James Dillon v. BMO Harris Bank, N.A. , 787 F.3d 707 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1728
JAMES DILLON,
Plaintiff – Appellee,
v.
BMO HARRIS BANK, N.A.; GENERATIONS FEDERAL CREDIT UNION; BAY
CITIES BANK,
Defendants – Appellants,
and
FOUR OAKS BANK & TRUST COMPANY,
Defendant.
Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro. Catherine C. Eagles,
District Judge. (1:13-cv-00897-CCE-LPA)
Argued: March 27, 2015 Decided: May 29, 2015
Before DUNCAN, KEENAN, and THACKER, Circuit Judges.
Vacated and remanded by published opinion. Judge Duncan wrote
the opinion, in which Judge Keenan and Judge Thacker joined.
ARGUED: Kevin Scott Ranlett, MAYER BROWN LLP, Washington, D.C.,
for Appellants. Stephen N. Six, STUEVE SIEGEL HANSON LLP,
Kansas City, Missouri, for Appellee. ON BRIEF: Lucia Nale,
Debra Bogo-Ernst, MAYER BROWN LLP, Chicago, Illinois; Mary K.
Mandeville, ALEXANDER RICKS PLLC, Charlotte, North Carolina, for
Appellant BMO Harris Bank, N.A.; Eric A. Pullen, Leslie Sara
Hyman, Etan Tepperman, PULMAN, CAPPUCCIO, PULLEN, BENSON &
JONES, LLP, San Antonio, Texas; Reid C. Adams, Jr., Garth A.
Gersten, Jonathan R. Reich, WOMBLE CARLYLE SANDRIDGE & RICE,
LLP, Winston-Salem, North Carolina, for Appellant Generations
Federal Credit Union; Eric Rieder, New York, New York, Michael
P. Carey, Atlanta, Georgia, Mark Vasco, BRYAN CAVE LLP,
Charlotte, North Carolina, for Appellant Bay Cities Bank.
Darren T. Kaplan, DARREN KAPLAN LAW FIRM, P.C., New York, New
York; F. Hill Allen, THARRINGTON SMITH, L.L.P., Raleigh, North
Carolina; Norman E. Siegel, J. Austin Moore, STUEVE SIEGEL
HANSON LLP, Kansas City, Missouri; Jeffrey M. Ostrow, KOPELOWITZ
OSTROW P.A., Fort Lauderdale, Florida; Hassan A. Zavareei, TYCKO
& ZAVAREEI LLP, Washington, D.C., for Appellee.
2
DUNCAN, Circuit Judge:
After Plaintiff-Appellee James Dillon obtained loans from
online lenders and then sued Defendants-Appellants BMO Harris
Bank, N.A., Generations Federal Credit Union, and Bay Cities
Bank (the “Banks”) for facilitating collection of those loans,
the Banks sought to enforce arbitration clauses in the loan
agreements between Dillon and the lenders. The district court
denied these motions, and the Banks filed renewed motions
seeking to cure the deficiencies the court relied on in
dismissing their claims. The district court then denied the
renewed motions without considering their merits; it construed
them as motions for reconsideration, and denied them on that
basis. The Banks appealed. For the reasons that follow, we
vacate the district court’s order denying the renewed motions
and remand for further proceedings.
I.
A.
In October 2013, Dillon, a North Carolina resident, filed
this putative class action against the Banks. 1 He alleges that
he applied in late 2012 and mid 2013 for four online payday
1
A fourth Defendant, Four Oaks Bank & Trust, is not a party
to this appeal.
3
loans from tribal and out-of-state lenders. 2 As a part of the
application process, Dillon authorized the lenders to collect
the amount due under the loan agreements by debiting his
checking account. The lenders approved Dillon’s applications
and deposited a total of $3,575 into his checking account. Soon
after, the lenders began collecting loan payments by initiating
electronic fund transfers from that account. The Banks,
although not parties to the loan agreements, processed these
transfers on behalf of the lenders, thereby acting as
intermediaries between the lenders and Dillon.
Dillon maintains that North Carolina law prohibits the
loans he took out because, among other reasons, they carried
interest rates that substantially exceed the maximum allowable
rate under State law. In this action, however, Dillon does not
sue the lenders or any other party to his loan agreements.
2
Payday loans are small, high-interest, short-term cash
loans. “Because of the dangers to consumers and potential for
predatory lending practices, many states have undertaken to
regulate or eliminate such transactions.” Cmty. State Bank v.
