Auto Equity Loans o Delaware, LLC v. Joseph Baird, Alton Griffin and Jeannine Medora

IN THE COURT OF

COMMON PLEAS FOR THE STATE OF

DELAWARE IN AND FOR NEW CASTLE COUNTY

AUTO EQUITY LOANS

OF DELAWARE, LLC, and

DAVID LEVI,

Petitioners/COunter-Respondents,

& Resporldents-below,

v. C.A. No. CPU4-17-003398

JOSEPH BAIRD,

ALTON GRIFFIN, and

]EANNINE MEDORA,

Respondents/COunter-Petitioners,

& Claimants-below.

\_/\/\/\_/\_/\_/\_/\_/\_/\_/\/\_/\/\/\_/\_/

Submitted: March 15, 2018

Decided: May 2, 2018

MEMORANDUM OPINION

ON CROSS-MOTIONS FOR SUMMARY _IUDGMENT

Douglas D. Herrmann, Esq. Vivian A. Houghton, Esq.

Christopher B. Chuff, Esq. LaW Off`lce Of Vivian A.

Pepper Hamilton LLP Houghton, Inc.

Hetcules Plaza, Ste. 5100 800 N. West Street, 1St Fl.

1313 Market Street, PO BOX 1709 Wilmington, DE 19801

Wi]mington, DE 19899-1709 AZz‘0mej/sf0r Re§bondenf§

Al¢om@/J'for Petz`fz'oner§

OF COUNSEL OF COUNSEL

Alexander L. Harris, Esq. Robert F. Salvin, Esq.

Pepper Harnilton LLP TWO Bala Plaza, Ste. 300

3000 TWO Logan Square Bala Cynwyd, PA 19004

18th & Arch Streets

Philadelphia, PA 19103

SMALLS, C.J.

This case Was originally filed in the Delaware Court of Chancery and arises out of three

consumer credit contracts. On August 15, 2017, the Chancery Court transferred the case to

the Court of Common Pleas pursuant to 10 De/. C. § 5702.1 Presently before the Court are

Cross-Motions for Summary]udgment. On December 15, 2017, Petitioners filed their Openz`n<g

Brief in Suppon‘ of Vamlz`ng Arlaz`lmlz`on Awam’y.? On December 22, 2017, a joint stipulation

regarding supplemental briefing Was filed. On ]anuary 15, 2018, Respondents filed their

Reipame z'n Oppoyz?z`on ¢0 jumwa@/ ]udgmeni and CroJJ-Moz‘zbnfar .$`umwa(j/ ]ud<gmem‘.3 On February

15, 2018, Petitioners filed their Re})@/ Bn`g[z`n Fzm‘her japprafVar‘afz`n<gArf):`!mz‘z'on Au)ard.r.4 And,

on March 15, 2018, pursuant to the scheduling order, Respondents notified the Court that

they Would not be filing a reply brief.

Petitioners request that this Court vacate the arbitration awards. Respondents request

that this Court confirm the arbitrator’s awards, enter judgment, and reassess attorneys’ fees

and costs in light of the current actions. The Court’s determination of the dispute is limited

1 Section 5702 (d) grants this Court jurisdiction over “all actions arising from an arbitration agreement

in or relating to a contract to provide consumer credit.” 10 De/. C. § 5702(d); fee a/w FIA Card fema

a A/z', 2008 \X/L 4830717, at *1 (`Del. Com. Pl. Oct. 31, 2008); comm §C 2’7’/1 Comz‘mcz‘z`on, Im. a Poz‘z‘er,

2017 WL 2378020, at *6 (Del. Super. May 31, 2017) (“Only the Court of Chancery has jurisdiction to

vacate Or confirm an arbitrator's award.”); yee a/w 10 D€/. C. § 1902.

Consumer credit is defined as “[c]redit extended to an individual to facilitate the purchase of consumer

goods and services.” BLACK’s LAW DICTloNARY ar 396 (Sth ed. 2004).

2 Petitioners’ Opening Brief in Support of Vacating Arbitration AWards (hereinafter “Petitioners’

Opening Brief”). This Court granted a consolidation request on November 8, 2017.

3 Respondents’ Response in Opposition to Summary judgment and Cross Motion for Summary

Judgment (hereinafter “Respondents’ Response”).

4 Petitioners’ Reply Brief in Further Support of Vacating Arbitration Awards (hereinafter “Petitioners’

Reply”).

to Whether the Arbitration Awards should be confirmed or vacated.5 This is the Court’s

Memorandum Opinion after consideration of the pleadings and supplemental briefing.

I. FACTS & PROCEDURE

Petitioner Auto Equity Loans of DelaWare, LLC (“AEL”) and Petitioner David Levi

(“Levi”) (collectively “Petitioners”) entered into a “series” of nearly identical loan agreements

With Respondent ]oseph Baird (“Respondent Baird”)_the final being the Secondary Motor

Vehicle Finance Contract Loan and Security Agreement. Petitioners entered into a Secondary

l\/Iotor Vehicle Finance Contract Loan and Security Agreement With Respondent Alton Griffin

(“Respondent Griffin”). Petitioners also entered into a Secondary l\/lotor Vehicle Finance

Contract Loan and Security Agreement With Respondent Jeannine Medora (“Respondent

l\/Iedora”) (collectively “Respondents”). Both loan agreements Were signed at an AEL office

in DelaWare. The parties agreed that the loan agreements “shall be governed by the laws of

the State of Dela'\)vare.”6 The signatories also agreed to resolve certain disputes by arbitration

and that the “arbitration shall take place in the State of Delavvare.”7

After the loan agreements Were eXecuted, and prior to leaving AEL’s DelaWare office,

Respondents received their respective loan amounts under the agreements At some point

during the repayment period (Without any apparent triggering dispute), Respondents filed

5 See 10 D€/. C. § 5701 (“ln determining any matter arising under this chapter, the Court shall not

consider Whether the claim With respect to Which arbitration is sought is tenable, or otherwise pass

upon the merits of the dispute.”).

6 Petition to Vacate Arbitration AWard for Respondent Baird, Exhibit 1; Petition to Vacate Arbitration

AWard for Respondent Griffin, EXhibit 1; Petition to Vacate Arbitration Award for Respondent

Medora, Exhibit 1.

7 Petition to Vacate Arbitration AWard for Respondent Baird, EXhibit 1; Petition to Vacate Arbitration

Award for Respondent Griffin, Exhibit 1; Petition to Vacate Arbitration Award for Respondent

l\/[edora, EXhibit 1.

separate Demands for Arbitration with the American Arbitration Association (“AAA”),

requesting that Pennsylvania law apply to the loan agreements instead of the contractual

provisions applying Delaware law. On january 24, 2017, the AAA appointed arbitrator held

an evidentiary hearing for Respondent Medora. And on l\/larch 19, 2017, the arbitrator issued

an award in favor of Respondent Medora. On February 2, 2017, the AAA appointed arbitrator

held an evidentiary hearing for Respondent Griffin. And on l\/larch 23, 2017, the arbitrator

issued an award in favor of Respondent Griffin. On March 8, 2017, the same AAA appointed

arbitrator held an evidentiary hearing for Respondent Baird. And on l\/larch 21, 2017, the

arbitrator issued an award in favor of Respondent Baird.

A. RESPONDENTMEDORA

On l\/larch 19, 2017, the arbitrator made findings of fact and law in the arbitration

award for Respondent l\/[edora.8 The arbitrator found that Respondent l\/[edora, a

Pennsylvania resident, viewed an internet advertisement while in Pennsylvania for title loans

by AEL.9 AEL has offices in Delaware and is licensed and regulated by the Delaware State

Bank Commissioner.10 Respondent Medora traveled from Philadelphia, Pennsylvania to

AEL’s office in \X/ilmington, completed a loan application in which she pledged her

Pennsylvania titled vehicle as collateral and signed a loan agreement for 3390.00.“ She made

no payments on the loan.12 The arbitrator preliminarily noted that Respondent had withdrawn

8 Petition to Vacate Arbitration Award for Respondent Medora, Exhibit 3.

9 fee z`d., EXhibit 3, jj 7.

10 366 z'd., Exhibit 3, jjjj 8-9. AEL does not have offices in Pennsylvania and is not licensed by the

Pennsylvania Department of Banking. 563 z'd.

