Knox v. First Southern Cash Advance

NO. COA12-604
NORTH CAROLINA COURT OF APPEALS
Filed: 4 February 2014
TOMMY KNOX, VELMA KNOX, and KERRY
GORDON, on behalf of themselves
and all other persons similarly
situated,
Plaintiffs
v. New Hanover County
No. 05 CVS 445
FIRST SOUTHERN CASH ADVANCE;
COMPUCREDIT CORPORATION; VALUED
SERVICES ACQUISITIONS COMPANY,
LLC; VALUED SERVICES, LLC; VALUED
SERVICES OF NORTH CAROLINA, LLC;
VALUED SERVICES FINANCIAL
HOLDINGS, LLC; VALUED SERVICES
HOLDINGS, LLC; FORESIGHT
MANAGEMENT COMPANY, LLC; FIRST
AMERICAN HOLDING, LLC; FIRST
AMERICAN MANAGEMENT, INC.; JAMES
E. SCOGGINS and ROBERT P. MANNING,
Defendants
Appeal by defendants from orders entered 23 January 2012 by
Judge D. Jack Hooks, Jr. in New Hanover County Superior Court.
Heard in the Court of Appeals 28 November 2012.
Hartzell & Whiteman, L.L.P., by J. Jerome Hartzell, and North
Carolina Justice & Community Development Center, by Carlene
McNulty, for plaintiff-appellees.
Moore & Van Allen PLLC, by Thomas D. Myrick, Mark A. Nebrig
and Jonathan M. Watkins, and Paul Hastings LLP, by J. Allen
Maines and S. Tameka Phillips, for defendant-appellants.
STEELMAN, Judge.
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Based upon the decisions of the United States Supreme Court
in AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S. Ct. 1740, 179
L. Ed. 2d 742 (2011), and American Express Co. v. Italian Colors
Rest., ___ U.S. ___, 133 S. Ct. 2304, 186 L. Ed. 2d 417 (2013), the
trial court erred in holding that the arbitration agreement was
unconscionable and refusing to compel arbitration.
I. Factual and Procedural History
Between 1 May 2003 and 28 January 2005, Tommy Knox, Velma
Knox, Kerry Gordon and Willie Patrick (collectively, “plaintiffs”)
obtained loans from Community State Bank (“bank”). These loans
were short-term, single-disbursement, single-repayment loans in
amounts up to $750. At maturity, plaintiffs were required to pay
the principal plus a finance charge ranging from eighteen to
twenty-seven percent of the principal.
Upon approval for a loan, plaintiffs were presented with an
agreement, which conspicuously contained provisions that
plaintiffs agreed to binding arbitration of all claims, and that
plaintiffs agreed not to participate in a class action lawsuit.
Of particular relevance to the instant case is the following
language from the Arbitration Agreement:
Arbitration: You acknowledge that you have
read, understand, and agree to the terms
contained in the Arbitration Agreement you are
signing in connection with this Note. By
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entering into the Arbitration Agreement, you
waive certain rights, including the right to
go to court (except as specifically provided
in the Arbitration Agreement), to have the
dispute heard by a jury, and to participate as
a part of a class of claimants relating to any
dispute with Lender, First American or their
affiliates.
...
ARBITRATION AGREEMENT AND WAIVER OF JURY
TRIAL. Arbitration is a process in which
persons with a dispute: (a) waive their rights
to file a lawsuit and proceed in court and to
have a jury trial to resolve their disputes;
and (b) agree, instead, to submit their
disputes to a neutral third person (an
“arbitrator”) for a decision. Each party to
the dispute has an opportunity to present some
evidence to the arbitrator. Pre-arbitration
discovery may be limited. Arbitration
proceedings are private and less formal than
court trials. The arbitrator will issue a
final and binding decision resolving the
dispute, which may be enforced as a court
judgment. A court rarely overturns an
arbitrator’s decision. THEREFORE, YOU
ACKNOWLEDGE AND AGREE AS FOLLOWS:
. . .
2. By entering into this Arbitration
Agreement:
(a) YOU ARE WAIVING YOUR RIGHT TO HAVE A
TRIAL BY JURY TO RESOLVE ANY DISPUTE ALLEGED
AGAINST US OR RELATED THIRD PARTIES;
(b) YOU ARE WAIVING YOUR RIGHT TO HAVE A
COURT, OTHER THAN A SMALL CLAIMS TRIBUNAL,
RESOLVE ANY DISPUTE ALLEGED AGAINST US OR
RELATED THIRD PARTIES; and
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(c) YOU ARE WAIVING YOUR RIGHT TO SERVE AS A
REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL,
OR IN ANY OTHER REPRESENTATIVE CAPACITY,
AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS
OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US
AND/OR RELATED THIRD PARTIES.