Knox, 523 F. App’x 925, 926 n.1 (4th Cir. 2013). North Carolina
is one such state. According to the North Carolina Department
of Justice, “storefront payday lenders” are barred from the
State, “but lenders are still using the Internet to offer these
loans.” Payday Loans, N.C. Dep’t Just.,
http://www.ncdoj.gov/Consumer/Credit-and-Debt/Payday-Loans.aspx
(last visited May 7, 2015) (saved as ECF opinion attachment).
The Department explains that these Internet loans are
unenforceable under North Carolina law, but notes that “some
Internet lenders who are based overseas or on Indian
reservations claim not to be subject to North Carolina law.”
Id.
4
Rather, he sues the Banks, alleging that they were complicit in,
and necessary parties to, the lenders’ unlawful practices.
Specifically, Dillon claims that the Banks made it possible for
the lenders to make and collect payday loans in North Carolina
by providing the lenders with access to the Automated Clearing
House (“ACH”) Network, an electronic payment system. When
payments were due under the loan agreements, the lenders
initiated direct payment transactions through the ACH network.
The Banks, known as Originating Depository Financial
Institutions, then entered the transactions into the ACH
Network. Soon after, a central clearing facility transmitted
funds from Dillon’s account to the lenders’ accounts. According
to Dillon, this process enabled the lenders to “debit payday
loan payments from customers’ bank accounts in states where the
loans are illegal and unenforceable.” J.A. 28 ¶ 7.
B.
In November and December 2013, the Banks filed motions to
compel arbitration and stay further court proceedings (the
“Initial Motions”). 3 They argued that Dillon agreed to submit
any claims arising from those loans to arbitration as a part of
3
Specifically, Generations moved to dismiss Dillon’s
complaint for failure to arbitrate, and the other two banks each
filed a motion to compel arbitration and stay further court
proceedings.
5
the application process for the loans themselves. 4 The Banks
substantiated their position by attaching copies of electronic
loan agreements containing arbitration clauses and bearing
Dillon’s name.
Dillon opposed the Initial Motions. Relevant to this
appeal, Dillon argued that the Banks failed to carry their
burden of showing an agreement to arbitrate. He claimed that
the loan agreements were inadmissible hearsay because they did
not bear his physical signature and because the Banks did not
offer proof that they had been authenticated.
The Banks replied that the loan agreements were properly
before the court for three reasons. First, they argued that the
agreements were integral to Dillon’s complaint because “the
loans form the entire basis for his claims.” J.A. 170 n.2; see
also J.A. 162–63, 172. Second, they argued that Dillon’s
position was disingenuous because Dillon, and not the Banks, was
a signatory to the loan agreements. Third, they pointed out
that Dillon had not actually questioned the agreements’
4
For example, Dillon’s purported loan agreement with one of
the lenders, Great Plains Lending, LLC, states: “UNLESS YOU
EXERCISE YOUR RIGHT TO OPT-OUT OF ARBITRATION [IN WRITING WITHIN
60 DAYS OF RECEIVING THE LOAN], ANY DISPUTE YOU HAVE WITH LENDER
OR ANYONE ELSE UNDER THIS AGREEMENT WILL BE RESOLVED BY BINDING
ARBITRATION.” J.A. 133.
6
authenticity. Rather, his argument concerned the Banks’ burden
of proof.
In March 2014, the district court denied the Initial
Motions, holding that the Banks “ha[d] not met their burden to
establish the existence of an agreement to arbitrate,” J.A. 173,
because they failed to provide authenticating evidence, J.A.
175–76, which, the court held, was necessary to discharge the
Banks’ burden, J.A. 176–78. The Banks did not appeal this
ruling; instead, they attempted to cure the deficiency
identified by the district court. 5
C.
After the district court denied the Initial Motions, the
Banks obtained from the lenders declarations purporting to
authenticate the loan agreements. The Banks then filed renewed
motions to compel arbitration and stay further court proceedings
(the “Renewed Motions”).
Dillon opposed the Renewed Motions. He urged the district
court to construe the Renewed Motions as motions for
reconsideration because, in Dillon’s view, the court had “fully
and finally decided” the “issues raised in [the Banks’]
‘renewed’ motion[s].” J.A. 331. He submitted that the court
5
Because the Banks did not appeal the district court’s
order denying the Initial Motions, its correctness is not before
us.
7
should deny the Renewed Motions without considering their merits
because “the law of the case doctrine and public policy weigh
strongly against reconsideration.” J.A. 337.
The Banks argued in reply that the reconsideration standard
was inapplicable because “the Court ha[d] not previously decided
the merits of [the Initial Motions].” J.A. 364. The Banks
pointed out that they were “not asking the Court to revisit” its
prior ruling, but were instead seeking a determination of
whether “the authenticating declaration[s] [were] sufficient to
address the Court’s concerns.” J.A. 364.
