James Dillon v. BMO Harris Bank, N.A.
2017 U.S. App. LEXIS 8281
| 4th Cir. | 2017Background
- James Dillon, a North Carolina resident, took a 2012 online payday loan from Great Plains Lending, an Otoe-Missouria Tribe–owned lender, that charged ~440% interest and authorized ACH withdrawals from his bank account.
- Dillon signed a single electronic contract containing the loan terms and an arbitration agreement; multiple provisions designated Otoe-Missouria tribal law and disclaimed application of state or federal law.
- Dillon sued BMO Harris (a financial institution that processed ACH transfers) under RICO, alleging the bank participated in collecting unlawful payday loans; he did not directly sue the tribal lender in this appeal.
- BMO Harris moved to compel arbitration under the Great Plains Agreement; the district court denied the motion after this Court decided Hayes v. Delbert Services Corp., which struck a similar tribal-law choice provision as an unenforceable prospective waiver.
- On appeal, the Fourth Circuit applied Hayes and held the arbitration agreement’s choice-of-law provisions unambiguously waived federal and state law, rendering the arbitration clause unenforceable and not severable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the choice-of-law clause (tribal law only) operates as a prospective waiver of federal statutory remedies | Dillon: clause unambiguously bars federal remedies and is therefore unenforceable under the prospective-waiver doctrine | BMO Harris: ambiguity exists; arbitrator should decide whether federal remedies remain available | Held: Clause is unambiguous prospective waiver of federal rights and unenforceable (applying Hayes) |
| Whether the prospective-waiver question must be deferred to the arbitrator | Dillon: question ripe because clause is clear | BMO Harris: defer to arbitrator to interpret clause and determine availability of federal law | Held: No deferral — clause is clear and courts may decide unenforceability now |
| Whether unlawful choice-of-law provisions can be severed or cured by court-imposed application of federal law | Dillon: provisions are central and obtained via unequal bargaining power; not severable | BMO Harris: court may sever offending language or accept bank’s concession to apply federal law in arbitration | Held: Not severable — clauses go to the essence of the agreement and were not negotiated in good faith, so entire arbitration clause unenforceable |
Key Cases Cited
- Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016) (held tribal-law choice clause in payday-loan arbitration was an unenforceable prospective waiver and not severable)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (foreign choice-of-law clause may effect prospective waiver; courts must examine whether clause bars statutory remedies)
- Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013) (arbitration agreements cannot prospectively waive the vindication of substantive federal rights)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (arbitration of statutory claims is permissible unless agreement forecloses effective vindication)
- Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995) (when ambiguous, arbitrator should decide choice-of-law issues affecting federal remedies)
- Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355 (4th Cir. 2012) (discusses deference to arbitrator on choice-of-law ambiguities)
- Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244 (9th Cir. 1994) (contracts forming an integrated scheme to contravene public policy are unenforceable)