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Vine v. PLS Financial Services, Inc.

United States District Court, E.D. Texas, Sherman Division

September 9, 2019

LUCINDA VINE, KRISTY POND, on behalf of themselves and others similarly situated Plaintiffs,
v.
PLS FINANCIAL SERVICES, INC. and PLS LOAN STORE OF TEXAS, INC. Defendants.

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Defendant PLS Financial Services, Inc. and PLS Loan Store of Texas, Inc.'s (collectively, “PLS”) Motion to Stay Proceedings Pending Appeals (Dkt. #132). Having considered the motion and the relevant pleadings, the Court finds that Defendants' Motion is DENIED.

         BACKGROUND

         PLS is a short-term loan provider (Dkt. #1, Exhibit A). To qualify for a PLS loan, borrowers must present a post-dated or blank personal check for the amount borrowed in addition to a finance charge (Dkt. #1, Exhibit A). PLS tells borrowers it will not deposit the check or pursue criminal charges to recover the loan (Dkt. #1, Exhibit A). But when a borrower misses a payment, PLS will deposit the check, threaten her with criminal prosecution if the check bounces, and misrepresent to the local district attorney that her check was meant to be cashed (Dkt. #1, Exhibit A). The borrower will then receive letters from the district attorney advising her to pay PLS or face criminal charges (Dkt. #1, Exhibit A). Plaintiffs Lucinda Vine and Kristy Pond have filed a class action lawsuit in the Western District of Texas against PLS on behalf of borrowers who received such letters (Dkt. #1, Exhibit A).

         PLS responded to the lawsuit by moving to compel arbitration (Dkt. #18; Dkt. #19). PLS notes that, when a borrower enters a loan contract, she agrees to arbitrate any claims against PLS (Dkt. #18). These agreements are governed by the Federal Arbitration Act (Dkt. #18). The Western District Court denied the motion, finding that PLS is not permitted to compel arbitration because PLS substantially invoked the judicial process first (Dkt. #37). It reasoned that, by informing the district attorney of Plaintiffs' bounced checks, PLS “initiated a process that invites Texas district attorneys' offices to address issues that are at stake in the instant litigation.” See Vine v. PLS Financial Srvs., Inc., 226 F.Supp.3d 719, 727-29 (W.D. Tex. 2016), aff'd, 689 Fed.Appx. 800, 807 (5th Cir. 2017). PLS moved to reconsider the Order (Dkt. #44), unsuccessfully, see Vine v. PLS Financial Srvs., Inc., 226 F.Supp.3d 708, 719 (W.D. Tex. 2016), [1] and appealed the decision to the Fifth Circuit. PLS argued that “the district court erred by: (1) deciding whether PLS waived its right to compel arbitration by participating in litigation conduct; (2) ignoring the parties' express agreement to arbitrate all disputes, including any litigation-conduct waiver claims; and (3) concluding that PLS waived its right to arbitrate by submitting worthless check affidavits.” See Vine v. PLS Financial Srvs., Inc., 689 Fed.Appx. 800, 802 (5th Cir. 2017). The Fifth Circuit, however, was unpersuaded and affirmed the decision. See Id. at 801-07.

         Following the Fifth Circuit's decision, the Texas Supreme Court held that a short-term loan provider does not waive its right to arbitration by submitting unpaid checks and affidavits to local district attorneys, the Fifth Circuit's decision notwithstanding. Henry v. Cash Biz, LP, 551 S.W.3d 111, 118 (Tex. 2018), cert denied., 139 S.Ct. 184 (2018). The Western District Court indicated that the Texas Supreme Court's decision was not binding (Dkt. #117, Exhibit 2 at pp. 5-6) but invited the parties to submit briefs on whether the motion to compel arbitration should be reconsidered. Consequently, PLS filed a second motion to reconsider in light of the Texas Supreme Court's decision in Cash Biz. Because the case was transferred to this District before the motion was resolved, the parties briefing on PLS' Motion came before the Court. Citing the law-of-the-case doctrine and the lack of any intervening change of law by a controlling authority, the Court denied PLS' Motion to Reconsider Denial of Motion to Compel Arbitration and Stay (Dkt. #125). The Court also granted Plaintiffs' Motion to Certify Class (Dkt. #127). As a result of the Court's Orders on each of the Motions, PLS once again appealed to the Fifth Circuit challenging both the denial of its motion to compel arbitration and the order granting class certification of “at least eighty or so borrowers” (Dkt #127 at p. 9). The Fifth Circuit granted leave to appeal (Dkt. #135) and subsequently consolidated the two appeals (Dkt. #144). After the Fifth Circuit granted leave to appeal, PLS filed an Opposed Motion to Stay Proceedings Pending Appeals (Dkt. #132). The Court now considers PLS's Motion to Stay.

