Summary
relying on similarly broad language to order arbitration of disputes arising under earlier payday loan agreements
Summary of this case from Smith v. Steinkamp, (S.D.Ind. 2002)Opinion
Cause No. IP00-0121-C-H/S
January 3, 2001
ENTRY ON MOTION TO COMPEL ARBITRATION
Plaintiff Vicky J. Furgason borrowed money eleven times from a so-called payday lender, defendant McKenzie Check Advance of Indiana, Inc., which does business as National Cash Advance. Ms. Furgason alleges in this action that the loan agreements violated Indiana laws on usury and loansharking, see Ind. Code § 24-4.5-3-508 (loan finance charge for supervised loans), and Ind. Code § 35-45-7-2 (loansharking), as well as the federal Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962. Ten of the eleven loan agreements in question contain broad arbitration provisions. Pursuant to the Federal Arbitration Act, 9 U.S.C. § 2 and 3, defendant has moved to stay this action and to compel arbitration. Ms. Furgason has offered a number of reasons the court should not enforce the arbitration provisions. For the following reasons, defendant's motion to compel arbitration is granted and this action is stayed pending arbitration.
Factual Background
Between March 13 and July 16, 1999, plaintiff Furgason entered into eleven payday loan contracts with National Cash Advance. The March 13, 1999, loan contract did not contain an arbitration agreement, but the other ten loan contracts included three sections: the "Consumer Loan Agreement," the "Additional Terms And Conditions Of This Agreement," and an arbitration agreement included under the section "Additional Terms and Conditions Of This Agreement — (CONTINUED)."
The arbitration agreements provide in Paragraph two: "Except as provided in Paragraph 4 below, all disputes, including the validity of this arbitration provision, shall be resolved by binding arbitration." (Emphasis in original.) Paragraph one in the arbitration agreement provides:
For purposes of this Agreement, the words "dispute" and "disputes" are given the broadest possible meaning and include, without limitation (a) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the Consumer Information Sheet, this Agreement (including the arbitration provisions and the fees charged), or any prior agreement or agreements between you and us; (b) all counterclaims, cross-claims and third-party claims; (c) all common law claims, based upon contract, tort, fraud, and other intentional torts; (d) all claims based upon a violation of any state or federal constitution, statute, or regulation; (e) all claims asserted by us against you, including money damages to collect any sum we claim you owe us; (f) all claims asserted by you individually or as parens patriae, as a private attorney general, as a representative and/or member of a class of persons, or in any other representative capacity, against us and/or any of our members, employees, agents, managers, officers, shareholder, directors, governors or affiliated entities (hereinafter referred to as "related third parties") including claims for money damages and/or equitable or injunctive relief.
Paragraph four in the arbitration agreement provides:
All parties, including related third parties shall retain the right to seek adjudication in a small claims tribunal for disputes within the scope of such tribunal's jurisdiction. Any complaint, counter-claim, third party complaint, class action, or any other dispute which cannot be adjudicated within the jurisdiction of a small claims tribunal, shall be resolved by binding arbitration. Any appeal of a judgment from a small claims tribunal shall be resolved de novo by binding arbitration. (Emphasis in original.)
Discussion I. The Missing Arbitration Agreement
The first arbitration agreement Ms. Furgason signed, on March 13, 1999, did not contain an arbitration agreement. Ms. Furgason therefore contends that, even if arbitration might be required as to the later agreements, she should not be required to arbitrate any claim based on that first agreement. In the latter loan contracts with arbitration agreements, however, paragraph one of the arbitration agreements states that "the words `dispute' and `disputes' are given the broadest possible meaning and include, without limitation (a) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the customer Information Sheet, this Agreement (including the arbitration provisions and the fees charged), or any prior agreement or agreements between you [Ms. Furgason] and us [National Cash Advance] . . ." This broad language in the later agreements, plus the specific reference to disputes arising under "any prior agreement," encompasses any claims arising from the March 13, 1999, loan contract.II. Attack on the Legality of the Loan Contract
Furgason contends next that the arbitration provisions are unenforceable because they are part of loan contracts that violate Indiana law and are thus illegal and unenforceable in every part, including the arbitration provisions. National Cash Advance responds that, in deciding whether the arbitration agreement is enforceable, Ms. Furgason may attack the legality of only the arbitration agreements, not the legality of the underlying loan contracts. Controlling Supreme Court and Seventh Circuit precedents support National Cash Advance on this point. Both courts have rejected similar efforts to avoid arbitration by challenging the legality of the underlying contract.
