Mansfield v. Vanderbilt Mortgage and Finance, Inc., et al
ORDER granting 4 Motion to Stay LITIGATION PENDING ARBITRATION AND TO COMPEL ARBITRATION and denying 12 Motion to Remand - Plaintiff is ORDERED to submit her claims to binding arbitration in the manner provided for in the arbitration agreement. This action shall be STAYED pending of arbitration. Signed by District Judge Louise Wood Flanagan on 6/16/2014. (Tripp, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
DOROTHY MARIA MANSFIELD,
VANDERBILT MORTGAGE AND
FINANCE, INC.; and PHILIP A.
GLASS, LENNY CICERO, AND
MATTHEW HOPTRY, Trustees,
This matter comes before the court on defendant Vanderbilt Mortgage and Finance, Inc.’s
(“Vanderbilt”) motion to stay litigation pending arbitration and to compel arbitration (DE 4), and
plaintiff’s motion to remand (DE 12). Both motions are fully briefed and issues raised are ripe for
ruling. For the reasons stated below, the court DENIES plaintiff’s motion to remand and GRANTS
defendant Vanderbilt’s motion to stay and compel arbitration.
For purposes of deciding the instant motions, the following facts do not appear to be
disputed. On April 16, 2011, plaintiff’s home was hit by a tornado, destroying it. On October 14,
2011, in connection with the purchase of a new mobile home, plaintiff – a resident of Bladen
County, North Carolina – executed a Manufactured Home and Retail Installment Contract (“the
contract”) with defendant Vanderbilt Mortgage and Finance, Inc. (“Vanderbilt”) – a Tennessee
Corporation with its principal place of business in Tennessee – as the lender. Plaintiff also executed
a deed of trust naming defendant Vanderbilt as the beneficiary. The deed of trust took a security
interest in the mobile home and on certain land owned by plaintiff. The contract included an
arbitration agreement. This arbitration agreement stated that
Buyer and Seller (sometimes called the “Parties”) agree to mandatory, binding
arbitration (“Arbitration”) of all disputes, claims, controversies, grievances, causes
of action, including, but not limited to, common law claims, contract and warranty
claims, tort claims, statutory claims, and, where applicable, administrative law
claims, and any other matter in question (“Claims”) arising from or relating to this
Contract, any products/goods, services, insurance, or real property (including
improvements to the real property) sold or financed under this Contract, any events
leading up to this Contract, the collection and servicing of this Contract, and the
interpretation, scope, validity or enforceability of this Contract (with the exception
of this agreement to arbitrate, the “Arbitration Agreement”). The interpretation,
scope, validity or enforceability of this Arbitration Agreement or any clause or
provision herein and the arbitrability of any issue shall be determined by a court of
Compl. Ex. C, at 8. Certain actions, however, were exempted from arbitration:
Notwithstanding any other provision of this Arbitration Agreement, Buyer agrees
that Seller may use judicial process (filing a lawsuit): (a) to enforce the security
interest granted in this Contract or any related mortgage or deed of trust. and (b) to
seek preliminary relief, such as a restraining order or injunctive relief, in order to
preserve the existence; location, condition, or productive use of the Manufactured
Home or other Collateral. Buyer and Seller also agree that this Arbitration
Agreement does not apply to any Claim where the amount in controversy is less than
the jurisdictional limit of the small claims court in the jurisdiction where Buyer
resides, provided, however that the Parties agree that any such small claims Claim
may only be brought on an individual basis and not as a class action.
Id. at 9. The contract also contained an explicit trial waiver, stating that “Buyer and Seller hereby
expressly and irrevocably waive any right to a trial by judge or jury of any Claims covered by this
Arbitration Agreement.” Id.
At the loan closing where the documents were executed, plaintiff went as instructed to the
law offices of Cooper, Davis, and Cooper. She was not given the loan documents in advance to
review, and recalls that she was at the office for under thirty minutes. The woman conducting the
closing did not explain any of the language of the contract to her, but merely flipped each page and
pointed to where plaintiff should sign. No one mentioned the arbitration agreement in the contract,
or mentioned arbitration, and the arbitration agreement was largely written in the same type face as
the rest of the contract. Plaintiff was not able to negotiate any portion of the contract.