" 566 z'd., Exhibit 3, 1110

12 See z`d., Exhibit 3, 1]14.

Counts l (Unconscionability), IIl (Pennsylvania Unfair Trade Practices and Consumer

Protection Law), and V (Racketeer Influenced and Corrupt Organizations Act); thus, only

Count ll (Pennsylvania Loan lnterest and Protection Law) and Count lV (T ruth in Lending)

were at issue.13

Regarding Count ll, the arbitrator analyzed the cases “cited in the parties’ legal

memoranda and oral arguments.”14 The arbitrator focused particularly on Kanejj”a. 136/aware

Tz`f/e Loam, Im‘.,15 Geo¢;gz`a a To¢¢z/AJ‘MI R660a6@), Im‘.,jé faier a Az/z‘o Equz`g,j/ L0am tjD6/6zu/6zr6, LLC

Q’?‘ Daw'd Lew', and 561/06262`60 a Cm"bm‘/éi 0fD6/au)ar6, Im‘. Applying all four cases, the arbitrator

found that Pennsylvania substantive law applied to the parties’ loan transaction.17

Accordingly, the arbitrator stated:

Pursuant to the Federal Truth-in-Lending Act (“TILA”) said loan

agreement accurately disclosed a Finance Charge of $367.40 and an Annual

Percentage Rate (“APR”) of 243.35%, a finance charge and interest rate

permitted by Delaware law but prohibited by Pennsylvania law. . . . Such a high

interest rate loan is prohibited by Pennsylvania public policy and the

Pennsylvania Loan Interest and Protection Law (“Act 6”).18

ln applying Pennsylvania law, the arbitrator found that Petitioners were liable pursuant to the

Pennsylvania Loan Interest and Protection Law (“PLIPL”) as well as the Truth-in-Lending

Act (“TILA”).19 Respondent Medora was awarded TILA statutory damages of 3734.80, which

equaled twice the unlawful finance charge of $367.40.20 However, pursuant to PLIPL,

13 566 z`d., Exhibit 3, jj 1; Respondents’ Response, Exhibit L.

14 Petition to Vacate Arbitration Award for Respondent Medora, EXhibit 3, jj 16.

15 mejfa. D6/61u)6zr6 Tz`!/6 Laam, Im., 587 F.3d 616 (3d Cir. 2009).

16 Gr6goria a Tola/AJ.W R660060), Im., 2015 WL 115501 (E.D. Pa. jan. 8, 2015).

17 566 z'd., EXhibit 3, jjjj 16-18.

18 566 z'd., Exhibit 3, jjjj 12-13.

19 566 z`d., EXhibit 3, jjjj19, 21.

20 566 z'd., Exhibit 3, jj 23.

Respondent l\/[edora was required to pay Petitioners $407.87 in loan principal and lawful

interest21 The arbitrator also awarded $4,400.00 for Respondent Medora’s attorney fees

pursuant to TILA and PLIPL.22

B. RESPONDENTBAIRD

On March 21, 2017, the arbitrator made findings of fact and law in the arbitration

award for Respondent Baird.23 The arbitrator found that Respondent Baird, a Pennsylvania

resident, viewed an internet advertisement while in Pennsylvania for title loans by AEL.24 AEL

has offices in Delaware and is licensed and regulated by the Delaware State Bank

Comrnissioner.25 From l\/Iay 2014 through August 2016, Respondent Baird traveled from

Philadelphia, Pennsylvania to AEL’s office in Wilmington nine times, completing various loan

applications in which he pledged his Pennsylvania titled vehicle as collateral and signed nine

loan agreements totaling 1£2,025.00.26 “Each subsequent agreement incorporated the balance

due on the previous loan and in some instances extended new credit” to Respondent Baird.27

He made payments totaling $4,628.00 toward his balance.28 Respondent Baird did not default

on his loan.29

21 566 z`d. American Arbitration Association administrative fees were also part of the damage award.

22 566 z`d., Exhibit 3, jj 25.

23 Petition to Vacate Arbitration Award for Respondent Baird, Exhibit 3.

24 566 z'd., Exhibit 3, jj 8.

25 566 z`d., EXhibit 3, jjjj 10-11. AEL does not have offices in Pennsylvania and is not licensed by the

Pennsylvania Department of Banking. 566 z`d.

26 566 z'd., Exhibit 3, jj 12.

27 Id

28 5661'61’., Exhibit 3, jj 16.

29 566 z'd.

ln addressing Count l (Unconscionability), the arbitrator found in favor of Petitioners

and against Respondent Baird regarding his claim of unconscionability.30 And after addressing

Respondent Baird’s arguments against loan accounting procedure under the UCC,31 the

arbitrator addressed Count ll (applicability of Pennsylvania Loan lnterest and Protection

Law), Count lll (Pennsylvania Unfair Trade Practices and Consumer Protection Law), Count

lV (Truth-in-Lending Act), and Count Vl (Racketeer lnfluenced and Corrupt Organizations

Act).

Regarding Count ll, the arbitrator analyzed the cases “cited in the parties’ legal

memoranda and oral arguments.’732 The arbitrator focused particularly on Kamzjjf a 136/aware

Tz'I/e Loam, Im‘., Geo¢;gz`a a Toia/ Ai'set R66066@/, I 166., jaier a Az¢fo Eguz'g/ Loam 0f D6/61u/6W6, LLC

e’?’ D¢wz`d L6w`, and 5 61/6612‘2'60 a C¢zrbm‘/éi' 0fD6/au/ar6, Im‘. Applying all four cases, the arbitrator

found that Pennsylvania substantive law applied to the parties’ loan transaction33

Accordingly, the arbitrator stated:

Pursuant to the Federal Truth-in-Lending Act (“TlLA”) said loan

agreements accurately disclosed the various Finance Charges and an Annual

Percentage Rate|j (“APR”) of approximately 180.00%, finance charges and

interest rates permitted by Delaware law but prohibited by Pennsylvania law.

The Finance Charge on the final current loan is $794.00. jj Such a high interest

rate loan is prohibited by Pennsylvania public policy and the Pennsylvania Loan

lnterest and Protection Law (“Act 6”).34

30 566 z'd., EXhibit 3, jj 3 (“[wjith regard to the Count l Unconscionabi]ity Claim l find against Claimant

[Bairdj and for Respondents. . . .).”

33 The arbitrator found in favor of Respondent regarding his claim that Petitioners did not provide

him with a timely loan accounting under the Uniform Comrnercial Code (“UCC”). 566 z`d., EXhibit 3,

jjjj 19-20.

32 566 z`¢z’., Exhibit 3, jj 21.

33 566 z`d., Exhibit 3, jj 23.

34 566 z`d., Exhibit 3, jjjj 14-15.

ln applying Pennsylvania law, he found that Petitioners had violated the Unfair Trade Practices

and Consumer Protection Law (“UTPCPL”), which “prohibits making certain

misrepresentations that are fraudulent or deceptive.”Z’5 Because the arbitrator found that

Pennsylvania law applied, he also found Petitioners liable under the Truth-in-Lending Act

(“TILA”) for “misstating the correct rate chargeable,” and under the Racketeer lnfluenced

and Corrupt Organizations Act (“RlCO”) for the “collection of unlawful debt through an

enterprise.”36 The arbitrator awarded Respondent $7,269.00 for PLlPL statutory damages,

$500.00 for UCC statutory damages, $1,588.00 for TILA statutory damages, and $6,600.00 in

attorney fees.37 Respondent Baird was required to pay Petitioners $604.00 in loan principal

and lawful interest.38

C. RESPONDENT GRIFFIN

On March 23, 2017, the arbitrator made findings of fact and law in the arbitration

award for Respondent Griffin.Z'9 The arbitrator found that Respondent Griffin, a Pennsylvania

resident, viewed an internet advertisement while in Pennsylvania for title loans by AEL.4O AEL

has offices in Delaware and is licensed and regulated by the Delaware State Bank

Commissioner.41 Respondent Griffin traveled from Norristown, Pennsylvania to AEL’s

office in Wilmington, completed a loan application in which he pledged his Pennsylvania titled

33 566 z`d., EXhibit 3, jj 28.

33 566 z'd., EXhibit 3, jjjj 26, 32.

37 566 z'd., EXhibit 3, jjjj 36, 38. American Arbitration Association administrative fees were also part of

the damage award.

