Opinion
Cause No. IP 02-0287-C-B/S
February 20, 2003
Clifford W Shepard, Indianapolis, IN.
Howard Howe, Indianapolis, IN.
Curtis W McCauley, Indianapolis, IN.
ENTRY ON MOTION TO STAY AND COMPEL ARBITRATION
Plaintiff, Paul Conner, on behalf of himself and seeking to represent all others similarly situated, sues Defendants Instant Cash Advance ("Instant Cash"), David Klain, Sarann Warner and Howard Howe under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et. seq., the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et. seq., and certain provisions of the Indiana Code. The actions of which Plaintiff complains stem from Defendants' issuance of and attempts to collect on "payday loans," and on checks tendered as payment on loan contracts subject to the Indiana Uniform Consumer Credit Code ("IUCCC"), Ind. Code §§ 24-4.5-1-1, et. seq. Our jurisdiction is founded in 28 U.S.C. § 1331, as some of Plaintiff's claims arise under RICO and the FDCPA.
At the same time he signed the loan contracts now at issue, Plaintiff signed arbitration provisions, the validity and enforceability of which he now contests. On June 28, 2002, Defendants Instant Cash, David Klain and Sarann Warner moved this Court to stay the proceedings as to Plaintiff's claims against them, and compel arbitration in accordance with the terms of the parties' agreement. For the reasons stated below, the Court GRANTS Defendants' motion. The proceedings will be stayed pending the outcome of arbitration in accordance with the parties' agreement. We shall order the aforementioned parties to proceed to arbitration with respect to Plaintiff's Counts V, VI, VII, VIII, IX, and X, which constitute all of the claims brought against Instant Cash, Klain, and Warner. The case as between Plaintiff and Howard Howe individually, involving Counts I, II, III, and IV, is apparently not subject to the arbitration agreements.
FACTUAL BACKGROUND
On September 5, 2000, Plaintiff took out a "payday loan" from Defendant Instant Cash Advance. As part of the transaction, Plaintiff and Instant Cash executed an agreement entitled "Consumer Loan Agreement." At the same time, he executed an Arbitration Provision. The separate Arbitration Provision was signed only by Plaintiff. On October 3, 2000, Plaintiff's loan was "extended," and he again executed a Consumer Loan Agreement and an Arbitration Provision. These were identical to the September 5, 2000 documents. As collateral for each loan, Plaintiff tendered to Instant Cash a personal check, post-dated to the "due date" of the loan and in an amount equal to the amount financed plus all interest to be accrued by the due date. The annual percentage rate (APR) for the first loan was 286.79%, while for the second loan it was 267.67%.
The Arbitration Provisions at issue each provide as follows:
The Parties specifically agree that disputes, claims, or controversies arising from or relating to this Agreement or the relationships which result from this Agreement, or the validity of this arbitration clause or the entire Agreement, shall be resolved by binding arbitration by an arbitrator selected by you with my consent. This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, Title 9 of the United States Code. (Emphasis added.)
In addition, the Arbitration Provisions state that Instant Cash reserves the right to enforce Plaintiff's monetary obligations under the Consumer Loan Agreement by judicial means through institution of a lawsuit. The Provisions further state that both parties waive their rights to a jury trial in any forum.
DISCUSSION
Under the Federal Arbitration Act, 9 U.S.C. § 1, et. seq., whenever a valid arbitration agreement exists between parties to an action, a court must stay trial of the action until arbitration has been had in accordance with the terms of the parties' agreement. 9 U.S.C. § 3. Thus, courts have long recognized the existence of "a liberal federal policy favoring arbitration agreements." Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)). The FAA will override any state requirement that claims be considered in a judicial forum.
"In enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984). Unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable "upon such grounds as exist at law or in equity for the revocation of any contract," arbitration is required. 9 U.S.C. § 2. At the same time, "arbitration is a matter of contract between the relevant parties; no party can be required to arbitrate absent an agreement to do so." Rosenblum v. Travelbyus.com, Ltd., 299 F.3d 657, 662 (7th Cir. 2002) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). To determine whether a contract's arbitration clause applies to a given dispute, we must apply Indiana law of contract formation. See First Options, 514 U.S. at 944, 115 S.Ct. 1920; Rosenblum, 299 F.3d at 662.
Plaintiff's arguments against enforcement of the Arbitration Provisions can be grouped as follows: (1) the Arbitration Provisions were not actually part of the loan contracts because they were never signed by Instant Cash so as to constitute amendments or changes to the Consumer Loan Agreements under the terms of those agreements, and neither document incorporates by reference or references the other; (2) reading the Arbitration Provisions alone, as Plaintiff urges, Plaintiff only agreed to arbitrate disputes arising from or relating to the Arbitration Provisions themselves; (3) the Arbitration Provisions are unenforceable because no consideration was tendered by Instant Cash, so that the agreements to arbitrate lack mutuality of obligation; and (4) there is no valid contract to which the Arbitration Provisions could be said to be attached because the Consumer Loan Agreements are illegal contracts under the Indiana Loansharking Statute, Indiana Code § 35-45-7-2, et. seq.
