STRANGE v. SELECT MANAGEMENT RESOURCES, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA OED

ADIAHAH STRANGE, et al. ) 1:19-CV-321 [sy FILED > 7

AISHA PHILLIPS, et al. ) 1:19-CV-325

ADRIAN NICHOLSON, et al. ) 1:19-CV-519 JUN 2 8 2021

AMELIA GREEN, et al. ) 1:19-CV-670 cw U8 Det □□□□

ASIA ARCHIE, et al. ) 1:19-CV-575 mpeg"

ALEXIS CANNON, et al., ) 1:19-CV-823 en) □□

Plaintiffs, ) [Te

)

Vv. )

)

SELECT MANAGEMENT )

RESOURCES, LLC, et al., )

Defendants. )

MEMORANDUM OPINION AND ORDER- KENNETH McNEIL

Catherine C. Eagles, District Judge.

The plaintiff, Kenneth McNeil, is a North Carolina resident who borrowed money

from the defendant, Anderson Financial Services LLC, d/b/a LoanMax, at an interest rate

illegal in North Carolina. He is one of many plaintiffs in these consolidated cases to file

suit under North Carolina consumer protection statutes. LoanMax contends that the loan

was made in Virginia, where the interest rate was legal, that these North Carolina statutes

do not apply, and that if they do, such application is unconstitutional. An arbitrator

disagreed with LoanMax, and LoanMax has not shown the kind of error required to set

aside an arbitration award. Mr. McNeil’s motion to confirm the award will be granted.

I. Procedural Background

In February 2019, the plaintiffs, North Carolina residents who borrowed money

from out-of-state lenders, filed this lawsuit against their respective lenders in state court.

The plaintiffs alleged that the defendants charged illegal interest rates in violation of the

North Carolina Consumer Finance Act, the North Carolina Unfair and Deceptive Trade

Practices Act, and N.C. Gen Stat § 24-1.1. See Doc. 62 at 2 (summarizing the claims).

After removing the case to this Court, the defendants by counterclaim asked for a

declaratory judgment that the North Carolina Consumer Finance Act violates the dormant

Commerce Clause. See Doc. 8 at 11-12. The plaintiffs moved to compel arbitration

pursuant to arbitration clauses the defendant-lenders included in the loan agreements.

Doc, 32; see also Doc. 33-2. In October 2019, the Court granted the plaintiffs’ motion to

stay and to compel arbitrations as to all but one defendant. Doc. 62 at 13. The Court did

not rule on the constitutional issue raised by LoanMax. See id. at 11-12. The matters

have since been moving through individual arbitrations,

In April 2021, an arbitrator issued its final award in favor of Mr. McNeil. See

Doc. 121-1. Mr. McNeil filed a motion for judgment and to confirm the arbitration

award. Doc. 120. LoanMax filed a motion to vacate the arbitration award. Doc. 123.

Mr. McNeil also seeks attorneys’ fees for his time spent obtaining the order to enforce the

award. Doc. 126 at 9.

If. Overview of the Dispute

The basic facts are undisputed. Mr. McNeil and LoanMax entered into a contract

whereby LoanMax lent money to Mr. McNeil and Mr. McNeil agreed to repay the money

with interest. The contract provided that Virginia law would apply. Mr. McNeil has not

repaid the loan.

The interest rate LoanMax charged Mr. McNeil and other plaintiffs was illegal

under North Carolina law and legal under Virginia law. The dispute has centered on

whether Mr. McNeil is entitled to the benefit of North Carolina statutory protections

prohibiting usurious loans like the one here and, ifhe is, whether application of those

statutes is unconstitutional.

WI. The Arbitration Award

After a hearing, the arbitrator found that Mr. McNeil was entitled to the

protections in the North Carolina Consumer Finance Act because, “at the very least,

contractual activity discussions occurred between McNeil and LoanMax in North

Carolina” before the parties executed the loan agreement. See Doc. 121-1 at2. The

arbitrator concluded based on this finding that the statute was constitutional as applied to

the loan agreement between LoanMax and Mr. McNeil. /d. The arbitrator also found

that the agreement was void because its terms violated the North Carolina Consumer

Finance Act. See id. As a result, the arbitrator struck LoanMax’s lien on Mr. McNeil’s

vehicle and ordered that LoanMax “shall not collect, receive, or retain any principal or

charges whatsoever with respect to the loan.”. Jd.