3. Except as provided in Paragraph 6 below,
all disputes including any Representative
Claims against us and/or related third parties
shall be resolved by binding arbitration only
on an individual basis with you. THEREFORE,
THE ARBITRATOR SHALL NOT CONDUCT CLASS
ARBITRATION; THAT IS, THE ARBITRATOR SHALL NOT
ALLOW YOU TO SERVE AS A REPRESENTATIVE, AS A
PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER
REPRESENTATIVE CAPACITY FOR OTHERS IN THE
ARBITRATION.
4. Any party to a dispute, including related
third parties, may send the other party
written notice by certified mail return
receipt requested of their intent to arbitrate
and setting forth the subject of the dispute
along with the relief requested, even if a
lawsuit has been filed. Regardless of who
demands arbitration, you shall have the right
to select any of the following organizations
to administer the arbitration: the American
Arbitration Association[],
J.A.M.S./Endispute[], or the National
Arbitration Forum[]. However, the parties may
agree to select a local arbitrator who is an
attorney, retired judge, or arbitrator
registered in good standing with an
arbitration association and arbitrate
pursuant to such arbitrator’s rules. . .
5. If you demand arbitration, then at your
request we will advance your portion of the
expenses associated with the arbitration,
including the filing, administrative, hearing
and arbitrator’s fees (“Arbitration Fees”).
If related third parties or we demand
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arbitration, then at your written request we
will advance your portion of the Arbitration
Fees. Throughout the arbitration, each party
shall bear his or her own attorneys’ fees and
expenses, such as witness and expert witness
fees. The arbitrator shall apply applicable
substantive law consistent with the FAA and
applicable statutes of limitation, and shall
honor claims of privilege recognized at law.
The arbitration hearing will be conducted in
the county of your residence, or within 30
miles from such county, or in the county in
which the transaction under this Loan
Agreement occurred, or in such other place as
shall be ordered by the arbitrator. The
arbitrator may decide with or without any
hearing, any motion that is substantially
similar to a motion to dismiss for failure to
state a claim or a motion for summary
judgment. In conducting the arbitration, the
arbitrator shall not apply any federal or
state rules of civil procedure or evidence.
At the timely request of any party, the
arbitrator shall provide a written explanation
for the award. The arbitrator’s award may be
filed with any court having jurisdiction. If
allowed by statute or applicable law, the
arbitrator may award you statutory damages
and/or your reasonable attorneys’ fees and
expenses. Regardless of whether the
arbitrator renders a decision or an award in
your favor resolving the dispute, you will not
be responsible for reimbursing us for your
portion of the Arbitration Fees.
6. All parties, including related third
parties, shall retain the right to seek
adjudication in a small claims tribunal for
disputes within the scope of such tribunal’s
jurisdiction. Any dispute that cannot be
adjudicated within the jurisdiction of a small
claims tribunal shall be resolved by binding
arbitration. Any appeal of a judgment from a
small claims tribunal shall be resolved by
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binding arbitration.
7. This Arbitration Agreement is made
pursuant to a transaction involving interstate
commerce and shall be governed by the FAA. If
a final non-appealable judgment of a court
having jurisdiction over this transaction
finds, for any reason, that the FAA does not
apply to this transaction, then our agreement
to arbitrate shall be governed by the
arbitration law of the State of South Dakota.
8. This Arbitration Agreement is binding
upon and benefits you, your respective heirs,
successors and assigns. The Arbitration
Agreement is binding upon and benefits us, our
successors and assigns, and related third
parties.
On 8 February 2005, plaintiffs filed a class-action
complaint, alleging that defendants Compucredit Corporation
(“Compucredit”), Valued Services Acquisitions Company, LLC (“VS-
AC”), Valued Services of North Carolina, LLC (“VS-NC”), Valued
Services Financial Holdings, LLC (“VS-FH”), Valued Services
Holdings, LLC (“VS-H”), Foresight Management Company, LLC
(“Foresight”), First American Holding, LLC (“FA-H”), First
American Management, Inc. (“FA-M”), James E. Scoggins
(“Scoggins”), and Robert P. Manning (“Manning”), under the name
First Southern Cash Advance (collectively, “defendants”) violated
the North Carolina Consumer Finance Act, the North Carolina unfair
trade practices statute, and North Carolina usury laws.