A. The Contemporaneous Documents Rule
The first two arguments are interrelated, and may both be disposed of by application of the "contemporaneous documents" rule. See Maier v. Continental Oil Co., 120 F.2d 237, 240 (7th Cir. 1941) (explaining contemporaneous documents rule under Indiana law). In Indiana, as in many other states, the contemporaneous documents rule instructs that documents executed simultaneously as part of a single transaction will be construed together as one instrument. In Maier, the Seventh Circuit explained the doctrine as it operates in Indiana:
The general rule is that in the absence of anything to indicate a contrary intention, instruments executed at the same time, by the same parties, for the same purpose and in the course of the same transaction, are, in the eye of the law, one instrument, and will be read and construed together.
Maier, 120 F.2d at 240. The circumstances of the executions of the Arbitration Provisions and the Consumer Loan Agreements fit these criteria. Defendants have clearly established, and Plaintiff does not dispute, that at the time of each loan, Conner signed both an Arbitration Provision and a Consumer Loan Agreement in connection with one another, on the same date, and at roughly the same time. (See Aff. of Angel White at ¶ 6.) Thus, the only question remaining is whether there is evidence that indicates the documents were meant to stand separately. We must answer that question negatively.
To the contrary, the overall implication of the evidence is that the documents were intended to be part of the same agreement. For example, the Arbitration Provision refers both to disputes relating to "this Agreement" or "the entire Agreement," and to disputes over the validity of "this arbitration clause." Clearly "Agreement" means the entire Consumer Loan Agreement between the parties, while "arbitration clause" refers to the actual Arbitration Provision. This is further evidenced by the correlation of the term "Agreement" in the Arbitration Provision with its use in the Consumer Loan Agreement, which states that the Consumer Loan Agreement will be referred to as the "Agreement."
That the term "Agreement" is defined and used consistently in both documents provides strong evidence that the documents were intended to be read together as part of a single contract between Instant Cash and Mr. Conner. When Mr. Conner signed the Arbitration Provision along with the Consumer Loan Agreement, it was clear that he was assenting to arbitrate any claims arising out of the loan transaction.
Nonetheless, Plaintiff claims that references in each Arbitration Provision to the "Agreement" must only refer to the agreement to arbitrate contained within the Arbitration Provision itself, since the Arbitration Provision is a separate document. But that is a circular argument; the question is whether, since there are separate documents signed at the same time, they should be read as one. That question cannot be answered by an assertion that the documents are separate, because that separation is the basis for the question. Plaintiff next claims that the documents cannot be read together because Instant Cash did not meet the Consumer Loan Agreement's own prerequisites to amend, supplement, or change the four corners of that Agreement, and neither document references or incorporates the other.
Again, these arguments simply beg the question. If the contemporaneous documents rule requires that the documents be read together as one agreement, Instant Cash obviously would not need to do anything subsequently to incorporate the Arbitration Provision into the Consumer Loan Agreement or otherwise amend the Agreement to provide for arbitration. The cases cited by Plaintiff on these points are simply outside the scope of the contemporaneous documents rule, and/or are not directly applicable on the present facts.
For instance, Plaintiff cites the Seventh Circuit's recent decision in Rosenblum, cited herein on other grounds. That case involved two distinct agreements between the parties, one an employment agreement and one an acquisition agreement. The issue was whether an arbitration clause found in the employment agreement could apply to a dispute that arose under the acquisition agreement. In Premiere Chevrolet, Incorporated v. Headrick, 748 So.2d 891 (Ala. 1999), the Alabama Supreme Court held that an arbitration clause found in a buyer's order, but not in the corresponding lease agreement, was not valid where it was not signed by the lessor in the space expressly provided for such purpose, and where it stated that it was not valid without the lessor's signature. Both of those cases are factually distinguishable from the one before us. Some of Plaintiff's other citations were incorrect, and we were unable even to ascertain the existence of one of the cited cases.
B. Consideration
Plaintiff also contends that the Arbitration Provision lacks mutuality because Instant Cash proffered no consideration in return for Plaintiff's agreement to arbitrate. First, to the extent that this argument presupposes the isolation of the Arbitration Provision as a separate document, the argument is essentially moot. We found above that the documents must be read as one contract under the contemporaneous documents rule. Indiana case law specifically states that consideration may be found in a contemporaneous document. See Leatherman v. Mgmt. Advisors, Inc., 448 N.E.2d 1048, 1050 (Ind. 1983); Ruth v. First Fed. Sav. and Loan Ass'n of LaPorte County, 492 N.E.2d 1105 (Ind.Ct.App. 1986). Furthermore, it logically follows from the contemporaneous documents rule, which instructs that certain contemporaneous documents are to be read as one agreement, that consideration may be found by looking at the documents as a whole. While it is true that in the context of an arbitration agreement, consideration is sometimes viewed as the promise of one party to arbitrate in return for the other party's promise to arbitrate, it is not true that such identical promises are required.Here, Plaintiff received consideration from Instant Cash for the overall Consumer Loan Agreement;
Instant Cash promised and provided the loans at issue in this lawsuit.
