Summary:
In Campbell v. TitleMax of Virginia, Inc., the North Carolina Court of Appeals has again affirmed arbitration awards in favor of North Carolina consumers who crossed state lines to obtain vehicle title loans from TitleMax.
The decision is unpublished and extremely short. But its significance comes precisely from how little the Court thought needed to be said.
The plaintiffs were all North Carolina residents who separately traveled into Virginia or South Carolina to enter into car-title loan agreements with TitleMax entities. Those agreements purported to select Virginia or South Carolina law. The arbitrator nevertheless applied North Carolina law and concluded that the loans violated North Carolina law. The Superior Court denied TitleMax's request to vacate the awards and instead confirmed them under the Federal Arbitration Act.
TitleMax appealed, arguing that the arbitration awards did not "draw their essence" from the loan agreements and that the trial court improperly relied on grounds not stated by the arbitrator.
The Court of Appeals gave those arguments only a few sentences.
It pointed directly to its earlier decisions in Frazier v. TitleMax of Virginia, Inc., Jeffries v. TitleMax of South Carolina, Inc., and Hood v. TitleMax of Virginia, explaining that those cases had already "substantively addressed these questions upon facts similar to those here." For the reasons stated in Frazier, the Court affirmed the arbitration awards and judgments for the borrowers.
That is essentially the entire opinion.
And that is the point.
Frazier Is Becoming a Rule, Not an Outlier
I previously discussed the earlier trilogy in [Frazier v. TitleMax of Virginia, Inc. — North Carolina Courts Continue Rejecting TitleMax’s Efforts to Escape Liability Through Arbitration and Choice-of-Law Clauses].
There, the Court of Appeals upheld arbitration awards for North Carolina borrowers who had obtained extraordinarily high-interest title loans across the Virginia and South Carolina borders. The arbitrators applied North Carolina consumer-protection law notwithstanding contractual language selecting the law of the state where the loan was signed.
The critical point in Frazier was not that the Court of Appeals independently decided North Carolina law necessarily governed every such loan. Rather, federal arbitration law gives extraordinarily narrow review of an arbitrator's interpretation of a contract. If the arbitrator is even arguably interpreting the agreement, a court does not get to substitute its own reading merely because it believes the arbitrator made a legal error.
Campbell now applies that reasoning to another fifteen North Carolina borrowers without any hesitation.
The Court did not revisit the issue.
It did not distinguish Frazier.
It simply cited it and affirmed.
For TitleMax, that may be more troubling than another twenty-page opinion.
TitleMax's North Carolina Problem Keeps Getting Larger
Campbell also joins a growing collection of cases involving TitleMax's attempt to structure its business around state borders.
Earlier this year, in [Ray v. TitleMax of Virginia], the North Carolina Court of Appeals held that TitleMax's contacts with this state were sufficient to support personal jurisdiction even though the loan documents were formally executed elsewhere. Those contacts included soliciting North Carolina consumers, recording liens through the North Carolina DMV, collecting payments from North Carolina, and repossessing vehicles here.
Then came [Frazier, Jeffries, and Hood], rejecting TitleMax's efforts to undo arbitration awards based on the arbitrators' application of North Carolina law.
And in the Fourth Circuit, [TitleMax of South Carolina v. Spicher] recently rejected TitleMax's effort to use a federal lawsuit to shut down Pennsylvania's administrative enforcement proceeding over similarly structured cross-border title loans. The Fourth Circuit did not decide the ultimate merits, but held that TitleMax generally had to litigate those issues through Pennsylvania's own enforcement process rather than obtain federal intervention.
That follows an earlier Fourth Circuit decision in [White v. Title Max], where TitleMax successfully argued that the Federal Arbitration Act, standing alone, supplied no federal subject-matter jurisdiction to confirm the borrowers' arbitration awards.
There is some irony in that procedural history.
Creditors commonly insert arbitration clauses intending to keep consumers out of court. TitleMax did so here. But once consumers prevailed in arbitration, TitleMax found itself facing the other side of the bargain: exceptionally limited judicial review of those awards.
As I commented after White:
Creditors love arbitration—except when borrowers use it against them.
That observation has aged rather well.
Bankruptcy Implications Remain the More Important Question
For bankruptcy practitioners, however, Campbell again raises a question that deserves considerably more attention than it seems to receive:
Why are TitleMax claims filed in North Carolina bankruptcy cases routinely treated like ordinary secured car loans?
The entire premise of this litigation is that North Carolina residents were sent across the border to obtain loans that could not lawfully have been made here, after which TitleMax returned to North Carolina to perfect liens, collect payments, repossess vehicles, and otherwise enforce those transactions.
The [Center for Responsible Lending's Under the Radar report] similarly documented vehicle-title lending to residents of states where such lending is prohibited, including North Carolina.
If the underlying obligation is illegal, usurious, or otherwise unenforceable under North Carolina law, a proof of claim based upon that obligation should not simply receive secured treatment because a lien appears on a DMV record.
At a minimum, consumer attorneys should be asking:
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Where did the debtor live when the loan was made?
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What interest rate was charged?
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Which TitleMax entity made the loan?
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Where was the vehicle located?
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Where was the lien perfected?
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Where were payments made and collections conducted?
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And, most importantly, would the claim remain enforceable against the debtor under applicable North Carolina law?
Those questions matter in both Chapters 7 and 13.
In Chapter 13, eliminating or reducing a TitleMax secured claim may substantially reduce the amount required to fund a plan and may be the difference between feasibility and failure.
In Chapter 7, challenging an invalid lien may create otherwise unavailable equity for the estate—or at least prevent an allegedly unlawful lender from using bankruptcy to obtain treatment that state law would deny outside bankruptcy.
And for Chapter 13 Trustees, Bankruptcy Administrators, and debtor's counsel alike, the developing appellate case law makes it increasingly difficult to simply assume that these loans are enforceable because the borrower drove across the border to sign the paperwork.
Campbell Is Short Because This Fight Is No Longer New
Perhaps the most notable thing about Campbell is its brevity.
The opinion does not break new doctrinal ground. It does something potentially more important: it treats Frazier as settled enough that the Court saw no need to repeat the analysis.
Fifteen more North Carolina borrowers.
Fifteen more arbitration awards.
Another unsuccessful TitleMax appeal.
And another appellate decision confirming that crossing the state line to sign a loan agreement does not necessarily place a North Carolina consumer outside the reach of North Carolina consumer-protection law.
For bankruptcy lawyers seeing TitleMax proofs of claim, the developing message should be equally straightforward:
Do not assume the lien is valid merely because TitleMax says it is.
The Court of Appeals plainly is not making that assumption anymore.
To read a copy of the transcript, please see:
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