                            NO. COA12-453

                   NORTH CAROLINA COURT OF APPEALS

                       Filed: 4 February 2014


JAMES P. TORRENCE, SR., and TONYA
BURKE, on behalf of themselves and
all other persons similarly
situated,
     Plaintiffs

     v.                              New Hanover County
                                     No. 05 CVS 447
NATIONWIDE BUDGET FINANCE, QC
HOLDINGS, INC., QC FINANCIAL
SERVICES, INC. FINANCIAL SERVICES
OF NC, INC. and DON EARLY,
     Defendants


    Appeal by defendants from orders entered 25 January 2012 by

Judge D. Jack Hooks, Jr. in New Hanover County Superior Court.

Heard in the Court of Appeals 28 November 2012.


    Hartzell & Whiteman, L.L.P., by J. Jerome Hartzell, and North
    Carolina Justice & Community Development Center, by Carlene
    McNulty, for plaintiff-appellees.

    Ellis & Winters LLP, by Paul K. Sun, Jr. and Kelly Margolis
    Dagger, and Katten Muchin Rosenman LLP, by Claudia Callaway,
    for defendant-appellants.


    STEELMAN, Judge.


    Where the arbitrator named in the arbitration agreement was

no longer conducting arbitrations, the trial court erred in not

appointing a substitute arbitrator pursuant to § 5 of the Federal
                                       -2-
Arbitration Act.        Based upon the decisions of the United States

Supreme Court in Concepcion and Italian Colors, the trial court

erred in holding that the arbitration agreement was unconscionable

and refusing to compel arbitration.

                   I. Factual and Procedural History

     County Bank of Rehoboth Beach, Delaware (“County Bank”), an

FDIC-insured Delaware bank, began offering short-term consumer

loans to North Carolina residents in 2002.           In March 2003, County

Bank retained Financial Services of North Carolina, Inc., (“FSNC”)

to offer County Bank loans at FSNC locations.               Applications for

loans were submitted at FSNC locations, and were transmitted to

County Bank for approval.        Approved applications were sent back by

County Bank with a proposed loan agreement.

     Between      May    2003    and   February   2004,     James     Torrence

(“Torrence”) applied for eleven County Bank loans or renewals.              On

each occasion, he signed an identical loan note and disclosure

agreement that contained a clause entitled “Agreement to Arbitrate

All Disputes.”

     Between October 2003 and January 2004, Tonya Burke (“Burke”)

applied for seven County Bank loans and/or renewals.                  On each

occasion,   she    signed   an    identical   loan   note    and    disclosure
                               -3-
agreement that contained a clause entitled “Agreement to Arbitrate

All Disputes.”

     Each of the loans signed by the plaintiffs with County Bank

contained the following arbitration provisions:

          AGREEMENT TO ARBITRATE ALL DISPUTES: You and
          we agree that any and all claims, disputes or
          controversies between you and us and/or the
          Company, any claim by either of us against the
          other or the Company (or the employees,
          officers, directors, agents or assigns of the
          other or the Company) and any claim arising
          from or relating to your application for this
          loan or any other loan you previously, now or
          may later obtain from us, this Loan Note, this
          agreement to arbitrate all disputes, your
          agreement not to bring, join or participate in
          class actions, regarding collection of the
          loan, alleging fraud or misrepresentation,
          whether under the common law or pursuant to
          federal, state or local statute, regulation,
          or ordinance, including disputes as to the
          matters subject to arbitration, or otherwise,
          shall be resolved by binding individual (and
          not joint) arbitration by and under the Code
          of Procedure of the National Arbitration Forum
          (“NAF”) in effect at the time the claim is
          filed.

          This agreement to arbitrate all disputes shall
          apply no matter by whom or against whom the
          claim is filed. Rules and forms of the NAF
          may be obtained and all claims shall be filed
          at any NAF office, on the World Wide Web at
          www.arb-forum.com, by telephone at 800-474-
          2371, or at “National Arbitration Forum, P.O.
          Box 50191, Minneapolis, Minnesota 55405.”
          Your arbitration fees may be waived by the NAF
          in the event you cannot afford to pay them.
          The cost of any participatory, documentary or
          telephone hearing, if one is held at your or
                              -4-
         our request, will be paid for solely by us as
         provided in the NAF Rules and, if a
         participatory hearing is requested, it will
         take place at a location near your residence.
         This arbitration agreement is made pursuant to
         a transaction involving interstate commerce.
         It   shall  be   governed   by   the   Federal
         Arbitration Act, 9 U.S.C. Sections 1-16.
         Judgment upon the award may be entered by any
         party in any court having jurisdiction.

         NOTICE: YOU AND WE WOULD HAVE HAD A RIGHT OR
         OPPORTUNITY TO LITIGATE DISPUTES THROUGH A
         COURT AND HAVE A JUDGE OR JURY DECIDE THE
         DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE
         DISPUTES THROUGH BINDING ARBITRATION.

         AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN
         CLASS ACTIONS: To the extent permitted by law,
         you agree that you will not bring, join or
         participate in any class action as to any
         claim, dispute or controversy you may have
         against    us,   our   employees,    officers,
         directors, servicers and assigns. You agree
         to the entry of injunctive relief to stop such
         a lawsuit or to remove you as a participant in
         the suit.    You agree to pay the attorney’s
         fees and court costs we incur in seeking such
         relief. This Agreement does not constitute a
         waiver of any of your rights and remedies to
         pursue a claim individually and not as a class
         action in binding arbitration as provided
         above.

         SURVIVAL: The provisions of this Note dealing
         with the Agreement to Arbitrate All Disputes
         and the Agreement Not To Bring, Join Or
         Participate In Class Actions shall survive
         repayment in full and/or default of this Note.

    Subsequent to plaintiffs executing the notes containing the

arbitration agreements, the National Arbitration Forum (“NAF”)
                                     -5-
ceased conducting arbitrations, in accordance with the terms of a

consent    judgment   entered   into   with     the   Attorney    General   of

Minnesota on 17 July 2009.       This judgment arose from allegations

of bias on the part of NAF in favor of business claimants against

consumer claimants.

     On 8 February 2005, plaintiffs filed a complaint in this

action as a class action.       Plaintiffs alleged that defendants QC

Holdings, Inc., QC Financial Services, Inc., and Don Early, under

the name Nationwide Budget Finance (collectively, “defendants”)

violated    the   North   Carolina   Consumer    Finance   Act,    the   North

Carolina unfair trade practices laws, and North Carolina usury

laws.     Plaintiffs further sought to pierce the corporate veil in

order to hold QC Holdings, Inc. and Don Early personally liable.

On 11 April 2005, defendants filed an answer, as well as a motion

to dismiss for lack of personal jurisdiction and a motion to compel

arbitration.

     On 25 January 2012, the trial court filed three orders that:

(1) denied defendants’ motion to compel arbitration; (2) granted

plaintiffs’ motion for class certification; and (3) denied the

motions of QC Holdings, Inc. and Don Early to dismiss for lack of

personal jurisdiction.

     Defendants appeal.
                                   -6-
      On 20 June 2013, the United States Supreme Court handed down

its decision in American Express Co. v. Italian Colors Rest., ___

U.S. ___, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013).       On 15 July 2013,

this Court granted the motion of plaintiffs-appellees to allow the

parties to submit supplemental briefs to this Court concerning

their respective positions on the impact of the Italian Colors

decision upon this case.      Both plaintiffs and defendants submitted

supplemental briefs.

                       II. Interlocutory Appeal

      The trial court’s orders do not constitute a final judgment

and are therefore interlocutory.         Veazey v. City of Durham, 231

N.C. 357, 361-62, 57 S.E.2d 377, 381 (1950).       “Generally, there is

no   right   of   immediate   appeal   from   interlocutory   orders   and

judgments.” Goldston v. Am. Motors Corp., 326 N.C. 723, 725, 392

S.E.2d 735, 736 (1990).        However, where an interlocutory order

affects a substantial right, an immediate appeal may be taken.

