Snipes v. TitleMax of Va.

IN THE COURT OF APPEALS OF NORTH CAROLINA

2022-NCCOA-558

No. COA21-374

Filed 16 August 2022

Guilford County, No. 19-CVD-2593

JENNIFER SNIPES, Plaintiff,

v.

TITLEMAX OF VIRGINIA, INC., Defendant.

Appeal by plaintiff from order entered 24 March 2021 by Judge Caroline

Pemberton in District Court, Guilford County. Heard in the Court of Appeals 11

January 2022.

Brown, Faucher, Peraldo & Benson, PLLC, by Drew Brown, for plaintiff-

appellant.

Troutman Pepper Hamilton Sanders, LLP, by Jason D. Evans and William J.

Farley III, for defendant-appellee.

STROUD, Chief Judge.

¶1 Plaintiff, Jennifer Snipes, appeals from an order vacating an arbitration award

in her favor and dismissing her claims against Defendant, TitleMax of Virginia.

Because the trial court properly reviewed the arbitrator’s award based on the essence

of the contract doctrine and, upon de novo review, properly found the arbitrator’s

award did not draw its essence from the parties’ contract, we affirm the vacatur of

the arbitrator’s award. But because the trial court could not dismiss Plaintiff’s claims

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based on its vacatur of the arbitrator’s award, we remand for the trial court, in its

discretion, to either direct a rehearing by the arbitrator or decide the issues originally

sent to the arbitrator.

I. Background

¶2 This case arises out of a “Motor Vehicle Title Loan Agreement” between

Plaintiff and Defendant from August 2016 in which Plaintiff received a loan of just

under $2,500 secured by title to her vehicle with an interest rate and fees of

approximately 144%. While Plaintiff lives in North Carolina, she traveled to

Virginia, where Defendant is based, to enter into the Loan Agreement. The Loan

Agreement contains two provisions pertinent to this appeal. A provision entitled

“Governing Law, Assignment and Amendment” provides, in relevant part, “This Loan

Agreement shall be governed by the laws of the State of Virginia, except that the

Waiver of Jury Trial and Arbitration Provision is governed by the Federal Arbitration

Act, 9 U.S.C. §§ 1–16 (‘FAA’).”

¶3 The “Waiver of Jury Trial and Arbitration Provision” provides for an arbitrator

to “issue a final and binding decision” on any dispute that arises under the Loan

Agreement, with the term “dispute” being “given the broadest possible meaning and

includ[ing], without limitation” inter alia “all federal or state law claims, disputes or

controversies, arising from or relating directly or indirectly to th[e] Loan Agreement.”

(Capitalization altered.)

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¶4 On 14 January 2019, Plaintiff filed a complaint against Defendant arising out

of the Loan Agreement. Specifically, Plaintiff alleged the Loan Agreement violated

“the North Carolina Consumer Finance Act, North Carolina usury statutes, and the

North Carolina Unfair and Deceptive Trade Practices Act.” “Plaintiff also sought

punitive damages.” Pursuant to the Loan Agreement’s arbitration provision, Plaintiff

included a motion to compel arbitration in her complaint explaining she filed the

action “to toll the application of the statute of limitations.” In response, Defendant

filed a motion to dismiss the case for improper venue under North Carolina Rule of

Civil Procedure 12(b)(3), N.C. Gen. Stat. § 1A-1, Rule 12(b)(3) (2019), on the grounds

Plaintiff did not live in the county where the case was filed and Defendant did not

have an office there.

¶5 On 22 May 2019, the trial court entered an order denying Defendant’s motion

to dismiss, granting Plaintiff’s motion to compel arbitration, and staying litigation

“pending completion of the arbitration ordered.” The parties then “arbitrated their

dispute on the papers” they had submitted “without an evidentiary hearing.”

¶6 On 16 November 2020, the arbitrator issued an award in favor of Plaintiff for

approximately $12,800—representing treble damages. In the award, the arbitrator

explained he had to choose between applying Virginia law and applying North

Carolina law to the dispute as well as the importance of the difference between those

two options:

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This case involves the extension of a loan to Claimant, a

North Carolina resident, secured by an automobile titled in

North Carolina, where the loan documents were signed in

Respondent’s office in Virginia. The loan carried an

interest rate of nearly 150%, a rate that clearly violates the

North Carolina Consumer Finance Act (the “CFA”), but

that is arguably not illegal in Virginia. The question to be

resolved is whether the language of the CFA applies to the

transaction at issue here.

