851 S.E.2d 423
N.C. Ct. App.2020Background
- Portfolio Recovery Associates (PRA) purchased delinquent consumer credit-card debts and obtained default judgments against the named plaintiffs in state court.
- Plaintiffs filed a putative class action under North Carolina’s Consumer Economic Protection Act seeking vacatur of those default judgments, penalties, and restitution, and sought a preliminary injunction.
- PRA removed the case to federal court; the federal court remanded most claims to Durham County Superior Court.
- After remand PRA filed a Notice of Election to Arbitrate and moved to compel arbitration under the FAA, arguing it was entitled to enforce cardholders’ arbitration clauses as assignee.
- The trial court found valid arbitration clauses existed between plaintiffs and original creditors but concluded the Bills of Sale that transferred accounts/receivables to PRA did not assign the right to arbitrate; it denied PRA’s motion to compel.
- On appeal the Court of Appeals affirmed, holding under Utah and South Dakota law (the agreements’ choice-of-law provisions) PRA failed to show the Bills of Sale manifested intent to transfer arbitration rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PRA, as assignee via Bills of Sale, was entitled to compel arbitration of plaintiffs’ claims | PRA was not an assignee of arbitration rights; only original creditors had that right | PRA argued the Bills of Sale (and some card agreements explicitly allowing enforcement by assignees) vested PRA with the right to arbitrate | Held: Bills of Sale assigned only Accounts/Receivables and did not show intent to transfer arbitration rights; PRA failed its burden to prove a valid arbitration agreement with plaintiffs |
| Whether UCC § 9-404 (account debtor defenses) or similar UCC provisions automatically entitle assignee to enforce arbitration clauses | UCC does not override the express scope of the Bills of Sale and consumer-debtor protections may limit UCC’s application | PRA argued § 9-404 makes assignee’s rights subject to terms of original agreement, so assignee can invoke arbitration | Held: Court rejected PRA’s broad UCC argument—section does not automatically expand the scope of an assignment beyond its terms and parties may vary UCC effects; trial court properly required clear evidence of intent to assign arbitration rights |
Key Cases Cited
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (court must determine existence of valid arbitration agreement before referring dispute to arbitrator)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009) (a nonparty may enforce an arbitration agreement if relevant state contract law allows enforcement)
- New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (courts must complete antecedent statutory inquiries before compelling arbitration)
- Gables v. Castlewood-Sterling, 417 P.3d 95 (Utah 2018) (effective assignment requires identification of subject matter and intent to transfer all rights)
- Northstream Investments, Inc. v. 1804 Country Store Co., 697 N.W.2d 762 (S.D. 2005) (assignment must show clear evidence of intent and describe subject matter)
- U.S. Trust Co., N.A. v. Stanford Grp. Co., 681 S.E.2d 512 (N.C. Ct. App. 2009) (order denying motion to compel arbitration is immediately appealable)