The opinion of the court was delivered by: Matthew F. Kennelly, U.S. District Judge:
MEMORANDUM OPINION AND ORDER
Plaintiff Juan Phillips filed a class action complaint alleging
violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq., in
connection with defendants' handling of residential mortgage
transactions. This case is before the Court on defendants' motion to
compel arbitration and stay these proceedings based on an arbitration
agreement executed by Phillips and defendant Associates Home Equity, and
defendants' motion to dismiss all class claims pursuant to Fed. R. Civ.
P. 23(d)(4) and 12(b)(6). For the reasons outlined below, defendants'
motion to compel arbitration is denied, and ruling on defendants' motion
to dismiss is deferred.
In May 2000, Phillips obtained a residential mortgage loan in the
amount of $72,900 from defendant Associates Home Equity*fn1 to finance
home improvements and pay off her existing consumer debts. Associates
Home Equity offers financial products and services such as home equity
loans, personal loans, automobile loans, and retail sales financing to
consumers, and it specializes in providing credit to the "subprime"
market, which consists of persons who are considered to be poor credit
risks. Phillips' loan was initially arranged
by a mortgage broker, Ficus Financial, which is not named in the
complaint. As part of her loan transaction, Phillips received and/or
signed a standard form mortgage broker agreement, a loan agreement, a
rate reduction rider, a trust deed, a TILA disclosure statement, a HUD-1
settlement statement, and a notice of her right to cancel.
On May 23, 2000, in connection with the loan transaction, Phillips and
Associates Home Equity also entered into a written arbitration
agreement. Among other things, the agreement contains a section entitled
"DISPUTES COVERED" that provides that the parties agree to arbitrate "all
claims and disputes between you [Phillips] and us [Associates Home
Equity]," including "without limitation, all claims and disputes arising
out of, in connection with, or relating to" the May 2000 loan. See
Arbitration Agreement, Plaintiff's Objection to Arbitration, Exhibit D.
The agreement further provides that arbitration will be conducted through
the American Arbitration Association ("AAA"), pursuant to its
then-current "Commercial Arbitration Rules."
In addition, the agreement includes a provision governing the costs
associated with arbitration:
COSTS OF ARBITRATION: If you start arbitration, you
agree to pay the initial filing fee and required
deposit required by the American Arbitration
Association. If we start arbitration, we will pay the
filing fee and required deposit. If you believe you
are financially unable to pay such fees, you may ask
the American Arbitration Association to defer or
reduce such fees, pursuant to the Commercial
Arbitration Rules, If the American Arbitration
Association does not defer or reduce such fees so that
you are able to afford them, we will, upon your
written request, pay the fees, subject to any later
allocation of the fees and expenses between you and us
by the arbitrator. There may be other costs during the
arbitration, such as attorney's fees, expenses of
travel to the arbitration, and the costs of the
arbitration hearings. The Commercial Arbitration Rules
determine who will pay those fees.
Arbitration Agreement, p. 2, Plaintiff's Objection to Arbitration,
On March 19, 2001, Phillips wrote a letter to Associates Home Equity
purporting to rescind her loan agreement pursuant to TILA. One day later,
Phillips filed this suit seeking declaratory rulings and damages based on
Defendants' alleged TILA violations.
Recission of the Loan Agreement
Phillips argues that the arbitration agreement is unenforceable because
prior to filing the lawsuit, she rescinded her loan contract pursuant to
TILA Section 1635 and accompanying Regulation Z, 12 C.F.R. § 226.23.
Therefore, Phillips asserts, "[b]y rescinding her contract, all
agreements and terms under the contract, including the right to arbitrate
claims were erased." Plaintiffs Objection to Arbitration, p. 6.
Defendants deny that Phillips effectively rescinded her loan contract.
Defendants' Memorandum in Support of Arbitration, p. 10.
The law in this Circuit is clear that arbitration "should not be denied
unless it may be said with positive assurance that the arbitration clause
is not susceptible of an interpretation that covers the asserted
dispute." Sweet Dreams, 1 F.3d at 641 (quoting United Steelworkers of
America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).
In making this determination, the court looks to the arbitration
agreement 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 Corporation v. Local 458-3M Chicago Graphic
Communications International Union, 20 F.3d 750, 754 (7th Cir. 1994)
(citations omitted); cf. Sokaogon ...