The arbitrator did not award damages and denied Mr. McNeil’s request for

attorneys’ fees under the North Carolina Unfair and Deceptive Trade Practices Act. Id.

(noting that the fees are discretionary and that Mr. McNeil had not established the facts

necessary for the award). The arbitrator denied LoanMax’s counterclaims for a

declaratory judgment that its “loan activities with respect to McNeil’s claims do not

subject the loan to” various North Carolina consumer protection statutes, or in the

alternative, that the North Carolina statutes are unconstitutional as applied, and for breach

of contract based on Mr. McNeil’s failure to pay back the loan. Jd. at 1-2. The final

arbitration award did not mention the choice-of-law provision. See generally id.

IV. Should the Arbitration Award be Confirmed or Vacated?

A. Judicial Review of Arbitration Awards

Under the Federal Arbitration Act, a party seeking confirmation of an arbitration

award may petition the court for an order confirming the award within one year of the

date the award is made. 9 U.S.C. § 9; see also Taylor v. Nelson, 788 F.2d 220, 225 n.2

(4th Cir. 1986). “Judicial review of an arbitration award in federal court is severely

circumscribed.” Wachovia Sec., LLC v. Brand, 671 F.3d 472, 478 (4th Cir. 2012)

(cleaned up). “Indeed, given that ‘full scrutiny of such awards would frustrate the

purpose of having arbitration at all—the quick resolution of disputes and the avoidance of

the expense and delay associated with litigation,’ a court’s review of an arbitration award

‘js among the narrowest known at law.’” Slavin v. Imperial Parking (U.S), LLC, No. CV

PWG-16-2511, 2017 WL 2629044, at *6 (D. Md. June 19, 2017) (cleaned up).

A court must grant a motion to confirm an arbitration award “unless the award is

vacated, modified, or corrected.” 9 U.S.C. § 9. The party opposing the award bears the

burden of proving the existence of grounds for vacating the award. Interactive Brokers

LLC v. Saroop, 969 F.3d 438, 443 (4th Cir. 2020). A court may vacate an arbitration

award only for the reasons specified in the Federal Arbitration Act, see 9 U.S.C. § 10(a),

or upon a showing of limited common law grounds. Patten v. Signator Ins. Agency, Inc.,

441 F.3d 230, 234 (4th Cir. 2006).

The Fourth Circuit has recognized two common-law grounds: “those

circumstances where an award fails to draw its essence from the contract, or the award

evidences a manifest disregard of the law.” Jd.' “The manifest disregard standard is not

an invitation to review the merits of the underlying arbitration . . . or to establish that the

arbitrator misconstrued or misinterpreted the applicable law.” Jones v. Dancel, 792 F.3d

395, 402 (4th, Cir. 2015) (cleaned up).

A. The Constitutional Question

First, LoanMax contends that the Court must vacate the arbitration award because

the arbitrator manifestly disregarded well-settled principles of constitutional law. See

Doc. 122 at 4-9. But LoanMax ignores that the arbitrator’s resolution of the

constitutional issue turned on his factual determination that contractual activities took

place in North Carolina. .

As is relevant here, the North Carolina Consumer Finance Act provides that “[n]o

loan contract made outside this State” that violates specified North Carolina usury laws

“shall be enforced in this State.” N.C. Gen. Stat. § 53-190(a). But there is an exception.

By its terms the statute does “not apply to loan contracts in which all contractual

activities, including solicitation, discussion, negotiation, offer, acceptance, signing of

documents, and delivery and receipt of funds, occur entirely outside North Carolina.” Jd.

The arbitrator found that the exception did not apply because “at the very least,

At oral argument, Mr. McNeil contended that common law exceptions cannot apply here

because the terms of the arbitration agreement provide for “judicial review only as provided

under the FAA.” Doc. 33-2 at p. 3, 4 11(@). The Court need not decide this issue, which was not

raised in the briefs, given its resolution of the other issues raised.

contractual activity discussions occurred between McNeil and LoanMax in North

Carolina.” Doc. 121-1 at 2.?