The leading case is Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395 (1967), in which the Supreme Court held that a claim of fraud in the inducement of a contract could not preclude arbitration so long as there was no challenge to the making of the more specific agreement to arbitrate disputes arising under the contract. The Court explained that, under the Federal Arbitration Act, a federal court must order arbitration to proceed
once it is satisfied that "the making of the agreement for arbitration or the failure to comply [with the arbitration agreement] is not in issue." Accordingly, if the claim is fraud in the inducement of the arbitration clause itself — an issue which goes to the "making" of the agreement to arbitrate — the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.
Id. at 403-04. "We hold, therefore, that in passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate." Id. at 404.
The Seventh Circuit applied the holding of Prima Paint to a case closely analogous to this one. In Sweet Dreams Unlimited, Inc. v. Dial-a-Mattress Int'l, Ltd., 1 F.3d 639 (7th Cir. 1993), a franchisee sought rescission of an agreement on the theory that the agreement was illegal under state law. The district court refused to order arbitration; the Seventh Circuit reversed. The Seventh Circuit said it confronted "an interesting, if not somewhat metaphysical, question: Does a dispute, which has as its object the nullification of a contract, `arise out of' that same contract?" Id. at 641. The court found that Prima Paint had answered the question in the affirmative, at least with respect to arbitration clauses with broad scope. Id. at 641-42; accord, Sokaogon Gaming Enter. Corp. v. Tishie-Montgomery Assoc., 86 F.3d 656, 659 (7th Cir. 1996) (dicta) (even in case challenging legality of contract, alleged illegality would not infect the arbitration clause); Hammes v. AAMCO Transmission, Inc., 33 F.3d 774, 783 (7th Cir. 1994) (dicta) (where there was "no suggestion that the party resisting invocation of the [arbitration] clause was coerced into accepting it," arbitration agreement was enforceable despite allegation that underlying agreement was element of illegal cartel).
Accordingly, Ms. Furgason cannot avoid arbitration by arguing, or even showing, that she should win on the merits of her theory that the underlying loan agreements are illegal under state law.
III. Choice of Law and the Arbitration Agreements
Ms. Furgason contends that this court should determine the validity of the arbitration agreements under principles of Indiana state law rather than under the FAA. Each loan contract contains a "Governing Law" provision that states: "This Agreement will be governed by the laws of the State of Indiana." Under Indiana law, each of the loan contracts would be considered a "consumer loan" as that term is defined under the Indiana Uniform Consumer Credit Code, Ind. Code § 24-4.5-3-104. The Indiana Uniform Arbitration Act specifically excludes from its scope consumer loan agreements. See Ind. Code § 34-57-2-1. In response, notwithstanding the choice-of-law provisions in the loan contracts, National Cash Advance relies on provisions in the arbitration agreements expressly providing that they are subject to the FAA.
The Seventh Circuit has indicated, and other circuits have held, that contractual choice-of-law provisions selecting a state's law to govern a contract generally will not preclude application of the FAA in favor of state law governing arbitration unless the parties have made abundantly clear their intent to avoid the FAA. "Notwithstanding the parties' choice of law provision in their contract calling for application of Illinois law, and irrespective of the fact that this is a diversity case, federal arbitration law governs the analysis of arbitration provisions in any contract evidencing a transaction in commerce." Northern Illinois Gas Co. v. Airco Indus. Gases, 676 F.2d 270, 274-75 (7th Cir. 1982) (dicta); accord, Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1280 (5th Cir. 1994) ("FAA governs judicial review of arbitration proceedings notwithstanding any choice of law provisions or state law to the contrary.").
