Wygand v. Deutsche Bank Trust Co.

265 N.C.App. 681

829 S.E.2d 681

John E. WYGAND and Norma S. Wygand, Plaintiffs,

v.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.

No. COA18-1073

Court of Appeals of North Carolina.

Filed: June 4, 2019

Stubbs & Perdue, PA, by Trawick H. Stubbs, Jr., New Bern, Matthew W. Buckmiller, Wilmington, and Joseph Z. Frost, Raleigh, for plaintiffs-appellees.

Bradley Arant Boult Cummings LLP, Charlotte, by Brian M. Rowlson, for defendants-appellants.

BERGER, Judge.

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") 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 remand.

Factual and Procedural Background

On July 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").

In 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.

On July 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.

On 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 August 8.

After a 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 conclusions:

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. ...

Defendants appeal, arguing that the trial court erred when it denied their motion to compel arbitration. We agree.

Analysis

We must initially note that Defendants’ appeal is interlocutory. "An interlocutory order is one made during the pendency of an action, which does not dispose of the case, but leaves it for further action by the trial court in order to settle and determine the entire controversy." Veazey v. City of Durham , 231 N.C. 357, 362, 57 S.E.2d 377, 381 (1950) (citation omitted). "Generally, there is no right of immediate appeal from interlocutory orders and judgments. It is, however, well established that an order denying a motion to compel arbitration [affects a substantial right and] is immediately appealable." Cornelius v. Lipscomb , 224 N.C. App. 14, 16, 734 S.E.2d 870, 871 (2012) (citations and quotation marks omitted). Therefore, Defendants’ appeal is properly before us.

The standard governing our review of this case is that findings of fact made by the trial judge are conclusive on appeal if supported by competent evidence, even if ... there is evidence to the contrary. Conclusions of law drawn by the trial court from its findings of fact are reviewable de novo on appeal. Because unconscionability is a question of law, this Court will review de novo the trial court's conclusion that the arbitration agreement contained in plaintiffs’ loan agreements is unconscionable.

Tillman v. Commercial Credit Loans, Inc. , 362 N.C. 93, 100-01, 655 S.E.2d 362, 369 (2008) (citations and quotation marks omitted).

Defendants contend that the trial court erred in concluding that the Arbitration Rider was unconscionable pursuant to N.C. Gen. Stat. § 22B-10. We agree.

Section 22B-10 states:

Any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.

N.C. Gen. Stat. § 22B-10 (2017). Section 22B-10 cannot be read as equating contracts with an arbitration clause to those contracts that do not contain an arbitration clause. The language of this section could not be clearer: the proscription against contractual waivers of jury trials "does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution." N.C. Gen. Stat. § 22B-10 (emphasis added).

Moreover, "North Carolina has a strong public policy favoring arbitration of disputes between parties. Our strong public policy requires that the courts resolve any doubts concerning the scope of arbitrable issues in favor of arbitration." Miller v. Two State Constr. Co. , 118 N.C. App. 412, 416, 455 S.E.2d 678, 680-81 (1995) (citations and quotation marks omitted)....