38 566 z`a'., Exhibit 3, jj 36.

39 Petition to Vacate Arbitration Award for Respondent Griffin, EXhibit 3.

43 566 z`d., EXhibit 3, jj 8.

41 566 z'd., Exhibit 3, jj 10. AEL does not have offices in Pennsylvania and is not licensed by the

Pennsylvania Department of Banking. 566 id., Exhibit 3, jjjj 10-11.

8

vehicle as collateral and signed a loan agreement for $3,590.00.42 He made only one payment

of $437.73 towards the loan.“3 Because of Respondent Griffin’s failure to pay, his vehicle was

lawfully repossessed at his place of employment in Pennsylvania.44

After addressing Respondent Griffin’s arguments against the vehicle sale procedure

under the UCC,45 the arbitrator addressed Count ll (applicability of Pennsylvania Loan

lnterest and Protection Law), Count lll (Pennsylvania Unfair Trade Practices and Consumer

Protection Law), and Count Vl (Racketeer lnfluenced and Corrupt Organizations Act).46

Regarding Count ll, the arbitrator analyzed the cases “cited in the parties’ legal

memoranda and oral arguments.”47 The arbitrator again focused on Kanef a D6/6zwar6 Tz'z‘/e

Loam, lnc., G601;gz`a a Tom/ Ay§et Rer‘ope@/, Im‘., ]az'bm" a Am‘o Equz`@/ Loam of De/cw/am, LLC Q’B°

Daaz`d Lew`, and 561/66162`60 a Cm"bzmér of De/¢m/¢W, Im‘. The arbitrator found that Pennsylvania

substantive law applied to the parties’ loan transaction.48 The arbitrator stated:

Pursuant to the Federal Truth-in-Lending Act (“TILA”) said loan agreement

accurately disclosed a Finance Charge of $4289.14 and an Annual Percentage

Rate (“APR”) of 121.67%, a finance charge and interest rate permitted by

42 566 z`d., Exhibit 3, jj 12.

43 566 z`d., Exhibit 3, jj16.

44 5661`61., Exhibit 3, jj17.

43 The arbitrator found in favor of Petitioners regarding Respondent Griffin’s claim of a breach of the

peace under the Uniform Commercial Code (“UCC”) and his claim that Petitioners did not provide

him with a timely loan accounting pursuant to the sale of the vehicle at the l\/lanheim Auto Auction.

566 z'd., EXhibit 3, jjjj 19, 31. The arbitrator also found in Respondent Griffin’s favor regarding his

claim that he did not receive timely notice and his vehicle was not sold in a commercially reasonable

manner under the UCC. 566 z'd., EXhibit 3, jj 25. Because Petitioners have postponed any arguments

against the arbitrator’s Uniform Cornrnercial Code (“UCC”) determination pending this Court’s ruling

on the current Petition to vacate, this Court will not address these potential contentions 566 2'62'.,

Exhibit 3, n.1.

43 The arbitrator notes in the beginning of the award that Respondent Griffin withdrew Counts l

(Unconscionability) and V (F air Debt Collection Practice Act). 566 z'd., EXhibit 3, jj 1; Respondents’

Response, Exhibit l, at 8, 15.

47 566 z`d., EXhibit 3, jj 32.

48 566 z`d., EXhibit 3, jj 34.

Delaware law but prohibited by Pennsylvania law. jj Such a high interest rate

loan is prohibited by Pennsylvania public policy and the Pennsylvania Loan

lnterest and Protection Law (“Act 6”).49

Accordingly, he found that Petitioners had violated the Unfair Trade Practices and Consumer

Protection Law (“UTPCPL”), which “prohibits making certain misrepresentations that are

fraudulent or deceptive.”50 The arbitrator also found Petitioners liable under the Racketeer

lnfluenced and Corrupt Organizations Act (“RlCO”) for the “collection of unlawful debt

through an enterprise.”51 The arbitrator awarded Respondent $1,221.00 for PLlPL statutory

damages, $4,648.00 for UCC statutory damages, $12,000.00 for UTPCPL statutory damages,

and $8,000.00 in attorney fees.52 Respondent Griffin was required to pay Petitioners $3,475.00

in loan principal and lawful interest53

II. STANDARD OF REVIEW

This Court recently outlined the standard applicable to cross-motions for summary

judgment

“When opposing parties make Cross l\/lotions for Summary judgment, neither

party will be granted summary judgment unless no genuine issue of material fact

exists and one of the parties is entitled to judgment as a matter of law.” Courf of

Common P/6ay Cz'vz`/ Rz¢/6 56(c) provides that “[tjhe judgment sought shall

be rendered forthwith if the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.” Diverging from the Superior Court's Civil Rule

56(h), Court of Common Pleas' Civil Rule 56 adheres to the original approach

of addressing cross-motions for summary judgment The original approach to

49 566 z'd., EXhibit 3, jjjj 14-15.

30 566 z'd., EXhibit 3, jj 37.

34 566 z`d., EXhibit 3, jj 43.

32 566 z'd., EXhibit 3, jjjj 45-46. Arnerican Arbitration Association administrative fees were also part of

the damage award.

33 566 z'd., EXhibit 3, jj 36.

10

cross-motions for summary judgment, as previously articulated by the Superior

Court and currently followed by the Court of Common Pleas is as follows:

jTjhe Court notes that where the parties have filed cross-motions

for summary judgment, as here, “the standard for summary

judgment 'is not altered.” “l\/loreover, the existence of cross

motions for summary judgment does not act per 66 as a

concession that there is an absence of factual issues.” “Rather, a

party moving for summary judgment concedes the absence of a

factual issue and the truth of the nonmoving party's allegations

only for the purposes of its own motion, and does not waive its

right to assert that there are disputed facts that preclude summary

judgment in favor of the other party.” “Thus, the mere filing of

a cross motion for summary judgment does not serve as a waiver

of the movant's right to assert the existence of a factual dispute

as to the other party's motion.”€‘4

III. LA_W

Delaware’s Uniform Arbitration Act (“UAA”)55 sets forth five exclusive allowances for

the vacation of an arbitration award:

(1) The award was procured by corruption, fraud or other undue means;

(2) There was evident partiality by an arbitrator appointed as a neutral except

where the award was by confession, or Corruption in any of the arbitrators or

misconduct prejudicing the rights of any party;

(3) T/96 arb¢`)fral‘or§ 6>666662'66{ fh6z'rp0u/6r.r, or w z'mj)wfer‘f@/ 6X66afea’ them that a jz`aa/ aaa

a'6jz`az`l‘6 award alma 6/96 fab/666 waffw" J‘abmz'f%a' war 1106 mad6;

(4) The arbitrators refused to postpone the hearing upon sufficient cause being

shown therefor, or refused to hear evidence material to the controversy, or

34 Loaé/aan‘ a P.’r{g:a.ryz`w Norf/Mm Im. Ca., 2018 WL 1399612, at *2 (Del. Com. Pl. l\/lar. 19, 2018)

(footnotes omitted) (quoting Ga//a/96r a U5/1A Ca.r. Im. Co., 2005 WL 3062014, at *1 (Del. Super.

Nov. 14, 2005); Caj)aao a Loc/éu/ood, 2013 WL 2724634, at *2 (Del. Super. l\/lay 31, 2013)).

33 Despite the arbitration provisions in the loan agreements applying the Federal Arbitration Act to

disputes_Respondent Griffin’s agreement applying Delaware’s Uniform Arbitration Act (“UAA”)

secondarily_the parties have “clearly evidencejdj their intent to be bound by jstatej rules.” P6r.f.

D662'Jz'0m, lac. a Bar. P/aaaz'ag 5})§., la€., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008) (quotjng 5 oaa/§

a. Cbagaz' P/aam Co., 280 F.3d 1266, 1269 (9th Cir. 2002)) (internal quotation marks omitted). The

parties have “cited and relied” on the UAA and, thus, this Court will apply the UAA. TD Amm`l:'ade,

Ia€. a. Mcl.aa<g/?/z`a, Pz`1/6a, V0g6/ 566., Iac., 953 A.2d 726, 731 n.6 (Del. Ch. 2008).