In UHC Management Co. v. Computer Sciences Corp., 148 F.3d 992 (8th Cir. 1998), the Eighth Circuit held that the FAA governed arbitration of a contract that included a provision stating generally that the contract should be governed by Minnesota law. The court explained that an arbitration agreement should not be interpreted "as precluding the application of the FAA unless the parties' intent that the agreement be so construed is abundantly clear." Id. at 997. Where the arbitration agreement made "no reference to the Minnesota Uniform Arbitration Act or to Minnesota case law interpreting the allocation of powers between arbitrators and the court," the court held the FAA governed arbitration issues. Id. Accord, Ferro Corp. v. Garrison Industries, Inc., 142 F.3d 926, 937 (6th Cir. 1998) (FAA governed arbitration of contract containing provision selecting Ohio law as governing contract, without specifying Ohio law governing arbitration issues).
There is no evidence that either Ms. Furgason or National Cash Advance intended to preclude the application of the Federal Arbitration Act. On the contrary, the arbitration agreements provide a clear indication that the parties intended the FAA to apply. Paragraph three provides: "The arbitrator shall apply applicable substantive law consistent with the Federal Arbitration Act, 9 U.S.C. § 1-16 (`FAA') and applicable statutes of limitation." Paragraph six acknowledges: "Our agreement to arbitrate is made pursuant to the FAA, because the transaction evidenced by this Agreement involves interstate commerce." Because the loan agreements are contracts involving commerce, the general choice-of-law provision selecting Indiana law does not preclude application of the FAA.
IV. Validity of the Arbitration Agreements
Federal law governs the interpretation of the arbitration agreements and preempts state law that would undermine the enforceability of arbitration agreements in particular. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995). Nevertheless, state law may be applied to determine the validity of an arbitration agreement "if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." Doctor's Associates, Inc. v. Cassarotto, 517 U.S. 681, 686-87 (1996), quoting Perry v. Thomas, 482 U.S. 483, 492 (1996). Thus, general contract defenses such as fraud, duress, or unconscionability, may be applied to invalidate the arbitration agreements without contravening § 2 of the FAA. Doctor's Associates, 517 U.S. at 687. Courts may not, however, invalidate arbitration agreements under state laws if the state laws apply only to arbitration agreements. Id. By enacting § 2 of the FAA, "Congress precluded states from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed upon the same footing as other contracts." Id.
A. Indiana Uniform Arbitration Act
Ms. Furgason relies first on the Indiana Uniform Arbitration Act, Ind. Code § 34-57-2-1, which provides in subsection (b): "This chapter specifically exempts from its coverage all consumer leases, sales, and loan contracts, as these terms are defined in the Uniform Consumer Credit Code (IC 24-4.5)." Because the loan contracts in question are consumer loans exempt from the Indiana Uniform Arbitration Act, Ms. Furgason contends the arbitration agreements are not enforceable.
Ms. Furgason's reliance on the Indiana statute is understandable but misplaced. The exception for consumer loans in the Indiana Uniform Arbitration Act does not apply generally to contracts. It applies instead to block enforcement of arbitration agreements. If those agreements are governed by the Federal Arbitration Act, however, such state law is preempted because it does not "govern issues concerning the validity, revocability, and enforceability of contracts generally." See Doctor's Associates, 517 U.S. at 686-87.
B. Unconscionability
Ms. Furgason also contends that the arbitration agreements are not enforceable under Indiana law because they are unconscionable. This attack rests primarily on Weaver v. American Oil Co., 276 N.E.2d 144 (Ind. 1971). Ms. Furgason contends that there was a great disparity in bargaining power because she was unaware of the terms contained in the arbitration agreements and was even unaware that she had ever signed any arbitration agreements; that the arbitration agreements create an extreme inequality such that National Cash Advance has taken advantage of her financial situation; and that National Cash Advance has failed to meet its burden of showing that the arbitration agreements were explained to her and that there was in fact a real and voluntary meeting of the minds.
In Weaver, the Indiana Supreme Court held that a filling station operator did not have to indemnify a petroleum company under the terms of a lease that included a one-sided "hold harmless" clause. The court held the clause was unconscionable as written and was unknown to the filling station operator. 276 N.E.2d at 145. The court noted that the operator "was not one who should be expected to know the law or understand the meaning of technical terms." Id. at 145-46. "There [was] nothing in the record to indicate that Weaver read the lease; that the agent asked Weaver to read it; or that the agent, in any manner, attempted to call Weaver's attention to the `hold harmless' clause in the lease" Id. at 146. In addition to noting that the "hold harmless" provision was typed in fine print and included in a preprinted form contract, the Indiana Supreme Court held that the operator did not have equal bargaining power. Id. at 147. The Indiana Supreme Court explained:
When a party can show that the contract, which is sought to be enforced, was in fact an unconscionable one, due to a prodigious amount of bargaining power on behalf of the stronger party, which is used to the stronger party's advantage and is unknown to the lesser party, causing a great hardship and risk on the lesser party, the contract provision, or the contract as a whole, if the provision is not separable, should not be enforceable on the grounds that the provision is contrary to public policy. The party seeking to enforce such a contract has the burden of showing that the provisions were explained to the other party and came to his knowledge and there was in fact a real and voluntary meeting of the minds and not merely an objective meeting.