Plaintiff began making monthly payments on the loan in December 2011, but eventually
defaulted on the loan. Defendant Vanderbilt executed an Appointment and Substitution of Trustee,
and recorded this document on May 28, 2013. Defendant Vanderbilt appointed defendants Philip
A. Glass, Lenny Cicero, and Matthew Hoptry (collectively, “the trustee defendants”) – all residents
of North Carolina – to serve as trustees on plaintiff’s deed of trust. Defendant Philip A. Glass filed
and served a notice of foreclosure hearing with the Bladen County Clerk of Court. The Assistant
Clerk of Superior Court in Bladen County signed an order of foreclosure, which plaintiff is
Because the jurisdiction of the clerk and court in such foreclosure proceedings is limited to
specific findings, plaintiff brought the instant action in Bladen County Superior Court, asserting
claims against defendant Vanderbilt for (1) making an unlawful rate spread home loan in violation
of N.C. Gen. Stat. § 24-1.1F; (2) breach of the Secure and Fair Enforcement Mortgage Licensing
Act (“SAFE Act”), N.C. Gen. Stat. § 53-244.010 et seq.; (3) violation of the North Carolina Unfair
and Deceptive Trade Practices Act (“UDPTA”) N.C. Gen. Stat. § 75-1.1 et seq.; and (4) breach of
the duty of good faith and fair dealing. Plaintiff seeks monetary damages on these claims. Plaintiff
also asserted claims against all defendants for declaratory relief that she is entitled to reformation
of the loan terms and for injunctive relief prohibiting defendants from proceeding to sell her
property, from transferring any interest in plaintiff’s security agreement or deed of trust, and from
taking any other action adverse to plaintiff’s interest in her property.
Defendant Vanderbilt removed this action to this court on December 2, 2013, asserting this
court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(3). Defendant Vanderbilt then filed a motion
to stay this litigation and compel arbitration (DE 4). Plaintiff opposed this motion, and filed her own
motion to remand the action to state court (DE 12), asserting that this court does not have subject
matter jurisdiction over the instant action. Defendant Vanderbilt opposed plaintiff’s motion.
Motion to Remand
The court is obligated to first consider plaintiff’s motion to remand. See Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 94-95 (1998) (“The requirement that jurisdiction be established as
a threshold matter springs from the nature and limits of the judicial power of the United States and
is inflexible and without exception.” (internal quotations and alterations omitted)).
Standard of Review
Federal district courts are courts of limited jurisdiction. “Typically, an action initiated in a
state court can be removed to federal court only if it might have been brought in federal court
originally.” Sonoco Prods. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 370 (4th Cir. 2003)
(internal quotation and alterations omitted). To remove to federal court, the defendant or defendants
must file “a notice of removal, containing a short and plain statement of grounds for removal.” 28
U.S.C. § 1446(a). The party seeking removal bears the burden of demonstrating that the district
court has original jurisdiction. Id. Federal courts “must strictly construe removal jurisdiction. If
federal jurisdiction is doubtful, a remand [to state court] is necessary.” Mulcahey v. Columbia
Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994) (citation omitted).
In this case, plaintiff asserts that this court lacks subject matter jurisdiction over the matter
due to a lack of complete diversity among the parties where the trustee defendants are all North
Carolina residents. Federal statute authorizes original jurisdiction over cases between diverse
citizens where the “amount in controversy exceeds the sum or value of $75,000, exclusive of
interests and costs . . . .” 28 U.S.C. § 1332(a). “In order to establish diversity jurisdiction, the
parties must be completely diverse; none of the plaintiffs may share citizenship with any of the
defendants.” Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir. 1999).
