NC Fin. Solutions of Utah, LLC v. Commonwealth ex rel. Herring

299 Va. 452

854 S.E.2d 642

NC FINANCIAL SOLUTIONS OF UTAH, LLC,

v.COMMONWEALTH of Virginia EX REL. Mark R. HERRING, Attorney General

Record No. 190840

Supreme Court of Virginia.

FEBRUARY 25, 2021

Charles K. Seyfarth (Elizabeth Scott Turner ; O'Hagan Meyer, on briefs), Richmond, for appellant.

Toby J. Heytens, Solicitor General (Mark R. Herring, Attorney General; Samuel T. Towell, Deputy Attorney General; Michelle S. Kallen, Deputy Solicitor General; Martine Cicconi, Deputy Solicitor General; Richard S. Schweiker, Jr., Senior Assistant Attorney General; David B. Irvin, Senior Assistant Attorney General; Erin Witte, Assistant Attorney General; Jessica Merry Samuels, Assistant Solicitor General; Zachary R. Glubiak, John Marshall Fellow, on brief), for appellee.

PRESENT: All the Justices

OPINION BY JUSTICE TERESA M. CHAFIN

The Attorney General, acting on behalf of the Commonwealth, filed the present action against NC Financial Solutions of Utah, LLC ("NCFS-Utah"), to enforce the provisions of the Virginia Consumer Protection Act (the "VCPA"), Code §§ 59.1-196 – 59.1-207.

On appeal, NCFS-Utah argues that the Circuit Court of Fairfax County erred when it refused to enforce arbitration agreements between NCFS-Utah and the individual consumers who were affected by the alleged VCPA violations. Additionally, NCFS-Utah maintains that the VCPA does not permit the Commonwealth to pursue restitution for individual consumers. For the following reasons, we affirm the circuit court's judgment.

I. BACKGROUND

NCFS-Utah is an online lender. Between 2012 and 2018, NCFS-Utah provided loans to over 47,000 Virginia consumers, at interest rates that ranged from 34 to 155 percent. On April 23, 2018, the Attorney General filed a complaint against NCFS-Utah on behalf of the Commonwealth. The complaint alleged that NCFS-Utah's lending practices violated certain provisions of the VCPA.

The complaint requested injunctive relief, civil penalties, and awards of attorney's fees, costs, and reasonable expenses. The complaint also requested that the circuit court "[g]rant judgment against [NCFS-Utah] and award to the Commonwealth all sums necessary to restore to any consumers the money or property which may have been acquired from them by [NCFS-Utah] in connection with its violations ... of the VCPA." Furthermore, the complaint requested that the circuit court "[e]nter any additional orders or decrees as may be necessary to restore to any consumers the money or property" that NCFS-Utah acquired through its unlawful conduct.

On July 17, 2018, NCFS-Utah filed a "Motion to Dismiss, or Alternatively, to Compel Arbitration of Individual Damages." Based on arbitration provisions in the loan agreements between NCFS-Utah and the individual Virginia consumers, NCFS-Utah argued that the consumers had agreed to arbitrate any disputes arising from the loans at issue.¹ NCFS-Utah maintained that an award of restitution would circumvent these arbitration agreements. Moreover, NCFS-Utah asserted that an award of restitution would be inconsistent with the provisions of the Federal Arbitration Act (the "FAA"), 9 U.S.C. §§ 1 – 16. Thus, NCFS-Utah argued that an award of restitution was preempted by federal law. NCFS-Utah requested that the circuit court either dismiss the restitution component of the complaint or compel the Virginia consumers to arbitrate any individual claims for damages.

The Commonwealth filed a memorandum opposing NCFS-Utah's motion on August 10, 2018. Citing EEOC v. Waffle House, Inc. , 534 U.S. 279, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002), the Commonwealth argued that it was not bound by the arbitration provisions at issue. The Commonwealth noted that it was not a party to the loan agreements that contained the arbitration provisions. The Commonwealth also emphasized that it was attempting to enforce the VCPA on behalf of the public in general rather than the individual consumers.

The circuit court held a hearing regarding NCFS-Utah's motion on December 7, 2018. At the hearing, NCFS-Utah argued that Waffle House only applies to employment claims pursued by the Equal Employment Opportunity Commission (the "EEOC"). NCFS-Utah maintained that an award of restitution would nullify the arbitration agreements between NCFS-Utah and the Virginia consumers and conflict with the provisions of the FAA. NCFS-Utah also argued that the VCPA did not allow the Commonwealth to collect restitution for individual consumers.

