Darlene Gibbs v. Haynes Investments, LLC
967 F.3d 332
4th Cir.2020Background
- Virginia consumers borrowed from two online tribal lenders (Plain Green and Great Plains) with interest rates ~219%–374% under loan contracts signed 2013–2016.
- Each loan contract included an arbitration agreement with delegation clauses and choice-of-law provisions requiring that tribal law govern arbitration and that arbitrators apply tribal law; some provisions stated federal law could be used only as guidance.
- Borrowers filed a putative class action alleging the loans violated Virginia usury law and that third-party investors/operators (the Haynes Defendants) violated RICO by receiving income from unlawful debt; the tribal lenders asserted sovereign immunity, leaving Haynes Defendants as defendants.
- Haynes Defendants moved to compel arbitration (and alternatively to dismiss); the district court denied the motion, concluding the arbitration agreements operated as prospective waivers of federal statutory rights and thus were unenforceable.
- On appeal, defendants argued (1) delegation clauses required an arbitrator to resolve arbitrability, and (2) the choice-of-law provisions did not unambiguously prevent vindication of federal rights; the Fourth Circuit affirmed the district court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability (court vs. arbitrator)? | Delegation clauses are invalidly drafted because they prospectively waive federal rights; court should decide. | Valid delegation clauses clear and unmistakable — arbitrator must decide arbitrability. | Court: plaintiffs specifically challenged delegation clauses; court may decide enforceability before sending arbitrability to arbitrator. |
| Do choice-of-law clauses effect a prospective waiver of federal statutory remedies? | Choice-of-law and arbitration terms effectively preempt federal law and limit remedies (e.g., no RICO treble damages), so they prospectively waive statutory rights. | Choice-of-law selecting tribal law does not automatically bar federal law; tribal law may incorporate or honor federal protections; waiver not unambiguous. | Held: clauses operate in tandem to foreclose effective vindication of federal statutory remedies (prospective waiver), rendering arbitration agreements unenforceable. |
| Is the entire arbitration agreement (including delegation clause) enforceable under FAA? | No — prospective waiver voids arbitration contract under FAA §2 public-policy limitations. | Yes — FAA favors enforcing arbitration agreements; courts should compel arbitration and enforce delegation. | Held: because prospective waiver exists, the arbitration agreements (including delegation clauses) are unenforceable. |
| Whether further factual development (e.g., evidence of costs) was required to prove inability to vindicate rights? | Not required here because textual terms of the agreements and tribal codes show unavailability of remedies (e.g., no treble damages; limited remedies). | Plaintiffs must show concrete inability (evidence) to vindicate rights; mere choice-of-law language insufficient. | Held: no further evidence needed; text and applicable tribal codes demonstrate plaintiffs could not effectively vindicate federal RICO remedies. |
Key Cases Cited
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses must be enforced unless specifically challenged)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (arbitration agreements that prospectively waive statutory remedies violate public policy)
- Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016) (tribal choice-of-law/arbitration terms that exclude federal law are unenforceable as prospective waivers)
- Dillon v. BMO Harris Bank, N.A., 856 F.3d 330 (4th Cir. 2017) (same; tribal-law arbitration clauses interpreted as categorical waiver of federal statutory rights)
- Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 867 F.3d 449 (4th Cir. 2017) (court may decide enforceability of delegation clause when specifically challenged)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (arbitration must permit effective vindication of statutory rights)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA requires courts to enforce arbitration agreements according to their terms)
- Gingras v. Think Finance, Inc., 922 F.3d 112 (2d Cir. 2019) (tribal arbitration agreements designed to avoid state/federal consumer protections are unenforceable)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (generally a court must enforce clear delegation clauses, but does not foreclose court review of challenges to the validity of the arbitration clause itself)