There are, however, certain limited exceptions to the complete diversity requirement. One
such exception is for so-called “nominal parties.” See Navarro Sav. Ass’n v. Lee, 446 U.S. 458,
460-61 (1980) (“Early in its history, this Court established that the citizens upon whose diversity
a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. Thus, a
federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship
of real parties to the controversy.” (citations and internal quotations omitted)). The issue presented
here is whether the trustee defendants are nominal parties.
Plaintiff and defendant Vanderbilt both incorrectly assert that the Fourth Circuit Court of
Appeals has not articulated a precise standard for determining whether a party is a nominal party or
not, and therefore both parties cite to a variety of different tests which have been used by district
courts in this circuit and/or tests used in other circuits. However, the Fourth Circuit recently
examined this precise question in Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255
(4th Cir. 2013). After looking at a variety of tests used in other circuits, such as whether the
purportedly nominal defendant or defendants were necessary parties or whether there was a
reasonable basis for predicting that they would be held liable, the Fourth Circuit rejected all of them,
finding “they have strayed from the fundamental inquiry.” Id. at 259-60. The Fourth Circuit
determined that “[n]ominal means simply a party having no immediately apparent stake in the
litigation either prior or subsequent to the act of removal.” Id. “The key inquiry is whether the suit
can be resolved without affecting the . . . nominal defendant in any reasonably foreseeable way.”
Id. The Hartford court made clear that a defendant must “possess a sufficient stake in th[e]
proceeding to rise above the status of nominal party,” noting that the “nominal party exception helps
to preserve the adversity that is central to our system of justice.” Id. at 261, 62.
In this case, Hartford’s “key inquiry,” shows the trustee defendants are nominal parties.
They will not be affected in any reasonably foreseeable way by the resolution of this suit. Although
plaintiff is seeking to enjoin them from taking any action adverse to plaintiff’s interest in the
property, they hold title to the land described in the deed of trust “for the sole benefit of the real
parties in interest to this action, they being [plaintiff] and [defendant Vanderbilt].” Dempsey v.
Transouth Mortg. Corp., 88 F. Supp. 2d 482, 484 (M.D.N.C. 1999) (finding that a substitute trustee
was a nominal party to the action). Tellingly, plaintiff’s complaint includes no factual allegations
against the defendant trustees, but rather pleads only that they are substitute trustees on plaintiff’s
deed of trust in the foreclosure action and that they are citizens of North Carolina. See Compl. ¶¶
3-5; see also Dempsey, 88 F. Supp. 2d at 484 (noting that the complaint contained no allegations
against the nominal trustee defendant); James v. Vanderbilt Mortg. & Fin., Inc., No. 3:11-CV498-MOC-DSC, 2012 WL 441170, at *2 n.1 (W.D.N.C. Jan. 23, 2012) (deciding, in an action
including a claim for injunctive relief against the substitute trustee, that the substitute trustee was
a nominal party where she “does not have . . . any interest in this suit” and “the complete contains
no factual allegations against” her.) memorandum and recommendation adopted, No 3:11-CV-498,
2012 WL 440355 (W.D.N.C. Feb. 10, 2012); cf. Payne v. Bank of Am., N.A., No. 3:09-CV-80, 2010
WL 546770, at *6 (W.D. Va. Feb. 11, 2010) (finding a trustee was not a nominal party, but noting
as a “crucial difference” from other cases the fact that the complaint therein contained factual
allegations against the trustee). Thus, where the court finds the trustee defendants are nominal
parties, plaintiff’s motion to remand is denied.1
Motion to Stay and Compel Arbitration
Standard of Review
Section 2 of the Federal Arbitration Act (“FAA”) provides that a written arbitration
agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. § 2. Under section 3 of the FAA, “a court
must stay ‘any suit or proceeding’ pending arbitration of ‘any issue referable to arbitration under an
agreement in writing for such arbitration.’” Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th
Cir.2005) (quoting 9 U.S.C. § 3).
