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Erik Mori, On Behalf of Plaintiff and v. East Side Lenders

June 24, 2011

ERIK MORI, ON BEHALF OF PLAINTIFF AND
THE CLASS MEMBERS DESCRIBED BELOW, PLAINTIFF,
v.
EAST SIDE LENDERS, LLC; MICHAEL LUXENBERG; AND DOES 1-5; DEFENDANTS.



The opinion of the court was delivered by: Judge Sharon Johnson Coleman

Magistrate Judge Sidney I. Schenkier

MEMORANDUM OPINION AND ORDER

Plaintiff Erik Mori ("Plaintiff") filed this putative class action complaint against Defendants East Side Lenders, LLC ("ESL"), Michael Luxenberg ("Luxenberg"), and DOES 1-5 asserting violations of various Illinois statutes, the Racketeer Influenced and Corrupt Organizations Act, and the Electronic Funds Transfer Act. Plaintiff seeks redress stemming from loans ESL made over the Internet to Plaintiff and to others similarly situated. ESL and Luxenberg (collectively "Defendants") now move the Court to compel arbitration and stay the proceedings based upon the parties' agreement to arbitrate any and all disputes between them. For the reasons that follow, the Court grants the Defendants' motion.

BACKGROUND

The relevant factual background is drawn from the pleadings and the parties' filings in connection with the instant motion to compel arbitration. Plaintiff is an Illinois resident who applied for a loan with ESL on or about December 28, 2010. (Dkt. No. 1 ¶¶ 4, 13.) ESL is a Delaware limited liability company engaged in the business of making high interest "pay day" loans to consumers over the Internet. (Id. at ¶¶ 5-7.) Luxenberg is ESL's sole manager. (Id. at ¶ 11.). On its website, ESL states in relevant part that:

East Side Lenders strives to set the standard for the online pay day loan business. We are dedicated to providing premier alternative financing -- helping people receive a quick a [sic] pay day loan.

(Id. at ¶ 7). ESL required Plaintiff to repay his loan through electronic fund transfers from his bank account. (Id. at ¶ 27.) On more than one occasion, Plaintiff renewed his loan. (Id. at ¶ 14.) With each renewal, Plaintiff's bank account was debited $30 in interest for each $100 he borrowed. (Id. at ¶ 15.)

On February 24, 2011, Plaintiff filed this four count complaint alleging that ESL violated: (1) the Illinois Interest Act, 815 ILCS 205/1 et seq.; (2) the Illinois Payday Loan Reform Act, 815 ILCS 122/1 et seq. and the Illinois Consumer Fraud Act, 815 ILCS 505/1 et seq.; (3) the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.; and (4) the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C. § 1693 et seq.

Defendants seek an order of the Court that compels Plaintiff to submit this dispute to arbitration and stays the proceedings pending an arbitral decision.*fn1 Defendants argue that all of the claims that Plaintiff has asserted are premised solely upon the single loan transaction between Plaintiff and ESL. (Dkt. No. 19 p. 1.) Defendants contend that the loan transaction is governed by a Loan Agreement and Promissory Note executed by the parties on or about December 27, 2010 that is attached to the motion as an exhibit. (Dkt. No. 19, Ex. A.) This agreement contains a "Waiver of Jury Trial and Arbitration Provision," an "Agreement to Arbitrate All Disputes," and an "Agreement No To Bring, Join Or Participate In Class Actions." (Id. at p. 2.) Defendants claim that these provisions require Plaintiff to submit this dispute toarbitration. (Dkt. No. 19. p. 2.) Plaintiff challenges the agreement offered by Defendants claiming that the agreement is unauthenticated and that it fails because the arbitrator designated under the agreement no longer accepts consumer arbitrations. (Dkt. No. 29 pp. 1-4.)

LEGAL STANDARD

The Federal Arbitration Act ("FAA") mandates enforcement of valid, written arbitration agreements. Tinder v. Pinkerton Sec., 305 F.3d 728, 733 (7th Cir. 2002); 9 U.S.C. § 2. (West 2011). To give effect to the federal policy favoring private arbitration, the FAA provides for stays of litigation when an issue presented in the case is referable to arbitration. Tinder, 305 F.3d at 733; 9 U.S.C. § 3. The question of whether the parties have agreed to arbitrate the dispute is a question answered by the district court rather than the arbitrator. Cont'l Cas. Co. v. Am. Nat'l Ins. Co., 417 F.3d 727, 730 (7th Cir. 2005). Whether a binding arbitration agreement exists is determined by state law principles of contract formation. Tinder, 305 F.3d at 733. Nonetheless, "[a]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 808 (7th Cir. 2011). If the district court determines that the agreement to arbitrate is valid, the court has no further power or discretion to address the issues raised in the complaint and must stay the proceedings and order arbitration. Volkswagen of Am., v. Sud's of Peoria, Inc., 474 F.3d 966, 971 (7th Cir. 2007).

To compel arbitration, a party need only show: (1) an agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal by the opposing party to proceed to arbitration. Zurich Am. Ins. Co. v. Watts Indus., 466 F.3d 577, 580 (7th Cir. 2006). The party opposing arbitration must identify a triable issue of fact concerning the existence of the agreement in order to obtain a trial on the merits of the contract. Tinder, 305 F.3d at 735.

Although the FAA does not expressly identify the evidentiary standard a party seeking to avoid compelled arbitration must meet, courts in the Seventh Circuit have required the opposing party meet the same standard required of a party opposing summary judgment and demonstrate that a genuine issue of material fact warranting trial exists. Id. A party cannot avoid compelled arbitration by generally denying the facts upon which the right to arbitration ...


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