In Re: Checking Account Overdraft Litigation MDL No. 2036 Doris Powell-Perry v. Branch Banking And Trust Company ( 2012 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-14319
________________________
D.C. Docket Nos. 1:09-md-02036-JLK,
1:10-cv-20820-JLK
In Re: CHECKING ACCOUNT OVERDRAFT LITIGATION
lllllllllllllMDL NO. 2036
____________________________________________
DORIS POWELL-PERRY,
Individually and on behalf of
all others similarly situated,
CURNIE SANDERS,
llllllllllllllllllllllllllllllllllllllll Plaintiffs - Appellees,
versus
BRANCH BANKING AND TRUST COMPANY,
llllllllllllllllllllllllllllllllllllllll Defendant - Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(July 31, 2012)
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Before WILSON, PRYOR and MARTIN, Circuit Judges.
PER CURIAM:
Branch Banking and Trust Company (“BB&T”), a commercial bank,
appeals the district court’s denial of its motion to compel arbitration of a putative
class action brought by two of its customers, Doris Powell-Perry and Curnie
Sanders (collectively, “Plaintiffs”). Upon review of the district court’s order, the
arguments set forth in the briefs, after the benefit of oral argument, and having
considered our prior precedent on similar matters, we find that the district court
erred in not severing the unconscionable cost-and-fee-shifting provision of the
arbitration agreement. We therefore affirm the district court’s finding in part,
reverse in part, and remand to compel arbitration.
I
Plaintiffs allege that BB&T charged them overdraft fees for payments from
their checking accounts when the accounts contained sufficient funds to cover the
payments. Plaintiffs assert violations of the North Carolina Unfair and Deceptive
Trade Practices Act and common law claims of conversion, breach of the implied
covenant of good faith and fair dealing, and unjust enrichment. Plaintiffs’
allegations arise out of the Bank Services Agreement (BSA), which contains
BB&T’s standard checking account terms. Section B of the BSA is entitled
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“Arbitration Agreement” and is printed on the first two pages of the document.
Section D, entitled “Rules Applicable to All Accounts,” includes a paragraph
termed “Costs, Damages, and Attorneys’ Fees” which is printed on the fourteenth
page of the BSA. This paragraph contains a cost-and-fee-shifting provision:
You agree to be liable to the Bank for any loss, costs, or expenses,
including, without limitation, reasonable attorneys’ fees, the costs of
litigation, and the costs to prepare or respond to subpoenas,
depositions, child support enforcement matters, or other discovery
that the Bank incurs as a result of any dispute involving your account.
(emphasis added). The paragraph also contains a set-off clause: “You authorize
the Bank to deduct any such loss, costs, or expenses from your account without
prior notice to you.”
The Judicial Panel on Multidistrict Litigation transferred this case to the
Southern District of Florida. There, BB&T moved to compel arbitration of
Plaintiffs’ claims under the Federal Arbitration Act and pursuant to the arbitration
provision of the BSA. The district court denied the motion, BB&T appealed, and
we remanded the case for reconsideration in light of the Supreme Court’s
intervening decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S.
Ct. 1740 (2011). On remand, the district court again denied BB&T’s motion to
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compel under North Carolina law.*
In a published opinion, we recently addressed BB&T’s appeal from another
case in the same Multidistrict Litigation proceeding, Barras v. Branch Banking &
Trust Co, No. 11-14318, 2012 WL 2617585 (11th Cir. July 6, 2012). There, Lacy
Barras filed a putative class action against BB&T and brought claims based on the
BSA. In Barras, a panel of this court applied South Carolina law, id. at *1 n.5,
and found the BSA’s cost-and-fee-shifting provision was (1) part of the arbitration
provision, (2) unconscionable, and (3) severable from the arbitration provision of
the BSA, id. at *9.
In this appeal, BB&T raises the same objections to the district court’s
dismissal as it did in Barras. Namely, BB&T argues:
(1) that the question of whether the arbitration provision is
enforceable must be resolved by an arbitrator; (2) that the cost-and-
fee-shifting provision in the agreement that the district court held
unconscionable does not apply to the arbitration provision; (3) that
Concepcion prohibits application of [North Carolina’s]
unconscionability doctrine to the arbitration provision; (4) that the
cost-and-fee-shifting provision, in any event, is not unconscionable;
and (5) that the cost-and-fee-shifting provision is severable from the
arbitration provision.
Id. at *1.
*
The district court ruled that the arbitration agreement is governed by North Carolina law.
Neither party contests this ruling on appeal.
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II
We review a district court’s denial of a motion to compel arbitration de
novo. Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 873 (11th
Cir. 2005). Under the prior precedent rule, “we are bound to follow a binding
prior precedent unless and until it is overruled by this Court en banc or by the
Supreme Court.” Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1274 (11th Cir.
2010).
III
This case and Barras share a procedural and pleading history, so we are
bound by the panel’s decision in Barras insofar as it applies federal law.
Therefore, we find that BB&T waived its right to arbitrate the threshold issue of
unconscionability, Barras, 2012 WL 2617585, at *2, and that Plaintiffs failed to
adequately present their proposed alternate grounds for affirmance to the district
court, id. at *9 n.20. We also reject as unfounded Plaintiffs’ contention that the
purported moratorium on consumer-related disputes by the American Arbitration
Association (“AAA”) would prevent arbitration of this claim. Id. (citing 9 U.S.C.
§ 5).
