Arbitration Clauses – Be Aware!

Arbitration Clauses Now More Likely to be Enforced in North Carolina 

In 2008, the North Carolina Supreme Court set forth a standard for enforceability of arbitration clauses in Tillman v. Commercial Credit Loans, Inc. According to the Tillman test, arbitration clauses that were one-sided, prohibited joinder of claims and class actions, or exposed claimants to prohibitively high costs were deemed to be “unconscionable” and therefore unenforceable in North Carolina.

However, the U.S. Supreme Court has since made rulings that conflict with the reasoning set forth in Tillman, and a February 4, 2014 decision by the North Carolina Court of Appeals has followed the U.S. Supreme Court’s lead and appears to undermine the effect of Tillman.

According to the Court of Appeals’ recent decision in Torrence v. Nationwide Budget Finances, the U.S. Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant reject the notion that arbitration clauses can be deemed unconscionable due to attacks on the fairness of the arbitration process itself. These decisions also removed any bar to enforcement of clauses simply because of one-sidedness. In construing these decisions as such, the court in Torrence found that much of the analysis in Tillman was no longer applicable to North Carolina arbitration agreements. For example, in Tillman, one factor the North Carolina Supreme Court considered was the prohibitively high cost of arbitration. If the Court of Appeals’ ruling stands, it appears that prohibitively high costs, as well as other terms that wouldn’t have survived the Tillman standard, will now likely be enforced by North Carolina courts.

If you have any questions about this or any other legal topic please contact Caroline Trautman, attorney with Anderson Jones, PLLC at (919) 277-2541 or by email!