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On 28 February 2006, plaintiffs moved that the case be
certified as a class action. On 10 November 2009, Patrick
voluntarily dismissed his claims against defendants without
prejudice. On 25 January 2011, Scoggins and Manning moved to
dismiss for insufficiency of service of process. On 19 May 2011,
VS-AC, VS-FH, VS-H, FA-H, FA-M, Scoggins, and Manning moved to
dismiss for lack of personal jurisdiction, asserting that they had
insufficient contacts with the State of North Carolina for the
trial court to exercise personal jurisdiction under the long-arm
statute (N.C. Gen. Stat. § 1-75.4). On 25 May 2011, defendants
moved to compel arbitration.
On 23 January 2012, the trial court denied defendants’ 25
January 2011 motion to dismiss for insufficiency of service of
process, denied defendants’ 19 May 2011 motion to dismiss for lack
of personal jurisdiction, denied defendants’ 25 May 2011 motion to
compel arbitration, and granted plaintiffs’ 28 February 2006
motion for class certification.
Defendants appeal.
II. Failure to Compel Arbitration
Defendants first contend that the trial court erred by
refusing to compel arbitration. We agree.
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A. Standard of Review
The standard governing our review of this case
is that “findings of fact made by the trial
judge are conclusive on appeal if supported by
competent evidence, even if ... there is
evidence to the contrary.” Lumbee River Elec.
Membership Corp. v. City of Fayetteville, 309
N.C. 726, 741, 309 S.E.2d 209, 219 (1983)
(citation omitted). “Conclusions of law drawn
by the trial court from its findings of fact
are reviewable de novo on appeal.” Carolina
Power & Light Co. v. City of Asheville, 358
N.C. 512, 517, 597 S.E.2d 717, 721 (2004).
Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 100-01, 655
S.E.2d 362, 369 (2008).
B. Unconscionability
In the instant case, the trial court’s order denying
defendants’ motion to compel arbitration was filed on 23 January
2012. On 25 January 2012, the trial court’s order denying
defendants’ motion to compel arbitration in the companion case of
Torrence et al. v. Nationwide Budget Finance et al. (New Hanover
County case 05 CVS 447) was filed. The findings of fact,
conclusions of law, and rulings of the trial court were virtually
identical.1
1 In Torrence, there was additional analysis dealing with the
designation of the National Arbitration Forum (NAF) as the
arbitrator. In the instant case, the arbitration agreement
provided for three arbitration groups, one of which was the NAF.
The agreement also provided that, by agreement, the parties could
select a local arbitrator. Neither party in the instant case has
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We are simultaneously filing an opinion in the Torrence case
(COA 12-453). For the reasons set forth in Torrence, we hold that
the trial court erred in determining that the arbitration agreement
was substantively unconscionable. The orders of the trial court
denying defendants’ motion to dismiss for insufficiency of service
of process, denying defendants’ motion to dismiss for lack of
personal jurisdiction, denying defendants’ motion to compel
arbitration, and granting plaintiffs’ motion for class
certification are vacated, and the matter is remanded to the trial
court for entry of an order compelling arbitration in this case.
Because the trial court erred in holding that the arbitration
agreement was substantively unconscionable, we need not reach the
question of procedural unconscionability. See Torrence, ___ N.C.
App. ___, ___, ___ S.E.2d ___, ___ (2014) (COA 12-453, § VI).
III. Other Arguments
Because the trial court erred in denying defendants’ motion
to compel arbitration, defendants’ arguments with regard to class
action are moot, and further excluded due to the express language
of the arbitration agreement waiving class actions. Because this
case was not properly before the trial court, we need not address
raised a question concerning the arbitrator or arbitrator
selection clause in the arbitration agreement.
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defendants’ further contentions regarding class certification,
personal jurisdiction and service of process. See, e.g., Miller
v. Two State Const. Co., Inc., 118 N.C. App. 412, 418, 455 S.E.2d
678, 682 (1995) (holding that where the arbitration agreement was
valid, we “need not address the other issues raised by
defendants”). These issues are properly to be determined by an
arbitrator.
IV. Conclusion
The trial court erred in refusing to grant defendants’ motion
to compel arbitration. The orders of the trial court enumerated
in Section II of this opinion are all vacated, and this matter is
remanded to the trial court for entry of an order compelling the
parties to arbitrate their claims.
VACATED AND REMANDED.
Judges STEPHENS and McCULLOUGH concur.