The district court adopted Dillon’s proposed construction
of the Renewed Motions. The court noted that it had “previously
denied motions to compel arbitration,” and observed that the
Banks had “offered no legal basis to revisit this previously
decided issue.” J.A. 430. In other words, the district court
ruled that, regardless of whether Dillon actually agreed to
submit his claims to arbitration, Dillon’s right to litigate
those claims had become law of the case. It therefore held that
it would grant the Renewed Motions “only if ‘(1) there ha[d]
been an intervening change in controlling law; (2) there [wa]s
additional evidence that was not previously available; or (3)
[its] prior decision was based on clear error or would work
manifest injustice.’” J.A. 433 (quoting Akeva L.L.C. v. Adidas
Am., Inc., 385 F. Supp. 2d 559, 566 (M.D.N.C. 2005)). The court
8
then found that the Banks had satisfied none of these factors,
and it denied the Renewed Motions for failure to justify
reconsideration. The Banks timely appealed.
II.
Our analysis proceeds in three parts. We begin with a
brief discussion of the Federal Arbitration Act (“FAA”), 9
U.S.C. § 1 et seq., as necessary context for our analysis. We
then explain why the FAA provides us with jurisdiction over this
interlocutory appeal. 6 Finally, we conclude that the district
court erred by treating as motions for reconsideration what
were, in both form and substance, renewed motions to compel
arbitration and stay further court proceedings.
A.
Congress enacted the FAA in 1925 “to reverse the
longstanding judicial hostility to arbitration agreements that
had existed at English common law and had been adopted by
American courts, and to place arbitration agreements upon the
same footing as other contracts.” Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 24 (1991). The FAA manifests an
6
In August 2014, Dillon moved to dismiss this appeal for
lack of subject matter jurisdiction. After the Banks responded
and Dillon filed a reply, we deferred ruling on the motion until
after oral argument. We resolve Dillon’s motion in Part II.B
below.
9
“emphatic federal policy in favor of arbitral dispute
resolution,” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 631 (1985), and requires that courts
“rigorously enforce agreements to arbitrate,” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985).
Section 2 of the FAA is its “primary substantive
provision.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24 (1983). This section “provides that written
agreements to arbitrate controversies arising out of an existing
contract ‘shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
revocation of any contract.’” Dean Witter Reynolds, 470 U.S. at
218 (quoting 9 U.S.C. § 2).
Sections 3 and 4 “provide[] two parallel devices for
enforcing an arbitration agreement: a stay of litigation in any
case raising a dispute referable to arbitration, 9 U.S.C. § 3,
and an affirmative order to engage in arbitration, § 4.” Moses
H. Cone Mem’l Hosp., 460 U.S. at 22. Under § 3, a district
court must grant a party’s motion to stay further proceedings if
(1) the court is “satisfied that the issue . . . is referable to
arbitration” pursuant to “an agreement in writing for such
arbitration,” and (2) the “applicant for the stay is not in
default in proceeding with such arbitration.” 9 U.S.C. § 3.
The circumstances giving rise to default under the FAA “are
10
limited and, in light of the federal policy favoring
arbitration, are not to be lightly inferred.” Maxum Founds.,
Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985). A party
is in default only if it has “so substantially utiliz[ed] the
litigation machinery that to subsequently permit arbitration
would prejudice the party opposing the stay.” Id.
Section 4 provides that “[a] party aggrieved by the alleged
failure, neglect, or refusal of another to arbitrate under a
written agreement may petition [a] district court . . . for an
order directing that such arbitration proceed.” 9 U.S.C. § 4.
If the court determines “that an agreement for arbitration was
made in writing,” it must “make an order summarily directing the
parties to proceed with the arbitration in accordance with the
terms thereof.” Id.
If a party’s motion under §§ 3 or 4 presents unresolved
questions of material fact, the FAA “call[s] for an expeditious
and summary hearing” to resolve those questions. Moses H. Cone
Mem’l Hosp., 460 U.S. at 22; see also 9 U.S.C. § 4 (“If the
making of the arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereof.”). Thus, “[o]ne thing the
district court may never do is find a material dispute of fact
does exist” and then deny the motion without holding “any trial
to resolve that dispute of fact.” Howard v. Ferrellgas
11
Partners, L.P., 748 F.3d 975, 978 (10th Cir. 2014) (emphasis
omitted).