Despite this recognition, the arbitration award never mentioned the Loan

Agreement’s express Virginia choice of law provision. The arbitration award

exclusively focuses on North Carolina’s Consumer Finance Act in its primary analysis

before also discussing an argument Defendant made based on the Commerce Clause

of the United States Constitution and addressing damages and fees.

¶7 The same day the arbitrator entered his award, Plaintiff filed a motion to

confirm the arbitration award and enter judgment. On 15 February 2021, Defendant

filed a motion to vacate the arbitration award. In its motion, Defendant argued the

trial court should vacate the arbitration award for two reasons: (1) because the award

“strayed both from the interpretation and application of the agreement” in that it

inter alia “refus[ed] to enforce the parties’ valid choice-of-law provision” and (2)

because the arbitrator “showed a manifest disregard for the law” by refusing to

enforce the choice-of-law provision and by ignoring “a well-established principle of

constitutional law,” the Commerce Clause. As part of its prayer for relief in its motion

to vacate, Defendant also asked the trial court to dismiss Plaintiff’s claims and enter

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judgment on its behalf.

¶8 On 24 March 2021, the trial court entered an order “granting Defendant’s

motion to vacate [the] arbitration award and denying Plaintiff’s motion to confirm

[the] arbitration award.” (Capitalization altered.) After making Findings of Fact on

the procedural history of the case, the trial court made Conclusions of Law explaining

how it could only vacate an arbitration award on limited grounds including manifest

disregard of law and an award failing to draw its essence from the parties’ agreement.

Applying those doctrines to the arbitration award, the trial court concluded the Loan

Agreement “contains an unambiguous, valid, and enforceable choice-of-law provision

confirming that Virginia law applies” and the arbitration award “demonstrated a

manifest disregard of the law” and “fail[ed] to draw its essence from the Loan

Agreement” by ignoring the choice of law provision favoring Virginia law and instead

applying North Carolina law. As a result, the trial court granted Defendant’s motion

to vacate the arbitration award and denied Plaintiff’s motion to confirm the

arbitration award. Based on its decision to vacate the arbitration award, the trial

court also dismissed Plaintiff’s claims stating: “Plaintiff’s claims against Defendant

are hereby dismissed with prejudice.”

¶9 On 20 April 2021, Plaintiff filed a written notice of appeal from the trial court’s

order.

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II. Analysis

¶ 10 Plaintiff contends the trial court erred by “granting Defendant-Appellee’s

motion to vacate [the] arbitration award” and by “denying Plaintiff-Appellant’s

motion to confirm [the] arbitration award.” (Capitalization altered.) As both parties

agree, these two arguments are two sides of the same coin because under the Federal

Arbitration Act (“FAA”)1 a court “must” confirm an arbitration award “unless the

award is vacated, modified, or corrected as prescribed in sections 10 and 11” of the

Act. 9 U.S.C. § 9. We first provide background on the law governing vacatur under

the FAA to help situate the parties’ specific arguments on the trial court’s order

vacating the arbitrator’s award.

¶ 11 “The FAA declares a liberal policy favoring arbitration,” such that “[j]udicial

review of an arbitration award is severely limited in order to encourage the use of

arbitration and in turn avoid expensive and lengthy litigation.” See Carpenter v.

Brooks, 139 N.C. App. 745, 750–51, 534 S.E.2d 641, 645 (2000) (citing Moses H. Cone

1The FAA governs this case because the title loan between Plaintiff and Defendant specifies

the arbitration clause “is governed by the” FAA. See In re Fifth Third Bank, Nat. Ass’n, 216

N.C. App. 482, 487, 716 S.E.2d 850, 854 (2011) (explaining the FAA governed because the

arbitration clause of the promissory note in question stated the FAA would “apply to the

construction, interpretation, and enforcement of this arbitration provision” (quotations

omitted)). As the Supreme Court of the United States has explained, state courts have a

“prominent role in arbitral enforcement” under the FAA. See Badgerow v. Walters, ___ U.S.

____, _____, 212 L. Ed. 2d 355, 363 (2022) (quotations and citation omitted) (stating as part

of an analysis on how the FAA does not provide independent jurisdiction for “applications to

confirm, vacate, or modify arbitral awards (under Sections 9 through 11)”).

