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In denying a payday loan company’s motion to compel arbitration, a Missouri federal court held that where a party fully briefs its motion to dismiss a complaint on the merits in court, that party waives its right to arbitration even if the party attempts to reserve its right to arbitration in its motion to dismiss.
In Hooper v. Advance America, No. 2:08-cv-04045-NKL, 2008 WL 4371360 (W.D. Mo. Sept. 22, 2008), Hooper brought a putative class action against Advance America (Advance) challenging the legality of Advance’s payday loans. Each loan contract contained an arbitration agreement.
Advance moved to dismiss Hooper’s complaint. Count I of Hooper’s complaint sought a declaratory judgment that the arbitration agreements were unconscionable and unenforceable. Advance moved to dismiss Count I for lack of subject matter jurisdiction. Advance moved to dismiss the remaining counts on their merits, and made an affirmative defense to one of the claims. At the conclusion of its motion, Advance stated: "Should the Court . . . refuse to dismiss some or all of Plaintiffs'claims, Advance America reserves the right to enforce the [arbitration agreements in the contracts]."
In her response, Hooper objected to any attempt by Advance to arbitrate after bringing a motion to dismiss on substantive grounds. The Court granted Advance’s motion to dismiss in part and denied it in part. Advance then moved to compel arbitration, and Hooper opposed, arguing that Advance had waived its right to arbitration.
The Court denied Advance’s motion to compel arbitration, holding that Advance’s motion to dismiss "substantially invoked the litigation machinery." The Court noted that Advance delayed nearly five months before moving to compel arbitration, and that the parties fully briefed the Court on Advance’s motion to dismiss. Furthermore, Advance raised an affirmative defense to one of Hooper’s claims, which required the Court to go beyond the pleadings to make its decision. Thus, the Court held that Advance’s motion to dismiss was inconsistent with its right to arbitrate.
The Court called Advance’s course of action "forum shopping" and "an attempt to take a proverbial second bite of the apple." The Court held that after failing to secure a ruling in its favor in litigation, Advance now sought to take Hooper to arbitration, "presumably to reargue the same issues raised on Advance’s motion to dismiss. This prejudices [Hooper]." Consequently, the Court held that Advance waived its right to arbitration.
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