N.C. Gen. Stat. § 1-277 (2013).

      “The right to arbitrate a claim is a substantial right which

may be lost if review is delayed, and an order denying arbitration

is therefore immediately appealable.”          Howard v. Oakwood Homes

Corp., 134 N.C. App. 116, 118, 516 S.E.2d 879, 881, review denied,

350 N.C. 832, 539 S.E.2d 288 (1999), cert. denied, 528 U.S. 1155,
                                  -7-
145 L.Ed.2d 1072 (2000).        “Jurisdiction in this Court over an

interlocutory order is proper where the appeal is from the denial

of a motion to dismiss for lack of personal jurisdiction.” Hammond

v. Hammond, 209 N.C. App. 616, 621, 708 S.E.2d 74, 78 (2011)

(citing N.C. Gen. Stat. § 1-277(b)).

     The   trial   court’s   rulings   denying   defendants’    motion   to

compel arbitration and to dismiss for lack of personal jurisdiction

are properly before this Court.

                       III. Standard of Review

           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.” Lumbee River Elec.
           Membership Corp. v. City of Fayetteville, 309
           N.C. 726, 741, 309 S.E.2d 209, 219 (1983)
           (citation omitted). “Conclusions of law drawn
           by the trial court from its findings of fact
           are reviewable de novo on appeal.” Carolina
           Power & Light Co. v. City of Asheville, 358
           N.C. 512, 517, 597 S.E.2d 717, 721 (2004).

Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 100-01, 655

S.E.2d 362, 369 (2008).

           IV. Defendants’ Motion to Compel Arbitration

     The trial court entered a detailed order denying defendants’

motion to compel arbitration.      This order contained a number of

separate   rulings.    First,    the   trial   court   held   that   “[t]he

designation of the National Arbitration Forum (“NAF”) as the sole
                                    -8-
arbitration provider and the designation of NAF rules were integral

features of the arbitration clause.”         Second, the trial court held

that there was not a valid arbitration agreement because of the

taint of NAF, “because there was no legally effective and knowing

consent.”   Third, the trial court held as a matter of law that the

North Carolina Supreme Court case of Tillman v. Commercial Credit

Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (2008) was not overruled

by the United States Supreme Court case of AT&T Mobility v.

Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742          (2011).

Fourth, the trial court held that the arbitration agreement was

substantively unconscionable.        Fifth, the trial court held that

the arbitration agreement was procedurally unconscionable.          Sixth,

the trial court held that the arbitration clause prohibiting class

actions “is an unlawful exculpatory clause and is unenforceable.”1

                V. Appointment of a Substitute Arbitrator

     In their first argument, defendants contend that the trial

court   erred    in   not   compelling    arbitration   and   appointing   a

substitute arbitrator.        This argument encompasses the first two

rulings of the trial court outlined above.         We agree.



1 In their Supplemental Memorandum filed 25 July 2013, plaintiffs
acknowledged that pursuant to the United States Supreme Court’s
ruling in Italian Colors, the exculpatory clause ground for the
trial court’s decision “is no longer valid.” We therefore do not
address this ground in our opinion.
                               -9-
     There is no dispute that the parties entered into an agreement

for binding arbitration governed by the Federal Arbitration Act

(“FAA”), codified at 9 U.S.C. § 1 et seq.     There is no dispute

that NAF can no longer serve as arbitrator of any dispute between

the parties, by virtue of the consent judgment entered into with

the Attorney General of Minnesota.   There is also no dispute that

the FAA contains a specific provision that controls a situation

where the arbitrator named in the agreement is unable to serve, or

the method agreed upon for the selection of the arbitrator fails.

§ 5 of the FAA provides:

          If in the agreement provision be made for a
          method of naming or appointing an arbitrator
          or arbitrators or an umpire, such method shall
          be followed; but if no method be provided
          therein, or if a method be provided and any
          party thereto shall fail to avail himself of
          such method, or if for any other reason there
          shall be a lapse in the naming of an arbitrator
          or arbitrators or umpire, or in filling a
          vacancy, then upon the application of either
          party to the controversy the court shall
          designate and appoint an arbitrator or
          arbitrators or umpire, as the case may
          require, who shall act under the said
          agreement with the same force and effect as if
          he or they had been specifically named
          therein; and unless otherwise provided in the
          agreement the arbitration shall be by a single
          arbitrator.

     9 U.S.C. § 5.
                                    -10-
      In the recent case of King v. Bryant, ___ N.C. App. ___, 737

S.E.2d 802 (2013), we analyzed the effect of § 5 of the FAA upon

an   agreement    to   arbitrate.    The   trial   court    held   that   an

arbitration agreement, under the terms of which the parties agreed

to select three arbitrators, was nothing more than an “agreement

to agree” and was an unconscionable agreement.        We held that:

           Congress enacted the FAA, 9 U.S.C. § 1 et seq.,
           “[t]o   overcome   judicial    resistance    to
           arbitration,” Buckeye Check Cashing, Inc. v.
           Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204,
           163 L.Ed.2d 1038 (2006), and to declare “a
           national policy favoring arbitration of claims
           that parties contract to settle in that
           manner.” Preston v. Ferrer, 552 U.S. 346, 353,
           128 S.Ct. 978, 169 L.Ed.2d 917 (2008)
           (quotation marks and citation omitted).

King, ___ N.C. App. at ___, 737 S.E.2d at 806.             We further held

that the trial court had failed to consider the applicability of

§ 5 of the FAA, which “provides the trial court authority to

appoint a panel of arbitrators if the parties cannot come to an

agreement.” Id. at ___, 737 S.E.2d at 807. Indeed, § 5 is explicit

on that point, providing a vehicle for the court to appoint an

arbitrator where there is evidence that the parties agreed to

arbitrate.       Similarly, under North Carolina law, “[w]here the

mandate of an arbitrator terminates for any reason, a substitute

arbitrator shall be appointed according to the rules that were
                                   -11-
applicable to the appointment of the arbitrator being replaced.”

N.C. Gen. Stat. § 1-567.45(a) (2013).

     The   specific   issue   of   the    enforceability   of   arbitration

agreements with reference to NAF has been addressed in other courts

as well.   For example, the United States Court of Appeals for the

Seventh Circuit has noted that:

           Two courts of appeals have held that the
           identity of the Forum as arbitrator is not
           “integral” to arbitration agreements and that
           § 5 may be used to appoint a substitute. Khan
           v. Dell, Inc., 669 F.3d 350 (3d Cir. 2012);
           Pendergast v. Sprint Nextel Corp., 691 F.3d
           1224, 1236 n. 13 (11th Cir. 2012); Brown v.
           ITT Consumer Financial Corp., 211 F.3d 1217,
           1222 (11th Cir. 2000). The Supreme Court must
           have assumed this in CompuCredit Corp. v.
           Greenwood, ––– U.S. ––––, 132 S.Ct. 665, 181
           L.Ed.2d 586 (2012), which held that claims
           under the Credit Repair Organizations Act are
           arbitrable. The agreement in that case
           specified use of the Forum, see id. at 677 n.
           2 (Ginsburg, J., dissenting), yet the Court
           saw no obstacle to enforcing the arbitration
           clause. We grant that Ranzy v. Tijerina, 393
           Fed. Appx. 174 (5th Cir. 2010), deems
           designation of the Forum “important” to
           arbitration    and    makes    an   agreement
           unenforceable    once   the   Forum   becomes
           unavailable, but Ranzy is not precedential.
           The decisions of the third and eleventh
           circuits, and the assumption of the Supreme
           Court, deserve greater weight.

