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Arbitration – Credit Card Agreement – Timeliness – Equitable Tolling

Portfolio Recovery Associates, LLC v. Freeman. (Lawyers Weekly No. 11-07-1057, 11 pp.) (Sanford L. Steelman, J.) Appealed from Wake County Superior Court. (Allen Baddour, J.) N.C. App. Click here for the full-text opinion.

Holding: A debtor’s challenge to an arbitration award fails since: (1) he failed to challenge the award within the three-month time period prescribed by 9 U.S.C. §12; and (2) equitable tolling does not apply because he failed to file a motion to vacate the arbitration award.


The defendant debtor was the holder of a credit card. The terms of the credit card agreement provided that any claims or disputes would be resolved by binding arbitration conducted by the National Arbitration Forum (NAF). Plaintiff filed a claim against defendant with NAF. This claim along with a notice of arbitration was served upon defendant. Subsequently, NAF sent defendant a second notice of arbitration, and an arbitration hearing notice.

On July 11, 2008, NAF entered an award in favor of plaintiff and against defendant. The award was for $2,386 owed to plaintiff on a credit card debt. NAF served defendant with a copy of the arbitration award. Plaintiff filed this action to confirm the award on Jan. 19, 2010.

On July 14, 2009, the Minnesota Attorney General brought a civil action against NAF and two affiliates, State ex rel Swanson v. National Arbitration Forum. The Swanson complaint “described the acquisition of a 40 percent ownership interest in NAF by a hedge fund with substantial investment and management relationships with the debt collection industry for $42 million. This acquisition of an ownership interest in NAF occurred on June 27, 2007, pursuant to a letter of intent executed Jan. 15, 2007.”

This ownership interest contrasted sharply with NAF’s claims of independence, neutrality, and lack of affiliation with any business that uses its services. On July 17, 2009, “NAF entered into a Consent Judgment with the Minnesota Attorney General whereby it agreed that it would not ‘administer or process any new Consumer Arbitration.’”

On March 26, 2010, defendant filed answer to plaintiff’s motion to confirm the arbitration award, and asserted class action counterclaims. The class was alleged to consist of N.C. residents against whom arbitration awards were entered by NAF in favor of plaintiff at any time after Jan. 15, 2007.

At no time in his answer and counterclaims did defendant assert that he did not owe the debt that was the subject of the arbitration award. On April 26, 2010, plaintiff filed a motion to dismiss defendant’s counterclaims, pursuant to N.C. R. Civ. P. 12(b)(6). On Nov. 4, 2010, the trial court entered an order confirming the arbitration award and granting plaintiff’s motion to dismiss defendant’s counterclaims. The defendant appealed.


There is no factual issue that defendant failed to challenge the arbitration award entered by NAF in favor of plaintiff within the three-month time period prescribed by 9 U.S.C. § 12.

Defendant contends that his claims are not barred because equitable tolling applies to the three-month limitations period set forth in 9 U.S.C. § 12. He asserts that at the time the arbitration award was entered in 2008, he could not have known of NAF’s conflicts of interest that were revealed by the litigation conducted by the Attorney General of Minnesota.

A thorough examination of the record reveals that defendant has yet to file a motion to vacate the arbitration award. In his answer, defendant admitted that “said award is final, and has not been appealed, modified, set aside, vacated or otherwise challenged.” Rather, defendant filed an answer and counterclaims to plaintiff’s motion to confirm the arbitration award. Plaintiff’s motion to confirm cannot be denied because the award has not “been corrected, vacated, or modified.” Because defendant failed to file a motion to vacate, the trial court was required to confirm the arbitration award. Defendant’s argument is without merit, and we affirm.

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