232 N.C. App. 306
N.C. Ct. App.2014Background
- County Bank offered short-term consumer loans in NC; FSNC marketed and processed these loans.
- Loans signed by Torrence (11 loans) and Burke (7 loans) contained an Agreement to Arbitrate All Disputes selecting NAF.
- NAF ceased arbitrations following a Minnesota consent judgment; the case proceeded in NC court despite NAF’s unavailability.
- Plaintiffs asserted CFA, UTPA, and usury claims; plaintiffs sought class certification; defendants moved to compel arbitration and dismiss for lack of personal jurisdiction.
- Trial court denied arbitration and granted class certification; orders were interlocutory but appealed; this Court must address FAA §5 substitution and unconscionability under Concepcion/Italian Colors.
- Court later remanded: substitute arbitrator must be appointed under FAA §5; unconscionability analysis under Tillman is preempted by FAA decisions; arbitration should be compelled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether substitute arbitrator must be appointed under FAA §5 | Torrence/Burke argue §5 requires substitution when named arbitrator ceases. | QC/Nationwide argue §5 not applicable or substitute unnecessary due to NAF issues. | Yes; §5 requires appointment of substitute arbitrator. |
| Whether arbitration clause was substantively unconscionable under Tillman/Concepcion/Italian Colors | Tillman-based reasoning allowed unconscionability due to high costs and class-action ban. | Arbitration terms should be enforced; Concepcion/Italian Colors preclude invalidation on unconscionability grounds. | Substantive unconscionability cannot stand in light of Concepcion and Italian Colors; arbitration enforceable. |
| Whether Tillman’s unconscionability framework remains valid post-Concepcion/Italian Colors | Tillman principles still control unconscionability analysis. | FAA and Concepcion preempt Tillman’s framework. | Tillman framework undermined; FAA controls; unconscionability invalidated by Tillman is not controlling. |
| Impact of Concepcion/Italian Colors on class action waiver and arbitration scope | Class waiver may impede relief but not invalidate arbitration under FAA. | Class waivers render arbitration unenforceable under state law. | Class action waiver not a basis to invalidate bilateral arbitration; arbitration should proceed. |
| Personal jurisdiction issue over Don Early | If arbitration is compelled, personal jurisdiction ruling becomes moot. | Jurisdiction issue independent of arbitration. | Moot; issues to be resolved by arbitrator; no separate ruling here. |
Key Cases Cited
- Concepcion v. American Bank/Card Service Co., 563 U.S. 333 (U.S. 2011) (FAA preemption; class waivers not per se unconscionable; limits of unconscionability defenses.)
- American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (U.S. 2013) (Class-action waivers do not render arbitration unenforceable; FAA preempts state-law obstacles.)
- Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (N.C. 2008) (Arbitration unconscionability requires both procedural and substantive elements; post-Concepcion implications.)
- Muriithi v. Shuttle Exp., Inc., 712 F.3d 173 (4th Cir. 2013) (Fourth Circuit aligns with Concepcion; class waivers not per se unconscionable.)
- King v. Bryant, N.C. App. , 737 S.E.2d 802 (N.C. App. 2013) (Outlined FAA §5 substitution and arbitration enforcement analysis.)
- Discover Bank v. Superior Court, 36 Cal.4th 148, 113 P.3d 1100 (Cal. 2005) (Pre-Concepcion rule on class-action waivers—overruled by Concepcion.)