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Hospital v. Mercury Constr. Corp., 460 U.S. 1, 74 L. Ed. 2d 765 (1983)) (including

“liberal policy” quote immediately before listing FAA grounds for vacating an

arbitration award); First Union Securities, Inc. v. Lorelli, 168 N.C. App. 398, 399–

400, 607 S.E.2d 674, 676 (2005) (including other quote immediately after listing FAA

grounds for vacatur). This policy favoring arbitration by limiting judicial review

manifests in two ways. First, “under the FAA, an arbitration award is presumed

valid, and the party seeking to vacate it must shoulder the burden of proving the

grounds for attacking its validity.” First Union, 168 N.C. App. at 400, 607 S.E.2d at

676 (quoting Carpenter, 139 N.C. App. at 751, 534 S.E.2d at 646) (internal quotations,

citations, and alterations omitted).

¶ 12 Second, the FAA limits vacatur of arbitration awards to the situations listed

in § 10 of the statute. See Carpenter, 139 N.C. App. at 750–51, 534 S.E.2d at 645–46

(explaining “[u]nder the FAA, arbitration awards may be vacated only in limited

situations” before listing the grounds in § 10). Specifically, § 10(a) limits vacatur to

the following situations:

(1) where the award was procured by corruption, fraud, or

undue means;

(2) where there was evident partiality or corruption in the

arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in

refusing to postpone the hearing, upon sufficient cause

shown, or in refusing to hear evidence pertinent and

material to the controversy; or of any other misbehavior by

which the rights of any party have been prejudiced; or

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(4) where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and

definite award upon the subject matter submitted was not

made.

9 U.S.C. § 10. “The text of the FAA” and the “national policy favoring arbitration

with just the limited [judicial] review needed to maintain arbitration’s essential

virtue of resolving disputes straight away” in turn “compel[] a reading of the §[] 10 .

. . categories as exclusive.” In re Fifth Third Bank, 216 N.C. App. at 487, 716 S.E.2d

at 854 (alterations from original omitted and own alterations added) (quoting Hall

Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 588, 170 L. Ed. 2d 254, 265

(2008)).

¶ 13 The exclusivity of the § 10(a) categories does not require a party seeking

vacatur of an arbitration award or a court vacating such an award to cite the specific

language of the section; rather courts have at times read other doctrines into § 10’s

specific text. For example, the Supreme Court of the United States recognized the

essence of the contract doctrine fits within § 10(a)(4)’s provision for vacatur when the

“arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4); see Oxford Health Plans LLC

v. Sutter, 569 U.S. 564, 569–70, 186 L. Ed. 2d 113, 119–20 (2013) (explaining a court

can overturn the arbitrator’s determination under § 10(a)(4) only when the arbitrator

exceeded his contractually delegated authority by issuing an award based on his own

policy determinations rather than “drawing its essence from the contract” (quoting

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Eastern Associated Coal Corp. v. United Mine Workers of America, Dist. 17, 531 U.S.

57, 62, 148 L. Ed. 2d 354 (2000) (alterations omitted))).

¶ 14 The essence of the contract doctrine pre-existed Hall Street Associates’s

declaration § 10’s categories were exclusive. See Eastern Associated Coal Corp., 531

U.S. at 62, 148 L. Ed. 2d at 360 (a case from 2000 stating, “[A]n arbitrator’s award

must draw its essence from the contract and cannot simply reflect the arbitrator’s

own notions of industrial justice.” (quotations and citations omitted)). But, post-Hall

Street Associates, the doctrine was incorporated into one of the categories within §

10(a). See Oxford Health Plans, 569 U.S. at 569–70, 186 L. Ed. 2d at 119–20 (laying

out the essence of the contract doctrine as part of determining “the arbitrator did not

exceed his powers” under § 10(a)(4) (alterations omitted)).

¶ 15 Not all pre-existing doctrines necessarily survived Hall Street Associates,

however. For example, before Hall Street Associates, courts would vacate arbitration

awards when the arbitrator “manifestly disregarded the law.” See In re Fifth Third,

216 N.C. App. at 487–89, 716 S.E.2d at 854–55 (quoting Fourth Circuit case Three S

Delaware, Inc. v. DataQuick Information Systems, Inc., 492 F.3d 520, 529 (4th Cir.