This is a factual finding, and an “arbitrator’s factual findings are accorded great

deference.” See CACI Premier Tech., Inc. v. Faraci, 464 F. Supp. 2d 527, 535 n.5 (E.D.

Va. 2006). This issue was presented to the arbitrator and LoanMax did not prevail. Even

if the arbitrator made a mistake of fact, which is not at all clear, such a mistake “provides

insufficient grounds for the modification of an award.” Apex Plumbing Supply, Inc. v.

U.S. Supply Co., 142 F.3d 188, 194 (4th Cir. 1998).

LoanMax also disagrees with the arbitrator’s decision that the statute is

constitutional as applied to the loan agreement between LoanMax and Mr. MeNeil. See

Brown & Williamson Tobacco Corp. v. Pataki, 320 F.3d 200, 209 (2d Cir. 2003)

(“Whether a statute discriminates impermissibly against interstate commerce is a mixed

question of law and fact....”). Just as with mistakes of fact, however, a

“misinterpretation of law by an arbitrator provides insufficient grounds for the

modification of an award.” Apex Plumbing, 142 F.3d at 194.

A party seeking to vacate an arbitration award for manifest disregard must show

that: “(1) the disputed legal principle is clearly defined and is not subject to reasonable

debate; and (2) the arbitrator refused to apply that legal principle.” Dancel, 792 F.3d at

2 While not explicit in the award, the arbitrator was presumably referring to a phone call

between the parties; it is undisputed that Mr. McNeil called LoanMax from North Carolina and

discussed obtaining a loan before he drove to the LoanMax office in Virginia. Doc. 126-1 at 2;

Doc. 126-2 at 2-3.

402. As the cases cited in the briefs make clear, there is a good deal of debate about the

exact scope and application of the dormant Commerce Clause to statutes like the ones

enacted by North Carolina. Given the arbitrator’s factual finding that contractual activity

occurred in North Carolina, it cannot be said that the arbitrator refused to apply a clearly

defined legal principle that is not subject to reasonable debate.

To the extent LoanMax contends that the Court must make a de novo decision as

to whether the dormant Commerce Clause precludes enforcement of Mr. McNeil’s

statutory rights, the Court rejects that argument. First, LoanMax has not cited any legal

authority holding that judicial review of arbitration awards is broader when the claim or

defense is based on the Constitution. And second, as the drafter of the choice-of-law

provision, LoanMax could have unambiguously excluded federal constitutional questions

from arbitration. It did not do so. See Doc. 62 at 7-12.

B. The Contractual Issue

LoanMax next contends that the Court should vacate the arbitration award because

the “arbitrator’s inexplicable refusal to apply the choice-of-law provision was a manifest

disregard of the law.” Doc. 122 at 10. LoanMax assumes the arbitrator “disregarded” the

provision because he did not mention it in the award. Jd. But “arbitrators are not

required to explain their reasoning.” See United Steelworkers of Am. v. Enter. Wheel &

Car Corp., 363 U.S. 593, 598 (1960) (“Arbitrators have no obligation to the court to give

their reasons for an award.”); Wachovia Sec., 671 F.3d at 481.

Here, “justifiable ground[s] for the decision can be inferred from the record.”

Stolt-Nielsen SA v. AnimalFeeds Int’] Corp., 548 F.3d 85, 97 (2d Cir. 2008), rev'd on

other grounds, 559 U.S, 662 (2010). Indeed, there are several reasons the arbitrator

could have found that the choice-of-law provision was not determinative of Mr. McNeil’s

claims. For example, Mr. McNeil’s claims were for violations of North Carolina statutes,

not for breach of contract; the arbitrator had to deal with the claims as pled. And not all

choice-of-law provisions cover extra-contractual statutory claims. See Run Them Sweet,

ELC y. CPA Glob. Lid., 224 F. Supp. 3d 462, 466 (E.D. Va. 2016). There is also a strong

argument that choice-of-law provisions that allow lenders to avoid North Carolina usury

laws violate public policy. See State ex rel. Cooper v. W. Sky Fin., LLC, No. 13 CVS

16487, 2015 WL 5091229, at *10 (N.C. Super. Ct. Aug. 27, 2015). North Carolina will

not enforce a choice-of-law provision that “violate[s] a fundamental policy of the state.”