Green v. U.S. Cash Advance Illinois, LLC, 724 F.3d. 787, 790 (7th

Cir. 2013).   The Seventh Circuit correctly notes that CompuCredit,

which the United States Supreme Court decided after the 2009
                                 -12-
consent judgment against NAF, held that the arbitration clause

involving NAF could nonetheless be enforced.

     The opinions cited above reaffirm the proposition that the

key aspect of the analysis of an agreement to arbitrate is the

intent of the parties to arbitrate, not the identity of the

arbitrator.   We further note the United States Supreme Court’s

assertion that “[a]lthough § 2's saving clause preserves generally

applicable contract defenses, nothing in it suggests an intent to

preserve   state-law   rules   that   stand    as   an   obstacle    to    the

accomplishment of the FAA's objectives.”        Concepcion, ___ U.S. at

___, 131 S.Ct. at 1748, 179 L.Ed.2d at 753.              The United States

Supreme Court has made it clear that it will no longer tolerate

State courts or laws which seek to frustrate the intent of Congress

in enacting the FAA.

     We hold that the agreement of the parties evinced a clear

intent to resolve disputes through arbitration.            The trial court

erred in not appointing a substitute arbitrator pursuant to § 5 of

the FAA.

     The   trial   court’s   second   ruling   was   that    the    lack   of

impartiality of NAF was a basis for voiding the arbitration

agreement.    At the time that the defendants’ motion to compel

arbitration was heard by the trial court, NAF was no longer
                                      -13-
conducting arbitration, and since it was not going to arbitrate

the claims between the parties, its prior conduct was not a

relevant consideration for the trial court.           Accordingly, we hold

that the trial court erred in considering the lack of impartiality

of a body which, the trial court acknowledged, could not serve as

an arbitrator in this case.

                         VI. Unconscionability

     In their second argument, defendants contend that the trial

court   erred   in    ruling   that     the    arbitration   agreement   was

unconscionable.      This argument encompasses the fourth and fifth

rulings of the trial court set forth in Section IV of this opinion.

We agree.

                                A. Tillman

     The    leading     case    in     North     Carolina    dealing     with

unconscionability in the context of an agreement to arbitrate is

Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d

362 (2008). In Tillman, plaintiffs obtained loans from defendants.

Each of the loan agreements contained arbitration provisions that

required any disputes to be resolved by binding arbitration in

accordance with the FAA.2            Plaintiffs filed suit against the



2 While the agreements called for arbitration under the FAA, the
plurality opinion and the concurring opinion of the Supreme Court
make no reference to the FAA, and contain no analysis under the
                                        -14-
defendant lender seeking damages arising out of the lender’s

requirement       that    they   purchase      single     premium     credit    life

insurance in connection with the loans.                    Defendants sought to

compel arbitration.           The trial court found the agreement to

arbitrate to be unconscionable and unenforceable.                     On appeal, a

divided panel of the Court of Appeals reversed and remanded the

case   to   the     trial    court   for    entry    of    an   order    to    compel

arbitration.        Tillman v. Commercial Credit Loans, Inc., 177 N.C.

App. 568, 629 S.E.2d 865 (2006).               On appeal, the North Carolina

Supreme     Court    reversed     the    Court      of    Appeals,    holding    the

arbitration agreement to be unconscionable.

       In that case, a plurality of three justices concurred in the

decision of the Court, two justices concurred in the result only,

and two justices dissented.             The plurality opinion stated that

unconscionability was an affirmative defense, and that the party

asserting that defense had the burden of establishing that the

agreement was unconscionable.              Tillman, 362 N.C. at 102,             655

S.E.2d at 369.           To establish unconscionability, a party must

demonstrate    both      procedural     unconscionability       and     substantive

unconscionability.          Id. at 102, 655 S.E.2d at 370 (citing Martin

v. Sheffer, 102 N.C. App. 802, 805, 403 S.E.2d 555, 557 (1991); 1



FAA.    The dissent makes only a passing reference to the FAA.
                                     -15-
James J. White & Robert S. Summers, Uniform Commercial Code § 4–

7,   at   315    (5th   ed.     2006)).        While      both    elements    of

unconscionability must be present, a court may rule that a contract

is   unconscionable     “when   [the]       contract     presents     pronounced

substantive     unfairness    and    a    minimal      degree    of   procedural

unfairness, or vice versa.”         Id. at 103, 655 S.E.2d at 370.

     The Supreme Court began its analysis by restating North

Carolina’s policy in favor of arbitration.             Id. at 101, 655 S.E.2d

at 369.   The Court first examined the issue of unconscionability

based upon procedural unconscionability:

           In the instant case, the trial court did not
           explicitly conclude that the facts supported
           a finding of procedural unconscionability. We
           note, however, that the trial court made the
           following finding of fact, which is supported
           by evidence in the record: “[Mrs.] Tillman and
           [Mrs.] Richardson were rushed through the loan
           closings, and the Commercial Credit loan
           officer indicated where [Mrs.] Tillman and
           [Mrs.] Richardson were to sign or initial the
           loan documents. There was no mention of credit
           insurance or the arbitration clause at the
           loan closings.” In addition, defendants admit
           that they would have refused to make a loan to
           plaintiffs rather than negotiate with them
           over the terms of the arbitration agreement.
           Finally,   the    bargaining    power   between
           defendants and plaintiffs was unquestionably
           unequal in that plaintiffs are relatively
           unsophisticated consumers contracting with
           corporate    defendants     who   drafted    the
           arbitration   clause    and   included   it   as
           boilerplate language in all of their loan
           agreements.    We   therefore   conclude    that
                                   -16-
             plaintiffs made a sufficient showing          to
             establish procedural unconscionability.

Id. at 103, 655 S.E.2d at 370.

      With   regard   to   substantive    unconscionability,    the   Court

restated the trial court’s conclusion, noting that:

             The trial court found the arbitration clause
             to be substantively unconscionable because (1)
             the arbitration costs borrowers may face are
             “prohibitively high”; (2) “the arbitration
             clause is excessively one-sided and lacks
             mutuality”; and (3) the clause prohibits
             joinder of claims and class actions. We agree
             that here, the collective effect of the
             arbitration provisions is that plaintiffs are
             precluded   from   “effectively    vindicating
             [their] ... rights in the arbitral forum.”
             Green Tree Fin. Corp.-Ala. v. Randolph, 531
             U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373
             (2000).

Id. at 104, 655 S.E.2d at 370-71.         Relying on Green Tree, and on

the   Fourth     Circuit’s    decision     in   Bradford   v.    Rockwell

Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001), the

Court held that, because plaintiffs were financially ill-equipped

to cover the costs of arbitration, the “loser pays” provision of

the arbitration agreement presented a powerful deterrent.              The

Court then contrasted arbitration with litigation, and stated that

“paying for arbitrators is a significant cost that is simply not

faced in filing a lawsuit in court[,]” but that “the trial court

found that it is ‘unlikely that any attorneys would be willing to
                                  -17-
accept the risks attendant to pursuing [these] claims.’”             Id. at

105, 655 S.E.2d at 371.    The Court concluded that “the combination

of the loser pays provision, the de novo appeal process, and the

prohibition on joinder of claims and class actions creates a

barrier to pursuing arbitration that is substantially greater than

that present in the context of litigation. We agree with the trial

court that ‘[d]efendant's arbitration clause contains features

which would deter many consumers from seeking to vindicate their

rights.’”    Id. at 106, 655 S.E.2d at 372.

     Finally, the Court examined unconscionability based on the

provision   prohibiting   class   actions   and   joinder.     The    Court

observed that:

            Taken alone, such a prohibition may be
            insufficient    to   render   an    arbitration
            agreement    unenforceable,      but     Brenner
            instructs that an unconscionability analysis
            must   consider    all  of   the     facts   and
            circumstances of a particular case. Therefore,
            the trial court correctly concluded that a
            prohibition on joinder of claims and class
            actions is a factor to be considered in
            determining whether an arbitration provision
            is unconscionable.