2007), to explain manifest disregard of the law after recognizing appellant only cited

cases from before Hall Street Associates). As this Court has recognized, “the United

States Supreme Court has ‘not decided whether manifest disregard survives the

decision in Hall Street Associates . . . .’” In re Fifth Third Bank, 216 N.C. App. at 487–

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88, 716 S.E.2d at 854 (alterations from original omitted) (quoting Stolt-Nielsen S.A.

v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3, 176 L. Ed. 2d 605, 616 n.3 (2010));

see also Wachovia Securities, LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012) (noting

a federal circuit court split on the issue because the Fourth Circuit considers manifest

disregard still in existence in contrast to the Fifth and Eleventh Circuits).2

¶ 16 With this background on the FAA and the limited grounds on which it allows

judicial review, we now return to Plaintiff-Appellant’s specific arguments. Plaintiff

argues three grounds on which we should reverse the trial court’s decision to vacate

the arbitration award: (1) “the trial court impermissibly conducted a de novo review”

of the award; (2) “the essence of the contract doctrine does not apply” such that the

trial court could not have vacated the award on that ground; and (3) the arbitrator

“did not commit a manifest disregard of law” as the trial court found.3 (Capitalization

2 We cite Wachovia Securities on the circuit-split issue only for ease of reference because the

trial court relied on it in its order vacating the arbitration award here. For a discussion of

the circuit split more broadly, see generally Stuart M. Boyarsky, The Uncertain Status of the

Manifest Disregard Standard One Decade After Hall Street, 123 Dick. L. Rev. 167, 187–205

(2018) (recounting Hall Street Associates and the ensuing circuit split with decision from each

circuit).

3 Plaintiff also includes a sub-section arguing the arbitrator “had no obligation to further

explain his rejection of [Defendant]’s choice-of-law provision” in the award such that the lack

of explanation “certainly was no basis on which the trial court could properly vacate” the

award. The trial court’s order included a Conclusion of Law explaining “[t]he arbitrator

demonstrated a manifest disregard of the law by ignoring and refusing to enforce the

unambiguous choice-of-law provision in the Loan Agreement.” As a result, the further

explanation argument best fits within Plaintiff’s broader manifest disregard of law

argument.

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altered.)

¶ 17 We first address Plaintiff’s argument the trial court “impermissibly conducted

a de novo review” because if the manner of the trial court’s review was wrong, we

must reverse. See First Union Securities, 168 N.C. App. at 400, 607 S.E.2d at 676

(“Judicial review of an arbitration award is severely limited . . . .”). Given the trial

court’s order rests on two independent grounds of essence of the contract and manifest

disregard, we can proceed on either basis. Given our courts and the Supreme Court

of the United States have thus far declined to answer whether manifest disregard

survived Hall Street Associates, see In re Fifth Third Bank, 216 N.C. App. at 487–88,

716 S.E.2d at 854–55 (explaining the U.S. Supreme Court has not decided the matter

before declining to determine whether manifest disregard is still valid), we will

address the trial court’s “essence of the contract” grounds first and only proceed to

“manifest disregard” if the trial court erred by vacating the arbitrator’s award on the

basis of the essence of the contract doctrine.

A. Applicable Law and Standard of Review

¶ 18 Before addressing the trial court’s review of the arbitrator’s award, we first

examine the applicable law and our standard of review of the trial court’s decision.

¶ 19 When reviewing orders based on federal statutes such as the FAA, we look to

a mix of state and federal court decisions. As this Court explained in In re Fifth Third

Bank:

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According to well-established law, when an “action is

brought under [a] Federal statute . . . in so far as it has

been construed by the Supreme Court of the United States,

we are bound by that construction.” Dooley v. R.R., 163

N.C. 454, 457–58, 79 S.E. 970, 971 (1913). However, “North

Carolina appellate courts are not bound, as to matters of

federal law, by decisions of federal courts other than the

United States Supreme Court.” Enoch v. Inman, 164 N.C.

App. 415, 420–21, 596 S.E.2d 361, 365 (2004) (citing

Security Mills v. Trust Co., 281 N.C. 525, 529, 189 S.E.2d

266, 269 (1972)). Even so, despite the fact that they are

“‘not binding on North Carolina’s courts, the holdings and

underlying rationale of decisions rendered by lower federal

courts may be considered persuasive authority in

interpreting a federal statute.’” McCracken & Amick, Inc.

v. Perdue, 201 N.C. App. 480, 488 n. 4, 687 S.E.2d 690, 695

n. 4 (2009) (quoting Security Mills, 281 N.C. at 529, 189

S.E.2d at 269), disc. review denied, 364 N.C. 241, 698

S.E.2d 400 (2010).