Id. at 148 (emphasis in original).
Ms. Furgason contends that she did not understand that the arbitration agreements meant she was giving up her right to go to court and agreeing to arbitrate her claims. Nevertheless, on ten separate occasions she voluntarily agreed to arbitrate her claim with National Cash Advance. Ms. Furgason separately signed and dated each of the ten arbitration agreements. National Cash Advance plainly brought the arbitration agreements to Ms. Furgason's attention. Cf. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997) (arbitration agreement held enforceable even though consumer did not discover arbitration agreement, which had been included in statement of terms). Arbitration provisions will not be deemed unenforceable "without the support of any evidence beyond mere allegations of unfairness contained in an appellate brief." Pierson v. Dean, Witter, Reynolds, Inc., 742 F.2d 334, 339 (7th Cir. 1984).
Unlike the oil company in Weaver, National Cash Advance did not require Ms. Furgason to sign an unknown, one-sided "hold harmless" clause. National Cash Advance specifically required Ms. Furgason to sign and date each arbitration agreement separately. The arbitration agreements were not typed in fine print. Although Ms. Furgason contends that she did not understand the terms of the arbitration agreement or that she was giving up her right to go to court, and denied that she had ever even entered into an arbitration agreement, the language of the contract clearly and explicitly provides for arbitration of disputes arising out of the contractual relationship. Even as a consumer, Ms. Furgason cannot "use [her] failure to inquire about the ramifications of that clause to avoid the consequences of agreed-to arbitration." See Pierson, 742 F.2d at 339.
C. Public Policy
Ms. Furgason contends that the arbitration agreements should not be enforced because they contravene public policy. Nevertheless, the purpose of the FAA is to enable enforcement of arbitration agreements for any covered transaction affecting interstate commerce. See Green Tree Financial Corp.-Alabama v. Randolph, ___ U.S. ___, 121 S. Ct. 513, ___, 2000 WL 1803919, *6 (2000) (in rejecting argument against enforcing arbitration agreement in Truth in Lending Act case, Supreme Court was "mindful of the FAA's purpose `to reverse the longstanding judicial hostility to arbitration agreements and to place arbitration agreements upon the same footing as other contracts.'"), quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). A state public policy against enforcement of arbitration agreements is exactly what is preempted under the FAA. Plaintiff's theory is not one of the "generally applicable contract defenses, such as fraud, duress, or unconscionability," which may be applied to invalidate the arbitration agreements without contravening § 2 of the FAA. See Doctor's Associates, 517 U.S. at 686-87. Because there is a strong national interest in enforcing otherwise valid arbitration agreements for any transaction affecting interstate commerce, enforcement of the arbitration agreements between Ms. Furgason and National Cash Advance is not contrary to public policy. An arbitrator may consider Ms. Furgason's challenges to the legality of the underlying loan contracts.
D. Contracts of Adhesion
In general, a contract of adhesion is a "standardized contract form offered to consumers of goods and services on essentially [a] `take it or leave it' basis without affording consumer realistic opportunity to bargain and under such conditions that consumer cannot obtain desired product or services except by acquiescing in form contract." Pigman v. Ameritech Publishing, Inc., 641 N.E.2d 1026, 1035 ( Ind. App. 1994) (holding that clause limiting liability for errors in standard contract for telephone directory advertising was contrary to public policy and was not enforceable), disapproved, Trimble v. Ameritech Publishing, Inc., 700 N.E.2d 1128, 1130 (Ind. 1998) (holding that clause limiting liability for errors in standard contract for telephone directory advertising was enforceable and not contrary to public policy). The appellate court explained in Pigman: "Contracts of adhesion appear in many circumstances and are not per se unconscionable." 641 N.E.2d at 1035.
