Over an unfiled dissent, the Houston [1st] Court of Appeals has affirmed a trial court denial of a motion to arbitrate a dispute over a loan agreement where an online loan application contained an arbitration clause.
Discovery Bank v. Marcus Miller (No. 01-23-00513-CV; August 29, 2024) arose from a loan agreement entered into between Discover Bank and Miller in 2018. Discover alleged that it extended credit to Miller, and Miller received it. Miller, however, never paid his balance, so Discover filed a lawsuit against against him for breach of contract seeking damages of $29,073.97. Miller denied the allegations and brought a counterclaim pointing out that in the loan documents Discover sent him, the “Annual Percentage Rate and Finance Charge” were in the same typeface as the other information, violating the TILA (Truth in Lending Act). Miller alleged that Discover used this same document for thousands of other transactions in Texas. Discover moved to compel arbitration of Miller’s counterclaim, arguing that the loan agreement contained a provision requiring arbitration under the FAA. Discover claimed that since Miller didn’t return the loan within thirty days (there was a 30-day return guarantee in the agreement) and didn’t try to opt out of the arbitration agreement, he consented to the arbitration agreement.
In his response to Discover’s arbitration motion, Miller asserted that Discover had waived its right to arbitration because it pursued its breach of contract claim in litigation instead of arbitrating it from the get-go. Discover replied, arguing that Miller did not prove that Discover had waived its right to arbitration because Discover had only initiated the suit against Miller, had not substantially invoked the judicial process, and that arbitration would not disadvantage Miller because both parties could pursue arbitration. Miller filed a surreply contending that Discover didn’t show any evidence of his valid consent, i.e., that he was aware of, signed, or consented to the arbitration clause. He argued that Discover had no evidence that he had the opportunity to validly consent during the online loan application process. Discover responded that it provided him a copy of the terms and conditions before Miller accessed the website, that he clicked “continue” to indicate his consent, and the the terms and conditions were clearly presented.
In an opinion by Justice Countiss, the court of appeals affirmed. The court held that Discover failed to establish the existence of a valid arbitration agreement. Discover did not extend its offer through an invitation to Miller to determine whether he qualified for a loan. Instead, it extended an offer after it approved his loan application and sent him a check for $35,000, along with a copy of the loan agreement. The agreement contained instructions on how to reject the arbitration clause or refuse the loan. Miller rejected neither. According to the majority, although the loan agreement told Miller how to reject the arbitration clause and loan agreement, it did not tell him how to accept them. While Discover contended that Miller’s failure to reject either of these manifested as his intent to consent to them, Miller denied having accepted them, leaving no clear evidence that Miller ever accepted the the arbitration clause (though he apparently took the money and didn’t either return it or pay it back). The majority thus concluded that Discover did not establish the existence of a valid arbitration agreement.
Justice Rivas-Molloy indicated her dissent, but as yet no dissenting opinion has been filed. This split decision seems dubious to us. The majority’s conclusion that no valid agreement existed because the online process only instructed applicants how to reject an arbitration provision but not how to accept one doesn’t appear that persuasive to us, especially in light of the fact that the borrower happily took the tendered loan. If that doesn’t constitute an acceptance of the agreement, regardless of the order in which the application, agreement, and loan occurred, we’re not sure what does. We hope that Justice Rivas-Molloy indeed files her dissenting opinion, but one way or another, this case seems ripe for a petition for review.