Id. at 107, 655 S.E.2d at 373 (citations and quotations omitted).

     The Court observed, however, that:

            In the instant case, the prohibition on
            joinder of claims and class actions affects
            the unconscionability analysis in two specific
            ways. First, the prohibition contributes to
                                -18-
          the financial inaccessibility of the arbitral
          forum as established by this arbitration
          clause because it deters potential plaintiffs
          from bringing and attorneys from taking cases
          with low damage amounts in the face of large
          costs that cannot be shared with other
          plaintiffs.     Second,    the     prohibition
          contributes to the one-sidedness of the clause
          because the right to join claims and pursue
          class actions would benefit only borrowers.

Id. at 108, 655 S.E.2d 373.

    The Court concluded that:

          [T]he arbitration clause in plaintiffs' loan
          agreements is unconscionable and therefore
          unenforceable. The inequality of bargaining
          power between the parties and the oppressive
          and one-sided nature of the clause itself lead
          us to this conclusion. Through the arbitration
          clause at issue in this case, defendants have
          not only unilaterally chosen the forum in
          which they want to resolve disputes, but they
          have also severely limited plaintiffs' access
          to the forum of their choice. Defendants argue
          that finding this clause to be unconscionable
          would be “hostile to arbitration.” We disagree
          but at the same time reaffirm this Court's
          previous statements acknowledging the State's
          strong public policy favoring arbitration.
          However, this particular arbitration clause
          simply does not allow for meaningful redress
          of grievances and therefore, under Green Tree,
          must be held unenforceable.

Id. at 108-09, 655 S.E.2d 373-74.

    Our    Supreme    Court   analyzed    Tillman   solely    under

unconscionability.   It did not address any issues under the FAA,

which clearly governed the agreement.    Further, the Supreme Court
                                 -19-
did not have the benefit of two cases subsequently decided by the

United States Supreme Court, construing arbitration agreements

under the FAA; AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S.Ct.

1740, 179 L.Ed.2d 742 (2011), and American Express Co. v. Italian

Colors Rest., ___ U.S. ___, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013).

                             B. Concepcion

     In Concepcion, plaintiffs entered into a cellular telephone

contract with defendant.     This contract included an arbitration

provision that contained a class action waiver.   Plaintiffs filed

a putative class action suit in the federal district court seeking

damages for false advertising and fraud.     Defendant’s motion to

compel arbitration was denied by the district court, and this

ruling was affirmed by the United States Court of Appeals for the

Ninth Circuit.   The district court and Court of Appeals relied

upon a decision of the California Supreme Court in Discover Bank

v. Superior Court, 36 Cal.4th 148, 113 P.3d 1100 (2005).       The

holding in   Discover Bank    was that class waivers in consumer

arbitration agreements were unconscionable if the agreement was

contained within a contract of adhesion. Discover Bank, 36 Cal.4th

at 162-63, 113 P.3d at 1110.

     The United States Supreme Court recited § 2 of the FAA as

follows:
                                 -20-
            A   written   provision    in   any   maritime
            transaction or a contract evidencing a
            transaction involving commerce to settle by
            arbitration a controversy thereafter arising
            out of such contract or transaction ... shall
            be valid, irrevocable, and enforceable, save
            upon such grounds as exist at law or in equity
            for the revocation of any contract.

Concepcion, ___ U.S. at ___, 131 S.Ct. at 1745, 179 L.Ed.2d at

750-51 (quotations omitted).

       The Supreme Court held that this provision

            permits arbitration agreements to be declared
            unenforceable “upon such grounds as exist at
            law or in equity for the revocation of any
            contract.”   This    saving   clause   permits
            agreements to arbitrate to be invalidated by
            “generally applicable contract defenses, such
            as fraud, duress, or unconscionability,” but
            not by defenses that apply only to arbitration
            or that derive their meaning from the fact
            that an agreement to arbitrate is at issue.

Id. at ___, 131 S.Ct. at 1746, 179 L.Ed.2d at 751 (citations

omitted).    The Court further stated that “[a]lthough § 2's saving

clause preserves generally applicable contract defenses, nothing

in it suggests an intent to preserve state-law rules that stand as

an obstacle to the accomplishment of the FAA's objectives.”         Id.

at ___, 131 S.Ct. at 1748, 179 L.Ed.2d at 753.      The Court cited to

a number of its own prior opinions to emphasize that these prior

cases clearly stated that the FAA supersedes any state law that

sets    aside   arbitration   agreements   or   holds   them   to   be
                                  -21-
unconscionable upon grounds that are exclusive to arbitration

agreements.

       The Supreme Court expressly overruled Discover Bank, which

invalidated class action waivers, holding that it had the effect

of “manufacturing” class arbitration, contrary to the express

intent of the parties, which was “inconsistent with the FAA.”

Concepcion, ___ U.S. at ___, 131 S.Ct. at 1753, 179 L.Ed.2d at

759.    The Court further dismissed the notion that class action

waivers somehow prevented consumers from seeking relief.

       Subsequent   to   Concepcion,   the   question   of   whether   the

provisions of the FAA superseded state court rulings similar to

Discover Bank has been discussed in a number of cases.         The Fourth

Circuit recently followed Concepcion in holding that the trial

court erred in finding a class action waiver in an arbitration

agreement to be unconscionable.        Muriithi v. Shuttle Exp., Inc.,

712 F.3d 173, 180-81 (4th Cir. 2013).          In Muriithi, the Fourth

Circuit held that the holding of Concepcion was broader than simply

overruling Discover Bank:

           In Concepcion, the Supreme Court cautioned
           that the generally applicable contract defense
           of unconscionability may not be applied in a
           manner that targets the existence of an
           agreement to arbitrate as the basis for
           invalidating that agreement. 131 S.Ct. at
           1746–47. Applying that principle to the
           Discover Bank “rule” at issue, the Court
                                  -22-
          explained that state law cannot “stand as an
          obstacle to the accomplishment of the FAA's
          objectives,”   by   interfering  with   “the
          fundamental attributes of arbitration.” 131
          S.Ct. at 1748.

          We   recently   discussed   the  holding   in
          Concepcion in our decision in Noohi v. Toll
          Bros., Inc., 708 F.3d 599, 606–07 (4th Cir.
          2013).   We   explained   that  the   holding
          “prohibited courts from altering otherwise
          valid arbitration agreements by applying the
          doctrine of unconscionability to eliminate a
          term barring classwide procedures.”       Id.
          (citing Concepcion, 131 S.Ct. at 1750–53).
          Thus, contrary to Muriithi's contention, the
          Supreme Court's holding was not merely an
          assertion of federal preemption, but also
          plainly prohibited application of the general
          contract defense of unconscionability to
          invalidate an otherwise valid arbitration
          agreement under these circumstances. The
          district court in the present case, deciding
          the same issue of unconscionability prior to
          Concepcion, reached the opposite conclusion.
          Accordingly, we conclude that the district
          court erred in holding that the class action
          waiver was unconscionable.

Id.

                          C. Italian Colors

      In the recent case of Italian Colors, the United States

Supreme Court considered the question of whether “the Federal

Arbitration   Act   permits   courts   ...   to   invalidate   arbitration

agreements on the ground that they do not permit class arbitration

of a federal-law claim[.]”      Italian Colors, ___ U.S. at ___, 133

S.Ct. at 2308, 186 L.Ed.2d at 423 (citing petition for certiorari).
                                -23-
The United States Court of Appeals for the Second Circuit held

that the class action waiver was unenforceable and therefore that

arbitration could not proceed.      It then held Concepcion to be

inapplicable because it was a case involving pre-emption.