216 N.C. App. at 488–89, 716 S.E.2d at 855. Of course, we are also bound by decisions

of our Supreme Court and by prior panels of this Court. See, e.g., In re O.D.S., 247

N.C. App. 711, 721–22, 786 S.E.2d 410, 417 (2016) (“One panel of this Court cannot

overrule a prior panel of this Court, or our Supreme Court.” (citing In re Civil Penalty,

324 N.C. 373, 384, 379 S.E.2d 30, 37 (1989))).

¶ 20 Turning to “the standard of review of the trial court’s vacatur of [an]

arbitration award,” it “is the same as for any other order in that we accept findings

of fact that are not clearly erroneous and review conclusions of law de novo.”

Carpenter, 139 N.C. App. at 750, 534 S.E.2d at 645 (quotations and citation omitted).

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B. Trial Court’s Review

¶ 21 Plaintiff first argues “the trial court impermissibly conducted a de novo review

of” the arbitration award. (Capitalization altered.) Specifically, Plaintiff argues

“[t]he transcript of the proceedings demonstrates” the trial judge “simply

misunderstood the role of the court in connection with a request for the confirmation

of an arbitration award” in that she “impermissibly substituted her judgment for that

of” the arbitrator.

¶ 22 We reject Plaintiff’s argument because it improperly focuses on the hearing

rather than the written order. “The trial judge’s comments during the hearing as to

. . . law are not controlling; the written court order as entered is controlling.”

Fayetteville Publishing Co. v. Advanced Internet Technologies, Inc., 192 N.C. App.

419, 425, 665 S.E.2d 518, 522 (2008) (citing Draughon v. Harnett Cty. Bd. of Educ.,

158 N.C. App. 208, 215, 580 S.E.2d 732, 737 (2003), aff’d per curiam, 358 N.C. 131,

591 S.E.2d 521 (2004)). Thus, all the trial judge’s comments to which Plaintiff points

here are not controlling; we only review the entered written order vacating the

arbitrator’s award.

¶ 23 Turning to the written order, Plaintiff does not demonstrate the trial court

impermissibly conducted a de novo review. As laid out above, “[u]nder the FAA,

arbitration awards may be vacated only in limited situations.” Carpenter, 139 N.C.

App. at 750, 534 S.E.2d at 645. The trial court’s written order lists two alternative

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bases for vacating the arbitration award: (1) “the award fails to draw its essence from

the Loan Agreement” and (2) the arbitrator “demonstrated a manifest disregard of

the law.” We have already explained essence of the contract is an acceptable grounds

for review as the Supreme Court of the United States has determined it falls within

§ 10(a)(4) of the FAA. See Oxford Health Plans, 569 U.S. at 569–70, 186 L. Ed. 2d at

119–20 (laying out the essence of the contract doctrine as part of determining “the

arbitrator did not exceed his powers” under § 10(a)(4)). Thus, on at least one of the

alternative grounds, the trial court’s review was proper.

¶ 24 If at least one of the grounds for review was proper and with the uncertainty

around the continued existence of manifest disregard, we would not need to address

the propriety of the trial court’s review on that ground. First, we can consider

whether to uphold the trial court’s order based on the essence of the contract doctrine.

Second, even if we cannot uphold the order based on essence of the contract grounds,

we could determine the order needs to be reversed because, presuming arguendo

manifest disregard is still a valid ground, Defendant failed to show a manifest

disregard below. See In re Fifth Third Bank, 216 N.C. App. at 488, 716 S.E.2d at 855

(concluding party failed to demonstrate manifest disregard of the law such that the

court did not need to “determine the extent, if any, to which ‘manifest disregard of

the law’ remains a valid non-statutory basis for vacating an arbitration award”).

Thus, only if we first determine the trial court improperly applied essence of the

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contract but correctly applied manifest disregard do we need to determine whether

the trial court properly reviewed for manifest disregard. Only in that scenario would

the existence of manifest disregard be dispositive such that we have to address the

question the Supreme Court of the United States and this Court have avoided. In re

Fifth Third Bank, 216 N.C. App. at 487–88, 716 S.E.2d at 854–55. We first evaluate

the essence of the contract ground.