11

otherwise so conducted the hearing, contrary to the provisions of § 5706 of this

title, or failed to follow the procedures set forth in this chapter, so as to

prejudice substantially the rights of a party, unless the party applying to vacate

the award continued with the arbitration with notice of the defect and without

objection; or

(5) There was no valid arbitration agreement, or the agreement to arbitrate had

not been complied with, or the arbitrated claim was barred by limitation and the

party applying to vacate the award did not participate in the arbitration hearing

without raising the objection. . . .56

Petitioners have asserted that the arbitrator “exceeded [hisj powers” by applying Pennsylvania

law to the arbitration proceeding and finding them liable for violations of the UTPCPL, TILA,

and RlCO.57

The applicable standard for vacating an award under both the Federal Arbitration Act

and the UAA is “manifest disregard.”58 That is, “[ajrbitrators who act in ‘manifest disregard of

the law’ are deemed to have exceeded their authority under Section 5714(a)(3) . . . jandj the

Court may vacate the arbitration award.”59 The Delaware Supreme Court has defined this

standard as applied under § 5714(a) (3):

The manifest disregard standard requires a party seeking vacatur to prove that

the arbitrator was “fully aware of the existence of a clearly defined governing

legal principle but refused to apply it, in effect, ignoring it.” To meet this

standard, the evidence must establish “that the arbitrator (1) knew of the

relevant legal principle, (2) appreciated that this principle controlled the

outcome of the disputed issue, and (3) nonetheless willfully flouted the

governing law by refusing to apply it.”

33 10 D6/. C. § 5714(a) (emphasis added); 566 a/Jo FL/l Cara' 5 617/5., 2008 WL 4830717, at *1.

3310 D6/. C. § 5714(a).

33 Coazpam 5PX Co)]b. a. Gara'a U5A, Ia€., 94 A.3d 745, 750 (Del. 2014) (applying “manifest disregard”

standard under the F ederal Arbitration Act after a comparison to the UAA), 1066/9 B/aa/é Rome, LLP a.

Veadel, 2003 WL 21801179, at *7 (Del. Ch. Aug. 5, 2003) (applying “manifest disregard” standard

under the UAA).

33 B/aak R0m6, 2003 \X/L 21801179, at *7 (footnotes omitted).

12

An arbitrator's awareness of the contract language, however, does not prove

that the arbitrator “knew of the relevant legal principle” or “appreciated that

this principle controlled the outcome of the dispute.” Knowledge of the

operative legal principle and its proper application can be inferred only “if the

court finds ‘an error that is so obvious that it would be instantly perceived as

such by the average person qualified to serve as an arbitrator.’ ” “[Ajs long as

the arbitrator is even arguably construing or applying the contract and acting

within the scope of his authority, that a court is convinced that he committed

serious error does not suffice to overturn his decision.”60

With respect to errors of fact or law, Delaware courts have stated:

To successfully convince the Court to vacate the award of an arbitration panel,

the movant must show “something beyond and different from a mere error in

the law or failure on the part of the arbitrators to understand or apply the law.”

This Court has noted that an arbitration panel's decision may be vacated if the

panel, “in manifest disregard of the law, jwasj cognizant of the controlling law

but clearly chose to ignore it in reaching [itsj decision” This Court has also

noted, however, that “jmjere error of law or fact is not sufficient grounds to

vacate an|j award,” and that “[ijt is recognized that inaccuracies as to the law or

facts are possible and their existence is accepted implicitly jinj an agreement to

submit the dispute to arbitration.” ln sum, “the Court is not to pass an

independent judgment on the evidence or applicable law,” and “[ijf any grounds

for the award can be inferred from the facts on the record, the Court must

presume that the arbitrator did not exceed his authority and the award must be

upheld.”m

({C

Delaware courts have warned that review of an arbitration award is one of the narrowest

standards of judicial review in all of American jurisprudence.”’62 The Court is to presume that

the arbitrator acted “within the sco e of `s authori ,” and “resolve all doubts in favor of

P

the arbitrator.”63

30 5PX Corp., 94 A.3d at 750-51 (footnotes omitted).

34 TD Amen'z‘rad6, lac., 953 A.2d at 732-33 (footnotes omitted) (quoting Fa/60a 5!66/ Co. a HCB

Coalraclor§, 1166., 1991 Wl_. 50139, at *2 (Del. Ch. Apr. 4, 1991); Aadz'o ]aaz, 1166. a Fage//z', 1997 \WL

153814, at *1 (Del. Ch. l\/Iar. 20, 1997)).

32 566, 6.<g., z'a'. at 732 (quoting W@/ Ba/é@/ a Tmoé sz`wr§, La¢‘a/ No. 764, 363 F.3d 590, 593 (6th Cir.

2004)).

33 566 z'd. (quoting Breaaaa a CIGN/l Colj)., 2008 \X/L 2441049, at *4 (3d Cir. June 18, 2008)) (internal

quotation marks omitted).

13

IV. PARTIES’ CONTENTIONS

A. Petitionets’Atguments

Petitioners assert that the arbitration award should be vacated because the arbitrator

manifestly disregarded the law when he: (1) ignored the plain terms of the loan agreements

and/ or failed to perform a choice of law analysis, (2) ignored controlling precedent that he

previously relied upon when ruling in prior arbitrations and based his decision on claims

withdrawn or abandoned by Respondents, (3) disregarded the commerce clause of the United

States Constitution, and (4) applied the UTPCPL, RlCO and TILA retroactively without

analysis.64 Petitioners’ arguments (1) and (2) are moored in the arbitrator’s choice-of-law

analysis. Hence, the Court will mainly focus on this facet of the arbitration awards.

7. 313/96 Arbf!mfor l<gaorea’ 1‘/76 C/aoz've 0f]_.aa/ sz)z'§z'oa la 6/76 Loan A<gr66w6af.r

Petitioners argue that manifest disregard occurred when the arbitrator failed to follow

the terms of the contracts65 Petitioners assert that the arbitrator cannot find each contract’s

34 Petitioners’ Opening Brief at 9. The Court will not address Petitioners’ arguments regarding the

dormant commerce clause doctrine and retroactivity. The Court agrees with Respondents and finds

Petitioners’ arguments lack merit. Petitioners have failed to provide a case, and the Court has failed

to find such a case, where the commerce clause was applied to an arbitrator’s choice-of-law decision.

ln fact, the case Petitioners rely on, i\,’l.irf.w.c'.\'! 771/6 Loam, Iac. a Mz`//.t, notes_in the context of a state

statute requiring state licensing if a territorial component to the lending occurred_that the commerce

clause does not prevent a choice-of-law analysis. 566 593 F.3d 660, 668 (7th Cir. 2010). In fact, the

Third Circuit has noted that a party’s agreement to be bound by another state’s laws is distinct from

cases in which the State has violated the commerce clause. 566 Imz‘mcl‘z`oaa/ 5}/5. a Cowpalw“ Cam'ra/am

Co)]j., 35 F.3d 813, 825-26 (3d Cir. 1994). Since this issue was raised in arbitration and Petitioners

have failed to present the Court with evidence that the arbitrator consciously disregarded controlling

precedent, the Court finds in Respondents’ favor regarding this constitutional argument Respondents’

Response, EXhibit O. Likewise, as Petitioners fail to support how the application of relevant statutes

(UTPCPL, RlCO, and TlLA) by the arbitrator in this case is akin to applying laws “retroactively,” the

Court finds Petitioners’ retroactivity argument unpersuasive Petitioners’ Opening Brief at 31-32.

Petitioners have again failed to present evidence that the arbitrator manifestly disregarded the law.

33 566 id. at 12.

14

plain language to apply Delaware law and then, in the same award, apply Pennsylvania law to

the transaction.66 ln fact, Petitioners argue that Respondents carried the burden of raising the

issue of Pennsylvania law’s applicability, citing to Car@)/e lawn/mat Maaa<g6az6az‘ L.L.C. a.

Mooamaalh Coazpaa)/.67 They argue that this application “defies both logic and law” because

Petitioners presented the arbitrator with numerous precedents on the enforceability of a

choice-of-law provision that applies Delaware law.68 Likewise, in February 2011, the arbitrator

applied Delaware law in a similar arbitration69

Alternatively, Petitioners assert that even if the arbitrator had ignored the plain

language and engaged in a choice-of-law analysis, he would have found Delaware law

applicable70 Petitioners argue that Delaware would prevail as the appropriate forum

because-_when determining the appropriate choice_Rei'z‘az‘eauaz‘ (5660166{) of Coaj]z`¢‘f ofl.au/i‘ §

188 focuses on the place of contract, place of negotiation, place of performance, location of

the subject matter, and the domicile or place of incorporation of the parties.71

2. Th6 Arlaz`fralor R6/z'6a3 Oa Improper Cay6 Law

Petitioners assert that the arbitrator relied on “four inapposite Pennsylvania cases” for

his analyses72 Petitioners assert that Kaaeyjf Gr6<gorz'a, jai/aar and 5 a/aaz‘z`¢‘o provide no guidance

33 5661`61. at 13-14.