The FAA reflects “a liberal federal policy favoring arbitration agreements,” and “courts must
place arbitration agreements on an equal footing with other contracts, and enforce them according
to their terms.” AT & T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011) (internal
In making its determination, this court is aware that a substitute trustee “is a necessary party to any suit to enjoin
foreclosure.” Crispin v. BAC Home Loans Servicing, LP, No. 5:11-CV-375-FL, 2011 WL 6294319, at *3 n.3 (E.D.N.C.
Dec. 15, 2011). The court is also aware that in Hartford, the Fourth Circuit found a party – Hammonds – to be nominal
noting that Hammonds’s absence from that action “would have no effect on [plaintiff’s] ability to be made whole.”
Hartford 736 F.3d at 261. Although the Hartford court examined the need for a Hammond’s inclusion in the action so
as to provide the plaintiff with complete relief, this does not undermine the fact that the key inquiry is “whether the suit
can be resolved without affecting the . . . nominal defendant in any reasonably foreseeable way.” Id. at 260. Indeed,
the Hartford court specifically noted that other tests, including whether complete relief could be provided in the absence
of the purportedly nominal party, may provide “useful insights, but . . . stray from the fundamental inquiry.” Id. at 25960.
citations omitted). In determining whether the dispute at issue is one to be resolved through
arbitration, the court must “engage in a limited review to ensure that the dispute is arbitrable – i.e.,
that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within
the substantive scope of that agreement.” Murray v. United Food & Commercial Workers Int’l
Union, 289 F.3d 297, 302 (4th Cir. 2002) (citations omitted).
The parties in this case dispute both the validity and the scope of the arbitration agreement.
Plaintiff argues that the arbitration agreement is unconscionable and therefore unenforceable.
Plaintiff also contends that her claims are not arbitrable and so she should be allowed to proceed on
those claims in this case. On the other hand, defendant maintains that the arbitration agreement is
valid and that plaintiff’s claims fall within the scope of that agreement. The court addresses these
arguments in turn below.
Under section 2 of the FAA, a party may seek revocation of an arbitration agreement “upon
such grounds as exist at law or in equity for the revocation of any contract,” including “generally
applicable contract defenses, such as fraud, duress, or unconscionability.” AT&T Mobility LLC, 131
S. Ct. at 1746 (quoting 9 U.S.C. § 2) (additional citations omitted). The judicial inquiry is “highly
circumscribed,” and “the grounds for revocation must relate specifically to the arbitration clause and
not just to the contract as a whole.” Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir.
1999). In this diversity case, the court applies North Carolina law. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941). Under North Carolina law, “the interpretation of a contract is
governed by the law of the place where the contract was made.” Tanglewood Land Co., Inc. v.
Byrd, 299 N.C. 260, 262 (1980). Here, the contract was made in North Carolina, and thus North
Carolina contract law governs.
Under North Carolina law, a contract is unconscionable
only when the inequality of the bargain is so manifest as to shock the judgment of
a person of common sense, and where the terms are so oppressive that no reasonable
person would make them on the one hand, and no honest and fair person would
accept them on the other.
Brenner v. Little Red Sch. House Ltd., 302 N.C. 207, 213 (1981). “[U]nconscionability is an
affirmative defense, and the party asserting it has the burden of proof.” Tillman v. Commercial
Credit Loans, Inc., 362 N.C. 93, 102 (2008). “A party asserting that a contract is unconscionable
must prove both procedural and substantive unconscionability.” Id. “[P]rocedural unconscionability
involves ‘bargaining naughtiness’ in the form of unfair surprise, lack of meaningful choice, and an
inequality of bargaining power.” Id. (citations omitted). “Substantive unconscionability, on the
other hand, refers to harsh, one-sided, and oppressive contract terms.”
procedural/substantive analysis is “more of a sliding scale than a true dichotomy,” and a finding of
unconscionability “may be appropriate when a contract presents pronounced substantive unfairness
and a minimal degree of procedural unfairness, or vice versa.” Id. (citation omitted).
