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Forness v. Cross Country Bank

March 20, 2006


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


I. Introduction

Now before the Court is a motion submitted by Defendants Cross Country Bank, Inc. and Applied Card Systems, Inc. ("Defendants") to compel arbitration in this matter and stay all proceedings. (Doc. 18.) Plaintiffs John Forness, Jared Knocker, Esther Rinker, Dwayne Shaw, Kendra Horgan, Teri Moore, and Larry Agne (together, "Plaintiffs") respond in opposition. (Doc. 29.) For the reasons below, the Court grants Defendants' motion.

II. Background

Plaintiffs are a group of consumers who allege that Defendant engaged in various unfair trade practices related to their credit-card businesses. (Doc. 2, Pls. Compl., ¶ 8.) Defendants are affiliated Delaware corporations that provide credit- card services to individuals. Plaintiffs allege a total of three counts of wrongdoing, including claims arising out of the Illinois Fraud and Deceptive Practices Act, 815 ILL. COMP. STAT. 505/01 et seq. ("IFDPA"), claims for unjust enrichment and restitution, and claims for breach of the covenant of good faith and fair dealing.*fn1 (Doc. 2, Pls. Compl., pp. 8-9.)

Defendants charge that each of the Plaintiffs in this case entered into binding credit-card agreements containing broad arbitration clauses requiring them to resolve their claims in arbitration. (Doc. 18.) Plaintiffs disagree. (Doc. 29.) While they do not contest that they entered into binding agreements with Defendants, Plaintiffs take the position that the arbitration provisions within these agreements are (1) procedurally unconscionable due to the fact that they are "hidden in a maze of fine print," (2) substantively unconscionable due to the fact that they prohibit arbitration on a classwide basis, and (3) thus void. (Id.) For these reasons, Plaintiffs argue, the arbitration provisions contained in their agreements with Defendants should be invalidated, and this matter must proceed in federal court - not in arbitration.*fn2

III. Analysis

As an initial matter, the Court notes that the Federal Arbitration Act applies here.*fn3 That Act was drafted "to reverse the longstanding judicial hostility to arbitration agreements," Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991), and embodies a strong federal policy in favor of arbitration. Moses H. Cone Mem. Hosp. v. Mercury Constr., 460 U.S. 1 (1983). Under its provisions, when parties contractually agree to submit their disputes to arbitration, they are bound by that agreement and must pursue their claims there. See Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir. 2002);see also Gilmer, 500 U.S. at 35. If an agreement to arbitrate exists, that agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

The first task for the Court is determining which state's law applies. Plaintiffs do not discuss this issue, although the Court assumes from their brief - which does not cite Delaware law and which relies heavily on one Illinois appellate decision, Kinkel v. Cingular Wireless, LLC, 357 Ill. App. 3d 556 (5th Dist. 2005), in particular - that they believe Illinois law should apply. (Doc. 29.) Defendants, however, have taken the position that Delaware law applies. Looking to the parties' agreements, the Court concurs with Defendants. Those agreements clearly select Delaware law. (Doc. 18, Agreement, p. 3.) Plaintiffs, furthermore, have offered no reason why the choice-of-law provision should not apply. Both because there is no public-policy issue that would prevent enforcement,*fn4 and because Delaware, where both Defendants are domiciled, bears a reasonable relationship to the parties and the transaction in this case, the Court finds that Delaware law applies here. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) (holding that district courts sitting in diversity apply the choice-of-law rules of the forum state); Potomac Leasing Co. v. Chuck's Pub, Inc., 156 Ill. App. 3d 75 (1st Dist. 1987) (holding that a choice-of-law provision will be given effect unless it does not contravene Illinois public policy and the state selected bears a reasonable relationship to the parties or transaction).

That question settled, the Court looks to Delaware law to determine whether the class-action-waiver provision in the parties' agreement is unconscionable. The Court is aware of no Delaware Supreme Court decision on this issue, and since Delaware has no intermediate appellate courts, the Court turns to Delaware Superior Court decisions for direction. The best analysis of this issue by such a court that this Court is aware of is Edelist v. MBNA Am. Bank, 790 A.2d 1249, 1261 (Del. Super. Ct. 2001). In that case, the court specifically found "nothing unconscionable" about a bar on class actions in an otherwise valid arbitration agreement like the one in the instant case. Id. The Court knows of no conflicting authority in the Delaware courts. As such, and in light of (1) other courts' decisions to enforce similar arbitration agreements barring classwide arbitration, see, e.g., Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 559 (7th Cir. 2003) (enforcing a provision in an arbitration agreement barring class actions); see also Jenkins v. First Am. Cash Advance, 400 F.3d 868 (11th Cir. 2005); Iberia Credit Bureau, Inc. v. Cingular Wireless LLC 379 F.3d 159, 174-175 (5th Cir. 2004); Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002); Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 728-729 (8th Cir. 2001); Johnson v. West Suburban Bank 225 F.3d 366, 371 (3d Cir. 2000); Pick v. Discover Fin. Servs., No. Civ.A. 00-935, 2001 WL 1180278, at *5 (D. Del. Sept 28, 2001) (Robinson, C.J.); Leason v. Merrill Lynch, Pierce, Fenner & Smith, No. 6914 (Del. Ch. August 23, 1984), Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104MICH.L.REV.373, 400 & n.139 (2005) ("[W]ith the exception of a handful of cases (mostly out of the Ninth Circuit and California) finding [collective-action waivers] substantively unconscionable, a vast majority of decisions have upheld collective action waivers against this challenge."), (2) the fact that Plaintiffs in this mater have not shown that bringing individual claims in arbitration would be prohibitively expensive, and (3) the Court's belief, based on the facts of this case, that arbitration will be a fair and equitable forum for Plaintiffs to pursue their claims, the Court finds that the parties' agreement is valid and not unconscionable.*fn5

IV. Conclusion

Therefore, because the arbitration provision in the agreement between the parties is valid and binding, the Court GRANTS Defendants' motion to compel arbitration and STAYS all further proceedings in this case pursuant to 9 U.S.C. § 3 pending the outcome of such arbitration.


David RHerndon United States ...

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