C. Essence of the Contract

¶ 25 Plaintiff argues the trial court’s vacatur of the arbitration award based on the

essence of the contract doctrine “is erroneous in two regards.” First, Plaintiff argues

the doctrine does not apply because she did “not assert[] any breach of contract

claims.” Second, she contends even if it applies, the award “is, at a minimum,

rationally inferable from material terms contained in the parties’ loan agreement.”

¶ 26 As noted, essence of the contract is a doctrine that fits with the FAA provision

allowing for vacatur where the arbitrators “exceeded their powers.” 9 U.S.C. §

10(a)(4); see Oxford Health Plans, 569 U.S. at 569–70, 186 L. Ed. 2d at 119–20

(explaining a court can overturn the arbitrator’s determination under § 10(a)(4) only

when the arbitrator exceeded his contractually delegated authority by issuing an

award based on his own policy determinations rather than “drawing its essence from

the contract” (quoting Eastern Associated Coal, 531 U.S. at 62, 148 L. Ed. 2d 354)).

The bar for an arbitrator’s award drawing its essence from a contract is low; the

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arbitrator need only be “‘arguably construing or applying the contract.’” See Eastern

Associated Coal, 531 U.S. at 62, 148 L. Ed. 2d at 360 (explaining as long as the

arbitrator is doing that, “the fact that ‘a court is convinced he committed serious error

does not suffice to overturn his decisions.’” (quoting United Paperworkers Int’l Union,

AFL-CIO v. Misco, Inc., 484 U.S. 29, 38, 98 L. Ed. 2d 286 (1987)); see also Oxford

Health Plans, 569 U.S. at 573, 186 L. Ed. 2d at 122 (“Under § 10(a)(4), the question

for a judge is not whether the arbitrator construed the parties’ contract correctly, but

whether he construed it at all.”).

¶ 27 As an example of this low bar, in Oxford Health Plans, when the arbitrator

explained “his . . . decision was ‘concerned solely with the parties’ intent as evidenced

by the words’” of the relevant contract clause and performed a “textual analysis,” the

Supreme Court of the United States found the arbitrator was construing the contract

“focusing, per usual, on its language.” 569 U.S. at 570–71, 186 L. Ed. 2d at 120–21.

As a result, “to overturn his decision, [the Court] would have to rely on a finding that

he misapprehended the parties’ intent,” but “§ 10(a)(4) bars that course: It permits

courts to vacate an arbitral decision only when the arbitrator strayed from his

delegated task of interpreting a contract, not when he performed that task poorly.”

Id., 569 U.S. at 571–72, 186 L. Ed. 2d at 121.

¶ 28 The United States Court of Appeals for the Fourth Circuit (“Fourth Circuit”)

has also expanded upon the essence of the contract doctrine in a persuasive manner.

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It has clarified vacatur is appropriate for “an award that contravenes the plain and

unambiguous terms of the” contract. See Patten v. Signator Ins. Agency, Inc., 441

F.3d 230, 237 (4th Cir. 2006) (citing United Paperworkers Int’l Union, 484 U.S. at 38,

98 L. Ed. 2d 286) (explaining the “deferential” standard of review of arbitration

awards “does not require” affirming such an award). In other words, a court can

vacate an arbitration award on the grounds it fails to draw its essence from the

contract “when an arbitrator has disregarded or modified unambiguous contract

provisions or based an award upon his own personal notions of right and wrong.”

Three S Delaware, 492 F.3d at 528 (citing Patten, 441 F.3d at 235).

¶ 29 For example, in Patten, the Fourth Circuit considered an issue of the timeliness

of the arbitration demand when the governing agreement “contained no explicit time

limitation.” 441 F.3d at 236. The Fourth Circuit found the arbitrator’s award “failed

to draw its essence from the governing arbitration agreement” because the

arbitrator’s imposition of a one-year limitations period “contradicted the plain and

unambiguous terms” of the agreement. Id. at 236–37. While that example covers

interpreting the scope of arbitration, the essence of the contract doctrine extends to

other provisions as well. E.g. MCI Constructors, LLC v. City of Greensboro, 610 F.3d

849, 861–62 (4th Cir. 2010) (applying doctrine to aspects of contract related to

“damages claim”).

