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Strange v. Select Management Resources, LLC

United States District Court, M.D. North Carolina

October 17, 2019

ADIAHA STRANGE, et al., Plaintiffs,



         Each plaintiff is a North Carolina resident who borrowed money at allegedly illegal interest rates from one of the out-of-state defendants. The plaintiffs ask the Court to compel arbitration of their predatory lending claims pursuant to arbitration provisions in the loan agreements. The written loan agreements contain arbitration provisions that purport to cover the dispute. The motion to compel arbitration will therefore be granted as to claims against those defendants who agreed to arbitration and denied as to defendant Select, who was not a party to the arbitration agreements.


         The plaintiffs are North Carolina residents who allege that each borrowed money from one of the defendants Anderson Financial Services, LLC, LoanSmart, LLC, Kipling Financial Services, LLC, and North American Title Loans, LLC; that each loan was secured by the plaintiff's car title; and that the lending defendant charged an illegally high interest rate. See generally Doc. 10. They further allege that defendant Select exercises complete dominion and control over the other defendants, such that it is appropriate to pierce the corporate veil and hold Select responsible for the acts of the lenders. Doc. 10 at ¶ 46. The plaintiffs seek to recover damages and penalties under the North Carolina Consumer Finance Act, N.C. Gen. Stat. § 53-164 et seq., id. at ¶¶ 23-28; under N.C. Gen. Stat. § 24-1.1 et seq., id. at ¶¶ 29-35; and under the North Carolina Unfair and Deceptive Trade Practices Act. N.C. Gen. Stat. § 75-1.1, id. at ¶¶ 36-41. They also seek attorneys' fees and punitive damages. Id. at ¶¶ 41-44.

         Among other defenses, the defendants contend that the North Carolina Consumer Finance Act is unconstitutional as applied to them because all lending activities took place out of state and each is an out-of-state business. Doc. 21 at 11-12. Specifically, they contend it violates the Commerce Clause because it expressly applies to out-of-state commerce and has that practical effect. See Id. The defendants have filed a counterclaim for a declaratory judgment on the same issue, contending that none has engaged in any contractual activities related to plaintiffs' loans in North Carolina and that to the extent the relevant provision of the Consumer Finance Act, N.C. Gen. Stat. § 53-190, applies because of defendants' other loan activities, it is unconstitutional. Doc. 21 at 13-18.[1]

         The plaintiffs move to compel arbitration of all their claims pursuant to broad arbitration agreements made as part of the loan process. Doc. 1-1 at ¶¶ 59-61; Doc. 10 at ¶¶ 59-61; Doc. 32. In the main, the defendants contend that the plaintiffs have never appropriately initiated arbitration and that as to some plaintiffs, their constitutional defenses to the plaintiffs' claims are not covered by the arbitration agreement. Doc. 38 at 5. Two of the defendants, Select and LoanMax, also object to arbitration because no plaintiff alleges any agreement with them, and they are not signatories to any arbitration agreement. Id. at 7-9. As to LoanMax, the plaintiffs agree that dismissal without prejudice is appropriate. Doc. 40 at 3-4. The Court will dismiss those claims without prejudice without further discussion.


         Under the Federal Arbitration Act (“FAA”), on a party's motion and if the court concludes that a valid arbitration agreement covering the dispute at issue exists, it must “stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . .” 9 U.S.C. § 3. A litigant can compel arbitration if he or she can prove:

(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the defendant to arbitrate the dispute.

Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991). It is undisputed that the first and third requirements have been met. The defendants dispute the fourth requirement as to all plaintiffs and dispute the second only as to certain agreements.

         There are two different arbitration agreements at issue. Both agreements contain broad arbitration provisions that allow either the borrower or the lender to “elect to arbitrate a Claim, ” Doc. 33-1 at p. 2 ¶ c; Doc. 33-8 at p. 2 ¶ c, and that define a “Claim, ” as is relevant here, as “any claim, dispute or controversy between [the borrower] and [the lender], whether preexisting, present or future, that in any way arises from or relates to the Loan Agreement.” Doc. 33-1 at p. 2 ¶ b; Doc. 33-8 at p. 2 ¶ b. If that weren't clear enough, the agreements explicitly provide that the word “claim” “has the broadest reasonable meaning” and “includes disputes based upon contract, tort, consumer rights, fraud and other intentional torts, constitution, statute, regulation, ordinance, common law and equity and claims for money damages and injunctive or declaratory relief.” Doc. 33-1 at p. 2 ¶ b; Doc. 33-8 at p. 2 ¶ b. The agreements do exclude from arbitration “any dispute or controversy” about the “coverage or scope of this Arbitration Agreement” and provide that “all such disputes or controversies are for a court and not an arbitrator to decide.” Doc. 33-1 at p. 2 ¶ b; Doc. 33-8 at p. 2 ¶ b.

         Some of the plaintiffs have loan agreements with an additional provision directed towards “U.S. Constitutional Issues, ” which the Court will reference as the “constitutional provision.” See, e.g., Doc. 33-8 at p. 4 ¶ l. In full, this paragraph provides:

1. U.S. Constitutional Issues: To the extent that any Claim or defense to any Claim requires a determination under the United States Constitution (a “Constitutional Determination”), such Constitutional Determination must be decided by a court, not an arbitrator. You and we agree that: (A) the arbitration of such Claim will be stayed until such Constitutional Determination is finally resolved by a court judgment that is not or is no longer subject to appeal; and (B) the arbitrator will render his or her award in accordance with such Constitutional Determination.

Doc. 33-8 at p. 4 ¶ l.

         I. Have the Plaintiffs ...

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