Yesterday, the North Carolina Supreme Court issued an opinion in Canteen v. Charlotte Metro Credit Union, a case in which the NC Chamber Legal Institute (CLI) filed an amicus brief to support the Credit Union’s arguments regarding the enforceability of an arbitration clause under North Carolina law. The opinion came to the very conclusion the CLI argued that it should, and the business community is better off because of it. There is no denying that outcomes like these will help North Carolina’s legal climate ranking continue to rise, a consideration that continues to gain steam as an element in site selection metrics across the country.

Justice Phil Berger, Jr. authored the majority opinion, joined by Justices Newby, Barringer, and Allen. (Justice Dietz did not participate in consideration of the case, as he had participated in consideration of the case when it was pending at the NC Court of Appeals in 2022.) Justice Berger’s opinion meticulously summarized the issue before the Court: “whether [the Credit Union’s] modification of the contract to include an arbitration amendment complies with the implied covenant of good faith and fair dealing and the rule against illusory contracts.”

Citing the existence of language in the membership agreement the credit union had with the plaintiff that allowed for amendments to that agreement when properly noticed, the credit union’s compliance with the implied covenant of good faith and fair dealing in all contracts, and persuasive case law from the NC Court of Appeals and other courts, Justice Berger concluded that the arbitration provision was enforceable. “Given the nature of the modern economy, change-of-terms provisions are a necessary and efficient way for companies to update contractual provisions without canceling accounts and renegotiating contractual terms every time modification may be required.” Slip Opinion at 11. It was important that the Court understood that many of our state’s businesses contract with thousands, hundreds of thousands, and in some cases even millions of customers. As long as the original agreements with these customers allow for modification, and where, as here, such modifications don’t make the original contracts illusory and provide an opportunity for mutual assent, they should be enforceable under North Carolina law.

The CLI brief closed with the following paragraph, consistent with our continuous admonition that the role of courts is to enforce the rule of law as established by the branch of government closest to the people, the North Carolina General Assembly:

The data on the proper balance between litigation and arbitration can be debated, most definitely. The data and study of the issue is not definitive nor thorough in every aspect of the comparisons that can be made. But, the debate over the data and how to strike the right policy balance belongs elsewhere. For our State’s courts, however, arbitration is—as this Court’s precedents and federal law alike make clear—on an equal footing with any other contractual term. Courts ought not treat arbitration as a disfavored or disreputable practice, like usury or even restrictive covenants. Any re-setting of the policy balance between arbitration and litigation should be addressed elsewhere.

Fortunately, the Court seems to have agreed with that conclusion.

A dissent, authored by Justice Allison Riggs, and joined by Justice Earls, made clear that those two justices would have found the arbitration provision invalid and unenforceable under the facts present in the case. Ironically, Justice Riggs is currently running for re-election to the Court, and a link on her website allows for donations through the “Act Blue” political fundraising tool. If one reads carefully the terms and conditions of supporting Justice Riggs financially, they would find the following at the very end: “Changes to The Fine Print[.] As we develop this site we may need to update the policies described above. Changes will be posted here, of course.” Such language offers less notice and fewer guarantees than those at issue in Canteen. If it is good enough for politicians, it should be good enough for the businesses that pay their salaries.

The Smith Anderson law firm represented the CLI in this matter, filing a carefully constructed brief that informed the court about the modern state of business contracting. Chris Smith and David Ortiz authored the brief, which was also filed on behalf of the North Carolina Association of Defense Attorneys, another association frequently aligned with the business community’s defense of the rule of law in North Carolina. We are grateful for that partnership, and that common sense has prevailed again at the state’s highest Court.

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