class action, is included as one of the rights given up as a result of agreeing to arbitrate. But the loan agreement includes an additional jury-trial waiver outside the arbitration provision to show that the parties waived their right to a jury trial, full stop—not just as a consequence of agreeing to arbitrate. PLS chose to treat the class-action waiver differently when it drafted the form contract.” Id. at 328–29.
Therefore, there are two lessons from the PLS decision. First, when drafting agreements that include class waivers in arbitration provisions, consider including a separate class waiver provision if your intention is to waive class action litigation in its entirety. Second, be careful not to inadvertently waive your right to arbitrate by invoking the litigation process, including through filing a claim with a third-party government enforcement agency. The flip side is also true: Individual borrowers can waive litigation by invoking the arbitration process such as filing a demand in arbitration even though the borrower may have had a right to reject arbitration. See, e.g., Harris v. Credit Acceptance Corp., 2022 WL 4533854, at *2 (3d Cir. Sept. 28, 2022).