33 566 z`d. at 13 (citing Car§)/6 Iaa. Mgmt. LLC, a Mooamoaz‘/y Co., 2015 WL 778846, at *6 (Del. Ch. Feb.

24, 2015)). This case is not particularly helpful as its admonishment is based on general confiict of

law principles and the court ultimately found no true conflict because neither Guernsey nor Delaware

had addressed whether third-party funding agreements and related documents deserve work product

protection. 566 Car§//6 faa Mgw!. L.L.C. a Mooamoaz‘/a Co., 2015 WL 778846, at *6, 10 (`Del. Ch. Feb.

24, 2015).

33 566 z'a'. at 13-14.

39 566 z'd. at 14.

33 566 za. at 22.

33 566 ai. (quoring RESTATEMENT (SEcoND) oF CoNFLicT oF LAws § 188 (1971)

32 566 z`a'. at 15.

15

for the current circumstances73 Petitioners take issue with the arbitrator’s reliance on Kaaej’

because they argue Kamyjf did not address the substantive question at issue here, i.e. whether

Delaware law applies to a loan agreement with a strong connection to Delaware.74 Petitioners

read Kamyj3 as addressing only whether arbitration should be enforced or the case remain in

federal court75 Further, Petitioners read the case as only involving a plaintiffs claim of

unconscionability76

Petitioners distinguish Gre<garz'a because it concerned a motion to dismiss, which carries

a lenient review standard, and focused on repossession concerns.77 Petitioners also argue that

the Court was at a disadvantage when it discussed unconscionability because it did not possess

sufficient evidence on the record,78 Finally, Petitioners argue that the Gr6<gon`a court never

made a final choice-of-law decision because the case was dismissed with prejudice, as the

plaintiffs failed to join an appropriate party and arbitrate the claims79

Regarding ]az'har, Petitioners argue that the Court’s Order in that case concerned a

ruling on preliminary objections, and provided no legal analysis for its decision.80 Petitioners

similarly raise issue with the arbitrator’s reliance on 5 a/aaiz'¢‘o since the case is not analogous

and lacks any rationale to aid the arbitrator in making a decision.81 Further, the factual history

33 566 z`d.

34 566 z'a'. at 16.

33 566 z'a'. at 15.

33 566 id. at 16.

33 566 z'd.

33 566 z'a’.

33 566 z`a'. at 17.

30 566 z'a'.

33 566 z'd. at 18.

16

before the 5a/aaz‘z`60 court concerned one connection with Delaware, and the claims brought

focused on unconscionability.82

B. Respondents’Argumc-nts

Respondents focus on Pennsylvania’s fundamental policy against usury contracts, and

the narrow standard of review for arbitration awards. Specifically, Respondents assert that:

(1) the arbitrator properly determined that the Delaware choice-of-law clauses in the contracts

were not applicable, (2) the arbitrator did not exceed his authority, (3) whether the arbitrator

performed a reasonable choice-of-law analysis is beyond the standard of review, (4) applying

Pennsylvania law in this case does not violate the United States Constitution, and (5) the

arbitrator did not retroactively impose a new rules of law.83 Respondents also move for

summary judgment 84

7. T/ye Arbz'!mfor’r C/yoz`66-0f-/au/ Aaa§/.vz`§ War Pro])er

Respondents argue that the arbitrator was well within his rights to disregard the

contracts’ choice-of-law provisions and follow Kaagf Gr6<g0n'a, and 5a/1)aa`60.85 Respondents

assert that these cases determined that Pennsylvania would prevail in a choice-of-law analysis

because it had the greater interest in the harmful effects of the transactions86 l\/lainly, that

Pennsylvania has a fundamental policy against usury contracts and the Respondents are

32 566 z'a'. at 18-19.

33 Respondents’ Response. For reasons discussed above and addressed below, the Court will not

address Respondents’ rebuttal to Petitioners’ arguments regarding the commerce clause and

Retroactivity.

34 566 z`a'. at 28.

33 566 z'a’. at 16-17.

33 566 z`d. at 17.

17

Pennsylvania consumers.87 Concurrently, Respondents argue that Delaware’s interest is

simply to “protectjj one of its license lenders.”88 Respondents argue that, in the end, the

arbitrator was presented with arguments from both sides regarding the appropriate choice-of-

law conclusion and he sided with Respondents.89

2. T/96 Arbz`.<‘mlor Dz`d Naz‘ EX6‘66a3 Hz`i‘ Aa¢bon'g/

Respondents disagree with Petitioners’ assertion that the arbitrator’s decisions were

based in unconscionability90 Further, Respondents argue that the appropriate standard for

reviewing arbitration awards prevents the Petitioners from dissecting the case law.91

Nevertheless, Respondents engage in a similar analysis. They argue that each case involved a

substantive ruling that arrived at the heart of the issue in these cases. According to

Respondents, Kaacjj[ found Pennsylvania law to apply to a loan agreement with a high interest

rate, enforcing the arbitration clause as not unconscionable under Pennsylvania law.92

Respondents read Gr6<gon'a to apply Pennsylvania law to a loan agreement pursuant to Kaaeyjf%

Likewise, 5 a{:»'a£a*a and ]az`bar applied Pennsylvania law over Delaware law when high interest

loans and Pennsylvania borrowers were involved.94 Because of these similarities, Respondents

assert that the arbitrator’s decisions were rationally based.95

33 566 z'a'. at 17-18.

33 566 z`a’. at 18.

33 566 z`d. at 19.

30 566 z`a'. at 19.

33 566 z'a'.

32 566 z'a'. at 20.

33 566 z'd.

34 566 z`d.

33 566 z'a'. at 21.

18

3. The Arbz'z‘raz‘ar’i Choz'¢‘6-0f-/aw Aaa@/§z'y li Bej/oaa’ 6/96 5 faaa'ara’ 0fR6w'6u/

Respondents argue that the arbitrator’s analysis is beyond the scope of review because

it had a “rational basis.”96 Respondents note that the Pennsylvania contacts were sufficient

for the arbitrator’s choice-of-law analysis to balance in Pennsylvania’s favor.97 These contacts

involved Pennsylvania borrowers, Pennsylvania collateral, and Pennsylvania repossession.98

ln Respondents’ view, Delaware’s connection was only the execution of the loans99

V. DISCUSSION

The Petitioners’ agitation with the arbitration awards stem from their belief that the

arbitrator exceeded, or so imperfectly executed, his authority as arbitrator when he refused to

follow the contracts’ choice-of-law provisions Contrarily, Respondents rely on 10 De/. C. §

5701 and the manifest disregard standard in tandem, arguing that the arbitrator possessed

rational reasons for his decisions Thus, he did not exceed, or imperfectly execute, his

authority under 10 D6/. C. § 5714. For the reasons discussed below, l find that the arbitrator

exceeded his authority and manifestly disregarded the law in applying Pennsylvania law to the

loan agreements of Respondent l\/ledora and Respondent Griffin. Therefore, these two

arbitration awards are vacated.

33 566 z`a'. at 21.

33 566 z'a'.

33 566 za.

33 566 z`a'. Respondents disagree with Petitioners’ assertion that Kamj[ was limited to a procedural ruling

only, as the arbitrator found otherwise. 566 z`a'.

