966 F.3d 286
4th Cir.2020Background
- Virginia consumers borrowed from two online tribal lenders (Plain Green — Chippewa Cree; Great Plains — Otoe‑Missouria) between 2013–2016; effective interest rates ranged ~219%–374% due to tribal law exceptions.
- Each loan was formed electronically and included (a) a loan agreement and (b) an arbitration agreement with a delegation clause assigning arbitrability to the arbitrator and choice‑of‑law provisions making tribal law controlling.
- Arbitration clauses required arbitrators to apply tribal law, limited remedies to those available under tribal law, and directed review/confirmation to tribal courts.
- Borrowers sued Sequoia defendants (investors/owners) alleging Virginia usury violations and RICO claims; defendants moved to compel arbitration and to dismiss; the district court denied the motion to compel, finding the arbitration agreements amounted to a prospective waiver of federal statutory remedies.
- The Fourth Circuit affirmed: it held the borrowers had specifically challenged the delegation clauses (so the court could decide arbitrability), and the tribal choice‑of‑law/forum provisions operated as a prospective waiver that rendered the arbitration agreements unenforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Who decides arbitrability when contract contains a delegation clause? | Delegation clause is unenforceable because the arbitration agreement (and delegation provision) prospectively waives federal remedies. | Delegation clause valid; arbitrator must decide all threshold arbitrability issues. | Plaintiffs specifically challenged the delegation clause; court may decide its validity and did so. |
| 2) Do the choice‑of‑law/forum clauses effect a prospective waiver of federal statutory claims? | Tribal choice‑of‑law and related limits on remedies and review prevent effective vindication of federal claims (e.g., RICO treble damages) → prospective waiver. | Clauses do not bar asserting federal claims (disputes include federal claims); defendants even represented they would not contest federal remedies. | Choice‑of‑law and related provisions effectively preclude vindication of federal statutory claims → prospective waiver → arbitration agreement unenforceable. |
| 3) Must prospective waiver be addressed only at award‑enforcement stage? | Court can decide prospective waiver at motion to compel when effect is clear and no international/comity concerns. | Prospective waiver should be assessed at award‑enforcement, not at the compel stage. | Court may decide at compel stage where the choice‑of‑law effect is clear; no international comity concerns here. |
| 4) Does Henry Schein bar court review of the delegation‑validity challenge? | Schein is inapplicable because it concerns the "wholly groundless" exception, not a direct challenge to delegation clause validity. | Schein requires deferral to arbitrator on arbitrability questions. | Schein is inapposite; the court must determine whether a valid arbitration agreement/delegation clause exists before sending disputes to arbitration. |
Key Cases Cited
- Rent‑A‑Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) (court may decide a delegation‑clause challenge if plaintiff specifically challenges the delegation provision).
- Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016) (tribal choice‑of‑law/forum provisions can operate as a prospective waiver).
- Dillon v. BMO Harris Bank, N.A., 856 F.3d 330 (4th Cir. 2017) (arbitration provisions that effectively displace federal law may be unenforceable as prospective waivers).
- Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, Inc., 473 U.S. 614 (1985) (arbitration clauses that prospectively waive statutory remedies are against public policy and unenforceable).
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA requires enforcement of arbitration agreements on an equal footing with other contracts).
- American Express Co. v. Italian Colors Ristorante, 570 U.S. 228 (2013) (prospective waiver doctrine applies when claimant cannot effectively vindicate statutory cause of action in arbitral forum).
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (addressed the "wholly groundless" exception; does not permit courts to ignore a party’s specific challenge to delegation validity).
- MacDonald v. CashCall, Inc., 883 F.3d 220 (3d Cir. 2018) (a party may attack a delegation clause using the same arguments used to attack the arbitration agreement generally).
- Gingras v. Think Finance Inc., 922 F.3d 112 (2d Cir. 2019) (similar rejection of argument that a broad disputes definition saves an agreement from prospective waiver when choice‑of‑law clauses displace federal law).