Before such a contract can be deemed unenforceable, there must be not only superior bargaining power, but also additional factors such as, "a lack of meaning choice as in the case of an industry wide form contract heavily weighted in favor of one party and offered on a take it or leave it basis." Id. In Pigman, the plaintiff sued the publisher of a telephone directory and challenged enforcement of an allegedly unconscionable clause limiting liability in a standard form advertising contract. The Indiana Court of Appeals held that the publisher's exculpatory clause was an unconscionable contract of adhesion due to "its monopoly status and decisive bargaining advantage over subscribers, which are derived from [the publisher's] unique important public service function." Id.
As noted, the holding in Pigman was expressly disapproved by the Indiana Supreme Court in Trimble, though the focus was the public policy issue rather than the discussion of contracts of adhesion. Even if Pigman were good law on the contract of adhesion point (and this court does not believe it is except with respect to general statements on the subject), this case is distinguishable. Although the arbitration agreements were offered to Ms. Furgason as a standard contract, she has not shown that there was a lack of meaningful choice in the market. The fact that one party to the contract is unwilling to do business with a customer who insists on altering the terms of a standard contract does not mean the contract is not enforceable. Ms. Furgason has not proven, or even offered to prove, that she could not have transacted business with another payday loan establishment without the same or similar arbitration agreement. See Zawistoski v. Gene B. Glick Co., 727 N.E.2d 790, 792-94 (Ind.App. 2000) (enforcing terms of standard apartment lease; plaintiff had option of leasing an apartment elsewhere if she did not like the terms of defendant's lease). Unlike the telephone director advertising market in Pigman, National Cash Advance does not have a monopoly in the payday loan market, and the arbitration agreements do not "exculpate" National Cash Advance. They provide instead an alternate forum for Ms. Furgason to pursue her claims against National Cash Advance. The arbitration agreements are not rendered unenforceable on the theory that they were part of "contracts of adhesion."
V. Scope of the Arbitration Agreements
As Ms. Furgason properly points out, if an arbitration agreement is valid, then either the court or the arbitrator must determine whether the particular dispute at issue is arbitrable. Ms. Furgason contends that, because the arbitration agreement does not specifically address the question of arbitrability, the court, rather than the arbitrator, should determine whether this particular dispute falls within the parameters of the arbitration agreement.
Where the parties have agreed as to who possesses the primary authority to decide the issue of arbitrability, then "the court's standard for reviewing the arbitrator's decision about that matter should not differ from the standards courts apply when they review any other matter that [the] parties have agreed to arbitrate." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). "If, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently." Id. "When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally (though with a qualification we discuss below) should apply ordinary state-law principles that govern the formation of contracts." Id. at 944. The qualification the Court mentioned in First Options is that, "Courts should not assume that the parties agreed to arbitrate arbitrability unless there is "clea[r] and unmistakabl[e]" evidence that they did so." Id. See also, e.g., Geneva Securities, Inc. v. Johnson, 138 F.3d 688, 691 (7th Cir. 1997) ("Absent an independent agreement between Geneva and the Johnsons to the contrary, our precedent dictates that the parties did not agree to arbitrate the question of whether a claim was time-barred by Section 15").
There is no "clear and unmistakable" evidence here that Ms. Furgason and National Cash Advance agreed to arbitrate the issue of arbitrability. Paragraph two of the arbitration agreement states: "Except as provided in Paragraph 4 below, all disputes, including the validity of this arbitration provision shall be resolved by binding arbitration." (Emphasis in original). While the language refers to arbitrating the validity of the arbitration provision, it does not refer specifically to arbitrating the scope of the arbitration provision and whether particular issues are arbitrable. Accordingly, there is no "clear and unmistakable" evidence that the parties agreed to arbitrate the issue of whether a particular controversy falls within the arbitration provision. A court, rather than an arbitrator, must make the arbitrability determination.
Paragraph four in the arbitration agreement provides: "All parties, including related third parties shall retain the right to seek adjudication in a small claims tribunal for disputes within the scope of such tribunal's jurisdiction. Any complaint, counter-claim, third party complaint, class action, or any other dispute which cannot be adjudicated within the jurisdiction of a small claims tribunal, shall be resolved by binding arbitration. Any appeal of a judgment from a small claims tribunal shall be resolved de novo by binding arbitration." (Emphasis in original.)