         LEGAL STANDARD

         “A stay pending appeal ‘simply suspends judicial alteration of the status quo.'” Veasey v. Perry, 769 F.3d 890, 892 (5th Cir. 2014) (citing Nken v. Holder, 556 U.S. 418, 429 (2009)). A stay may be automatic or discretionary. If the merits of the case before the district court are directly involved in the merits of an appeal, the district court's proceedings must be stayed. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam). When an automatic stay is not required by an appeal, the district court may nevertheless grant a discretionary stay of the proceedings. See Weingarten Realty Investors v. Miller, 661 F.3d 904, 908 (5th Cir. 2011). While a district court is granted discretion in its decision on whether to grant a stay when a stay is not required, “the exercise of that discretion is not unbridled.” In re First South Sav. Ass'n, 820 F.2d 700, 709 (5th Cir. 1987). “[R]ather, the court must exercise its discretion in light of what this court has recognized as the four criteria for a stay pending appeal.” Id. Those four traditional factors include: “(1) whether a stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Weingarten Realty Investors, 661 F.3d at 910; see also Coastal States Gas Corporation v. Department of Energy, 609 F.2d 736, 737 (5th Cir. 1979) (providing the same 4-factor test); Fortune v. Molpus, 431 F.2d 799, 804 (5th Cir. 1970) (providing the same 4-factor test); Belcher v. Birmingham Trust National Bank, 395 F.2d 685 (5th Cir. 1968) (providing the same 4-factor test). Notably, the Supreme Court has held that the “first two factors of the traditional standard are the most critical.” Veasey, 769 F.3d at 892 (citing Nken, 556 U.S. at 434). Accordingly, there is a “widely held view that a stay can never be granted unless the movant has shown that success on appeal is probable.” Ruiz v. Estelle (Ruiz I), 650 F.2d 555, 565 (5th Cir. 1981).

         There is, however, an exception where the heavy burden of the first factor is not required. Under the exception to the traditional rule, when a court is “confronted with a case in which the other three factors strongly favor interim relief, ” the court may lessen the burden of the first factor from a strong showing of succeeding on the merits, to a substantial case on the merits. Ruiz, 650 F.2d at 565 (citing Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). Thus, when the three remaining factors strongly favor interim relief and the exception applies, “the movant need only present a substantial case on the merits when a serious legal question is involved and show that the balance of equities weighs heavily in favor of granting a say.” Ruiz, 650 F.2d at 565 (emphasis added) (citing Providence Journal v. Federal Bureau of Investigation, 595 F.2d 889 (1st Cir. 1979); Houston Insulation Contractors Ass'n v. N.L.R.B., 339 F.2d 868, 870 (5th Cir. 1964)); see also In re Deepwater Horizon, 732 F.3d 326, 345 (5th Cir. 2013) (citing Weingarten Realty Investors, 661 F.3d at 910) (stating “where there is a serious legal question involved and the balance of equities heavily favors a stay . . . the movant only needs to present a substantial case on the merits.”)). This exception requires that the balance of equities-i.e., the other three factors-be “heavily tilted in the movant's favor.” Id. at 566; U.S. v. Baylor University Medical Center, 711 F.2d 38 (5th Cir. 1983). If the moving party cannot demonstrate this, then it must “make a more substantial showing of likelihood of success on the merits in order to obtain a stay pending appeal.” Id.

         Whether the analysis falls under the traditional approach or the exception, the movant bears the burden of showing that a stay is warranted. Weingarten Realty Investors, 661 F.3d at 910. Where “there is even a fair possibility that the stay . . . will work damage to someone else, ” the party seeking a stay “must make out a clear case of hardship or inequity in being required to go forward.” Landis, 299 U.S. at 255; see Ind. State Police Pension Tr. v. Chrysler LLC, 556 U.S. 960, 961 (2009) (citation omitted) (“‘[A] stay is not a matter of right, even if irreparable injury might result otherwise.' It is instead an exercise of judicial discretion, and the ‘party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion.'”).

         ANALYSIS

         PLS submitted its Motion to Stay Proceedings pending its interlocutory appeal of the Court's Order denying Defendant's Motion to Reconsider Denial of Motion to Compel Arbitration and Stay and the Court's Order granting Plaintiff's Motion for Class Certification. PLS argues that the Court should grant a stay pending its appeal for two reasons. First, PLS argues that its appeal raises serious legal questions. Second, PLS argues that, should the Fifth Circuit decide in PLS' favor, PLS would lose most of the value of their “underlying contractual rights” by losing their ability to arbitrate and by having to “litigate against an entire class in this Court in the meantime (Dkt. #132). Plaintiffs counter that PLS has no likelihood of success on the merits-as PLS has already appealed the arbitration issue. Additionally, Plaintiff's assert that stays under Rule 23(f) are rare, PLS has failed to prove it will be irreparably injured absent a stay, Plaintiffs may suffer substantial injury, and the public interest does not favor a stay. To determine whether to grant PLS' Motion to Stay, the Court will first determine whether an automatic stay applies. If an automatic stay is not required, the Court will then consider whether a discretionary stay should nonetheless be granted under either the traditional requirements or the exception to the traditional requirements.

