                                     PUBLISHED

                       UNITED STATES COURT OF APPEALS
                           FOR THE FOURTH CIRCUIT


                                      No. 16-1362


JAMES DILLON,

                    Plaintiff - Appellee,

             v.

BMO HARRIS BANK, N.A.,

                    Defendant – Appellant,

             and

FOUR OAKS BANK & TRUST COMPANY; GENERATIONS FEDERAL
CREDIT UNION; BAY CITIES BANK,

                    Defendants.



Appeal from the United States District Court for the Middle District of North Carolina, at
Greensboro. Catherine C. Eagles, District Judge. (1:13−cv−00897−CCE−LPA)


Argued: March 24, 2017                                           Decided: May 10, 2017


Before DUNCAN, KEENAN, and THACKER, Circuit Judges.


Affirmed by published opinion. Judge Keenan wrote the opinion, in which Judge
Duncan and Judge Thacker joined.
ARGUED: Kevin Scott Ranlett, MAYER BROWN LLP, Washington, D.C., for
Appellant. Hassan A. Zavareei, TYCKO & ZAVAREEI LLP, Washington, D.C., for
Appellee. ON BRIEF: Lucia Nale, Debra Bogo-Ernst, MAYER BROWN LLP,
Chicago, Illinois; Mary K. Mandeville, ALEXANDER RICKS PLLC, Charlotte, North
Carolina, for Appellant. Norman E. Siegel, Steve Six, J. Austin Moore, STUEVE
SIEGEL HANSON LLP, Kansas City, Missouri; Jeffrey M. Ostrow, KOPELOWITZ
OSTROW P.A., Fort Lauderdale, Florida; Darren T. Kaplan, DARREN KAPLAN LAW
FIRM, P.C., New York, New York; F. Hill Allen, THARRINGTON SMITH, L.L.P.,
Raleigh, North Carolina; Jeffrey D. Kaliel, TYCKO & ZAVAREEI LLP, Washington,
D.C., for Appellee.




                                     2
BARBARA MILANO KEENAN, Circuit Judge:

       In this appeal, we consider the enforceability of an arbitration agreement included

in the terms of a “payday loan” obtained over the internet. Plaintiff James Dillon brought

this civil action against defendant BMO Harris Bank, N.A. (BMO Harris), alleging that

BMO Harris violated the Racketeer Influenced and Corrupt Organizations Act (RICO),

18 U.S.C. § 1961 et seq., when BMO Harris used its role within a network of financial

institutions “to conduct and participate in the collection of unlawful payday loans.”

       Relying on the Federal Arbitration Act (FAA), BMO Harris sought to enforce an

arbitration agreement for the loan at issue, which was entered into by Dillon and the

lender, Great Plains Lending, LLC (Great Plains).        The district court held that the

arbitration agreement was unenforceable under this Court’s opinion in Hayes v. Delbert

Services Corp., 811 F.3d 666 (4th Cir. 2016), and denied BMO Harris’ motion to compel

arbitration. BMO Harris appeals from the district court’s order. Upon our review, we

hold that the arbitration agreement between Dillon and Great Plains is unenforceable, and

we affirm the district court’s order denying BMO Harris’ motion.



                                            I.

       James Dillon is a resident of North Carolina. In December 2012, Dillon applied

for and received a “payday loan” 1 through the website of Great Plains, a lender wholly



       1
        “Payday loans” are short-term, unsecured consumer loans for small amounts.
See    Consumer    Fin.    Prot.    Bureau,    What    is   a    Payday     Loan?,
(Continued)

                                             3
owned by the Otoe-Missouria Tribe of Indians. Although North Carolina usury law

generally prohibits interest rates in excess of 16%, N.C. Gen. Stat. § 24-1.1, Great Plains

has no physical presence in North Carolina and charged an interest rate of 440.18% for

Dillon’s loan. Dillon authorized Great Plains to deposit and withdraw funds in Dillon’s

bank account through the Automated Clearing House Network (ACH Network), a

transaction processing system that facilitates electronic transfer of funds between

financial institutions, usually on behalf of account holders.

       In order to complete the loan transaction, Dillon electronically signed a contract

(the Great Plains Agreement) that contained: (1) terms governing the loan (the underlying

loan agreement); and (2) an agreement to submit disputes to arbitration (the arbitration

agreement). The Great Plains Agreement included choice of law provisions both in the

underlying loan agreement and in the arbitration agreement.          These choice of law

provisions required the application of Otoe-Missouria tribal law and disclaimed the

application of state or federal law. For example, the Great Plains Agreement by its terms

was “subject solely to the exclusive laws and jurisdiction of the Otoe-Missouria Tribe of

Indians, a federally recognized Indian Tribe,” and provided that “no other state or federal

law or regulation shall apply to this Agreement, its enforcement or interpretation.”




https://www.consumerfinance.gov/askcfpb/1567/what-payday-loan.html (last visited Apr.
3, 2017). These loans generally carry high interest rates, sometimes in excess of 400%.
Id.



