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DORSEY v. H.C.P. SALES

April 20, 1999

PAMELA N. DORSEY, PLAINTIFF,
v.
H.C.P. SALES, INC. AND GREENTREE FINANCIAL SERVICING CORPORATION, DEFENDANTS



The opinion of the court was delivered by: Castillo, District Judge.

                             MEMORANDUM OPINION
                                 AND ORDER

Pamela Dorsey ("Dorsey") sues the defendants, H.C.P. Sales ("HCP") and Greentree Financial Services ("Greentree"), for harms allegedly caused by their performance of various home improvements and the related financing contracts. Although most of her claims arise under state law, she presents a federal question under the Truth in Lending Act, 15 U.S.C. § 1635 ("TILA"). Presently before the Court is Greentree's motion to compel arbitration under the terms of a financing agreement signed by Dorsey. We grant Greentree's motion to compel arbitration and stay these proceedings pending completion of that arbitration.

BACKGROUND

In December 1997, Dorsey hired HCP to perform certain improvements on her home. HCP agreed to arrange financing by Greentree. HCP began remodeling Dorsey's home at the end of December 1997 even though Dorsey had yet to see, much less sign, any loan documents. The first time Dorsey saw any loan paperwork was on February 4, 1998, after HCP had substantially completed its work on her home. Dorsey signed all of the documents HCP placed before her.*fn1

One of the documents Dorsey signed, the Retail Installment Contract and Security Agreement for Home Improvement ("Installment Contract"), contains an arbitration clause:

  All disputes, claims, or controversies arising from or
  relating to this contract or the relationships which
  result from this contract, or the validity of this
  arbitration clause or the entire contract, shall be
  resolved by binding arbitration. . . . The parties
  agree and understand that all disputes arising under
  case law, statutory law, and all other laws
  including, but not limited to, all contract, tort, and
  property disputes, will be subject to binding
  arbitration in accord with this contract.

(Compl.Ex. C, Installment Contract at 3.) The contract, however, exempts certain types of legal actions from mandatary arbitration:

  Notwithstanding anything hereunto the contrary, we
  retain an option to use judicial or non-judicial
  relief to enforce a mortgage, deed of trust, or other
  security agreement relating to the real property
  secured in the in a transaction underlying this
  arbitration agreement, or to enforce the monetary
  obligation secured by the real property, or to
  foreclose on the real property.

(Id.) In exchange for a $14,500 loan, Dorsey pledged a security interest in her house and in the goods she purchased with the loan. (Id. at 1.)

Predictably (because we are here), Dorsey was unhappy with HCP's work and, on July 29, 1998, mailed a letter purporting to rescind the Installment Contract under TILA, 15 U.S.C. § 1635, and Regulation Z, 12 C.F.R. § 226.23. (Compl.Ex. H, Letter from Dorsey's attorney, Michelle Weinberg, to HCP and Greentree of 7/29/98.) In October 1998, she filed her federal lawsuit. Dorsey believes that HCP and Greentree violated TILA by failing to disclose the statutory recission period and provide written notice of her right to rescind. (Compl. Count I.) She also presents four claims based in state law.

ANALYSIS

Dorsey signed a document containing as broad an arbitration clause as it is possible to draft. Not only does it reserve for arbitration the merits of all disputes, the validity of the contract, and the arbitrability of a dispute; it also reserves the validity of the arbitration clause itself to an arbitrator. That last provision leaves us with a somewhat circular problem: on its face, the contract dictates arbitration of the issue whether Dorsey agreed to arbitrate her disputes but Dorsey claims she never agreed to that contractual term. In other words, the issues Dorsey raises must be arbitrated unless, based on the issues she raises, she never agreed to arbitrate those issues. Because the Federal Arbitration Act instructs courts to compel arbitration "upon being satisfied that the issue involved in [the lawsuit] is referable to arbitration under [the arbitration] agreement," we must satisfy ourselves that Dorsey did in fact agree to arbitrate her disputes. See Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997) ("If there is no contract there is to be no forced arbitration.").

[1,2] When ruling on a motion to compel arbitration, "a federal court may consider only issues relating to the making and performance of the agreement to arbitrate." Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). We look only to issues regarding the arbitration clause itself, and "will not allow a party to unravel a contractual arbitration clause by arguing that the clause was part of a contract that is voidable." Colfax Envelope Corp. v. Local 458-3M, Chicago Graphic Communications Int'l Union, 20 F.3d 750, 754 (7th Cir. 1994) (citations omitted). Thus, Dorsey's recission argument is unavailing.*fn2 See Sokaogon Gaming Enter. Corp. v. Tushie-Montgomery Assoc., Inc., 86 F.3d 656, 659 (7th Cir. 1996) ("Although the arbitration clause is contained in a contract that the tribe contends is illegal, the tribe rightly does not contend that the illegality of the contract infects the arbitration clause."); Colfax, 20 F.3d at 755 ("[A] contract dispute is arbitrable even if one party argues that the contract ...


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