    The Supreme Court reiterated its prior holding that “Congress

enacted the FAA in response to widespread judicial hostility to

arbitration.”     Id. at ___, 133 S.Ct. at 2308-09, 186 L.Ed.2d at

423-24 (citing Concepcion, ___ U.S. at ___, 131 S.Ct. at 1745).

Plaintiffs argued that if they were required to arbitrate their

claims individually, it would contravene the policies of the

antitrust laws.    The Supreme Court held that:

         The antitrust laws do not “evinc[e] an
         intention to preclude a waiver” of class-
         action procedure. Mitsubishi Motors Corp. v.
         Soler Chrysler–Plymouth, Inc., 473 U.S. 614,
         628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).
         The Sherman and Clayton Acts make no mention
         of class actions. In fact, they were enacted
         decades before the advent of Federal Rule of
         Civil Procedure 23, which was “designed to
         allow an exception to the usual rule that
         litigation is conducted by and on behalf of
         the individual named parties only.” Califano
         v. Yamasaki, 442 U.S. 682, 700–701, 99 S.Ct.
         2545, 61 L.Ed.2d 176 (1979). The parties here
         agreed to arbitrate pursuant to that “usual
         rule,” and it would be remarkable for a court
         to       erase        that       expectation.

Id. at ___, 133 S.Ct. at 2309, 186 L.Ed.2d at 424-25.
                                 -24-
     Plaintiffs then advanced the argument that there was a judge-

made exception to the FAA that allowed courts to invalidate

agreements that prevent the "effective vindication” of a federal

statutory right.    While acknowledging the existence of the cases

dealing with “effective vindication,” the Supreme Court held that:

            The   class-action    waiver   merely   limits
            arbitration to the two contracting parties. It
            no more eliminates those parties' right to
            pursue their statutory remedy than did federal
            law before its adoption of the class action
            for legal relief in 1938[.]

Id. at ___, 133 S.Ct. at 2311, 186 L.Ed.2d at 426 (citations

omitted).

     The Supreme Court then concluded:

            Truth to tell, our decision in AT&T Mobility
            all but resolves this case. There we
            invalidated a law conditioning enforcement of
            arbitration on the availability of class
            procedure because that law “interfere[d] with
            fundamental attributes of arbitration.” 563
            U.S., at ––––, 131 S. Ct. 1740, 179 L. Ed. 2d
            742.   “[T]he switch from bilateral to class
            arbitration,”    we   said,   “sacrifices   the
            principal    advantage    of    arbitration—its
            informality—and makes the process slower, more
            costly, and more likely to generate procedural
            morass than final judgment.” Id., at ––––, 131
            S. Ct. 1740, 179 L. Ed. 2d 742. We specifically
            rejected the argument that class arbitration
            was necessary to prosecute claims “that might
            otherwise slip through the legal system.” Id.,
            at ––––, 131 S. Ct. 1740, 179 L. Ed. 2d 742.

Id. at ___, 133 S.Ct. at 2312, 186 L.Ed.2d at 427.
                                           -25-
      D. Conclusions from Tillman, Concepcion and Italian Colors

       The FAA embodies a strong Congressional policy in favor of

arbitration.      Concepcion and Italian Colors clearly state that the

United States Supreme Court is weary of state and federal trial

courts    assisting    plaintiffs          in   getting      around     the    mandatory

provisions of the FAA.          While both Concepcion and Italian Colors

dealt with class action waivers, underlying those decisions was a

broader theme that unconscionability attacks that are directed at

the arbitration process itself will no longer be tolerated.                            See

Muriithi, supra.

       This places the North Carolina Court of Appeals in the

difficult position that the holdings of the North Carolina Supreme

Court in Tillman conflict with those of the United States Supreme

Court in Concepcion and Italian Colors.                   Ultimately, we are bound

by the decisions of the United States Supreme Court construing

federal laws, such as the FAA.             In re Fifth Third Bank, Nat. Ass'n,

___ N.C. App. ___, ___, 716 S.E.2d 850, 855 (2011) (quoting Dooley

v. Seaboard Air Line Ry. Co., 163 N.C. 454, 457–58, 79 S.E. 970,

971    (1913)).       Certain    of    the        holdings    of   Tillman       may   be

distinguished, because even though arbitration provisions of the

Tillman    contract    referred       to    the    FAA,    none    of    the    analysis
                                   -26-
contained in either the plurality or concurring opinions discussed

the FAA and federal law principles.

     As noted in Section VI-A of this opinion, a key element of

the plurality opinion in Tillman on unconscionability is the

section dealing with substantive unconscionability.         Our Supreme

Court cited three factors, the collective effect of which was to

preclude plaintiffs from effectively vindicating their rights in

an arbitration proceeding.         First was the “prohibitively high”

potential arbitration costs.       Tillman, 362 N.C. at 104, 655 S.E.2d

at 370-71.    In Italian Colors, the United States Supreme Court

expressly rejected the model proposed by the Court of Appeals for

the Second Circuit, which would have required “that a federal court

determine (and the parties litigate) the legal requirements for

success on the merits claim-by-claim and theory-by-theory, the

evidence   necessary   to   meet   those   requirements,   the   cost   of

developing that evidence, and the damages that would be recovered

in the event of success.”      Italian Colors, ___ U.S. at ___, 133

S.Ct. at 2312, 186 L.Ed.2d at 427.         The Supreme Court went on to

hold that the imposition of such a “preliminary litigating hurdle”

at the point in the proceedings where the issue was whether or not

the parties were to proceed to arbitration “would undoubtedly

destroy the prospect of speedy resolution that arbitration in
                                  -27-
general and bilateral arbitration in particular was meant to

secure.”   Id.     We can only construe this language as eliminating

the type of cost analysis applied by the North Carolina Supreme

Court in Tillman.

     Second, the North Carolina Supreme Court in Tillman held that

there was substantive unconscionability based upon the arbitration

clause being “excessively one-sided and lack[ing] mutuality[.]”

Tillman, 362 N.C. at 104, 655 S.E.2d at 371.       The United States

Supreme Court in Concepcion noted, however, that “the times in

which consumer contracts were anything other than adhesive are

long past.”      Concepcion, ___ U.S. at ___, 131 S.Ct. at 1750, 179

L.Ed.2d at 755.      The Court in Concepcion was dismissive of the

idea that an arbitration agreement, apart from any other form of

contract, could be found substantively unconscionable based solely

upon its adhesive nature.    This was an explicit part of the Supreme

Court’s reasoning in overruling Discover Bank.     We must therefore

hold that the one-sided quality of an arbitration agreement is not

sufficient to find it substantively unconscionable.

     Third, the North Carolina Supreme Court in Tillman held that

there was substantive unconscionability based upon the arbitration

provision “prohibit[ing] joinder of claims and class actions.”

Tillman, 362 N.C. at 104, 655 S.E.2d at 371.     Both Concepcion and
                                 -28-
Italian Colors hold that a class action waiver does not render an

arbitration agreement unconscionable.        Italian Colors specifically

holds that a party can “effectively vindicate” their rights in the

context of a bilateral arbitration.          Italian Colors, ___ U.S. at

___, 133 S.Ct. at 2311, 186 L.Ed.2d at 426.

     Thus, the legal theories upon which Tillman’s substantive

unconscionability    analysis   is   based    have   been   undermined   by

subsequent decisions of the United States Supreme Court in the

context of cases under the FAA.