                                              4
       Similarly, the arbitration agreement within the Great Plains Agreement provided

that “any dispute . . . will be resolved by arbitration in accordance with the law of the

Otoe-Missouria Tribe of Indians,” and instructed the arbitrator to “apply the laws of the

Otoe-Missouria Tribe of Indians.” For borrowers who opt out of arbitration within 60

days of receiving the loan, “any disputes . . . shall nonetheless be governed under the

laws of the Otoe-Missouria Tribe of Indians and must be brought within the court system

thereof.”

       Immediately below the arbitration agreement, another choice of law provision in

the Great Plains Agreement provided that “[t]his Agreement and the Agreement to

Arbitrate are governed by . . . the laws of the Otoe-Missouria Tribe,” and “[n]either this

Agreement nor the Lender is subject to the laws of any state of the United States.” The

Great Plains Agreement signature page also required that Dillon agree to the following

term: “I further understand, acknowledge and agree that this loan is governed by the laws

of the Otoe-Missouria Tribe of Indians and is not subject to the provisions or protections

of the laws of my home state or any other state.”

       Dillon later filed a putative class action complaint in the district court, claiming

that Great Plains and other tribal payday lenders had issued numerous unlawful loans.

Instead of directly suing the tribal payday lenders, including Great Plains, for violating

state usury laws, Dillon sued the financial institutions that facilitated these payday

lending transactions over the ACH Network. Dillon alleged that the ACH Network was




                                            5
an “enterprise,” and that several of its members, including BMO Harris, conducted and

participated in the “collection of unlawful debts” in violation of the federal RICO Act. 2

       In the district court, BMO Harris sought to compel arbitration pursuant to the

Great Plains Agreement. 3 See Dillon v. BMO Harris Bank, N.A., 787 F.3d 707, 711 (4th

Cir. 2015). While the merits of BMO Harris’ motion to compel arbitration were pending

in the district court, this Court decided Hayes v. Delbert Services Corp., 811 F.3d 666

(4th Cir. 2016). In Hayes, we reviewed a loan agreement between a consumer and

Western Sky Financial, LLC (Western Sky), a payday lender organized under the laws of

the Cheyenne River Sioux Tribe. Id. at 668. The loan agreement at issue in that case (the

Western Sky Agreement) contained an arbitration clause that we held was unenforceable

as being in violation of public policy. Id. at 675–76.

       After we issued our opinion in Hayes, the district court evaluated the language of

the Great Plains Agreement in light of the Hayes decision. The district court concluded

that the Great Plains Agreement is “like the contract in Hayes” and “denies the

applicability of all federal and state law.” Accordingly, the district court held that the

arbitration agreement was unenforceable, and denied BMO Harris’ renewed motion to


       2
         Dillon also asserted claims against other financial institutions, but the claims
against BMO Harris are the only claims at issue in this appeal.
       3
          The district court initially denied the motion to compel arbitration, holding that
BMO Harris had failed to authenticate the purported loan agreement, and later denied
BMO Harris’ motion for reconsideration. Dillon, 787 F.3d at 711–12. We vacated the
district court’s order, and remanded the case with instructions to consider the merits of
the motion to compel arbitration. Id. at 716.



                                             6
compel arbitration. BMO Harris appeals from the district court’s order denying the

requested relief.



                                            II.

                                            A.

       The FAA grants this Court jurisdiction to review a district court order denying a

motion to compel arbitration. 9 U.S.C. § 16; see also Dillon, 787 F.3d at 714. We

review de novo the enforceability of an arbitration provision, and apply a “strong federal

policy in favor of enforcing arbitration agreements.” Hayes, 811 F.3d at 671 (quoting

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)).

       Under the FAA, arbitration agreements are “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. Courts therefore must enforce arbitration agreements “on an equal footing

with other contracts.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)

(internal citations omitted). The FAA preserves state law contract defenses unless such

defenses “rely on the uniqueness of an agreement to arbitrate” and are applied “in a

fashion that disfavors arbitration.” Id. at 341–42.

       Consistent with these contract principles, the Supreme Court has recognized that

arbitration agreements that operate “as a prospective waiver of a party’s right to pursue

statutory remedies” are not enforceable because they are in violation of public policy.

