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Powell v. Payday Loan Store of Illinois

September 28, 2010


The opinion of the court was delivered by: Judge Joan B. Gottschall


Plaintiff Dominginho Powell ("Powell" or "plaintiff") filed a four-count class action complaint against The Payday Loan Store of Illinois*fn1 ("Payday"), alleging violations of the Equal Credit Opportunity Act ("ECOA"), the Truth in Lending Act ("TILA"), the Telephone Consumer Protection Act ("TCPA"), and the Illinois Consumer Fraud Act ("ICFA"). Plaintiff accuses Payday of improperly inducing borrowers into repeatedly refinancing (i.e., "flipping") high interest rate loans that are secured by the borrowers' automobiles. Payday has moved to compel arbitration.

In conjunction with each of plaintiff's loans with Payday, he executed an Installment Loan and Security Agreement ("Agreement"). Def.'s Mem. at Ex. 1. Each Agreement contains an arbitration provision and also requires plaintiff to arbitrate his claims on an individual, rather than a class-wide, basis. The arbitration provision reads:


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,, or the American Arbitration Association (1-800-778-7879, If you do not select an arbitration organization, you agree that we may select one. If a judgment has been entered in a suit involving you and us, then neither we nor you can demand arbitration. This means that either we or you may sue the other party in court or initiate other remedies; however, if either we or you demand arbitration before a judgment in entered, then we and you will arbitrate the Claim. Any arbitration hearing that you attend will take place in the federal judicial district where you reside or where you obtain the loan, at your election. The arbitrator(s) (the people who decide the Claim) will apply relevant law; however, the arbitrator(s) will not apply federal or state rules of civil procedure or evidence. The decision of the arbitrator(s) will be evidenced by written, reasoned findings of fact (a determination of what happened) and conclusion of law (legal consequences of the facts). If you ask us to, we will advance all or part of the filing and hearing fees that you will have to pay for the arbitration not to exceed $1,000; the arbitrator(s) will decide whether we or you will ultimately pay those fees. After the arbitrator(s) makes a decision, we or you may apply to any court having jurisdiction to enter a judgment based on teh [sic] decision of the arbitrator(s). This arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. 1 et seq., as amended. If we or you choose arbitration, we and you no longer have the right to go to court or to have a jury trial, except for any right of appeal provided by the Federal Arbitration Act. If arbitration is chosen, you do not have the right to have any claim arbitrated as a class action under the rules of the arbitration organization or under any other rules of civil procedure. No joinder or consolidation of parties, except for joinder of parties to the same loan agreement, will be permitted in any arbitration. If any part of this provision to any particular Claim or subject matter is held to be invalid or unenforceable, the remainder of this arbitration provision and the application of this provision to any other Claims will remain valid [and] enforceable. In the event of a conflict between the arbitration organization's code and this provision, this provision controls.


Def.'s Mem. at Ex. 1. Due to a consent decree prohibiting the National Arbitration Forum from accepting any consumer arbitrations, the AAA is the only available arbitral forum for plaintiff.

I. Analysis

The Federal Arbitration Act establishes a federal policy favoring arbitration of disputes that requires courts to "rigorously enforce agreements to arbitrate." Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). When parties have made an agreement to arbitrate a dispute, the party opposing arbitration bears the burden of proving that the claims at issue should not be subjected to arbitration. Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 91-92 (2000). Because all of plaintiff's arguments center on the costs of arbitration, the court turns to that issue first.

A. AAA Fees

There are two types of fees assessed by the AAA -- administrative fees and arbitrator fees. Further, the AAA assesses arbitration costs based on the size of the claim, as measured by the AAA. In order to determine what fees would apply, the court must determine whether plaintiff's claims would fall under the AAA's "Consumer Arbitration Costs" or the more expensive "Commercial Arbitration Costs." The AAA applies Consumer Arbitration Costs to claims that do not exceed $75,000; for claims in excess of $75,000, the Commercial Arbitration Costs apply.

1. Administrative Fees

According to the AAA Consumer Arbitration Costs, "Administrative fees are based on the size of the claim and counterclaim in a dispute. They are based only on the actual damages and not on any additional damages, such as attorneys' fees or punitive damages." Def.'s Reply at Ex. 1. Thus, the Consumer Arbitration Costs will apply if plaintiff's actual damages are less than $75,000.

Plaintiff's actual damages include $5,009, which is the amount plaintiff paid to Payday. Beyond that, plaintiff claims he is entitled to statutory damages for certain claims. In an abundance of caution, Payday has included statutory damages in its calculation of "actual damages." Because plaintiff cannot reach the $75,000 cut-off even if statutory damages are included, the court will follow Payday's lead and assume for purposes of this analysis that the AAA would include statutory damages to figure out the value of the claim. Plaintiff asks for the following statutory damages: (1) $8,000 for eight TILA violations which includes statutory damages of $1000 per violation; and (2) $15,000 for ten TCPA violations.*fn2 Because plaintiff's actual damages (even assuming statutory ...

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