Section 16 authorizes immediate appeal from an order
“refusing a stay of any action under section 3 . . . [or]
denying a petition under section 4 . . . to order arbitration to
proceed.” 9 U.S.C. § 16(a)(1). “Congress’s purpose in creating
appellate jurisdiction for these orders was to effectuate a
‘strong policy favoring arbitration’ through appeal rules,
whereby ‘an order that favors litigation over arbitration . . .
is immediately appealable, even if interlocutory in nature.’”
Rota-McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 696
(4th Cir. 2012) (quoting Stedor Enterprises, Ltd. v. Armtex,
Inc., 947 F.2d 727, 730 (4th Cir. 1991)). Against this
background, we now turn to the issues before us.
B.
Our first determination is whether we have jurisdiction.
Dillon argues that the Banks are appealing an interlocutory
order denying motions for reconsideration--rather than an order
denying motions seeking arbitration under §§ 3 or 4 of the FAA--
and therefore that § 16(a) of the FAA, which would otherwise
confer jurisdiction, does not apply. We disagree. Because the
Renewed Motions by their very terms sought enforcement of
Dillon’s purported arbitration agreements, we have jurisdiction
12
over this appeal regardless of the district court’s
characterization of those motions.
We determine whether the Renewed Motions are petitions
under either §§ 3 or 4, and thus whether § 16(a) affords us
jurisdiction, by looking to whether they “evidence[] a clear
intention to seek enforcement of an arbitration clause.” Rota-
McLarty, 700 F.3d at 698. We conclude below that the motions
did so.
BMO Harris and Bay Cities each labeled their motions as a
“RENEWED MOTION TO COMPEL ARBITRATION AND TO STAY LITIGATION.”
J.A. 298, 375. The terms “compel” and “stay” invoke §§ 4 and 3,
respectively. The two banks thus employed the “first, simplest,
and surest way to guarantee appellate jurisdiction under
§ 16(a).” Wheeling Hosp., Inc. v. Health Plan of the Upper Ohio
Valley, Inc., 683 F.3d 577, 585 (4th Cir. 2012) (quoting Conrad
v. Phone Directories Co., 585 F.3d 1376, 1385 (10th Cir. 2009)).
Indeed, we generally do not look beyond the caption of a denied
motion when determining our jurisdiction under the FAA unless we
“suspect[] that the motion has been mis-captioned in an attempt
to take advantage of § 16(a).” Id. (quoting Conrad, 585 F.3d at
1385). There is no basis for suspicion here: BMO Harris and Bay
Cities both made clear in their respective motions that they
were seeking enforcement of arbitration clauses. See J.A. 299-
300 (BMO Harris repeatedly describing its motion as one “to
13
compel arbitration”); J.A. 376 (Bay Cities asking the court to
enter an “order compelling plaintiff James Dillon . . . to
arbitrate each of [his] claims” and “staying this action pending
arbitration”).
Unlike BMO Harris and Bay Cities, Generations moved to
dismiss Dillon’s claims against it. We have previously held
that a motion to dismiss is an appropriate vehicle to “invoke
the full spectrum of remedies under the FAA, including a stay
under § 3.” Choice Hotels Int’l, Inc. v. BSR Tropicana Resort,
Inc., 252 F.3d 707, 710 (4th Cir. 2001). We determine whether
we have appellate jurisdiction over such a motion by asking
whether the movant “made it clear within the four corners of its
motion to dismiss that it was seeking enforcement of the
arbitration agreement.” Wheeling Hosp., 683 F.3d at 586. Here,
Generations asked the district court to dismiss Dillon’s claims
against it because Dillon “agreed that any disputes related to
the Loan Agreement . . . would be determined exclusively . . .
through arbitration.” J.A. 317. This language makes clear that
Generations moved to enforce an arbitration agreement.
We conclude that § 16(a) provides us with jurisdiction over
this interlocutory appeal because the “the essence of the
requested relief [in the Renewed Motions] ‘is that the issues
presented be decided exclusively by an arbitrator and not by any
court.’” Rota-McLarty, 700 F.3d at 699 (quoting Wheeling Hosp.,
14
683 F.3d at 585) (internal quotation marks omitted). We
therefore deny Dillon’s motion to dismiss this appeal for lack
of jurisdiction.
C.
We turn now to the merits of this appeal, reviewing the
district court’s order denying the Renewed Motions de novo. See
Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380
F.3d 200, 203-04 (4th Cir. 2004). We proceed mindful that, “as
a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration,
whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like
defense to arbitrability.” Moses H. Cone Mem’l Hosp., 460 U.S.
at 24–25.