See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19

(1985); see also Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2310 (2013);


                                             7
14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 273–74 (2009); Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 28 (1991). Under this “prospective waiver” doctrine, courts

will not enforce an arbitration agreement if doing so would prevent a litigant from

vindicating federal substantive statutory rights. See Am. Express Co., 133 S. Ct. at 2310;

14 Penn Plaza, 556 U.S. at 273–74; Gilmer, 500 U.S. at 28.

       A foreign choice of law provision, of itself, will not trigger application of the

prospective waiver doctrine. See Mitsubishi, 473 U.S. at 637 n.19. Instead, a court first

must examine whether, as a matter of law, the “choice-of-forum and choice-of-law

clauses operate[] in tandem as a prospective waiver of a party’s right to pursue statutory

remedies.” Id. When there is uncertainty whether the foreign choice of law would

preclude otherwise applicable federal substantive statutory remedies, the arbitrator should

determine in the first instance whether the choice of law provision would deprive a party

of those remedies. See Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S.

528, 540-41 (1995); Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 371-73 (4th Cir.

2012). In such a case, the prospective waiver issue would not become ripe for final

determination until the federal court is asked to enforce the arbitrator’s decision. Vimar,

515 U.S. at 540-41; Aggarao, 675 F.3d at 371-73.

       In Hayes, we applied the prospective waiver doctrine to the Western Sky

Agreement governing another internet payday loan. There, we examined a choice of law

provision that disclaimed the application of “any law other than the law of the Cheyenne

River Sioux Tribe of Indians to this Agreement.” Id. at 675. We observed that this

language “almost surreptitiously waives a potential claimant’s federal rights through the

                                            8
guise of a choice of law clause” and “flatly and categorically renounce[s] the authority of

the federal statutes.” Id. We held that such language took the “plainly forbidden” step of

prospectively waiving federal substantive rights. Id. We therefore concluded that the

challenged choice of law provision was unenforceable as a matter of law. Id.

       We also held that the offending choice of law provision was not severable from

the rest of the arbitration agreement, because the choice of law provision went to the

“essence” of the contract. Id. at 676. We concluded that “one of the animating purposes

of the arbitration agreement was to ensure that [the lender] could engage in lending and

collection practices free from the strictures of any federal law.” Id. We further observed

that in addition to the above deficiencies in the arbitration agreement, the underlying loan

agreement contained a “brazen” disclaimer that “no United States state or federal law

applies to this Agreement.” Id. This additional disclaimer lent further support to our

conclusion that the arbitration agreement was part of an “integrated scheme to contravene

public policy.” Id. (quoting Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244, 1249

(9th Cir. 1994)). We therefore applied the prospective waiver doctrine and held that the

entire arbitration provision of the Western Sky Agreement was unenforceable. Id.

                                            B.

       We turn now to consider the Great Plains Agreement at issue in this appeal. BMO

Harris argues that the Great Plains Agreement does not implicate the prospective waiver

doctrine, because Dillon failed to show that the choice of law provision would actually

deprive him of any federal remedies. According to BMO Harris, any ambiguities that

may arise in application of the choice of law provision should be resolved by the

                                             9
arbitrator in the first instance. Thus, BMO Harris urges us to defer consideration of the

prospective waiver doctrine until after the arbitrator construes the choice of law provision

and decides whether any federal remedies remain available to Dillon.

       In response, Dillon asserts that the prospective waiver issue is ripe for our review

at this stage of the litigation. He contends that there is no uncertainty regarding the effect

of the choice of law provision, because that provision effects an unambiguous and

categorical waiver of federal statutory rights. Therefore, Dillon argues, the choice of law

provision is unenforceable under our decision in Hayes.            We agree with Dillon’s

arguments.

       The Great Plains Agreement at issue in this appeal contains many of the same

choice of law provisions as the Western Sky Agreement that we held unenforceable in

Hayes. The Great Plains arbitration agreement provides:

       THIS AGREEMENT TO ARBITRATE IS MADE PURSUANT TO A
       TRANSACTION INVOLVING THE INDIAN COMMERCE CLAUSE
       OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA,
       AND SHALL BE GOVERNED BY THE LAW OF THE OTOE-
       MISSOURIA TRIBE OF INDIANS. The arbitrator will apply the laws of
       the Otoe-Missouria Tribe of Indians and the terms of this Agreement . . . .

Apart from the designated tribe, this language is identical to the related terms of the

arbitration agreement that we reviewed in Hayes.          See 811 F.3d at 675.       Another

provision that appears in both agreements is a section titled “GOVERNING LAW,”

which provides that “[t]his Agreement and the Agreement to Arbitrate are governed by

[tribal law]” and “[n]either this Agreement nor the Lender is subject to the laws of any

state of the United States.” See id. at 669–71.


