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In Kennedy v. Homecomings Fin. Network, No. 06-2289, 2006 WL 2983019 (E.D. La. Oct. 17, 2006), the United States District Court for the Eastern District of Louisiana compelled arbitration of Kennedy’s “illegal financial practices” claims, despite the fact that the parties had already participated in judicial foreclosure proceedings.
Kennedy entered into a mortgage loan with Homecomings, and the agreement contained an arbitration provision. However, “foreclosure proceedings” were specifically excluded from arbitration. Homecomings initiated foreclosure proceedings against Kennedy in both 2001 and 2004. Subsequently, Kennedy sued Homecomings for alleged RICO violations, unfair debt collection practices, and other illegal financial dealings. In response, Homecomings moved to compel arbitration of Kennedy’s claims.
The Court held that these “illegal financial practices” claims were arbitrable, and that Homecomings had not waived its right to arbitrate by initiating foreclosure proceedings in court. Generally, a party waives its right to arbitration when it invokes the judicial machinery to “the detriment or prejudice of the other party.” Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897 (5th Cir. 2005) (citing Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004)). However, for the purposes of arbitration, a party only “invokes” the judicial process by litigating a specific claim that it later seeks to arbitrate. Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th Cir. 1999).
Here, foreclosure was a non-arbitrable claim. Therefore, Homecomings did not waive its right to arbitrate future disputes merely by initiating a judicial foreclosure action.
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