In response, the Commonwealth argued that Waffle House was dispositive of the pending motion. The Commonwealth maintained that the FAA was not implicated in the present case because the Commonwealth was not bound by the arbitration agreements between NCFS-Utah and the Virginia consumers. The Commonwealth argued that its ability to enforce the VCPA was not limited by the arbitration agreements at issue, and that it had statutory authority to pursue restitution when enforcing the VCPA on behalf of the public.

The circuit court denied NCFS-Utah's motion on February 25, 2019. Relying on Waffle House , the circuit court concluded that the Commonwealth was not bound by the arbitration agreements between NCFS-Utah and the Virginia consumers. The circuit court determined that the Commonwealth had statutory authority to pursue litigation to enforce the VCPA. Additionally, the circuit court determined that Code §§ 59.1-203 and 59.1-205 authorize the Commonwealth to seek restitution for individual consumers in VCPA enforcement actions. This appeal followed.²

II. ANALYSIS

NCFS-Utah presents two primary arguments on appeal. First, NCFS-Utah contends that an award of restitution in this case would conflict with the provisions of the FAA and general principles of contract law. Second, NCFS-Utah argues that the VCPA does not authorize the Commonwealth to collect restitution for individual consumers. These arguments present issues of statutory interpretation and other issues of law that are subject to de novo review. See Virginia Marine Res. Comm'n v. Chincoteague Inn , 287 Va. 371, 380, 757 S.E.2d 1 (2014) ; Anthony v. Verizon Va., Inc. , 288 Va. 20, 29, 758 S.E.2d 527 (2014).

A.

NCFS-Utah argues that the FAA and general principles of contract law bar an award of restitution in this case. This argument fails for a fundamental reason. As noted by the circuit court, the Commonwealth was not a party to the loan agreements between NCFS-Utah and the Virginia consumers. Accordingly, the Commonwealth is not bound by the arbitration provisions contained in the loan agreements, and it could therefore pursue its claim for restitution in a judicial forum. Neither the FAA nor general principles of contract law preclude the Commonwealth from seeking restitution under the circumstances of the present case.

The FAA was enacted to "place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26 (1991). In pertinent part, Section 2 of the FAA states:

A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... 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.

In general, the provisions of the FAA reflect the "liberal federal policy favoring arbitration agreements." Gilmer , 500 U.S. at 25, 111 S.Ct. 1647 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983) ). The FAA ensures that arbitration agreements are consistently enforced, "notwithstanding any state substantive or procedural policies to the contrary." Perry v. Thomas , 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987). Nevertheless, the FAA is simply "at bottom a policy guaranteeing the enforcement of private contractual arrangements." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) (quoting Moses H. Cone Mem'l Hosp. , 460 U.S. at 24, 103 S.Ct. at 941 ).

Like the federal policy, the public policy of Virginia also favors arbitration.³ See TM Delmarva Power, L.L.C. v. NCP of Va., L.L.C. , 263 Va. 116, 122, 557 S.E.2d 199 (2002). Pursuant to the FAA, this Court applies "federal substantive law to determine whether the parties must submit to binding arbitration as required by [a] contract." Amchem Products, Inc. v. Newport News Cir. Ct. Asbestos Cases , 264 Va. 89, 96, 563 S.E.2d 739 (2002). The FAA, however, does not purport "to alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them)." Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630, 129 S.Ct. 1896, 1901, 173 L.Ed.2d 832 (2009). Therefore, we rely on the general "law of contracts" in order to determine whether a "valid and enforceable agreement to arbitrate" exists between the parties in any given case. Mission Residential, LLC v. Triple Net Properties, LLC , 275 Va. 157, 160, 654 S.E.2d 888 (2008).

As a general principle, "[a] party cannot be compelled to submit to arbitration unless [it] has first agreed to arbitrate." Id. at 161, 654 S.E.2d 888 (quoting Doyle & Russell, Inc. v. Roanoke Hosp. Ass'n , 213 Va. 489, 494, 193 S.E.2d 662 (1973) ). "Arbitration under the [FAA] is a matter of consent, not coercion." Waffle House , 534 U.S. at 294, 122 S.Ct. 754 (quoting Volt Info. Scis., Inc. v. Board of Trustees of Leland Stanford Junior Univ. , 489 U.S. 468, 479, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989) ) (alteration in original). "The FAA directs courts to place arbitration agreements on equal footing with other contracts, but it ‘does not require parties to arbitrate when they have not agreed to do so.’ " Id. at 293, 122 S.Ct. 754 (quoting Volt Info. Scis., Inc. , 489 U.S. at 478, 109 S.Ct. at 1255 ). While the FAA "ensures the enforceability of private...