                     E. Ruling of the Trial Court

     The trial court in the instant case, relying upon Tillman as

precedent, made the following findings of fact as to substantive

unconscionability:

          H. SUBSTANTIVE UNCONSCIONABILITY.

          42. No individual arbitration cases have ever
          been brought challenging payday lending in
          North Carolina, either against the defendants
          in this case or against any other payday
          lenders. In light of the large number of North
          Carolina payday loan transactions that were
          undertaken by these defendants and the
          defendants in the other class cases after the
          statutory authority for payday lending in
          North Carolina expired on August 31, 2001, and
          in light of the evidence that all payday
          lenders required customers to sign loan
          agreements     with    arbitration     clauses
          prohibiting participation in class actions,
          the complete absence of any individual
          arbitration cases tends to confirm that legal
                    -29-
challenges to North Carolina payday lending
conducted in cooperation with out-of-state
banks could not be challenged in individual
arbitration cases.

43. The language calling for arbitration
before the NAF required plaintiffs to submit
claims to an arbitration organization that
sought to build business by encouraging
relationships and providing accommodations to
debt-collector arbitration claimants, and
that on June 27, 2007, sold a 40% ownership
interest to participants in the consumer debt
collection industry. The NAF's lack of
neutrality affected arbitrator selection. The
arbitration   clause  requiring   arbitration
before    the     NAF    was    substantively
unconscionable.

44. Plaintiffs offered the affidavit and
deposition testimony of attorneys George
Hausen, Glenn Barfield and Kenneth Schorr,
with live testimony of Mr. Barfield and Mr.
Hausen, each offering their opinion it was
unlikely an individual      payday borrower,
proceeding on an individual (non-class) basis,
would be able to obtain legal counsel to
prosecute claims against defendants such as
those raised in this proceeding.

45. The Court notes that each of these
witnesses has been involved in recruiting
North Carolina lawyers to take civil cases on
behalf of low and moderate income persons in
North   Carolina,    specifically    including
efforts to recruit lawyers both on a pro bono
basis and on a fee basis. Mr. Hausen is and
since 2002 has been the Executive Director of
Legal Aid of North Carolina. Mr. Schorr is the
Executive Director of Legal Services of the
Southern Piedmont, a nonprofit indigent civil
legal services program, serving Charlotte and
the western part of North Carolina. Mr.
Barfield is a lawyer in private practice who
                    -30-
is past president of Legal Services of North
Carolina, Inc., and past chairman of the board
of directors of Legal Aid of North Carolina.
Both Mr. Hausen and Mr. Schorr are and have
since 2005 been members of the North Carolina
Equal    Access   to    Justice    Commission.
Accordingly, the Court finds that these
witnesses are particularly knowledgeable as to
what cases North Carolina lawyers will accept,
both on a fee basis and on a pro bono basis.

46. The Court accepts the testimony of Messrs.
Barfield, Hausen and Schorr as experts. In
addition, because the Court has had the
opportunity to observe the demeanor of Mr.
Hausen and Mr. Barfield, witnesses, the Court
attaches particular weight to their testimony.

47. Mr. Barfield opined that, given the
complexity involved in cases challenging
payday lending in North Carolina presenting
questions such as are in issue in this case,
coupled with the motivation of the defendants
to vigorously defend, the necessity for out-
of-pocket expenditures, the uncertainty of
prevailing and the lack of ability to use
precedent in an arbitration forum, it is very
unlikely that any North Carolina lawyer would
be willing to bring such an individual case in
arbitration.     Mr.    Barfield     regularly
represented defendants/counterclaimants in
cases brought by "debt buyers" in counties
close to his office. He wrote a manuscript to
encourage attorneys across the state to engage
in this work, but had virtually no success. In
Mr. Barfield's opinion, the complexity of
payday lending cases such as this case far
exceeds the complexity of the cases he handled
on behalf of consumers in the debt buyer
cases. Mr. Barfield testified that it is
simply not economically feasible to prosecute
payday lending cases such as this case, in
court or in arbitration on an individual
basis.
                     -31-


48. Mr. Hausen opined that it is very unlikely
that a payday borrower would be able to get
representation from a Legal Aid or pro bono
attorney in North Carolina. The demand for
services far exceeds the capacity to provide
legal representation. Legal Aid offices across
the state prioritize cases involving basic
needs such as preservation of shelter, access
to health care, access to public benefits such
as food stamps and Medicaid, and protection
from domestic violence. Neither Legal Aid nor,
in Mr. Hausen's opinion, the private attorneys
whom [L]egal Aid recruits to act as pro bono
volunteer attorneys, would have the resources
to act as attorneys for individual payday
borrowers. While his office has devoted
significant resources to foreclosure defense,
including developing and implementing a series
of training events for the private bar as a
way to encouraging [sic] referrals, it is not
likely that such an effort would be replicated
in an effort to represent payday lending
borrowers. Neither Legal Aid nor the volunteer
attorneys recruited to assist Legal Aid have
enough resources to accept cases seeking the
return of money from payday lenders.

49. Mr. Schorr testified that in his opinion,
people who were payday lending borrowers would
not be able to find attorneys at private firms
or with nonprofit organizations to handle
their claims on an individual basis. He
testified that the amount of damages and
attorneys' fees involved was not nearly at the
threshold that would make it likely that a
private attorney would take such a [c]ase, and
that nonprofit agencies would not handle them.

50. Messrs. Barfield, Hausen and Schorr each
opined that because the        stakes of an
individual arbitration on behalf of a payday
borrower are so small, no attorney would be
willing to pursue a claim on behalf of a payday
                    -32-
borrower on an individual basis. They go
further to state that this is true despite the
availability of statutory attorney fees under
G.S. § 75-1.1 et seq. The individual claims
for individual borrowers that are at issue in
this case are in fact modest in amount.
Plaintiffs represent that Mr. Torrence's
largest damages claim is for treble the amount
of his net interest, which, after trebling, is
a total of $2,788.50. Ms. Burke's largest
claim is for recovery of all amounts paid, but
without trebling, which is a total of $561.

51. These witnesses also opined that because
of the nature of the claim and the federal
preemption issue, the claims in the instant
case are complex. The instant case is complex
because defendants contend they were engaged
in marketing and servicing loans for County
Bank. The Consumer Finance Act provides an
exemption for banks. Under federal preemption
laws, banks are not subject to state interest
rate limits. To prove that defendants are
subject to the CFA, a consumer must respond to
defendants' claims concerning exemption and
preemption. The complexity and proof will be
substantially the same regardless of whether
a claim is asserted on behalf of a single
individual or on behalf of a class.

52. The CFA assigns regulatory responsibility
over the small loan business to the North
Carolina   Commissioner     of   Banks.   The
Commissioner    of    Banks    conducted   an
administrative case against Advance America,
to determine whether that company was in
violation of the CFA by conducting payday
lending in North Carolina in cooperation with
an out-of-state bank. An order in that case
was rendered on December 22, 2005 (the "COB
Opinion"), ruling that Advance America was in
violation of the CFA.

53. The COB Opinion reflects that the issue of
                    -33-
whether payday lenders can avoid application
of the CFA by entering into contracts with
banks is complicated. The COB Opinion is 54
single spaced pages and has 292 footnotes.
Following an appeal, the COB Opinion was
affirmed by order rendered by Judge Donald W.
Stephens of Wake County Superior Court on
March 29, 2010, who found that the required
analysis is "heavily fact
dependent," and that Advance America's claim
to preemption was "not supported by the facts
in this matter."

54. A legal challenge to the issue of whether
defendants   are   lawfully    permitted   to
participate in payday lending in North
Carolina by purporting to act on behalf of an
out-of-state bank would present a fundamental
issue concerning whether defendants and other
payday lenders with similar bank arrangements
could continue to operate in North Carolina.
A legal challenge over such a fundamental
issue should be expected to give rise to a
vigorous defense supported by resources that
are more substantial that the amount in
controversy    in    a   single    individual
arbitration.

55.   The   successful  prosecution   of   an
individual claim that defendants in this case
violated the CFA will likely require factual
development through depositions, document
review and expert analysis, just as the COB
Opinion reflected factual development through
depositions, document review and expert
analysis.