19

This Court will apply Delaware’s choice of law rules as Petitioners commenced this

action in a Delaware court based on the belief that Delaware law applies100 Delaware’s choice

of law analysis begins with the question whether the “parties made an efeetz'ee choice of law

through their contract.”w1 To find the contractual provision effective, the Court applies the

“most significant relationship” test which is found in the Re.rtateraeat (5660)660 ofcoajlz'tt ofl_.awi'

§ 187.102 Section 187 states:

(2) The law of the state chosen by the parties to govern their contractual rights

and duties will be applied, even if the particular issue is one which the parties

could not have resolved by an explicit provision in their agreement directed to

that issue, unless either

(a) the chosen state has no substantial relationship to the parties or the

transaction and there is no other reasonable basis for the parties' choice,

or

(b) application of the law of the chosen state would be contrary to a

faaa’ameata/ petty of a J'tate which hay a materia/9 greater interest than the

chosen state in the determination of the particular issue aaa’ w/yz'e/a, under

the rate of§ 788, wea/a’ 66 t/ae Jtate oft/ge app/teab/e /au/ in the absence of an

effective choice of law by the parties103

300 566 Peaay//aaaz`a EMp/@/ee, Beae/z`t Tra.rt Faaa' a Zea66a, lat., 710 F. Supp. 2d 458, 466 (D. Del. 2010);

566 a/.ra ]0/9115011 a WarnerBroJ. Eatm ’t, lae., 2017 \X/L 588714, at *3 (D. Del. Feb. 14, 2017).

303 Certaz'a Una’erwrz`terr at L/@/d§, Loaa'oa a. C/Jeratara Cotp., 160 A.3d 457, 464 (Del. 2017) (emphasis

added) (cir`ing REsTATEMENT (SECoND) oF CoNFLicT oF LAws § 186 (1971)), reh:g dental (Apr. 28,

2017). Phrased differently, Petitioners’ assertion that the choice-of-law provision in the contract

preempts a choice-of-law analysis is incorrect Delaware law engages in a choice-of-law analysis

regardless of whether Delaware is the chosen forum in the contract Ia'.

302 566 5IGA T66/9”0f6<g;`e.\', faa a. P/aarwt/ltheae, lae., 67 A.3d 330, 341-42 (Del. 2013) (internal quotation

marks omitted).

433 REsTATEMENT (SEcoND) oF CoNFLlCT oF LA\)</s § 187 (1971) (ernphasis added); 566 atm Ae@/

Partaers l/, L.P. a F@'?’WAeqaz'§z'tz'oa LLC, 891 A.2d 1032, 1047 (Del. Ch. 2006) (interpreting § 187).

The Restatement distinguishes the issue in the present case from a “particular issue [thatj is one which

the parties could have resolved by an explicit provision in their agreement” based on the friction

between Pennsylvania and DelaWare law. 5 66 RESTATEMENT (SEcoND) oF CoNFLIcT oF LAws § 187

cmt. d (1971) (“The rule of this Subsection applies Only when two or more states have an interest in

the determination of the particular issue.”).

20

ln determining which state has a materially greater interest under § 187, the Court refers to

Rei‘tateweat (56601¢629 efcettj%`et 0fLau/5 § 188. Section 188 states in relevant part:

(2) ln the absence of an effective choice of law by the parties (see § 187), the

contacts to be taken into account in applying the principles of § 6 to determine

the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place

of business of the parties

These contacts are to be evaluated according to their relative importance with

respect to the particular issue,

(3) lf the place of negotiating the contract and the place of performance are in

the same state, the local law of this state will usually be applied, except as

otherwise provided in §§ 189- 199 and 203 [Usuryj. '04

R65tateazeat (5660aa') of Coajlz`et 0fLau/5 §§ 187(2)(b) & 188 are applicable to the present case

because Respondents claim that Pennsylvania has a fundamental policy against predatory

interest rates and a materially greater interest than Delaware in the matter.105

Regarding the latter question of which state has the “materially greater interest” in this

action, the answer must be Delaware. The Respondents traveled to Delaware and visited

AEL’s office in Delaware, signed the contract and pledged their Pennsylvania titled vehicles

as collateral while at that Delaware location, and received the loan while at that Delaware

134 REsTATEMENT (SECoND) oF CoNFLICT oF LA\X/s § 188 (1971).

303 lmportantly, because the loan agreement at issue here does not involve $100,000 or more, this

Court cannot “assume a negative answer to both of these exceptions [§ 187(2)(a)-(b)].” FdG Logz`.r!:‘e.r

LLC a. AQ'?’R Loggz`.i'!z'w`Holtfffgg.r. lat., 131 A.3d 842, 854-55 (Del. Ch. 2016) (“Before Section 2708 was

enacted, a Delaware court ordinarily would have analyzed a parties’ contractual choice of law under

the Restatement (Second) of Conflict of Laws. . . .”); 566 a/50 6 De/. C. § 2708 (This section shall not

apply to any contract, agreement or other undertaking . . . jijnvolving less than $100,000.”). When the

contract concerns $100,000 or more, Delaware courts will apply the less stringent standard of “‘bears

some material relationship to the transaction.”’ Wez`/ a. Morgaa 5taa/6j/ DWlae., 877 A.Zd 1024, 1025,

1032 (Del. Ch. 2005) (quotingAaaaa a W.'¢`fr))!;{gtrm Tra5t Co., 559 A.2d 1289, 1293 (Del.1989) (involving

a $106 million deal); 566 a/50 Ab@/ Partaer5 l/, LP., 891 A.2d at 1046 (involving a 3500 million contract).

21

location.106 While Respondents focus on their Pennsylvania residency and that they contacted

AEL regarding an online advertisement the important contacts outlined in § 188-and

implicated here_balance in Petitioners’ favor.107

Turning to the “fundamental policy” prong of section 187, the Restatement states, “[tjo

be ‘fundamental,’ a policy must . . . be a substantial one.’7108 lmportantly, the Restatement

advises that a “fundamental policy may be embodied in a statute which makes one or more

kinds of contracts illegal or which is designed to protect a person against the oppressive use

of superior bargaining power.”109 Delaware courts have supported the Restatement’s

advisement finding a state’s policy against certain contractual agreements to be a

“fundamental policy.’7110 ln this vein, Pennsylvania law deems usury contracts illegal under

the Pennsylvania Loan lnterest and Protection Law, 41 P.S. § 101 et 5ea. Section 201 states:

(a) Except as provided in Article lll of this act, the maximum lawful rate of

interest for the loan or use of money in an amount of fifty thousand dollars

($50,000) or less in all cases where no express contract shall have been made for

a less rate shall be six per cent per annum.m

303 The Court agrees with Petitioners that the “subject matter” of the loan agreement is the proceeds

and not the vehicles used as collateral 566 Petition to Vacate Arbitration Award for Respondent Baird

at 7 n.1; Petition to Vacate Arbitration Award for Respondent Griffm at 6 n.2. Respondents did not

enter into the agreements to receive their own vehicles as collateral Likewise, Petitioners sought

repayment; the collateral was security.

333 Respondent Baird argues that he often made payments towards his loan over the telephone from

Pennsylvania Respondent Baird’s Answer at jj 31. Respondent Griffin argues that AEL repossessed

his vehicle in Pennsylvania and stored it in Pennsylvania. Respondent Griffin’s Answer at jj 31. The

Court finds the former contact too attenuated and the latter contacts concerning only the collateral of

the contract and not the subject matter.

338 REsTATEMENT (SEcoND) oF CoNFLicT oF LAws § 188 cmt g (1971).

109 lay

330 5 66, 6.<g., A566a5z'0a Ia5. Hoftz'i){g.-.', LLC a Una’eru/ooa’, 2015 WL 356002, at *2-4 (Del. Ch. jan. 28, 2015)

(noting California’s codified public policy against agreements not to compete was a fundamental

policy).

333 41 Pa. Com". 5 tat. Aaa. § 201 (\X/est 2008); 566 a/50 C/erk e. Fz'r5t Baa/é 0fD6/awar6, 735 F. Supp.

2d 170, 173 (E.D. Pa. 2010).

22

Conversely, as Delaware does not have a law against usury contracts, Delaware’s competing

public policy is its reverence for “freedom of contract.’3112

Thus, the question remains whether Delaware’s connection to the contract and its

history as “strongly contractarian in its law” necessitates the application of Delaware law.113

ln A56ea56`0a lmaraaee Hofa'z`.rz<,g.-;. LLC a Uaa’em/eoa’ [hereinafter A56‘ea5toaj, the Delaware Chancery

Court was dealing with a similar balancing test114 As part of a subsequent agreement to an

asset purchase agreement, Mr. Underwood, a California resident, agreed not to compete with

Ascension lnsurance Holdings, LLC, a Delaware limited liability company with a principal

place of business in California, or its subsidiary, Ascension lnsurance Services, lnc., for a

period of two years after leaving the subsidiary.115 The subsequent agreement, an employee

investment agreement (the “EIA”), contained a covenant not to compete clause and a

Delaware choice-of-law provision.116 The ElA was negotiated in California and the location

covered by the agreement not to compete_i.e. the subject matter_was nearly solely within

California.117 The Court stated: “California is the state with the strongest contacts to the

contract, and there is no question that, absent the contractual agreement of the parties to

import Delaware law, California law would apply here.”118

332 A566a52`0a Ia5. Ho./déa;gi', LLC, 2015 \X/L 356002, at *4-5.

333 566 z`d. at *4.

