JOHN E. WYGAND and NORMA S. WYGAND, Plaintiffs,
DEUTSCHE BANK TRUST COMPANY AMERICAS AS INDENTURE TRUSTEE FOR THE REGISTERED HOLDERS OF SAXON ASSET SECURITIES TRUST 2004-1 MORTGAGE LOAN ASSET BACKED NOTES AND CERTIFICATES, SERIES 2004-1, OCWEN LOAN SERVICING, LLC, and TRUSTEE SERVICES OF CAROLINA, LLC, Defendants.
in the Court of Appeals 9 April 2019.
by defendants from order entered 30 May 2018 by Judge
Benjamin A. Alford in Craven County Superior Court. No.
& Perdue, PA, by Trawick H. Stubbs, Jr., Matthew W.
Buckmiller, and Joseph Z. Frost, for plaintiffs-appellees.
Bradley Arant Boult Cummings LLP, by Brian M. Rowlson, for
Bank Trust Company Americas as Indenture Trustee for the
Registered Holders of Saxon Asset Securities Trust 2004-1
Mortgage Loan Asset Backed Notes and Certificates, Series
2004-1, Ocwen Loan Servicing, LLC, and Trustee Services of
Carolina, LLC ("Defendants") appeal the trial
court's order, which denied their motion to compel John
E. Wygand and Norma S. Wygand ("Plaintiffs") to
submit to binding arbitration. Defendants argue in this
interlocutory appeal that they have the contractual right to
demand arbitration. For the reasons stated herein, we reverse
and Procedural Background
2, 1998, Plaintiffs executed a Note in favor of Saxon
Mortgage Corporation, which called for monthly installment
payments consisting of principal and interest. The Note was
secured by a Deed of Trust on Plaintiffs' primary
residence located in New Bern, North Carolina. In connection
with the loan, Plaintiffs executed an Arbitration Rider,
which supplemented the provisions of the Deed of Trust. The
Arbitration Rider stated in pertinent part:
ARBITRATION OF DISPUTES. All disputes, claims, or
controversies arising from or related to the loan evidenced
by the Note, including statutory claims, shall be resolved by
binding arbitration, and not by court action, except as
provided under "Exclusions from Arbitration" below.
This arbitration agreement is made pursuant to a transaction
involving interstate commerce, and shall be governed by the
Federal Arbitration Act (9 U.S.C. §§ 1-14) and the
Code of Procedure of the National Arbitration Forum as in
effect as of the date of this agreement. . . . Any
arbitration hearing shall be conducted in the jurisdiction in
which the Borrower signs this agreement, unless a different
location is agreed to by Borrower and Lender. . . .
EXCLUSION FROM ARBITRATION. This agreement shall not limit
the right of Lender to (a) accelerate or require immediate
payment in full of the secured indebtedness or exercise the
other Remedies described in this Security Instrument before,
during, or after any arbitration, including the right to
foreclose against or sell the Property . . . .
NOTICE. BY SIGNING THIS ARBITRATION RIDER YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS DESCRIBED IN THE
'ARBITRATION OF DISPUTES' SECTION ABOVE DECIDED
EXCLUSIVELY BY ARBITRATION, AND YOU ARE GIVING UP ANY RIGHTS
YOU MIGHT HAVE TO LITIGATE DISPUTES IN A COURT OR JURY TRIAL,
DISCOVERY IN ARBITRATION PROCEEDINGS IS LIMITED IN THE MANNER
PROVIDED BY THIS AGREEMENT. ("Notice Provision").
February 2017, Trustee Services of Carolina, LLC commenced a
special proceeding in Craven County seeking to exercise the
power of sale provision in the Deed of Trust, and foreclose
on Plaintiffs' real property. The foreclosure proceeding
remains pending in Craven County.
17, Plaintiffs filed suit in Craven County and demanded a
jury trial against Defendants, alleging causes of action for
breach of contract; violations of the North Carolina Debt
Collection Act, North Carolina Unfair and Deceptive Trade
Practices Act, North Carolina Mortgage Debt Collection and
Servicing Act; defamation; and negligence. In addition,
Plaintiffs sought a temporary restraining order, preliminary
injunction, and permanent injunction. Defendants then filed a
motion for an extension of time to file an answer or other
responsive pleadings in response to Plaintiffs'
complaint. On September 21, Defendants filed their answer and
affirmative defenses. Plaintiffs then filed their First Set
of Interrogatories and Requests for Production of Documents
on September 27. After obtaining an extension of time to
answer, Defendants provided their responses to
Plaintiffs' First Set of Interrogatories and Requests for
Production of Documents on November 27. Also, on December 22,
Defendants filed a motion for substitution of counsel, and an
order was entered on January 10, 2018, granting this motion.
March 16, 2018, Defendants filed a motion to dismiss, or in
the alternative, to compel arbitration. Plaintiffs filed a
response and memorandum of law in opposition to
Defendants' motion on May 4. In support, Plaintiffs
provided an Affidavit of Joseph Z. Frost
("Attorney's Affidavit"), which stated, among
other things, that "through May 3, 2018, Plaintiffs have
incurred actual attorneys' fees, expenses, and costs in
the amount of $40, 164.51, relating to the preparation,
filing, and prosecution of the above-captioned civil action,
and defense of the special proceeding filed by Defendants,
seeking to exercise the power of sale provision in the Deed
of Trust." On March 21, the parties participated in a
mediation, which resulted in a recess. Upon Defendants'
request, on May 14, the trial date was moved from July 9 to
hearing was held on Defendants' motion to compel
arbitration, the trial court entered an order on May 30,
2018, denying Defendants' motion ("Order Denying
Arbitration"). In its Order Denying Arbitration, the
trial court made the following pertinent findings and
3. The Arbitration Rider is unconscionable and unenforceable
pursuant to N.C. Gen. Stat. § 22B-10, as a matter of
law, because it required that Plaintiffs, as the purported
contracting parties, waive their right to jury trial.
Although contractual provisions may provide procedural
prerequisites or contractually limit the time, place, or
manner or asserting claims, N.C. Gen. Stat. § 22B-10
expressly prohibits "any provision in a contract
requiring a party to the contract to waive his right to a
jury trial . . ." N.C. Gen. Stat. § 22B-10. The
Arbitration Rider, which does not contain a severability
clause, contains an unenforceable provision requiring
Plaintiffs, as the contracting parties, to "GIV[E] UP
ANY RIGHTS YOU MIGHT HAVE TO LITIGATE DISPUTES IN A COURT OR
JURY TRIAL." In the absence of a severability clause,
and based upon the explicit language of the Arbitration Rider
requiring that Plaintiffs waive or "give up" their
right to a jury trial, the Arbitration Rider is
unconscionable and unenforceable, pursuant to N.C. Gen. Stat.
§ 22B-10, as a matter of law.
4. However, and even if the Arbitration Rider was not
unenforceable as a matter of law pursuant to N.C. Gen. Stat.
§ 22B-10, Defendants-by and through its course of
conduct and actions-have waived any purported right to compel
or require arbitration of the claims for relief asserted in
the Complaint filed by Plaintiffs. . . .
appeal, arguing that the trial court erred when it denied