We are compelled to conclude that the district court erred
by construing the Renewed Motions as motions for reconsideration
and then denying them on that basis. The district court did not
elaborate beyond concluding that the motions sought
reconsideration of a previously decided question. We see two
possible bases for the court’s approach, but neither is
availing. The court could have refused to consider the Renewed
Motions on the merits because it believed that the Banks had
only one opportunity to invoke the FAA’s enforcement mechanisms.
Or, alternatively, the court could have relied on the law of the
15
case doctrine to deny the Renewed Motions if resolution of those
motions turned on a rule of law that the court had already
decided. We briefly consider each rationale.
First, no authority--not the FAA, the Federal Rules of
Civil Procedure, or any other source of law of which we are
aware--limits a party to only one motion under §§ 3 or 4 of the
FAA. 7 Section 4 provides that a party seeking to enforce an
arbitration agreement “may petition” the court for an order
compelling arbitration. 9 U.S.C. § 4. And § 3 states that
courts “shall on application of one of the parties stay the
trial of the action” if certain conditions are met. Id. § 3.
Indeed, the FAA lists only one circumstance under which “a party
may lose its right to compel arbitration,” Rota-McLarty, 700
F.3d at 702: when that party “is in default in proceeding with
such arbitration,” id. (quoting 9 U.S.C. § 3). The district
court’s order cannot rest upon this ground because the court did
not find that the Banks were in default.
7
Nor did the district court make clear to the Banks that it
expected them to file only one round of motions under the FAA.
We point this out not to imply that such an instruction
necessarily would have been permissible; rather, we note that
this appeal would present different issues if the district court
had, with fair notice, limited the parties to only one motion.
A court reviewing such an instruction would likely consider
whether that instruction were consistent with “Congress’s clear
intent . . . to move the parties to an arbitrable dispute out of
court and into arbitration as quickly and easily as possible.”
Moses H. Cone Mem’l Hosp., 460 U.S. at 22.
16
Second, because the Renewed Motions presented different
issues than did the Initial Motions, the district court could
not have relied on the law of the case doctrine to deny the
Renewed Motions. That doctrine “posits that when a court
decides upon a rule of law, that decision should continue to
govern the same issues in subsequent stages in the same case.”
L.J. v. Wilbon, 633 F.3d 297, 308 (4th Cir. 2011) (emphasis
added) (quoting TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th
Cir. 2009)). It does not apply here because the court’s order
denying the Initial Motions contained no rule of law that
dictated the resolution of the Renewed Motions.
In the Initial Motions, the Banks maintained, not
unreasonably, that because Dillon’s complaint was based on and
incorporated by reference the very loan agreements that the
Banks sought to introduce, the pleadings themselves established
Dillon’s agreement to arbitrate. Although the district court
disagreed, ruling that the pleadings were insufficient because
authenticated loan agreements were necessary, the Banks did not
challenge this ruling in their Renewed Motions. Rather, they
attempted to cure the evidentiary deficiencies the court relied
on and asked the court to determine whether Dillon actually
agreed to submit his claims to arbitration. The court’s prior
ruling--that the pleadings did not establish arbitrability--did
not determine whether Dillon consented to arbitration.
17
Accordingly, the district court should have resolved the Renewed
Motions on the merits.
At bottom, neither the fact that the district court denied
the Initial Motions nor the court’s reasoning for doing so
dictated the resolution of the Renewed Motions. Rather than
resolving “any doubts concerning the scope of arbitrable
issues . . . in favor of arbitration,” Moses H. Cone Mem’l
Hosp., 460 U.S. at 24–25, the district court impermissibly
denied the Renewed Motions without considering their merits. We
must therefore vacate the court’s order as inconsistent with the
“emphatic federal policy in favor of arbitral dispute
resolution.” Mitsubishi Motors Corp., 473 U.S. at 631.
On remand, the district court must determine whether
Dillon’s claims are “referable to arbitration under an agreement
in writing for such arbitration,” unless it finds that the Banks
are “in default in proceeding with such arbitration.” 9 U.S.C.
§ 3. And, with respect to the two banks that seek orders
compelling arbitration, the court must decide whether those
banks are “aggrieved by the . . . failure, neglect, or refusal
of [Dillon] to arbitrate under a written agreement for
arbitration.” Id. § 4. If unresolved questions of material
fact prevent the court from ruling on the Renewed Motions, the
court shall hold “an expeditious and summary hearing” to resolve
those questions. Moses H. Cone Mem’l Hosp., 460 U.S. at 22.
18
III.
For the foregoing reasons, we vacate the district court’s
order and remand for further proceedings.
VACATED AND REMANDED
19