Behr v. Behr, 46 N.C. App. 694, 696, 266 S.E.2d 393, 395 (1980).

C. The Award will be Confirmed

The role of federal courts in this context is “not to determine the merits of the

dispute between the parties but rather to determine only whether the arbitrator did his

job—not whether he did it well, correctly, or reasonably, but simply whether he did it.”

Interactive Brokers, 969 F.3d at 445 (cleaned up). Indeed, the scope of judicial review of

an arbitration award “is among the narrowest known at law.” UBS Fin. Servs., Inc. v.

Padussis, 842 F.3d 336, 339 (4th Cir. 2016) (cleaned up).

Here, the record shows that the arbitrator performed his job; after considering all

the evidence, he applied the law as he understood it and there was no manifest disregard

of the law. LoanMax assumed “the risk that the arbitrator may interpret the law in a way

with which they disagree” when it included the arbitration clause in its loan agreement

with Mr. McNeil. Wachovia Sec., 671 F.3d at 478 n.5; see also Trademark Remodeling,

Inc. v. Rhines, No. PWG-11-1733, 2012 WL 3239916, at *10 (D. Md. Aug. 6, 2012).

The Court will confirm the award and enter judgment in favor of Mr. McNeil.

V. Should the Court Award Attorneys’ Fees to the Plaintiff?

The “FAA does not authorize a district court to award attorneys’ fees to a party

who successfully confirmed an arbitration award in federal court,” but it “does not

displace State law allowing for such awards.” Astanza Design, LLC v. Giemme Stile,

S.p.A., 220 F. Supp. 3d 641, 652 (M.D.N.C. 2016). As is relevant here, the North

Carolina Revised Uniform Arbitration Act provides that a “court may award reasonable

attorneys’ fees and other reasonable expenses of litigation incurred in a judicial

proceeding after the award is made to a judgment confirming... an award.” N.C. Gen.

Stat. § 1-569.25(c).

The statute gives courts discretion, but it does not impose any requirement related

to the strength or weakness of the losing party’s argument. See, e.g., Astanza Design,

220 F. Supp. 3d at 653. The Uniform Law Comment provided with the statute notes that

the provision is designed to “promote[] the statutory policy of finality of arbitration

awards” by allowing the prevailing party in contested judicial actions precisely like the

present to recover expenses and fees, thereby discouraging “all but the most meritorious

challenges of arbitration awards.” N.C. Gen. Stat. § 1-569.25(c) cmt. 3. The statute is

consistent with the purposes of the FAA—to promote arbitration and the avoidance of the

expense and delay associated with litigation—and it should generally be given effect.

Astanza Design, 220 F. Supp. 3d at 653. No facts here strongly support denial of an

attorneys’ fee. Mr. McNeil is the prevailing party and an award covering his attorneys’

fees incurred to respond to LoanMax’s motion to vacate is appropriate on the facts here.

Based on the evidence of record, see Doc. 126-6, as supplemented at the hearing

on June 17, 2021, the Court finds as a fact that counsel for Mr. McNeil spent a reasonable

amount of time to respond to the motion to vacate and to prepare and attend the hearing;

it was reasonable for all three attorneys significantly involved in these cases to attend the

hearing; the hourly rates for Mr. Faucher, Mr. Brown, and Mr. Peraldo are reasonable;

and a reasonable fee, calculated for 14 hours at $350 an hour, is $4,900. The Court will

award attorneys’ fees in that amount, in its discretion.

It is ORDERED that:

1. Plaintiff Kenneth McNeil’s motion to confirm arbitration award and enter

judgment, Doc. 120, is GRANTED.

2. Defendant Anderson Financial Services, LLC d/b/a LoanMax shall pay

Plaintiff Kenneth McNeil’s reasonable attorneys’ fees of $4,900 incurred to

defend against the motion to vacate the arbitration award.

3. Defendant Anderson Financial Services, LLC d/b/a LoanMax’s motion to

vacate the arbitration award and enter judgment against Plaintiff Kenneth

MeNeil, Doc. 123, is DENIED.

4. Judgment will be entered separately.

This the 28th day of June, 2021.

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