Under the FAA, arbitration is favored "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." S+L+H v. Miller-St. Nazianz, Inc., 988 F.2d 1518, 1524 (7th Cir. 1993). The Seventh Circuit has explained that the phrase "`arising out of' reaches all disputes having their origins or genesis in the contract, whether or not they implicate interpretation or interpretation of the contract per se." Sweet Dreams Unlimited v. Dial-A-Mattress Int'l, supra, 1 F.3d at 642.
In Sweet Dreams, a company sought rescission of a franchise contract pursuant to the Illinois Franchise Disclosure Act. The Seventh Circuit was faced with the following issue: does a lawsuit that has as its object the nullification of a contract "arise out of" that same contract? Id. Answering in the affirmative, the court held: "Although Count I seeks to cancel the Agreement, it is nonetheless a result of the Agreement and has its origins in it. In that sense it `arises out of' the Agreement and is subject to arbitration." Id. "In fact, any dispute between contracting parties that is in any way connected with their contract could be said to `arise out of' their agreement and thus [should] be subject to arbitration under a provision employing this language." Id.
Paragraph one of the arbitration agreements in this case is similarly broad: "For purposes of this Agreement, the words `dispute' and `disputes' are given the broadest possible meaning and include, without limitation (a) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the Consumer Information Sheet, this Agreement, . . ." (emphasis added). As in Sweet Dreams Unlimited, it is abundantly clear that Ms. Furgason's claims arise from or relate directly or indirectly to the loan agreements. See also S+L+H, 988 F.2d at 1524 (claim that dealership contract provision on termination violated state statute was subject to arbitration under provision requiring arbitration of claims "arising out of or relating to" the contract)
VI. Arbitration of Purely "Legal Questions"
Ms. Furgason asserts that whether the loan contracts violate Indiana civil and criminal usury statutes is a purely legal question, so a court rather than an arbitrator should decide the matter. In addition to two recent Florida appellate court decisions, Ms. Furgason relies primarily on the Ninth Circuit's decision in Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419-20 (9th Cir. 1984), for the proposition that "questions of law regarding statutory rights are best left to judicial interpretation."
As both parties properly point out, the Seventh Circuit has recently addressed this issue in Harter v. Iowa Grain Co., 220 F.3d 544, 553 (7th Cir. 2000). In that case, a corn farmer entered into five "hedge-to-arrive" contracts with a grain elevator company. After the grain elevator sought delivery of corn pursuant to an extended delivery date on the "hedge-to-arrive" contracts, the farmer refused to deliver the corn. The farmer sued, alleging that the contracts violated the Commodity Exchange Act, RICO, and state law. The hedge-to-arrive contract all included arbitration clauses. In an attempt to avoid arbitration, the farmer argued that, "even if the arbitration clauses were found to be valid, a court is better suited to pass on the legal status of the contracts than is an arbitrator." Id. at 552.
The Seventh Circuit did not agree. It viewed the farmer's claim as presenting not a strict question of law, but required a fact-intensive inquiry. Resolving the farmer's claim required an examination of the contractual language and facts surrounding the contract to determine whether the contract was a bona fide cash forward contract for the delivery of grain or whether it was a mechanism for price speculation on the futures market. On that basis, the Seventh Circuit distinguished Marchese. Id. at 552-53. The same distinction is not available here. The legality of the payday loan contracts in this case presents a fairly pure question of law that is now before the Indiana Supreme Court on a certified question from this court. See Livingston v. Fast Cash USA, Inc., 737 N.E.2d 1155 (Ind. 2000) (accepting certification of question: "Is the minimum loan finance charge permitted by Ind. Code § 24-4.5-3-508(7), when charged by a licensed supervised lender, limited by Ind. Code § 24-4.5-3-508(2) or Ind. Code § 35-45-7-2?"). The Seventh Circuit in Harter further noted, however, that Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985), "may deal a serious blow to Marchese" because it held that, unless Congress specified otherwise, statutory rights are not to be treated differently than contractual rights under arbitration agreements. Id. at 553 n. 8. In Mitsubishi Motors, the United States Supreme Court ordered arbitration of statutory antitrust claims pursuant to a broad arbitration provision in a dealership contract. The Court explained that, unless Congress has specified otherwise, "statutory rights were not to be treated differently under arbitration agreements than contractual rights." 473 U.S. at 626-27. Citing Prima Paint, the Court said in Mitsubishi Motors: "We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, that intention will be deducible from text or legislative history. Having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue. Nothing, in the meantime, prevents a party from excluding statutory claims from the scope of an agreement to arbitrate." 473 U.S. at 628 (citation omitted).