In this case, plaintiff contends that the arbitration agreement is both procedurally and
The court first considers plaintiff’s claims of procedural
As an initial matter, the court rejects defendant Vanderbilt’s contention that these unconscionability arguments must
be decided by the arbitrator because they are directed at the whole contract between the parties and not only the
arbitration agreement. Defendant Vanderbilt is correct that “attacks on an entire contract’s validity, as distinct from
attacks on the arbitration clause alone, are within the arbitrator’s ken.” Preston v. Ferrer, 552 U.S. 346, 353 (2008). In
this case, however, plaintiff’s assertions of unconscionability apply specifically to the arbitration agreement. Thus,
plaintiff’s unconscionability challenge is properly considered by this court. See Hooters, 173 F.3d at 938 (courts may
consider grounds for revocation that relate specifically to the arbitration clause of an agreement and not just to the
contract as a whole).
unconscionability. Plaintiff asserts that the arbitration agreement is procedurally unconscionable
because (1) it was a boilerplate, non-negotiable clause, (2) she was at the attorney’s office for less
than thirty minutes total where a woman merely flipped each page and pointed to where plaintiff
should sign, (3) the language in the contract was not explained to her and no one even mentioned
the arbitration clause, (4) the arbitration agreement was, for the most part, written in the same type
face as the rest of the contract and very little of it was emphasized in any way, and (5) she was an
unsophisticated consumer who did not have equal bargaining power with defendant Vanderbilt, a
corporation. The North Carolina Supreme Court was presented with virtually the same factors in
Tillman, 362 N.C. at 103. There, the court determined that plaintiffs made a sufficient showing to
establish procedural unconscionability where:
[Plaintiffs] were rushed through the loan closings, and the Commercial Credit loan
officer indicated where [plaintiffs] were to sign or initial the loan documents. There
was no mention of . . . the arbitration clause at the loan closings. In addition,
defendants admit that they would have refused to make a loan to plaintiffs rather than
negotiate with them over the terms of the arbitration agreement. Finally, the
bargaining power between defendants and plaintiffs was unquestionably unequal in
that plaintiffs are relatively unsophisticated consumers contracting with corporate
defendants who drafted the arbitration clause and included it as boilerplate language
in all of their loan agreements.
Id. These factors are indistinguishable from those raised by plaintiff in this case.3 Accordingly the
court is compelled by Tillman to conclude that plaintiff has demonstrated procedural
Plaintiff in this case has also raised the fact that the arbitration agreement was written in the same type face as the rest
of the contract. The court does not here comment on this factor in any way.
In its reply defendant Vanderbilt asserts that because of the United States Supreme Court decisions in Concepcion and
Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013), Tillman is no longer good law and “cannot be used . . . as
a basis for defeating arbitration.” Reply at 4. While portions of Tillman were abrogated by Concepcion and Italian
Colors, nothing in these cases would indicate that Tillman’s procedural unconscionability analysis is no longer valid.
Defendant Vanderbilt, however, claims that the essence of plaintiff’s arguments with regard
to procedural unconscionability is simply that the arbitration agreement was a contract of adhesion.
Defendant Vanderbilt points out that in Concepcion, the United States Supreme Court noted that
“the times in which consumer contracts were anything other than adhesive are long past.”
Concepcion, 131 S. Ct. at 1750. Defendants are, however, incorrect in asserting that plaintiff argues
there was procedural unconscionability based solely upon the fact that the arbitration agreement was
a contract of adhesion. Rather, plaintiff also argues that, like the plaintiffs in Tillman, she was
rushed through the closing, that there was no mention of the arbitration clause, and that she is an
unsophisticated consumer contracting with a corporate entities. Thus, Concepcion does not dictate
a contrary finding.