56. The COB Opinion devoted substantial
attention to financial relationships between
Advance America and the various banks, to the
actual    results     of    such    financial
relationships, to the historical development
of the relationships, to the companies'
apparent business objectives, and similar
                    -34-
matters.

57. Plaintiffs have submitted the affidavits
and depositions of two financial experts. One
of these experts, Ronald E. Copley, holds a
Ph.D. in Finance, has been a tenured professor
of Finance at the University of North Carolina
at Wilmington, is a Chartered Financial
Analyst, and is a licensed investment advisor.
Dr. Copley reviewed the COB Opinion and has
opined that it would require a minimum of 100
hours to perform financial analysis similar to
the analysis performed by the Commissioner of
Banks. The other of these experts, Michael J.
Minikus, is a North Carolina certified public
accountant. Mr. Minikus has opined that it
would require a minimum of 65 hours to perform
an analysis similar to the analysis performed
by the Commissioner. Dr. Copley charges $225
per hour for his services. Mr. Minikus charges
$125 per hour for his services. Regardless of
how many hours must be devoted to analysis by
a finance professional or a certified public
accountant, the costs of such experts are
likely to exceed the amount in controversy in
an individual case.

58. Regardless of whether the instant case
will require as much analysis as set out in
the COB Opinion, the legal issues in this case
are too factually and legally complex to be
addressed in an arbitration case involving
only the amount of damages that would be at
issue for a single plaintiff, because the time
and expense required to be invested in such a
case would be substantially in excess of the
amount that could be recovered if the case was
successful.

59. Defendants tendered the testimony of two
North Carolina lawyers, Samuel Forehand and
Woodward Webb, who stated that, in their
opinion, some North Carolina lawyer would
probably be willing to bring individual payday
                    -35-
loan arbitration cases.

60. Attorneys Forehand and Webb acknowledged
that they did not consider the complexities of
a CFA case challenging payday lending in North
Carolina done in cooperation with a bank, such
as the preemption issue and the other issues
identified in the COB Opinion. Mr. Webb
provided representative examples of cases
brought by consumer attorneys in North
Carolina and other states in an effort to
support his opinion that attorneys would
accept representation on behalf of a payday
borrower. None of these cases, however,
involved usury claims, federal preemption,
claims against a bank or a need for expert
witness testimony. Until the preemption issues
were brought to his attention at his
deposition, Mr. Forehand was not aware that
such a defense was likely to be involved in
this case. Mr. Forehand acknowledged that he
had no basis for disputing this Court's
earlier finding in prior cases that litigating
the preemption issue will require extensive
deposition,   document   review   and   expert
analysis as is reflected by the order of the
Commissioner of Banks, or that the cost of
expert witnesses alone would likely exceed the
amounts at issue in individual cases.

61. The significance of the opinion testimony
by attorneys Forehand and Webb is also
diminished by their failure to identify any
North Carolina lawyers who would in fact take
such cases. Mr. Webb acknowledged that he
would not accept one of these cases himself.
In his deposition Mr. Webb mentioned three
attorneys whom he thought might. However one
of the attorneys mentioned was no longer in
practice, and the other two attorneys signed
affidavits stating that they would not take
such cases on an individual basis. In his
hearing testimony Webb mentioned a fourth
attorney, but merely said he had spoken with
                    -36-
the attorney in passing who said he would
"look at it."

62. Defendants have objected to the tender of
affidavits of expert witnesses who were not
identified in interrogatory responses. The
Court understands this to be an objection to
Plaintiffs' Exhibits 47-49 (affidavits of
Carlene McNulty, John Van Alst and M. Jason
Williams). These affidavits are directed
simply to the issue of three specific lawyers'
willingness to take on individual cases
challenging bank-contract payday lending. The
objections are overruled.

63. Mr. Forehand testified that he would need
to undertake a detailed case acceptance
analysis before deciding whether he would take
one of these cases, which he has not yet been
able to complete; that even if he went through
the process outlined in his affidavit, he
would not be competent to state whether he
would file an individual arbitration claim,
having no prior experience with arbitration;
and that he could not identify any attorney
willing to represent a payday borrower or even
meet with a payday borrower.

64. Defendants introduced two letters written
by attorneys in North Carolina as evidence to
show that payday lending borrowers were able
to find legal representation. One letter made
allegations that the payday loan was illegal
and demanded that the payday loan company
cease collection efforts. The other letter
alleged that a payday borrower's check had
been cashed     prematurely. The defendants
presented no evidence indicating that any
relief was provided to the clients as a result
of either letter, and no evidence that either
of   these    attorneys    undertook   further
representation on behalf of these borrowers or
any other borrowers such as filing suit in
court.
                    -37-


65. Even if North Carolina attorneys were
willing to pursue an individual arbitration on
behalf of an individual payday borrower, it is
unlikely that payday borrowers generally would
be able to obtain legal representation for
individual   claims, given all witnesses'
inability to identify any lawyer who would
accept such individual cases.

66. It is extremely unlikely that payday
borrowers    could    effectively    represent
themselves in pro se litigation or arbitration
against defendants in light of the complexity
of the issues, including the factual and legal
basis for federal preemption and statutory
exemption.

67. Unless consumers received legal assistance
that involved analyzing the legal legitimacy
of   payday   lenders'   claims   to   federal
preemption and exemption, consumers would be
unaware that they possessed any sound basis
for a legal claim.

68. Defendants' witness Stephen Ware opined
that NAF arbitration afforded consumers a
reasonably accessible forum. Mr. Ware has
never practiced law in North Carolina and has
no familiarity with North Carolina law or
North Carolina lawyers, and did not identify
any North Carolina lawyer who is willing to
take individual payday loan cases such as the
instant case. Mr. Ware also did not review any
pleadings in this case other than the
complaint, did not review any of the briefs,
affidavits or depositions in the case; and did
not know what plaintiffs would have to prove
in order to prevail. He had no opinion as to
how many witnesses would be required to make
out a claim, or whether expert testimony would
be required; and had no knowledge of whether
proof of intent would be required.
                    -38-
69. Mr. Ware based his opinion that NAF
arbitration afforded consumers a reasonably
accessible forum, by comparing the NAF to our
court system as he contends it actually
exists. Mr. Ware testified that, even taking
the allegations of bias and corruption
asserted by former managerial employee Deanna
Richert as true, the NAF compares favorably to
our court system, "given the pressure on a
judge to rule in a particular way from a
governor or legislator or a contributor to a
judge's campaign."

70. Mr. Ware further based his opinion that
NAF   arbitration    afforded    consumers   a
reasonably accessible forum on information
that thirteen individual arbitration claims
had been advanced by Texas attorney Brian
Blakeley in arbitration cases before the
American Arbitration Association in which Mr.
Blakeley contended that "QC Financial Services
of Texas, Inc. was the 'true' lender for these
payday loan transactions and that the fees
collected by respondent constitute a deceptive
practice and that the respondent has violated
the Texas Credit Services Organization Act
and/or engaged in usury."

71. Mr. Blakeley provided an affidavit which
was introduced in evidence in the present
case, and Mr. Blakeley was deposed by
defendants. According to his affidavit, Mr.
Blakeley began pursuing cases against Texas
"credit service organizations" ("CSO's") in
late 2009, and sought to assert usury claims
on the ground that fees paid by his clients
that   were    purportedly    credit   service
organizations fees "should be considered to be
interest because the CSO should be regarded as
the true lender in the transaction; or because
the relationship between the CSO and the
purported lender is such that the purported
lender and the CSO are not truly independent."
Mr. Blakeley attached to his affidavit a Texas
                    -39-
Attorney   General    letter   opining   that
"[determining the true relationship between a
CSO and a lender would be a fact intensive
endeavor."