         I. Neither issue on appeal requires an automatic stay.

         Simply filing an appeal does not compel a district court to stay proceedings pending the appeal's resolution. Nichols v. Alcatel USA, Inc., No. 5:05-CV-43-DF, 2007 WL 9724542, at *1 (E.D. Tex. June 19, 2007) (citing Taylor v. Sterrett, 640 F.2d 663, 668 (5th Cir. 1981) (“where an appeal is allowed from an interlocutory order, the district court may still proceed with matters not involved in the appeal.”)). With that being said, Congress has enumerated certain appeals which demand an automatic stay. See generally 28 U.S.C. § 1292(c); 11 U.S.C.A. § 362 (West 2010); Fed.R.Civ.P. 62(a). Typically, the filing of an appeal is “an event of jurisdictional significance” that “confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in that appeal.” Griggs, 459 U.S. at 58 (emphasis added). When the matters before a district court “are not involved in the appeal, ” the district court is free to proceed in adjudicating those matters. See Weingarten, 661 F.3d at 908. Therefore, a district court must determine whether the merits of the case before it are so “involved in” the appeal as to necessitate an automatic stay of its proceedings before it can proceed. See Weingarten, 661 F.3d at 908; see also Sierra v. Dorel Juvenile Group, 663 Fed.Appx. 307, 311 n.7 (5th Cir. 2016). The trial of a case on its merits is involved in an appeal “if it results in the district court's deciding an issue that the appellate court is deciding at the same time.” Weingarten, 661 F.3d at 909. Appeals regarding arbitration or class certification typically do not divest a court of its jurisdiction, however, because the issue before the appellate court will not be simultaneously evaluated in the district court. Because PLS' appeal challenges the Court's Orders denying arbitration and granting class certification, the Court addresses each issue individually.

         a. PLS's appeal of the Court's Denial of its Motion to Compel Arbitration.

         The question of whether an appeal from the denial of a motion to compel arbitration requires an automatic stay has resulted in a circuit split. The genesis of this split can be found in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). On one side, a narrow interpretation of Griggs leads courts to hold that an appeal on arbitrability does not affect the merits of the case; thus, the case may proceed in district court. On the other side, a broad interpretation of Griggs results in courts holding that an appeal on arbitrability goes directly to the merits on whether the case can be heard in district court; thus, a stay must be granted. The Fifth Circuit chose the narrow side of this split. According to the Fifth Circuit, it is not necessary that a district court automatically stay its proceedings pending a party's appeal of a denial of a motion to compel arbitration, because the merits of the case before the district court are unrelated to the case's arbitrability. See Weingarten, 661 F.3d at 909 (“A determination on the arbitrability of a claim has an impact on what arbiter - judge or arbitrator - will decide the merits, but that determination does not itself decide the merits.”); see also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 21 (1983) (stating that the merits of a case are “easily severable” from the dispute over the arbitrability of those claims). In deciding this issue, the Fifth Circuit explicitly agreed with the Second and Ninth Circuit's decisions holding that a stay is not automatic “because arbitrability is an issue easily separable from the merits of the underlying dispute, ” thus, a “district court could address the merits while the appellate court reviewed arbitrability.” Weingarten, 661 F.3d at 909 (citing Moses H. Cone, 460 U.S. at 21); see also Motorola Credit Corp. v. Uzan, 388 F.3d 39, 53-54 (2d Cir. 2004); Britton v. Co-Op Banking Group, 916 F.2d 1405, 1411-12 (9th Cir. 1990). In adopting a narrow interpretation of Griggs and thus joining the Second and Ninth Circuits, the Fifth Circuit rationalized its decision by stating that this interpretation “better comports with [this Circuit's] precedents and the nature of arbitration.”[2] Id. Here, the trial of the present case on its merits is not “involved in” a determination of its arbitrability. Therefore, under the Fifth Circuit's narrow interpretation of Griggs, the Court is not required to stay its proceedings while PLS' arbitration appeal is pending.

         b. PLS's appeal of Class Certification.

         An appeal pursuant to Federal Rule of Civil Procedure 23(f) does not automatically stay the proceedings in the district court. Rather, Rule 23 allows the district court to exercise its discretion to grant or deny the request to stay proceedings. See Erica P. John Fund, Inc. v. Halliburton Co., No. 3:02-CV-1152-M, 2015 WL 12710694, at *1 (N.D. Tex. Nov. 24, 2015); Fed.R.Civ.P. 23(f) (“An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders.”). Further, findings on issues of class certification are not necessarily involved in the merits of the case. See Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221, 229 (5th Cir. 2009) (a class certification analysis “must focus on the requirements of [Fed. R. Civ. P. 23], and if findings made in connection with those requirements overlap findings that will have to be made on the merits, such overlap is only coincidental.”) (internal quotations omitted). The Court, therefore, is not required to stay proceedings as PLS' appeal of the Order granting Class Certification does not involve the merits of the case and the decision on whether to grant a stay is left to the Court's discretion.

         Neither of the issues on appeal require the Court to automatically stay proceedings pending the Fifth Circuit's resolution. The Court now addresses ...


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