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¶ 30 Here, the trial court vacated on essence of the contract grounds by explaining:

“Additionally, the award fails to draw its essence from the Loan Agreement as the

application of North Carolina law is inconsistent with the plain language of the Loan

Agreement stating that Virginia law applies.” In a section on “Governing Law,

Assignment and Amendment,” the Loan Agreement states: “This Loan Agreement

shall be governed by the laws of the State of Virginia, except that the Waiver of Jury

Trial and Arbitration Provision is governed by the Federal Arbitration Act, 9 U.S.C.

§§ 1–16 (‘FAA’).” Thus, a “plain and unambiguous term[]” of the contract provides

Virginia law applies. Patten, 441 F.3d at 237.

¶ 31 The arbitration award recognized the arbitrator needed to decide whether to

apply North Carolina law or Virginia law and explained the differences between the

two:

This case involves the extension of a loan to Claimant, a

North Carolina resident, secured by an automobile titled in

North Carolina, where the loan documents were signed in

Respondent’s office in Virginia. The loan carried an

interest rate of nearly 150%, a rate that clearly violates the

North Carolina Consumer Finance Act (the “CFA”), but

that is arguably not illegal in Virginia. The question to be

resolved is whether the language of the CFA applies to the

transaction at issue here.

¶ 32 Despite this recognition, the arbitration award never considers or even

mentions the Loan Agreement’s Virginia choice of law provision. Instead, the

arbitration award exclusively focuses on North Carolina’s Consumer Finance Act in

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its primary analysis. Thus, as in Patten, vacatur is appropriate here because the

arbitration award “contradicted the plain and unambiguous terms” of the Loan

Agreement. Patten, 441 F.3d at 236. The arbitrator here did not construe the

governing contract “at all.” See Oxford Health Plans, 569 U.S. at 573, 186 L. Ed. 2d

at 122 (“Under § 10(a)(4), the question for a judge is not whether the arbitrator

construed the parties’ contract correctly, but whether he construed it at all.”). As

such, the arbitration award does not draw its essence from the contract and therefore

the arbitrator exceeded his power. See id., 569 U.S. at 569–70, 186 L. Ed. 2d at 119–

20 (explaining a court can overturn the arbitrator’s determination under § 10(a)(4)

when the award does not “draw[] its essence from the contract”). As a result, the trial

court properly vacated the arbitrator’s award.

¶ 33 Plaintiff first argues “the essence of the contract doctrine does not apply”

because she did not assert “any breach of contract claims.” (Capitalization altered.)

First, this statement has no basis when looking at Fourth Circuit precedent we found

persuasive above. E.g. MCI Constructors, 610 F.3d at 852, 861–62 (applying essence

of the contract doctrine in case where complaint alleged claims including negligent

misrepresentation and wrongful termination). Patten is one of the cases applying

essence of the contract doctrine when the claims were not all contractual in nature,

see 441 F.3d at 232, 236–37 (applying doctrine when underlying claims submitted to

arbitration included age discrimination and wrongful termination), and Plaintiff cites

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Patten a page later in her own briefing on essence of the contract doctrine.

¶ 34 Second, the only case law authority Plaintiff cites to support this proposition

is a “Memorandum Opinion and Order” from the United States District Court for the

Middle District of North Carolina (“Middle District”) in Strange et al. v. Select

Management Resources, LLC et al., No. 1:19-cv-00321 (M.D.N.C. 2021).

(Capitalization altered.) According to the copy of Strange et al. included in the

addendum to Plaintiff’s brief, when the Middle District was analyzing a party’s

argument the arbitrator refused to apply a choice of law provision, it was reviewing

on the grounds of manifest disregard of the law, not essence of the contract. Thus,

we reject Plaintiff’s unsupported assertion that essence of the contract doctrine only

applies to contract claims.

¶ 35 Plaintiff’s other argument is that even if the essence of the contract doctrine

does apply, the arbitrator’s award is “at a minimum, rationally inferable from

material terms contained in the parties’ loan agreement.” (Citing Patten, 441 F.3d at

235.) Plaintiff is correct that “[a]n arbitration award fails to draw its essence from

the agreement only when the result is not ‘rationally inferable from the contract.’”