334 566 z`d.

333 566 z'a'. at *2.

333 566 z'a'. at *1-2.

333 566 z'a'. at *3.

333 566 z'a'.

23

Other than a non-compete covenant negotiated a5part of an asset purchase, California

prohibits contractual provisions not to compete.119 Relying on the R65tateraeat (5660aa’) ofCoaj’Zz'et

af Laa)5 § 187, the court found this public policy to be fundamentalle The court then compared

California’s fundamental policy against non-compete covenants with Delaware’s “strongly

contractarian” nature.121 Describing Delaware’s “sanctity of contracts” policy, the court

opined:

This jurisdiction respects the right of parties to freely contract and to be able to

rely on the enforceability of their agreements; where Delaware's law applies,

with very limited exceptions, our courts will enforce the contractual scheme that

the parties have arrived at through their own self-ordering, both in recognition

of a right to self-order and to promote certainty of obligations and benefits

Upholding freedom of contract is a fundamental policy of this State.122

Nevertheless, the court found that “California's specific interest is materially greater than

Delaware's general interest in the sanctity of a contract that has no relationship to this

state.37123 Noting that the contacts were “predominantly in California,” the court further

articulated its opinion of Delaware’s “general interest,”

Without minimizing [Delaware’sj significant interest, it seems to me that, where

it is clear that the policy of the default state is that the contract at issue is

abhorrent and void, and where, as here, the formation and enforcement of the

contract relate overwhelmingly to the default state, a general interest in freedom

of contract is unlikely to be the equal of that public policy under the

333 566 z`a'. at *2 (citing Ca/. Ba5. c’?’Prof Code § 16600 (“Except as provided in this chapter, every contract

by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is

to that extent void.”)). The Chancery Court found that the employment investment agreement (the

“ElA”) was not negotiated as part of the asset purchase, “which is the sole ground upon which

California relaxes its public policy prohibition against covenants not to compete.” 566 z`a’. at *3; 566 a/50

Kaa-Dz`-Kz`, LLC a 5 aer, 2015 WL 4503210, at *18 (Del. Ch. July 22, 2015) (finding California’s public

policy did not supersede Delaware’s freedom of contract principles because the non-compete

agreement was connected with an asset sale).

320 A566n5z`011 Ia5. He/dz`;{gi‘, LLC, 2015 WL 356002, at *2, 4.

323 566 z'd. at *4.

322 566 ta’.

323 566 ta'. at *5.

24

Restatement analysis The entire purpose of the Restatement analysis is to

prevent parties from contracting around the law of the default state by

importing the law of a more contractarian state, unless that second state also

has a compelling interest in enforcement124

The court astutely noted that allowing “freedom of contract” principles to eclipse a

“default”_-satisfying the “materially greater interest” standard_state and its statute, which

voided the contractual provision on public policy grounds, would result in a court’s analysis

defaulting to the parties’ contractual choice.125 ln other words, the nefarious nature of the

contract would become irrelevant to the Restatement analysis126

The Chancery Court’s holding in A56‘6a5toa is prudent, however, if the arbitrator had

relied on its analysis, A56ea5z'0a is still based on clear factual differences that prevent such

reliance. First, AEL is incorporated in Delaware, which creates a “substantial relationship”

between one contracting party and the State of Delaware, and AEL does not have a principal

place of business in Pennsylvania127 Second, the negotiation, performance, and execution of

the loan agreement occurred in Delaware. These factual circumstances alter the balancing:

Delaware’s “materially greater interest” and public policy of a contracting haven versus

Pennsylvania’s “fundamental policy” against usury contracts The balancing shifts because the

fulcrum of the Chancery Court’s balancing analysis in A.s'e‘emt'oa depended on the “default”

state also harboring a fundamental policy of voiding the contract_a situation that is not

present here.

324 566 z'a'.

323 566 z'a'. (“ln other words, in 666@) z`a5taa66 where the parties seek to circumvent application of the law

of the default state, the state whose law wa5 chosen and is asked to enforce the contract will have the

interest of protecting freedom to contract lt would be a tautology. . . .”).

323 566 ta'.

323 56a5a5 U5A, lae. a. Fraa/é:/z'n, 2016 WL 1466488, at *3 (D Del. Apr. 14, 2016).

25

Sirnilarly, in 5 6125665 U5A, Im‘. a Fraa/é/z`a jhereinafter 56115665], the United States District

Court for the District of Delaware found that the balancing equation implicated here would

shift in Delaware’s favor.128 The Court held that because Georgia’s only connection to the

dispute was that the defendant lived there; worked from his home in Georgia; and signed the

contract in Georgia, Georgia did not have a “materially greater interest” than Delaware under

R65tateaz6at (5660166{) efCeajlz`tt 0fl.aw5 § 187(2) (b).129 Therefore, the Court found that Georgia’s

public policy against “restraints on employment” was not sufficient to satisfy the exception

under section 187(2)(b) and override the contract’s Delaware choice of law provision.130 The

same could be said of Pennsylvania’s connections in the present case; in fact, Pennsylvania has

less connections than Georgia had in 56165665.

ln the case majadz`re, l find that the arbitration awards as to Respondents Medora and

Griffin are in “direct contradiction to the express terms of the agreement[sj of the parties.”131

First, the arbitrator’s choice-of-law analysis_to the extent he performed one_is clearly

erroneous132 Granted, grave legal error is insufficient to vacate an arbitration award.

However, the reviewing court is not expected to “rubber stamp” the arbitrator’s decision.133

323 566 z'a'. at *4.

323 566 z`a'.

333 566 z'a'. at *2, 4.

333 Ma/e,éqaa'e/a a le/5/606/é, 611 A.Zd 18, 22 (Del. Ch. 1992) (“lf the Arbitrator decides an issue outside

of those contained in the submission, or if his actions are in direct contradiction to the express terms

of the agreement of the parties, he has exceeded his authority.”)

332 Because the arbitrator is not required to express his reasoning on a particular matter, the Court

cannot presume that he performed such an analysis when he does not expressly outline his reasoning

in the awards 566 z'a’. at 22 (“An Arbitrator need not state the grounds for a grant of relief, and it is

normally inappropriate for a court to direct an Arbitrator to disclose the reasoning of his decision.”).

333 566 Metromea'z'a Eaergy, lat. r. Emereh Eaerg)/ 5 677)5., lm., 409 F.3d 574, 579 (3d Cir. 2005) (“However,

we cautioned that ‘jejffusively deferential language notwithstanding, the courts are neither entitled nor

encouraged simply to ‘rubber stamp’ the interpretations and decisions of arbitrators.’ ”) (internal

quotation marks omitted) (quoting Mattema a Ryder 5}5. Iae., 99 F.3d 108, 113 (3d Cir.1996)).

26

And, while errors of fact or law are insufficient to overturn an arbitration award, this case

involves something “more.”134 Namely, the arbitrator’s reliance on inapplicable case law

despite the extensive briefing by the parties regarding the appropriate analysis for a choice-of-

law question, and the arbitrator’s statements in his current and prior arbitration awards

regarding Delaware versus Pennsylvania choice-of-law issues. These contextual parameters

evidence that the arbitrator was “cognizant” of controlling law and willfully disregard the

law.135

ln this regard, l find Kaaejf Gregona, 5 a/aatz`to and ]az'bar inapplicable to Respondents

l\/ledora and Griffin’s arbitration awards Kaaejj” engaged in a procedural choice-of-law analysis

for an unconscionability claim and Gre<gorz'a cited Kaaeyj3 in its choice-of-law analysis136 Further,

in Gregona, the United States District Court of the Eastern District of Pennsylvania dismissed

the Fair Debt Collection Practice Act claim and required the plaintiff to file an amended

334 B/aa/é Rome, 2003 \X/L 21801179, at *7 (“Factual or legal errors, u/z`t/Joat more, are not sufficient bases

to vacate an arbitration award.” (emphasis added)).

