Ellis & Winters

Today, the North Carolina Supreme Court issued opinions and rulings on petitions.  Readers of this blog will find at least one of the opinions and one of the petition rulings interesting.

First, in Dallaire v. Bank of America, the Supreme Court held that “[o]rdinary borrower-lender transactions . . . do not typically give rise to fiduciary duties.” The court went on to hold that “borrowers and lenders are generally bound only by the terms of their contract and the Uniform Commercial Code.”  Slip op. at 8.

Although Dallaire did not involve a claim under N.C. Gen. Stat. § 75-1.1, the decision is likely to affect future section 75-1.1 cases.  After all, courts have often held that breaches of fiduciary duties state a claim under section 75-1.1. By significantly scaling back fiduciary-duty claims between lenders and borrowers, the court closed some routes to section 75-1.1 claims as well. Plaintiffs and defendants need to be aware that this subcategory of 75-1.1 claim is fading, at least in the lender-borrower context.

The court left an opening for plaintiffs to prevail in exceptional cases.  The opinion states: “[I]t is possible, at least theoretically, for a particular bank-customer transaction” to give rise to a fiduciary duty.  Slip op. at 9.  The court, however, did not outline what circumstances might make up such a case.  It simply ruled that the Dallaires had not forecast evidence of that exceptional type.  Thus, the court remanded the case for summary judgment in the bank’s favor.

Second, in Torrence v. Nationwide Budget Finance, the Supreme Court denied review of a decision that compelled arbitration of a putative class action under section 75-1.1.

Torrence involves disputes over so-called payday lending.  In 2008, in Tillman v. Commercial Credit Loans, a sharply divided North Carolina Supreme Court had held that agreements to arbitrate at least some disputes over consumer loans are unconscionable.

In post-Tillman decisions, however, the United States Supreme Court has held that the Federal Arbitration Act and its broad pro-arbitration policies preempt state unconscionability doctrine.

In Torrence, then, the North Carolina Court of Appeals was facing conflicting decisions from its boss and from its boss’s boss (on issues of federal law). Because federal preemption is an issue of federal law, on which the United States Supreme Court has the last word, the Court of Appeals followed the word of that Court. The Court of Appeals held: “The United States Supreme Court‘s position is explicit—where the [Federal Arbitration Act] governs, state laws (including Tillman) cannot carve out exceptions” to the federal policy in favor of arbitration.

Today, by denying review of the decision of the Court of Appeals, the North Carolina Supreme Court let this unexceptional — but important — ruling stand. This ruling continues recent trends in favor of arbitration, and against class actions, as ways of resolving section 75-1.1 cases.

Two disclosures:  (1) Our firm, with co-counsel, represents the prevailing defendants in Torrence.  (2) To allow an immediate report on these decisions, I have boiled the cases down to their essence (from a 75-1.1 perspective). When you read the opinions, you will notice details that I’m omitting here.