Under Indiana law, mutual obligations are required in order for a contract to be formed. See Terre Haute Regional Hosp., Inc. v. El-Issa, 470 N.E.2d 1371 (Ind.Ct.App. 1984). Mutual does not mean identical, despite Plaintiff's implication that it does. Contracts are commonly premised upon non-duplicate obligations; an obvious example is a contract for the purchase of services. Under most contracts for the purchase of services, the purchaser generally gives money to the seller, who in return is obligated to provide the purchased service. Clearly, identical obligations are not and could not be the rule. Further, the Arbitration Provision is simply a provision of the overall Consumer Loan Agreement.
"[T]he doctrine of mutuality of obligation does not require that every duty within an agreement be based upon a corresponding obligation." El-Issa, 470 N.E.2d at 1377, (citing Kokomo Veterans, Inc. v. Schick, 439 N.E.2d 639 (Ind.Ct.App. 1982)). Finally, the promise to be bound by an arbitration can constitute consideration for an agreement to arbitrate. See Michalski v. Circuit City Stores, Inc., 177 F.3d 634, 636 (7th Cir. 1999) (finding consideration where employer agreed to be bound by outcome of arbitration). Michalski applied Wisconsin contract law, and noted that a detriment to a promisor can constitute consideration. 177 F.3d at 636. Indiana law concerning consideration is no different.
See Dimizio v. Romo, 756 N.E.2d 1018, 1022-23 (Ind.Ct.App. 2001). Plaintiff's argument that Instant Cash gave no consideration for his promise to arbitrate is without merit.
C. Illegality of the Consumer Loan Agreements
Plaintiff's final argument against enforcement of the Arbitration Provisions is that no valid contract from which to compel arbitration exists between the parties, since the Consumer Loan Agreements are illegal and void under Indiana law. In Prima Paint v. Flood Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the Supreme Court held that a claim of fraud in the inducement of a contract could not preclude arbitration so long as the specific agreement to arbitrate was valid. Plaintiff cites Drake Insurance Limited v. All American Insurance Company, 256 F.3d 587 (7th Cir. 2001), for the proposition that Prima Paint does not extend to a situation where a valid contract was never formed between the parties. Drake dealt with the issue of whether a reinsurer's agent had actually had the authority to bind it to a reinsurance contract with a primary insurer, and consequently to bind it to the arbitration clause contained within that contract. The Seventh Circuit held that the issue must be decided by the district court rather than the arbitrator, because the reinsurer agreed to the arbitration clause only if the agent had authority to bind it to the reinsurance contracts. See Drake, 256 F.3d at 592. The decision turned on the fact that it remained to be determined whether the reinsurer had agreed to arbitrate, a question which clearly should not have been resolved by an arbitrator, whose only authority to arbitrate must stem from such agreement. In large part, Drake simply stands for the rather established proposition that absent a party's agreement to arbitrate, it cannot be compelled to arbitrate. But in the present case, there is no real question that Mr. Conner agreed to arbitrate claims against Instant Cash arising from or relating to the Consumer Loan Agreements.
The stated holding in Prima Paint was as follows: "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." 388 U.S. at 404, 87 S.Ct. at 1806. The Seventh Circuit has interpreted that holding to mean that an arbitration agreement employing broad language to cover disputes "arising from" the underlying contract covers a dispute over the legality of the contract itself. Sweet Dreams Unlimited, Inc. v. Dial-a-Mattress Int'l Ltd., 1 F.3d 639, 641-42 (7th Cir. 1993). The court consequently concluded that under Prima Paint, the dispute over the legality of the contract must be decided by the arbitrator. Sweet Dreams, 1 F.3d at 642. The present case is closely analogous to Sweet Dreams, and indeed the language employed in the present Arbitration Provisions is broader than that in the agreements at issue in Sweet Dreams. Plaintiff asserts that pursuant to Livingston v. Fast Cash USA, Incorporated, 753 N.E.2d 572 (Ind. 2001), the Consumer Loan Agreements are illegal under Indiana's loansharking statute, Indiana Code §§ 35-45-7-2, et. seq., and the Indiana Consumer Credit Code ("IUCCC"), Indiana Code § 24-4.5-3-508.
Under Sweet Dreams, Plaintiff "cannot avoid arbitration by arguing, or even showing, that [he] should win on the merits of [his] theory that the underlying loan agreements are illegal under state law."
Furgason v. McKenzie Check Advance Of Indiana, Inc., 2001 WL 238129 at *8 (S.D.Ind. January 3, 2001) (citing Sweet Dreams, 1 F.3d at 641-42).
CONCLUSION
As explained in the preceding section, the arbitration agreements are valid and must be enforced.
Accordingly, Defendants' motion is GRANTED. We hereby ORDER Plaintiff and Defendants ICA, Klain, and Warner to proceed to arbitration of Plaintiff's Counts V, VI, VII, VIII, IX and X. Such arbitration shall proceed in accordance with the terms of the arbitration provision contained in the parties' loan contract.