72. However Mr. Blakeley stated in his
affidavit and testified at his deposition that
he had abandoned usury claims against Texas
CSO's and was no longer asserting usury claims
in connection with payday lending in Texas.
Mr. Blakeley opined that "it is not possible
to pursue usury claims on an individual basis
in individual arbitrations conducted by the
[AAA] for the following reasons," and gave
five reasons that he believed such claims
could not be pursued in AAA           consumer
proceedings.

73. Mr. Blakeley was deposed by defendants and
provided   testimony   consistent   with   his
affidavit. He continues to accept payday
lending clients, and has been successful in
seven out of twenty-two arbitration claims so
far in cases involving Texas law disclosure
claims unlike the claims in the present case.
However, Mr. Blakeley has unequivocally
abandoned all claims for usury and has no
intention of bringing those claims in the
future. Whether or not his decision to abandon
these claims is because Mr. Blakeley is "lazy"
as characterized by defendants or because the
claims are not economically viable, the fact
remains that Mr. Blakeley is not providing
legal representation to Texas payday borrowers
with fact-intensive claims concerning payday
lenders' business relationships with third
parties, and is not providing (nor has ever
provided) any representation to North Carolina
payday borrowers.

74. Mr. Blakeley practices law exclusively in
Texas, and is not licensed to practice law in
North Carolina. The claims brought by Mr.
Blakeley in the payday arbitration cases were
                    -40-
brought under Texas law, not North Carolina
law.

75. The Court finds that payday borrowers
would not be able to effectively vindicate the
type of claims raised by plaintiffs here, even
if the claims are legally justified and
correct, if payday borrowers are required to
proceed on an individual rather than class
basis. The facts demonstrate that this
conclusion is true, regardless of whether
consumers were to attempt to pursue their
claims in court or in arbitration.

76. The North Carolina Attorney General filed
an amicus brief in Kucan v. Advance America,
a North Carolina payday lending case alleging
similar legal issues as are alleged in the
instant case, stating that "no Attorney
General will ever have the funds or personnel
to pursue every remedy against every person or
company preying on North Carolina customers"
and that "it is critically important that
consumers be able to rely on the private bar—
as the legislature intended— for assistance in
obtaining restitution for injuries caused by
unfair or deceptive business practices."

77. Defendants' practice of holding customer
checks as security for loans gave defendants
considerable leverage in the event of a
nonpayment or dispute, making resort to court
or arbitration unnecessary: if the customer
failed to pay defendants could simply deposit
the check, either resulting in payment to
defendants or causing the customer to be faced
with the legal and practical consequences of
having their check bounce.

78. The arbitration agreements restrict
customers from bringing a class action. The
agreement    contains     no    corresponding
prohibition against County Bank or any of the
defendants bringing or participating in a
                                       -41-
              class action.

       This type of detailed analysis of the types of evidence

required for plaintiffs to pursue their claims and of the potential

costs of obtaining such evidence, at the stage of the proceeding

where the court determines whether the case should be sent to

arbitration, is precisely the approach rejected by the United

States Supreme Court in Italian Colors.               See Italian Colors, ___

U.S. at ___, 133 S.Ct. at 2312, 186 L.Ed.2d at 427.                 This type of

analysis, based upon extensive evidentiary presentation, is not

only costly, but defeats the very purpose of arbitration, which is

for the parties to have a quick, expedited resolution of their

dispute.

       We hold that, based upon Italian Colors, the trial court erred

in   ruling    that   the    arbitration       agreement     was   substantively

unconscionable.       In the absence of substantive unconscionability,

the entire unconscionability analysis must fail.               See Tillman, 362

N.C.   at   102-03,    655    S.E.2d   at     370.     Because     there    was   no

substantive     unconscionability,      it     is    not   necessary   to   review

procedural     unconscionability.           The   trial    court   erred    in    not

granting defendants’ motion to compel arbitration.

                 VII. Impact of Concepcion upon Tillman
                                      -42-
     Finally, the third basis of the trial court’s decision in the

instant case (as set forth in Section IV of this opinion) was that

Concepcion did not affect the Tillman analysis.

     The   trial   court   in   the    instant   case   acknowledged   that

Concepcion overruled Discover Bank.          It concluded, however, that

Discover Bank was distinct from Tillman, because where Discover

Bank featured a “rule of automatic invalidation, in a case in which

the plaintiff would be able to effectively vindicate his rights in

arbitration[,]” Tillman involved “consideration of all facts and

circumstances[.]”    The trial court concluded that Tillman applied

because “the instant case involves plaintiffs who would not be

able to effectively vindicate their rights in NAF arbitration.”

     The trial court’s attempt to distinguish Concepcion from

Tillman was in error.      Concepcion, in overruling Discover Bank,

made clear that the FAA preempts any state law that prevents

bilateral arbitration of claims.         Concepcion, ___ U.S. at ___, 131

S.Ct. at 1747, 179 L.Ed.2d at 752 (holding that “[w]hen state law

prohibits outright the arbitration of a particular type of claim,

the analysis is straightforward: The conflicting rule is displaced

by the FAA”).       This applies regardless of whether the state

standard is “a rule of automatic invalidation,” as in Discover
                                 -43-
Bank, or “consideration of all facts and circumstances[,]” as in

Tillman.

     The trial court further concluded that the fact that the

agreement was non-negotiable, along with the fact that “all payday

lenders doing business in North Carolina required borrowers to

execute loan agreements containing arbitration clauses prohibiting

participation   in   class   actions[,]”   was   further   evidence   of

unconscionability.    Yet the United States Supreme Court observed

in Concepcion that “the times in which consumer contracts were

anything other than adhesive are long past.”     Id. at ___, 131 S.Ct.

at 1750, 179 L.Ed.2d at 755.      That Court observed in a footnote

that:

           Of course States remain free to take steps
           addressing the concerns that attend contracts
           of adhesion—for example, requiring class-
           action-waiver    provisions     in    adhesive
           arbitration agreements to be highlighted. Such
           steps cannot, however, conflict with the FAA
           or frustrate its purpose to ensure that
           private arbitration agreements are enforced
           according to their terms.

Id., fn. 6. The United States Supreme Court’s position is explicit

– where the FAA governs, state laws (including Tillman) cannot

carve out exceptions.

                     VII. Personal Jurisdiction
                                     -44-
      In their third argument, defendants contend that the trial

court erred in exercising personal jurisdiction over defendant Don

Early.      However, because we have previously determined that the

case should have been submitted to arbitration, the matter was not

properly before the trial court.            We therefore need not address

defendants’ contention that personal jurisdiction was improper.

See, e.g., Miller v. Two State Const. Co., Inc., 118 N.C. App.

412, 418, 455 S.E.2d 678, 682 (1995) (holding that where the

arbitration agreement was valid, we “need not address the other

issues raised by defendants”).            These issues are properly to be

determined by an arbitrator.

                             VIII. Conclusion

      The United States Supreme Court has made it clear that the

use   of    unconscionability   attacks     directed   at   the    arbitration

process can no longer serve as a basis to invalidate arbitration

agreements.      The intent of Congress in enacting the FAA was to

overcome judicial hostility to arbitration.

      The    trial   court   erred   in    not   designating   a   substitute

arbitrator in this case pursuant to § 5 of the FAA; in determining

that the arbitration was unconscionable; and in not entering an

order compelling arbitration.
                                   -45-
     The orders of the trial court denying defendants’ motion to

compel   arbitration,     granting    plaintiffs’   motion    for   class

certification, and denying the motions of QC Holdings and Don Early

to dismiss for lack of personal jurisdiction are vacated, and this

matter is remanded to the trial court for entry of an order

directing   that   the   parties   arbitrate   plaintiffs’   claims,   and

appointing a substitute arbitrator.

     VACATED AND REMANDED.

     Judges STEPHENS and McCULLOUGH concur.