Patten, 441 F.3d at 235 (quoting Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142

F.3d 188, 193 n.5 (4th Cir. 1998). But Patten itself defeats Plaintiff’s argument. In

Patten, when the arbitrator’s award “disregarded the plain and unambiguous

language of the” governing contract, the Fourth Circuit found “[t]he arbitrator’s

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ruling . . . resulted in an award that, in the language of Apex Plumbing, simply was

‘not rationally inferable from the contract.’” Id. at 235–37 (quoting Apex Plumbing,

142 F.3d at 193 n.5). While Plaintiff points to a portion of the Loan Agreement

relating to the interest rate and possession of title taking place at the NCDMV, that

does not cure the arbitrator’s failure to mention the choice of law provision when

choice of law was the question he recognized he had to answer. Because the

arbitrator’s award “disregarded the plain and unambiguous language of the” Loan

Agreement requiring application of Virginia law, the award “simply was ‘not

rationally inferable from the contract.’” Id. at 235–37. Therefore, the arbitrator’s

award failed to draw its essence from the Loan Agreement.

¶ 36 The issue before us is solely “Whether the trial court erred by granting

Defendant-Appellee’s Motion to Vacate [the] Arbitration Award.” We conclude the

trial court did not err in granting that motion because the arbitrator’s lack of mention

or consideration of the Loan Agreement’s choice of law provision means his award

does not draw its essence from the parties’ contract containing that provision, and a

failure to draw from the essence of the contract is a valid ground on which to vacate

an arbitration award.

¶ 37 Therefore, after de novo review, we affirm the trial court’s order vacating the

arbitration award. Because we affirm, the trial court’s vacatur order on essence of

the contract grounds, we do not need to address its alternative ground of manifest

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disregard. Also, as we explained above, because we affirm the trial court’s order

granting Defendant’s motion to vacate the arbitration award, we also affirm its order

denying Plaintiff’s motion to confirm the arbitration award. See 9 U.S.C. § 9

(explaining a court “must grant” an order confirming an arbitration award “unless

the award is vacated . . .”).

III. Trial Court’s Dismissal

¶ 38 After vacating the arbitration award, the trial court also dismissed the case

saying, “Plaintiff’s claims against Defendant are hereby dismissed with prejudice.”

The trial court’s use of the word “hereby” indicates its dismissal of Plaintiff’s claims

turns on its decision to vacate the arbitration award. While the trial court properly

vacated the arbitration award as we have explained above, the FAA does not allow it

to then dismiss the action. The FAA explains, “If an award is vacated . . . the court

may, in its discretion, direct a rehearing by the arbitrators.”4 9 U.S.C. § 10(b). The

United States Supreme Court has explained if a court, in its discretion, chooses not

to “‘direct a rehearing by the arbitrators’” then the court “must . . . decide the question

that was originally referred to the” arbitrators. See Stolt-Nielsen, 559 U.S. at 677,

4 The omitted portion of § 10(b) restricts the trial court’s ability to direct a rehearing to

situations where “the time within which the agreement required the award to be made has

not expired.” 9 U.S.C. §10(b). That restriction does not apply here because the arbitration

provisions of the Loan Agreement do not include a “time within which” the award has to be

made.

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176 L. Ed. 2d at 619 (quoting 9 U.S.C. § 10(b)) (so explaining in terms of its own

review after vacating an arbitration panel’s award). Therefore, a court cannot

dismiss a case following vacatur of an arbitration award under the FAA. As a result,

we remand to the trial court to, in its discretion, choose between “‘direct[ing] a

rehearing by the arbitrator[]’” or “decid[ing] the question that was originally referred”

to the arbitrator. Stolt-Nielsen, 559 U.S. at 677, 176 L. Ed. 2d at 619 (quoting 9 U.S.C.

§ 10(b)).

IV. Conclusion

¶ 39 We hold the trial court properly reviewed to determine whether the award

drew its essence from the Loan Agreement and did not err in vacating the arbitrator’s

award and, based on our de novo review, properly concluded the award did not.

Because we affirm based on the essence of the contract doctrine, we do not reach the

trial court’s alternative ground for vacatur, i.e. manifest disregard. Given we affirm

the trial court’s order vacating the arbitrator’s award, we also affirm its order denying

Plaintiff’s motion to confirm the award. The trial court, however, could not dismiss

the case in reliance on its vacatur of the arbitration award. We remand for the trial

court, in its discretion, to either direct a rehearing by the arbitrator or decide for itself

the issues originally sent to the arbitrator.

AFFIRMED AND REMANDED.

Judges TYSON and GORE concur.