Defendant Vanderbilt also notes the well-established law of North Carolina that persons
generally have a duty to read and understand the contracts they sign. See Leonard v. S. Power Co.,
155 N.C. 10 (1911) (“[T]he law will not relieve one who can read and write from liability upon a
written contract, upon the ground that he did not understand the purport of the writing, or that he has
made an improvident contract, when he could inform himself and has not done so.”). Nevertheless,
in Tillman, the North Carolina Supreme Court found procedural unconscionability where, among
other things, plaintiffs were rushed through the loan closing and told where to sign. Here, as in
Tillman, plaintiff was rushed through closing and told where to sign. Accordingly Tillman dictates
a finding of procedural unconscionability.5
Defendant Vanderbilt asserts that recent federal cases regarding arbitration defeat plaintiff’s procedural
unconscionability arguments. Nearly all of these cases cited deal with other states’ law of unconscionability and thus
are inapposite here. One of these cases cited does not discuss state law, but analyzes the federal substantive law of
arbitration and states that “unequal bargaining power alone does not render a contract substantively unconscionable.”
Cooper v. MRM Inv. Co., 367 F.3d 493, 504 (6th Cir. 2004) (emphasis added). Of course, plaintiff points to unequal
bargaining power as only one factor among others, and points to this factor as it relates to procedural, rather than
The court turns now to substantive unconscionability. Plaintiff maintains the arbitration
agreement is also substantively unconscionable because she maintains that (1) she has a due process
right to have her claims heard in court prior to the deprivation of her property by foreclosure, (2) she
cannot effectively vindicate her cause of action in the arbitral forum, and (3) the arbitration
agreement is excessively one-sided. The court will consider each of these factors asserted.
Plaintiff asserts that to compel arbitration in this case would violate her due process right to
notice and an opportunity to be heard before being deprived of a significant property interest.
Defendant Vanderbilt instituted a foreclosure action pursuant to N.C. Gen. Stat. § 45-21.16.
In such proceedings, held before the clerk, the clerk’s jurisdiction is limited to six issues:
If the clerk finds the existence of (i) valid debt of which the party seeking to
foreclose is the holder, (ii) default, (iii) right to foreclose under the instrument, (iv)
notice to those entitled to such under subsection (b), (v) that the underlying mortgage
debt is not a home loan as defined in G.S. 45-101(1b), or if the loan is a home loan
under G.S. 45-101(1b), that the pre-foreclosure notice under G.S. 45-102 was
provided in all material respects, and that the periods of time established by Article
11 of this Chapter have elapsed, and (vi) that the sale is not barred by G.S.
45-21.12A, then the clerk shall authorize the mortgagee or trustee to proceed under
the instrument . . . .
N.C. Gen. Stat. § 45-21.16(d). The decision may be appealed to Superior Court within ten (10) days
for de novo hearing. N.C. Gen. Stat. § 45-21.16(d1). However, “North Carolina law specifically
provides that an action to enjoin a foreclosure proceeding on equitable grounds must be brought in
a separate lawsuit.” Naef v. Wells Fargo Home Mortg., No. 7:10-CV-163-FL, 2010 WL 5055990,
at *2 (E.D.N.C. Dec. 3, 2010) (citing N.C. Gen.Stat. § 45-21.34; In re Foreclosure of Deed of Trust
by Goforth Props., Inc., 334 N.C. 369, 374 (1993)). Thus, plaintiff contends that compelling
arbitration would deprive her of her constitutional right to be heard by the state in a section 45-21.34
substantive, unconscionability. Thus, these cases are of no benefit to defendant Vanderbilt.
proceeding. This argument is without merit.
When parties agree to arbitrate, they are very often waiving a constitutional right: the right
to a jury trial – and this is not improper. See Samuels, Kramer & Co. v. C.I.R., 930 F.2d 975, 984
(2d Cir. 1991) (“[C]itizens are always free to consent to have their disputes adjudicated by private
arbitrators and to waive their personal constitutional rights . . . .”). The arbitration agreement
contains a clear waiver of “any right to a trial by judge or jury.” Compl. Ex. C, at 9. Thus,
compelling arbitration here would not violate plaintiff’s due process rights.
The court also notes that North Carolina courts have held that parties properly move to
compel arbitration in a section 45-21.34 proceeding. See In re Cornblum, 727 S.E.2d 338, 341 (N.C.
