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Hayes v. Delbert Servs. Corp. - 811 F.3d 666 (4th Cir. 2016)

Rule:

A party to an arbitration agreement may agree to waive certain rights as part of that agreement. So long as such waivers pass the applicable knowing and voluntary standard, they will typically be enforced. Moreover, parties are free within bounds to use a choice of law clause in an arbitration agreement to select which local law will govern the arbitration. But a party may not underhandedly convert a choice of law clause into a choice of no law clause -- it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject.

Facts:

James Hayes, the lead plaintiff-appellant in this case, received a payday loan from a lender called Western Sky Financial, LLC. Defendant-appellee Delbert Services Corporation later became the servicing agent for Hayes's loan. Because Delbert's debt collection practices allegedly violated federal law, Hayes initiated a putative class action against Delbert. Claiming that Hayes and his fellow plaintiffs agreed to arbitrate any disputes related to their loans, Delbert moved to compel arbitration under the Federal Arbitration Act ("FAA"). The district court granted Delbert's motion.

Issue:

Did the district court err in ordering the parties to arbitration?

Answer:

Yes.

Conclusion:

The court held that the district court erred in ordering the parties to arbitration because the arbitration agreement in the case was unenforceable. The arbitration agreement fashioned a system of alternative dispute resolution while simultaneously rendering that system all but impotent through a categorical rejection of the requirements of state and federal law, and the FAA did not protect arbitration agreements that unambiguously forbade an arbitrator from even applying the applicable law.

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