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Under Cash Advance Loan Agreement, Fourth Circuit Rejects Arbitration Request Again

The Fourth Circuit confirmed the refusal to compel arbitration under the terms of cash advance loan agreement by the Middle District of North Carolina on 10th May, 2017. In Dillon v/s BMO Harris Bank, N.A., BMO Harris tried to force arbitration pursuant to reach an agreement that would need the arbitrator to adopt the law of the Otoe-Missouri tribe to the exclusion of both the federal and state law. The Fourth Circuit said that the arbitration clause at issue was not enforceable because it was a potential waiver of the federal law rights of a borrower. The decision of the Fourth Circuit affirms and extends a trend in the Fourth, as well as, Eleventh Circuits of declining such tribal-law arbitration provisions in cases of payday loans.

In Dillon, the plaintiff had entered upon a payday loan agreement in December 2012 with Great Plains Lending LLC. According to the agreement, he had agreed to let Great Plains withdraw payments from his bank account, via ACH (the Automated Clearing House) system. Op. at 4. Furthermore, he had agreed to arbitrate any kind of claims that he might have in connection to the agreement as subject to ‘the law of the Otoe-Missouri Tribe of Indians.’ Op. at 10. The agreement also specified that neither the Lender nor this Agreement is subject to the laws of any states in the United States of America. It also stated that no federal or state law and regulations will apply to this Agreement. Op. at 10-11. Ultimately, the plaintiff sued BMO Harris and alleged that violations of the federal RICO (Racketeer Influenced and Corrupt Practices Act). Depending on the terms mentioned in the agreement, BMO Harries tried to compel arbitration. However, the request was rejected by the Middle District of North Carolina.

Confirming the decision of the District Court, the Fourth Circuit looked forward to the precedent of the Supreme Court and the recent decision on Hayes v/s Delbert Services Corp. The court had first recognized the really strong federal policy that was favoring arbitration, but described that conventional principles of contract interpretation apply to the agreements of the arbitration. Under the precedent of the Supreme Court, there is one principle that says that such agreements are not enforceable when they function as a prospective waiver of a party’s right to seek statutory remedies. Op. at 7. The court offered an explanation that said that it had applied that principle in Hayes in order to void the arbitration agreement and that included a choice of law provision that disclaimed the application of any law, except the Cheyenne River Sioux Tribe of Indians. In Dillon, the court held that the arbitration agreement is no enforceable for the very same reason. After assessing the text of the agreement, the court found out that there are numerous provisions that evinced the efforts of avoiding the application of federal and state law by running afoul of the potential waiver doctrine.

Dillon is another one in the line of cases rejecting the agreements of arbitration that attempt to only apply tribal law. The decision offers some amount of guidance to all those crafting similar arbitration agreements, along with litigation-strategy guidance to companies offering financial services who are faced with tangential-liability suits that incriminate such agreements. As for such similar cash advance loan cases, it seems like the decision is going to remain the same. According to the potential waiver doctrine, the court has no other option, but to reject such requests. Advancements in the case is yet to be known, but so far the court re-assessing its rejection decision seems quite unlikely.



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