App. 2012)(“[T]he proper vehicle to bring an arbitration motion is a motion to enjoin a foreclosure
sale under N.C. Gen. Stat.§ 45-21.34.”); In re Carter, 725 S.E.2d 22, 25 (N.C. App. 2012) (“We note
that respondents should have raised their right to arbitrate in a motion to enjoin pursuant to N.C.
Gen.Stat. § 45-21.34 (2009), which grants the trial court statutory authority and jurisdiction to issue
a stay and enforce the arbitration agreement . . . .”). Thus, the fact that this arbitration agreement
would compel arbitration of claims that would otherwise be heard before a court pursuant to section
45-21.34 does not contribute in any way to a finding of substantive unconscionability.
Plaintiff also contends that she cannot effectively vindicate her rights in arbitration because
her claims are fact-intensive and discovery and evidentiary presentation in arbitration is more
limited than in court. This argument has been squarely foreclosed by the Supreme Court.
See Concepcion, 131 S.Ct. at 1747 (“An obvious illustration of [a holding that would be preempted
by the FAA] would be a case finding unconscionable or unenforceable as against public policy
consumer arbitration agreements that fail to provide for judicially monitored discovery.”); Gilmer,
500 U.S. at 31 (“Gilmer also complains that the discovery allowed in arbitration is more limited than
in the federal courts, which he contends will make it difficult to prove discrimination. It is unlikely,
however, that age discrimination claims require more extensive discovery than other claims that we
have found to be arbitrable, such as RICO and antitrust claims.”). Thus, this arbitration agreement
is not substantively unconscionable where arbitration provides for a more limited discovery process.
Finally, the court considers plaintiff’s assertion that the arbitration clause is excessively onesided because it exempts from arbitration foreclosure actions, actions for preliminary relief to
preserve the property, and claims where the amount in controversy is less than the jurisdictional
limit of the small claims court. The court first notes that “[t]he exception for proceedings related
to foreclosure is one that is . . . common in arbitration agreements . . . .” Miller v. Equifirst Corp.
of WV, CIV A No. 2:00-0335, 2006 WL 2571634, at *11 (S.D.W. Va. Sept. 5, 2006). This is
because arbitration “appears to be an impracticable forum for” such proceedings. Lacey v. EMC
Mortgage Corp., No. 5:10-CV-00173-RLV, 2011 WL 1337424, at *6 (W.D.N.C. Apr. 7, 2011).
With respect to the small claims exception, this applies equally to both parties, allowing both to
bring such claims in court. Thus, these provisions do not appear to be so one-sided as to be
Plaintiff points, however, to Tillman, in which the North Carolina Supreme Court found an
exemption for foreclosure actions and “actions in which the total damages, costs, and fees do not
exceed $15,000” to be one-sided in a way that “contributes to our overall conclusion that [the
arbitration agreement] is unconscionable.” Id. at 107. As noted above, however, it is plaintiff who
bears the burden of demonstrating unconscionability. Id. at 102. The plaintiffs in Tillman had
demonstrated that the defendants had used the exemption on small claims in that case to bring over
2,000 collection actions and had never once initiated arbitration in North Carolina. Here, by
contrast, plaintiff has presented no such evidence. Thus, where plaintiff has failed to present
evidence showing this exception applying to both parties inures one-sidedly to defendant
Vanderbilt’s benefit, the exception does not contribute to a finding of unconscionability.6
Based upon the foregoing, the court concludes that while plaintiff has shown procedural
unconscionability, the arbitration agreement terms are not so “ harsh, one-sided, and oppressive” as
to be substantively unconscionable. Tillman, 362 N.C. at 102. Viewing the circumstances and
arbitration agreement together, the court cannot find the arbitration agreement to be “so oppressive
that no reasonable person would make [it] on the one hand, and no honest and fair person would
accept [it] on the other.” Brenner, 302 N.C. at 213. Thus, the arbitration agreement is not
Scope of the Arbitration Agreement
Plaintiff contends that even if the arbitration agreement is enforceable, this action is outside
the scope of the arbitration agreement. “Whether a party has agreed to arbitrate an issue is a matter
of contract interpretation . . . .” Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96
F.3d 88, 92 (4th Cir. 1996). The FAA, however, “establishes that, as a matter of federal law, any
doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses
H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983). Thus the court “may not
The court further notes that the clause held to be one-sided in Tillman only contributed to “overall conclusion” that
the arbitration agreement was unconscionable. The court spent only two short paragraphs of its decision analyzing this
factor, and its finding of substantive unconscionability appeared to rest far more heavily on factors of the prohibitively
high cost of the arbitration set forth in the agreement, and on a prohibition on joinder of claims and class action litigation.
