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SCOTX Holds Payday Lender Did Not Waive Right to Arbitration

by Beth Graham
March 2018

Disputing Blog by Karl Bayer, Victoria VanBuren, and Holly Hayes

Beth Graham

The Supreme Court of Texas has ruled that a payday lender did not waive its right to compel arbitration against the company’s defaulting customers.  In Henry, et al. v. Cash Biz, LP, No. 16-0854 (Texas, February 23, 2018), a payday Lender, Cash Biz, provided short term loans to the plaintiffs and other customers.  As a condition of obtaining a loan, each customer signed a loan document containing an arbitration provision.  This provision required all disputes with Cash Biz to be settled via individual arbitration.

As part of the loan process, customers provided Cash Biz with a post-dated check for the amount of the loan and any applicable fees.  When each of the plaintiffs failed to repay their short term loans, Cash Biz deposited the post-dated checks which were then returned for insufficient funds.  Later, the plaintiffs were charged with violating TEX. PENAL CODE § 32.41 by passing bad personal checks.  Although all charges were eventually dismissed, the parties disputed whether Cash Biz actively pursued prosecution against the plaintiffs or merely provided information regarding the bad checks to the local district attorney.

Next, the plaintiffs filed a proposed class action lawsuit against Cash Biz asserting a variety of claims including “malicious prosecution, fraud, and violations of the Deceptive Trade Practices Act, Consumer Protection Act, and the Finance Code.”  In response, the payday lender filed a motion to compel arbitration based on the loan documents signed by each customer.  The plaintiffs claimed the arbitral provision did not apply to their case against Cash Biz because the claims related to the company’s improper use of the criminal process to collect a civil debt.  In addition, the plaintiffs argued Cash Biz waived its right to compel arbitration by substantially invoking the judicial process when the company pursued criminal prosecution against them.

After a trial court denied the payday lender’s motion to compel arbitration, Cash Biz filed an interlocutory appeal with Texas’s Fourth District Court of Appeals in San Antonio.   The appellate court reversed the lower court’s order and the Plaintiffs filed a petition for review with the Supreme Court of Texas.  You may read more about the San Antonio court’s decision in a previous Disputing blog post.

According to the plaintiffs, the issues presented in the case were:

Issue 1: Majority opinion failed to apply abuse of discretion standard to trial court’s factual determination and failed to consider most of the evidence presented, without objection.

Issue 2: Majority opinion failed to apply FAA or federal law as required

Issue 3: Petition for Review is necessary to correct split of authority

In its written opinion, the Texas high court first stated the contract at issue was governed by the Federal Arbitration Act.  Next, the court said both Texas and federal policy favors arbitration.  After that, the Texas Supreme Court ruled:

Here, the arbitration agreement applies to “all disputes” and specifies that “‘dispute’ and ‘disputes’ are given the broadest possible meaning and include, without limitation . . . all claims, disputes, or controversies arising from or relating directly or indirectly to the signing of this Arbitration Provision.” Given the presumption favoring arbitration and the policy of construing arbitration clauses broadly as noted above, it follows that the arbitration clause here applies—just as it says—to all disputes, even those relating only indirectly to the loan agreements.

The Borrowers asserted that after they missed payments, Cash Biz deposited their postdated checks; the checks were returned for insufficient funds; Cash Biz threatened the Borrowers with criminal prosecution unless the loans were repaid; and when the Borrowers failed to pay, Cash Biz indeed pursued charges for issuance of bad checks. The Borrowers allege that when Cash Biz entered into the loan agreements, it failed to disclose the possibility that if the personal checks were presented to the banks for payment and were not paid, criminal prosecutions would follow.

The Borrowers’ claims are not for breach of any specific obligations under the loan contract.  Nevertheless, their claims are based on the manner in which Cash Biz pursued collection of loans and are at least indirectly related to the contracts the Borrowers signed obligating them to repay the loans. Therefore, we agree with Cash Biz that the Borrowers’ claims are within the scope of the arbitration provision.

The court next held that Cash Biz did not waive its right to compel arbitration.  Despite this, the Texas Supreme Court noted:

We recognize that our opinion does not accord with the decision in Vine v. PLS Financial Services, Inc., 689 F. App’x 800 (5th Cir. 2017) (per curiam). There, as did Cash Biz here, a short term lender had borrowers sign postdated checks, which were presented for payment after the borrowers defaulted. Id. at 801. When the checks were not paid, the lender submitted the unpaid checks and affidavits to the local district attorneys. Id. The Vine court declined to follow the decision of the court of appeals in this case. Id. at 806. Rather, it concluded that the lender’s actions in submitting affidavits to prosecuting attorneys waived its right to enforce the arbitration agreement. Id.

With due respect, and recognizing that it is important for federal and state law to be as consistent as possible in this area where we have concurrent jurisdiction, we agree with the dissenting justice in Vine. Id. at 807 (Higginson, J., dissenting). We conclude, as he did, that although some lenders may be “gaming the system” by taking actions like the lenders took there and as Cash Biz took here, more is required for waiver of a contractual right to arbitrate. Id.

Because the plaintiffs’ claims “fell within the scope of the arbitration agreement and there was no evidence to support the trial court’s finding that Cash Biz waived its right to arbitrate,” the Supreme Court of Texas affirmed the San Antonio appellate court’s decision.


Beth Graham received a J.D. from the University of Nebraska College of Law in 2004 and a M.A. in Information Science and Learning Technologies from the University of Missouri in 2006. She also holds a B.S. in Public Administration from the University of Nebraska-Omaha. She is licensed to practice law in Texas and the District of Columbia.

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