                                             10
          We hold that the above provisions in the Great Plains Agreement are not

distinguishable in substance from the related provisions in the Western Sky Agreement

that we held unenforceable in Hayes. The arbitration agreement in this case implicitly

accomplishes what the Western Sky Agreement explicitly stated, namely, that the

arbitrator shall not allow for the application of any law other than tribal law. See id. at

670. Just as we did in Hayes, we interpret these terms in the arbitration agreement as an

unambiguous attempt to apply tribal law to the exclusion of federal and state law. See id.

at 675.

          Additionally, other terms in the Great Plains Agreement evince an explicit attempt

to disavow the application of federal or state law to any part of the contract or its parties.

Those terms include the following statements:

          By executing this Agreement, you hereby . . . further agree that no other
          state or federal law or regulation shall apply to this Agreement, its
          enforcement or interpretation.

          Our inclusion of these disclosures does not mean that we . . . consent to
          application of state or federal law to us, to the loan, or this Agreement.

          Neither this Agreement nor the Lender is subject to the laws of any state of
          the United States.

          I further understand, acknowledge and agree that this loan is governed by
          the laws of the Otoe-Missouria Tribe of Indians and is not subject to the
          provisions or protections of the laws of my home state or any other state.

These terms throughout the underlying loan agreement further illustrate that the choice of

law provision in the arbitration agreement “disavow[s] the application of all state and

federal law” and “unambiguously forbids an arbitrator from even applying the applicable

law.” Id. at 668, 670; see also 17A Am. Jur. 2d Contracts § 326 (2016) (“When deciding


                                              11
whether an agreement is ambiguous, particular words should be considered, not as if

isolated from the context, but in the light of the obligation as a whole . . . .”). Because the

effect of the arbitration agreement is unambiguous in the context of the whole contract,

we conclude that the arbitration agreement functions as a prospective waiver of federal

statutory rights and, therefore, is unenforceable as a matter of law. See Hayes, 811 F.3d

at 676.

          Our conclusion is not altered by BMO Harris’ alternative request that we

effectively sever the choice of law provisions from the arbitration agreement, and accept

BMO Harris’ concession to the application of federal substantive law in arbitration

notwithstanding the unambiguous choice of tribal law in the arbitration agreement. BMO

Harris argues that this concession would ensure that Dillon have access in arbitration to

any federal substantive rights, thereby removing the chief policy rationale for application

of the prospective waiver doctrine.

          We find no merit in this argument. In essence, BMO Harris seeks to rewrite the

unenforceable foreign choice of law provision in order to save the remainder of the

arbitration agreement. As we discussed in Hayes, such a result is untenable. Unlawful

portions of a contract may be severed only if: (1) the unlawful provision is not central or

essential to the parties’ agreement; and (2) the party seeking to enforce the remainder

negotiated the agreement in good faith. 8 Williston on Contracts § 19:70 (4th ed. 1993 &

Supp. 2010); Restatement (Second) of Contracts § 184 (1981).                As we observed

regarding the nearly identical provisions at issue in Hayes, “the offending provisions go

to the core of the arbitration agreement.” 811 F.3d at 676. Great Plains purposefully

                                              12
drafted the choice of law provisions in the arbitration agreement to avoid the application

of state and federal consumer protection laws. See id. at 675–76. Because these choice

of law provisions were essential to the purpose of the arbitration agreement, BMO Harris’

consent to application of federal law would defeat the purpose of the arbitration

agreement in its entirety. See 8 Williston on Contracts § 19:70; Restatement (Second) of

Contracts § 184.

      Additionally, when a party uses its superior bargaining power to extract a promise

that offends public policy, courts generally opt not to redraft an agreement to enforce

another promise in that contract. Restatement (Second) of Contracts § 184 cmt. b. In the

present case, Great Plains obtained the terms in the arbitration agreement through its

“dominant bargaining power” in a calculated attempt to avoid the application of state and

federal law. See id. Because Great Plains did not negotiate these terms in good faith, we

decline to give effect to this “integrated scheme to contravene public policy.” Hayes, 811

F.3d at 676 (quoting Graham Oil Co., 43 F.3d at 1249); see also Restatement (Second) of

Contracts § 184 cmt. b. Accordingly, we hold that the entire arbitration agreement is

unenforceable.



                                          III.

      In summary, we conclude that the Great Plains Agreement contains unenforceable

choice of law provisions, which are not severable from the broader arbitration agreement




                                           13
and render the entire arbitration agreement unenforceable. Accordingly, we affirm the

district court’s order denying BMO Harris’ renewed motion to compel arbitration. 4

                                                                            AFFIRMED




      4
        In this interlocutory appeal, we need not consider BMO Harris’ arguments that
Dillon’s federal claims should fail on their merits. The district court will have an
opportunity to decide those issues in the first instance.



                                           14