Id. at 104-08. The prohibitive cost factor is not present in this case, and the Supreme Court of the United States has held
in Concepcion and Italian Colors that class action waivers in arbitration agreements are not proper grounds upon which
to base a finding of unconscionability. Thus, even were the court to find the exemptions were “designed . . . more for
the benefit of [defendant Vanderbilt] than for plaintiff”, it would not find them sufficient by themselves, to support a
finding of unconscionability. Tillman, 362 N.C. at 107.
deny a party’s request to arbitrate an issue unless it may be said with positive assurance that the
arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Am.
Recovery Corp., 96 F.3d at 92.
As noted above, the arbitration agreement provides that the parties will arbitrate
all disputes, claims, controversies, grievances, causes of action, including, but not
limited to, common law claims, contract and warranty claims, tort claims, statutory
claims, and, where applicable, administrative law claims, and any other matter in
question (“Claims”) arising from or relating to this Contract . . . [or] the collection
and servicing of this Contract . . . .
Compl. Ex. C, at 8. Plaintiff’s claims all arise from the contract or the collection and servicing
thereof – a fact plaintiff does not deny. Accordingly, where these claims arise under the contract,
it is clear they are within the scope of the arbitration agreement.
Plaintiff attempts to resist this conclusion by arguing that this action is not a separate
proceeding from defendant Vanderbilt’s foreclosure action, but a defense thereto where she is only
able to raise equitable defenses to defendant Vanderbilt’s foreclosure in a separate action. As
discussed above, however, this action is a separate action from a foreclosure proceeding.
Accordingly, the claims she brings are properly viewed as claims brought by a plaintiff, rather than
mere defenses asserted. Moreover, while plaintiff does seek declaratory relief modifying the terms
of the contract, and injunctive relief prohibiting foreclosure, she also seeks monetary relief in her
claims for violations of N.C. Gen. Stat. § 24-1.1F, the UDTPA, the SAFE Act, and her claim for
breach of the duty of good faith and fair dealing.
Plaintiff also contends that North Carolina courts have exclusive jurisdiction over actions
affecting title to land in this state, and therefore this matter is outside the scope of the arbitration
agreement. As defendants note, however, such state laws are superseded by the FAA. Preston v.
Ferrer, 552 U.S. 346, 349-50 (2008). Moreover, as discussed above, North Carolina courts have
stated that motions to compel arbitration may properly be brought in section 45-21.34 proceedings.
See In re Cornblum, 727 S.E.2d 338, 341 (N.C. App. 2012); In re Carter, 725 S.E.2d 22, 25 (N.C.
Based upon the foregoing, where the parties have a valid arbitration agreement covering the
claims in this case, defendant Vanderbilt’s motion to stay and compel arbitration is granted.
For reasons stated above, plaintiff’s motion to remand (DE 12) is DENIED. Defendant
Vanderbilt’s motion to stay and compel arbitration (DE 4) is GRANTED. Plaintiff is ORDERED
to submit her claims to binding arbitration in the manner provided for in the arbitration agreement.
This action shall be STAYED pending of arbitration pursuant to 9 U.S.C. §§ 3, 4. The Clerk is
DIRECTED to remove this case from the court’s active docket, with leave for any party to move to
reinstate the same on the active docket at the conclusion of arbitration proceedings.
SO ORDERED, this the 16th day of June, 2014.
LOUISE W. FLANAGAN
United States District Court Judge
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