This court agrees with the Seventh Circuit's observation in Harter and concludes that Mitsubishi Motors has undermined Marchese on this point, at least in the absence of a clear indication from Congress that a particular type of statutory claims should be excluded from arbitration. A very recent Supreme Court decision further underscores the point. In Green Tree Financial Corp.-Alabama v. Randolph, 121 S. Ct. 513, 2000 WL 1803919 (2000), the Court upheld a district court order that claims under the Truth in Lending Act should be arbitrated rather than litigated. The Court noted that it had repeatedly enforced agreements to arbitrate federal statutory claims, including claims under the Securities Act of 1933, the Securities Exchange Act of 1934, RICO, and the Sherman Act. 121 S. Ct. at ___, 2000 WL 1803919, *6. In this case, the Indiana legislature tried to exclude consumer loans from arbitration, but, as discussed above, that legislation is preempted where the Federal Arbitration Act applies, as it does here. Congress has not excluded such claims (or Furgason's federal statutory claims) from arbitration.
Ms. Furgason next relies on two recent Florida Appellate court decisions, Party Yards, Inc. v. Templeton, 751 So.2d 121 (Fla.App. 2000) and FastFunding the Company, Inc. v. Betts, 758 So.2d 1143 (Fla.App. 2000), for the renewed proposition that only courts can decide the legality of a contract. Both Party Yards and FastFunding were payday loan cases in which the plaintiffs argued that the loan contracts violated state usury laws. In Party Yards, the appellate court held that because an alleged usury violation arose under state statutes and not the parties' agreement, the parties' dispute fell outside the scope of their arbitration agreement. 751 So.2d at 123. The court further stated: "A claim that a contract is illegal and, as in this case, criminal in nature, is not a matter which can be determined by an arbitrator." Id. The FastFunding case followed Party Yards without further analysis.
Notwithstanding these Florida cases, precedent within the Seventh Circuit is to the contrary. In Sweet Dreams Unlimited, supra, 1 F.3d at 642, the Seventh Circuit held that a challenge to the legality of a contract under a state statute was still subject to arbitration where the clause provided for arbitration of disputes arising out of the contract. "In fact, any dispute between contracting parties that is in any way connected with their contract could be said to `arise out of' their agreement and thus [should] be subject to arbitration under a provision employing this language." Id. An arbitrator may determine whether the loan contracts are illegal under Indiana law. See also Green Tree Financial, 121 S. Ct. at ___, 2000 WL 1803919, *6; Mitsubishi Motors, 473 U.S. at 628; Harter, 220 F.3d at 553.
VII. Arbitration and the Availability of Class Actions
Ms. Furgason contends next that, even if the court orders arbitration, it should find and order that a class action may be arbitrated under the terms of the arbitration agreements. Specifically, Ms. Furgason points out that in three paragraphs of the arbitration agreements (one, two, and four), class actions are included within the definition of "disputes," while two other paragraphs (three and five) state that Ms. Furgason may not participate in a class action lawsuit either as a class representative or class member, and that the arbitrator shall not conduct class arbitration.
Ms. Furgason treats this an ambiguity and argues that class actions are the types of "disputes" that must be submitted to arbitration. National Cash Advance responds by pointing out that the arbitration agreements expressly preclude both arbitration and litigation of Ms. Furgason's class action claims in paragraphs three and five, in which Ms. Furgason expressly waived any ability she might have had to serve as any sort of a class representative.
Absent a provision in the party's arbitration agreement specifically authorizing class treatment of disputes, the Seventh Circuit has held that a district court has no authority to certify or order class arbitration. In Champ v. Siegel Trading Co., 55 F.3d 269, 276-77 (7th Cir. 1995), the Seventh Circuit affirmed a district court's refusal to order arbitration on a classwide basis of claims under the Commodities Exchange Act and RICO.