IV
Upon review, we find that the district court properly applied North Carolina
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law when it found the cost-and-fee-shifting provision of the BSA unconscionable.
First, the district court properly found that the cost-and-fee-shifting
provision formed a part of the arbitration agreement under North Carolina’s
principles of contract interpretation. See Robbins v. C.W. Myers Trading Post,
Inc., 117 S.E.2d 438, 440–41 (N.C. 1960) (stating that each clause is considered in
a contract and that all parts of the contract are to be given effect); Int’l Paper Co.
v. Corporex Constructors, Inc., 385 S.E.2d 553, 555–56 (N.C. Ct. App. 1989)
(same).
Second, the district court properly considered Concepcion before applying
North Carolina’s defense of unconscionability to the BSA. Under Concepcion, a
court can only apply a state contract defense to an arbitration agreement if the
defense is generally applicable to all contracts, and does not only “derive [its]
meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 131
S. Ct. at 1746. North Carolina unconscionability law is properly applied to the
BSA because it is generally applicable to all contracts. See, e.g., Tillman v.
Commercial Credit Loans, Inc., 655 S.E.2d 362, 370, 374 (N.C. 2008) (plurality
opinion) (arbitration); Brenner v. Little Red Sch. House, Ltd., 274 S.E.2d 206, 211
(N.C. 1981) (school contract); Dawbarn v. Dawbarn, 625 S.E.2d 186, 190 (N.C.
Ct. App. 2006) (postnuptial agreement); King v. King, 442 S.E.2d 154, 157 (N.C.
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Ct. App. 1994) (divorce agreement); Rite Color Chem. Co., Inc. v. Velvet Textile
Co., 411 S.E.2d 645, 647–50 (N.C. Ct. App. 1992) (business contract).
Finally, the district court did not err in determining that the cost-and-fee-
shifting provision of the arbitration agreement is unconscionable under North
Carolina law. The cost-and-fee-shifting provision of this contract, which requires
the BB&T customer to pay the bank’s costs in any dispute between the customer
and the bank regardless of who prevails, is “so oppressive that no reasonable
person would,” on the one hand, include it in a contract, “and no honest and fair
person would accept [it] on the other.” Brenner, 274 S.E.2d at 210. The cost-and-
fee-shifting provision is harsh, one-sided, oppressive, and contains an element of
surprise so as to “shock the judgment of a person of common sense.” Tillman, 655
S.E.2d at 369 (plurality opinion); id. at 374 (Edmunds, J., concurring); Brenner,
274 S.E.2d at 213. Thus, we affirm the district court’s finding that the cost-and-
fee-shifting provision was unconscionable under North Carolina law.
V
The district court erred when it determined that: (1) BB&T waived its right
to enforce the severability provision of the BSA, and (2) the set-off provision of
the BSA was unconscionable. We address each issue in turn.
A
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North Carolina allows for severance of a contract clause. “If the contract is
separable . . . and one part is reasonable, the courts will enforce the reasonable
provision.” Whittaker Gen. Med. Corp. v. Daniel, 379 S.E.2d 824, 828 (N.C.
1989); see also N.C. Gen. Stat. § 25-2-302(1) (“If the court as a matter of law
finds . . . any clause of the contract to have been unconscionable at the time it was
made the court may . . . enforce the remainder of the contract without the
unconscionable clause . . . .”). A contract provision is severable when the
enforceable provisions “are in no way dependent upon the enforcement of the
illegal provision for their validity.” Am. Nat’l Elec. Corp. v. Poythress
Commercial Contractors, Inc., 604 S.E.2d 315, 317 (N.C. Ct. App. 2004) (quoting
Rose v. Materials Co., 194 S.E.2d 521, 532 (N.C. 1973)). The arbitration
provision of the BSA may operate independently of the unconscionable cost-and-
fee-shifting provision because the rules of the AAA govern all aspects of an
arbitration, including cost apportionment. Thus, the arbitration provision is still
enforceable even without the cost-and-fee-shifting provision. Cf. Barras, 2012
WL 2617585, at *9 (applying South Carolina law).
[The AAA] rules operate wholly independently of the cost-and-fee-
shifting provision and would not be impaired by invalidating the cost-
and-fee-shifting provision. Thus, the cost-and-fee-shifting provision
does not pervade the arbitration agreement such that enforcing the
arbitration provision without the cost-and-fee-shifting provision
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would be impossible or would render the arbitration provision
ineffectual.
Id. at * 9 (alteration and internal quotation marks omitted). Accordingly, we find
that the unconscionable cost-and-fee-shifting provision of the BSA severable from
the arbitration provision.
B
Plaintiffs argue that the set-off provision is unconscionable under North
Carolina law. However, North Carolina banking law allows banks to set off debts
owed by the depositor against funds in the account. N.C. Gen. Stat. § 25-9-
340(a); Roberts v. First-Citizens Bank & Trust Co., 478 S.E.2d 809, 812 (N.C. Ct.
App. 1996). Because the set-off provision is explicitly permitted by North
Carolina law, the set-off provision is not unconscionable.
VI
We affirm the district court’s determination that the unconscionable cost-
and-fee-shifting provision forms a part of the arbitration agreement, and reverse
the district court’s refusal to sever unconscionable sentence. We also reverse the
district court’s determination that the set-off provision is unconscionable.
Therefore, we reverse the district court’s dismissal of BB&T’s motion and
remand it with instructions to sever the unconscionable clause and compel
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arbitration.
AFFIRMED in part, REVERSED in part, and REMANDED with
instructions.
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