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Jackson v. Payday Loan Store of Illinois

March 17, 2010

DEBORAH JACKSON, VAN HANTE, TERESSA DEAN, CHRISTINE SHAW, TERRALIA SHORTERS, AND A CLASS OF THOSE SIMILARLY SITUATED, PLAINTIFFS,
v.
THE PAYDAY LOAN STORE OF ILLINOIS, INC., D/B/A PAY DAY LOAN STORE, DEFENDANT.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiffs Deborah Jackson, Van Hante, Teressa Dean, Christine Shaw and Terralia Shorters (collectively "Plaintiffs") filed suit against Defendant, The Payday Loan Store of Illinois, Inc. ("Payday Loan"). The suit alleges that certain consumer loan transactions between Plaintiffs and Payday Loan violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq., Regulation z of the Federal Reserve Board of Governors, 12 C.F.R. § 226.1 et seq., the Consumer Installment Loan Act, 205 ILCS 670/1 et seq., and the Illinois Interest Act, 815 ILCS 205/0.01 et seq. Payday Loan moves to compel arbitration of Plaintiffs' claims and seeks a stay of proceedings in this Court pending the outcome of such arbitration.*fn1 For the reasons set forth below, Payday Loan's Motion to Compel Arbitration and to Stay Proceedings in this Court is Granted. Plaintiffs' Motions for Leave to File New Authority and for Judicial Notice are granted.

BACKGROUND

Plaintiffs, on an individual basis with the exception of Van Hante who seeks to represent a class of similarly situated persons in addition to bringing his own individual claims, allege that Payday violated the various statutes and regulations noted above by failing to properly disclose the actual annual percentage rate of interest that would be levied on certain consumer loans that Payday issued and Plaintiffs received. Each of the loans at issue was issued pursuant to a Consumer Loan Agreement ("Agreement"), which contained the following arbitration clause:

Any claim, dispute or controversy arising from or relating to (a) the loan made to you, (b) the actions of you, us, or third parties, or (c) the validity of this arbitration provision ("Claim") shall, upon the election by either you or us, be resolved by binding arbitration in accordance with this arbitration provision and the Code of Procedure of the applicable arbitration organization in effect when the Claim is filed. You may select the arbitration organization from the following: either the National Arbitration Forum (1-800-474-2371, www.arb-forum.com), the American Arbitration Association (1-800-778-7879, www.adr.org), or JAMS/Endispute (1-800-352-5267, www.jamsadr.com). If you do not select an arbitration organization, you agree that we may select one.

(R. 16 Ex. 2.) The Agreement further provided that the consumer had the option to opt-out of the arbitration requirement, by sending a letter to Payday within five business days including identifying information and "a statement that you reject the arbitration agreement." (Id.) The Agreement also contained a provision specifically barring the arbitration of claims on a class basis: "If arbitration is chosen, you do not have the right to have any claim arbitrated as a class action. No joinder or consolidation of parties, except for joinder of parties to the same loan agreement, will be permitted in any arbitration." (Id.).

Plaintiffs do not contest that the Agreement was signed with respect to each of their loans, nor do they assert that any Plaintiff sent the required opt-out letter.

STANDARD OF REVIEW

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, provides that a written arbitration agreement contained within a commercial contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA evidences a strong federal policy favoring arbitration and "mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Arbitration may be compelled pursuant to the FAA whenever there is a written arbitration agreement, a dispute falling with the agreement's scope, and a refusal by one of the parties to submit to arbitration. See Zurich American Ins. Co. v. Watts Industries, Inc., 417 F.3d 682, 687 (7th Cir. 2005).

DISCUSSION

The loan transactions at issue here, which are loans contained within consumer contracts, fall within the scope of the FAA in general and within the specific scope of the Agreement. Nevertheless, Plaintiffs argue that arbitration is impossible under the Agreement because none of the three organizations named as possible arbitrators in the Agreement, the National Arbitration Forum ("NAF"), American Arbitration Association ("AAA"), and JAMS/Endispute ("JAMS"), are available to arbitrate this dispute. Plaintiffs additionally argue that no substitute arbitrator can be named. Finally, with respect to the proposed class actions claims brought by Plaintiff Van Hante, Plaintiffs argue that the Agreement's class action waiver is unconscionable and unenforceable as a matter of law.

I. The Availability of the Arbitrators Named in the Agreement

A. The National Arbitration Forum

The NAF is barred from arbitrating any claims based on consumer loans pursuant to an agreement with the State of Minnesota, which required the NAF and related entities to completely divest themselves of "any business related to the arbitration of consumer disputes." (R. 38 Ex. X.) The ...


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