In Cash Biz, LP v. Henry, the San Antonio Court of Appeals held that a party who filed a criminal complaint against another did not substantially invoke the judicial process, otherwise acting as a waiver of an agreement to arbitrate. In this case, a payday lender entered into a credit service agreement that contained a “waiver of jury trial and arbitration provision” with its borrowers. When the borrowers’ checks were declined for insufficient funds, Cash Biz contacted the local district attorney’s office for the issuance of “bad checks and check fraud.” Criminal charges were filed against the borrowers and those charges were eventually dismissed. Several of the borrowers were arrested and detained prior to the dismissal of the criminal charges.

The borrowers filed a class action suit alleging violations of the Texas Finance Code and the DTPA, amongst others. Cash Biz moved to compel arbitration under the loan contracts, which was denied by the trial court. In part, the trial court concluded that Cash Biz waived its right to arbitration by substantially invoking the judicial process when it filed criminal charges against the borrowers.

The Court of Appeals analyzed whether the borrowers’ claims fell within the arbitration agreement and concluded that the causes of action were “factually intertwined with the Loan Contracts….”

In an apparent issue of first impression in Texas, the Court of Appeals held that filing a criminal complaint did not substantially invoke the judicial process to constitute a waiver of arbitration. While there was evidence that Cash Biz approached the district attorney’s office, the evidence did not reflect the extent of Cash Biz’s involvement in the criminal process. That lack of evidence was necessary to determine whether Cash Biz substantially invoked the judicial process, according to the Court of Appeals. The Court of Appeals concluded that the filing of a criminal complaint did not rise to the level of active engagement in litigation that Texas courts have held to be a “specific and deliberate” action “inconsistent with a right to arbitrate or that display an intent to resolve a dispute through litigation.”

Thanks to Don Philbin for bringing this decision to our attention.

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