29 F. Supp. 3d 645
E.D.N.C.2014Background
- Plaintiffs’ home was destroyed by a tornado in 2011 and they executed a manufactured home loan with Vanderbilt Mortgage and Finance, Inc. with an arbitration clause in the contract.
- The deed of trust secured the loan; Vanderbilt was the lender and sought to foreclose with substitute trustees appointed in 2018.
- The contract’s arbitration clause states all disputes arising from or related to the contract are subject to arbitration, with certain foreclosure and small-claims exceptions.
- Plaintiff alleges unconscionability and seeks to enjoin foreclosure and obtain monetary relief under North Carolina statutes and the UDPTA.
- Vanderbilt removed the case to federal court based on diversity jurisdiction and moved to stay and compel arbitration; plaintiff moved to remand to state court.
- The court denied remand and granted arbitration stay, holding the trustees nominal parties for purposes of diversity and enforcing the arbitration clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the case should be remanded for lack of complete diversity | Plaintiff argues trustee defendants are NC residents destroying complete diversity | Vanderbilt contends trustees are nominal and do not defeat diversity | Remand denied; trustees are nominal parties and do not defeat jurisdiction |
| Whether the arbitration clause is unconscionable under NC law | Plaintiff claims procedural and substantive unconscionability | Vanderbilt argues adhesion and lack of unconscionability | Procedural unconscionability shown; but not substantively unconscionable; arbitration enforceable |
| Whether the claims fall within the arbitration agreement’s scope | Dispute is related to foreclosure and not arbitrable | All contract-based claims fall within arbitration; scope broad | Claims arising from the contract fall within arbitration; stay and compel arbitration granted |
Key Cases Cited
- Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255 (4th Cir. 2013) (nominal-party analysis to determine diversity remains key)
- Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93 (N.C. 2008) (procedural unconscionability established by rushed closing and unequal bargaining power)
- Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88 (4th Cir. 1996) (scope of arbitrability favors arbitration; doubts resolved in favor of arbitration)
- Concepcion v. AT&T Mobility LLC, 563 U.S. 333 (U.S. 2011) (federal policy favoring arbitration; class action waivers not per se unconscionable)
- Gilmer v. Interstate/Johnson Lane, 500 U.S. 20 (U.S. 1991) (discovery considerations in arbitration do not negate arbitrability)
- Preston v. Ferrer, 552 U.S. 346 (U.S. 2008) (courts enforce arbitration agreements and determine scope under FAA)