Under Champ v. Siegel Trading, the critical issue is whether the arbitration agreement provides expressly for class arbitration. Although language in paragraphs one, two, and four appears to recognize that class actions are among the types of disputes covered by the arbitration agreement (meaning that a lawsuit may not be filed), there is no express term providing for class arbitration. Instead, the arbitration agreement includes clear and prominent waivers of any right to pursue a class action, either in court or in arbitration. Paragraph three states in bold capital letters: "The arbitrator shall not conduct class arbitration; that is, the arbitrator shall not allow you to serve as a representative, as parens patriae, as a private attorney general, or in any other representative capacity for others in the arbitration." Paragraph five states in bold capital letters: "You are waiving your right to serve as a representative, as parens patriae, as a private attorney general, or in any other representative capacity, or to participate as a member of a class of claimants, in any lawsuit filed against us and/or related third parties." These provisions are clear and, pursuant to Champ v. Siegel Trading, must be enforced.
In the alternative, Ms. Furgason contends that if the court finds that the arbitration agreements preclude class arbitration (which would also preclude arbitration of Furgason's RICO claims as class claims), then the court should declare that the arbitration agreements are contrary to public policy and unenforceable. On this point, Ms. Furgason relies on Johnson v. Tele-Cash, Inc., 82 F. Supp.2d 264 (D. Del. 1999), which held that an arbitration clause in a payday loan contract was not enforceable because it prohibited class treatment of claims under the Truth in Lending Act, which the district court concluded could not be pursued effectively except on a class basis. However, the Third Circuit reversed that decision in Johnson v. West Suburban Bank, 225 F.3d 366 (3d Cir. 2000), and ordered arbitration of the plaintiff's claims. In doing so, the Third Circuit assumed that the plaintiff would not be able to pursue his claims on a class basis in arbitration. 225 F.3d at 377 n. 4, citing Champ v. Siegel Trading.
This court agrees with Judge Rovner's observations in her concurring opinion in Champ v. Siegel Trading about the improbability that corporate defendants who draft arbitration agreements would ever draft them to authorize classwide arbitration. See 55 F.3d at 277. In addition, the inability of a plaintiff to pursue relief on behalf of a class in a case challenging the legality of a relatively modest payday loan agreement is likely to have a significant practical effect on the ability of a consumer to obtain relief authorized by federal statutes. Nevertheless, this court views the Seventh Circuit's decision in Champ as both requiring enforcement of the arbitration agreement in this case and precluding this court from ordering arbitration on a class-wide basis. Accord, Lopez v. Plaza Finance Co., 1996 WL 210073, at *3 (N.D. Ill. Apr. 25, 1996) (ordering arbitration of TILA claims despite inability to pursue claims on class basis); Thompson v. Illinois Title Loans, Inc., 2000 WL 45493, at *3-4 (N.D. Ill. Jan. 11, 2000) (same).
The Supreme Court did not reach this issue in Green Tree Financial. See 121 S. Ct. at ___ n. 7, 2000 WL 1803919, *__. The issue that divided the Supreme Court in Green Tree Financial, whether the arbitration agreement's silence on the costs of arbitration undermined its enforceability with respect to a modest consumer claim, is not presented here. The arbitration agreements in this case provide in paragraph three that defendant will advance all filing and hearing fees when the defendant demands arbitration. Additional fees are left to the respective arbitration organizations' rules. Justice Ginsburg noted in her dissenting opinion in Green Tree Financial that two of the arbitration organizations specifically referenced in the arbitration agreements between Ms. Furgason and National Cash Advance in this case require consumer parties to pay only very modest costs, which are the same order of magnitude as the $150 filing fee that Ms. Furgason paid to file this action in this court. See 121 S. Ct. at ___ n. 2, 2000 WL 1803919, *9 n. 2 (Ginsburg, J., dissenting).
Conclusion
For the foregoing reasons, the court grants defendant National Cash Advance's motion to compel arbitration. This case is hereby stayed pending completion of such arbitration, regardless of whether such arbitration proceeds before or after the Indiana Supreme Court answers the certified question in the Livingston case. The court directs the clerk to close this case administratively, but such action is without prejudice to the right of either party to move to reopen it at any time for good cause.So ordered.