333 E.l. DaPeat de Nemoar5 237 Co. a Ca5t0m B/eadiag, 1998 WL 842289, at *5 (Del. Ch. Nov. 24, 1998)

(internal quotation marks omitted) (quoting Wez`r a. Manert/yz'a, Del. Ch., C.A. No. 14836, Allen, C.,

mem. op. at 9 (jan. 28, 1997)). The Court disagrees with Respondents’ belief that 10 De/. C. § 5701

prevents the present inquiry. Respondents’ Response at 14-15. Section 5701 prevents a reviewing

Court from addressing the “merits” of the dispute, which, in this case, concern the claims asserted

against Petitioners 566 10 De/. C. § 5701 (“ln determining any matter arising under this chapter, the

Court shall not consider whether the claim with respect to which arbitration is sought is tenable, or

otherwise pass upon the merits of the dispute.”). Addressing Petitioners’ challenge to the arbitration

award regarding whether the arbitrator exceeded his authority in his choice-of-law analysis does not

concern the substance of the case, 566 Metromedz`a Eaergy, lne., 409 F.3d at 578 (“Here, MME's challenge

to the arbitration award focuses not upon the underlying merits of the panel's analysis, but rather upon

whether the panel exceeded its authority. . . .”).

333 566 Kaae:j[ a De/au)are Tz`t/6 Loam, lae., 587 F.3d 616, 624 (3d Cir. 2009) (“Under all of the

circumstances set forth above, Pennsylvania has a materially greater interest than Delaware in the

determination of whether the arbitration clause is unconscionable.”); Gre<gorz`a a Teta/ A556t ReeeeeQ/,

lae., 2015 \X/L 115501, at *3-4 (E.D. Pa. jan. 8, 2015).

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complaint to join a necessary party.137 Neither case is applicable to Respondent l\/ledora or

Respondent Griffin.138 Whereas Respondent Baird asserted an unconscionability claim during

the arbitration proceedings and the arbitrator ruled on that claim, Respondents l\/ledora and

Griffin withdrew their unconscionability claims139 Furthermore, Respondents’ reliance on

5a/eatz`60 and ]az'bar is misplaced, as these cases were judicial orders which did not involve

adequate analysis140 The fact that the parties provided extensive briefing to the judicial

officers in those matters is unhelpful to this Court’s present determination141 The parties’

briefing does not provide insight into the judicial officers’ minds Thus, the reliance on a one-

page order provides little authority to support a position.

l vitally reiterate the high deference an arbitrator’s decision is awarded; the Court does

not come to its decision lightly. Yet, in the Court’s view, an equitable choice-of-law inquiry

would lead to the application of Delaware law. lndeed, the arbitrator expressed this sentiment

in his February 14, 2011 arbitration award where he noted that applying Kaaejj” in a similar

situation would result in rewriting Delaware law.142 ln applying Delaware law to the contract,

he also acknowledged that his prior application of Pennsylvania law was incorrect, noting that

333 Gregon'a, 2015 \X/L 115501, at *7.

333 The cases’ factual backgrounds are insufficient to fill the analytic gap.

333 Respondents’ Response, Exhibit A, at 1 (arbitration demand). ln Baird’s arbitration award, the

arbitrator specifically states “jwjith regard to the Count l Unconscionability Claitn l find against

Claimant [Baird] and for Respondents. . . .” Petition to Vacate Arbitration Award for Respondent

Baird, Exhibit 3, jj 3. And, as noted above, in both l\/ledora’s award and Griffin’s award, the arbitrator

notes in the beginning of the award that Count l (Unconscionabi]ity) was withdrawn. Petition to

Vacate Arbitration Award for Respondent Griffin, Exhibit 3, jj 1; Petition to Vacate Arbitration Award

for Respondent l\/ledora, Exhibit 3, jj 1.

340 Respondents’ Response, Exhibit G, at 1, Exhibit H, at 1.

343 Id., Exhibits G & H.

342 Petitioners’ Opening Brief, Exhibit 12, at 2.

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his “thinking and reasoning ha[dj evolved.”143 Thus, the arbitrator’s deviation from these

sentiments evidence more than simply an “erroneous interpretation of the law,” which is

beyond this Court’s review, but a conscious decision to disregard the law.144 Such

circumstances appear to be the exact reason a reviewing court should vacate an arbitration

award. That is, arbitrators’ decisions are not “untouchable.’3145

343 ld. The arbitrator’s statement in the arbitration awards that his thinking has flip-flopped because

Gre<gorz`a, ]az`nnr and 56:!:)6:!:»?`60 have since been rendered and provide guidance on Kangj"s analysis does

not present a defense to this prior knowledge. Petition to Vacate Arbitration Award for Respondent

Medora, Exhibit 3, jj 18; Petition to Vacate Arbitration Award for Respondent Griffin, Exhibit 3, jj

34; Petition to Vacate Arbitration Award for Respondent Baird, Exhibit 3, jj 23. As noted above,

Gregorta does not interpret Kanejj§ and ]az`bar and 5a/natz'60 are orders that lack analyses Thus, the

statement simply further acknowledges his awareness of the relevant law.

344 D/a/605 n. 5tra5666;g, 321 F.3d 365, 370 (3d Cir. 2003) (internal quotation marks omitted) (quoting

Loea/ 863 Int'/ Brot/aerhood of Tearn5ter5, C/yanjfenrt War6h0n56rnen and H6tt)er5 ofArnerz`ea a. ]6r56j/ C0a5t Egg

Prodneer5, lne., 773 F.2d 530, 533 (3d Cir.1985)). lt strikes the Court as problematic not to consider a

prior arbitration decision since failing to do so would allow an arbitrator to oscillate back and forth ad

z`njz`nz`tarn, never providing any solid guidance to future parties

343 Car/ Z66`55 l/z'.tz`on, lnt. n. Rzg[at He/dé).;g.f_. lnt., 2017 WL 3635568, at *4 (Del. Ch. Aug. 24, 2017).

29

VI. CONCLUSION

For the foregoing reasons, Petitioners’ l\/lotion for Summary judgment is GRANTED

IN PART AND DENIED lN PART and Respondents’ Cross-l\/lotion for Summary

judgment is GRANTED lN PART AND DENIED lN PART. Accordingly, the arbitration

awards of Respondent l\/ledora and Respondent Griffin are vacated.

Regarding Respondent Baird’s arbitration award, the Arbitration Award is

AFFIRMED.146 judgment is entered according to the arbitration award:

a) $7,269.00 to Respondent Baird for PLlPL statutory damages;

b) $500.00 to Respondent Baird for UCC statutory damages;

c) 151,588.00 to Respondent Baird for TlLA statutory damages;

d) $6,600.00 to Respondent Baird for attorney fees; and

e) $200.00 to Respondent Baird for reimbursement of arbitration administration fees

Additionally, 8604.00 will be deducted from Respondent’s judgment as the arbitration award

found that he owed Petitioners for loan principal and lawful interest Therefore, judgment is

entered in Respondent Baird’s favor in the amount of $15,553.00.

Further, Respondent Baird’s counsel has requested a revised award for attorney’s fees

based on counsel’s defense of their position in this Court147 Accordingly, l\/ls. Houghton shall

343 566 10 De/. C. § 5714(d) (“If the application to vacate is denied and no inotion to inodzj/ or correct t/ye

award i5p6nding, the Court shall conhrm the award.” (emphasis added)); 566 ai5o 10 Dei. C. § 5713 (“The

Court shall conHrm an award upon complaint or application of a party in an existing case made within

1 year after its delivery to the party, tin/655 wit/ain the time /i)nit5 /ye)'e:`):a}?¢’r impo5edgroand5 are argedfor oaea!.z';;g

or rnod{j‘jtz').jg or torretting the award, in which case the Court shall proceed as provided in §§

5714 and 5715 of this title.” (emphasis added)).

343 Respondents’ Response at 30.

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file her petition within fifteen (15) days and Petitioners shall have fifteen (15) days to respond.

The Court shall consider that issue in a separate opinion.

IT ls so oRDERED. U/

in

linalls

cf judge

cc: Ms. Tamu White, Chief Civil Clerk

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