Reply brief re Wirdzek (2024)

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TABLE OF AUTHORITIES

Cases

A & MProduce Co. v. FMC Corp.,
135 Cal.App.3d 473, 186 Cal.Rptr. 114 (1982)................ 11

A.G. Edwards& Sons, Inc. v. Syvrud,
597 So. 2d 197 (Ala. 1992).................................. 30

Baravati v.Josephthal, Lyon & Ross, Inc.,
28 F.3d 704 (7th Cir. 1994)................................. 32

Barnett Bank v. Nelson,
517 U.S. 25, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996).......... 9

Belke v.Merrill Lynch, Pierce, Fenner & Smith,
693 F.2d 1023 (11th Cir. 1982).............................. 30

Benoay v. Prudential-Bache Secs. Inc.,
805 F.2d 1437 (11th Cir. 1986).............................. 16

Bernstein v.Shearson/American Express, Inc.,
No. 86 Civ.5055, 1987 U.S. Dist. LEXIS 816719
S.D.N.Y. Sep.10, 1987)..................................... 30

Bevere v.Oppenheimer & Co.,
862 F.Supp. 1243 (D.N.J. 1994)............................. 30

Bhatia v. Johnston,
818 F.2d 418 (5th Cir. 1987)................................ 14

Buraczynski v.Eyring,
919 S.W.2d 314 (Tenn. 1996)................................. 30

Chuidian v. Philippine Nat’l Bank,
976 F.2d 561 (9th Cir. 1992)................................. 6

Cohen v.Wedbush, Noble, Cooke, Inc.,
841 F.2d 282 (9th Cir. 1988)................................ 17

Cole v. Burns Int’l Secur. Svcs., Inc.,
105 F.3d 1465 (D.C. Cir. 1997).......................... 26,27

Conference of Fed. Sav. & Loan Ass’ns v.Stein,
604 F.2d 1256 (9th Cir. 1979),
aff’d mem., 445 U.S. 921, 100 S.Ct.1304,
63 L.Ed.2d 754 (1980)....................................... 10

Coon v. Nicola,
17 Cal.App.4th, 21 Cal.Rptr. 846 (1993)..................... 26

Corporation Venezolana de Fomento v. VinteroSales Corp.,
629 F.2d 786 (2d Cir. 1980).................................. 6

Couglin v.Shimizu America Corp.,
991 F.Supp. 1226 (D. Ore. 1998)............................. 28

Dean Witter Reynolds Inc. v. Byrd,
470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985)..... 26, 30

Dean WitterReynolds Inc. v. Prouse,
831 F. Supp. 328 (S.D.N.Y. 1993)............................ 30

Doctor’sAssoc., Inc. v. Stuart,
85 F.3d 975 (2d Cir. 1996).................................. 23

Doctor’s Assocs., Inc. v. Casarotto,
517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) 12, 25

Erie R.R. Co. v.Tompkins,
304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).............. 6

First Optionsof Chicago, Inc. v. Kaplan,
514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)......... 5

Flightways Corp. v. Keystone Helicopter Corp.,
459 Pa. 660, 331 A.2d 184 (1975)............................. 8

Franklin Nat’l Bank v. New York, 347 U.S. 373, 74 S.Ct. 550, 98 L.Ed. 767 (1954) 9

Frates v.Edward D. Jones & Co.,
760 P.2d 748 (Mont. 1988)................................... 30

Gammaro v.Thorp Consumer Discount Co.,
15 F.3d 93 (8th Cir. 1994).................................. 21

Graham v. Scissor-Tail, Inc.,
28 Cal.3d 807, 171 Cal.Rptr. 604, 623 P.2d 165 (1981)....... 19

Graham v. StateFarm Mutual Automobile Ins. Co.,
565 A.2d 908 (Del. 1989).................................... 21

Harper v.United Healthcare Corp.,
No. 97 C 4497, 1998 U.S. Dist. LEXIS 15412
(N.D. Ill. Sep. 22, 1998)................................... 31

Haynsworth v. The Corporation,
121 F.3d 956 (5th Cir. 1997)................................ 16

Hill v. Gateway2000, Inc.,
105 F.3d 1147 (7th Cir.),
cert. denied, 118S.Ct. 47, 139 L. Ed. 2d 13 (1997)..... 12,13

IBEW, Local 4v. KTVI-TV, Inc.,
985 F.2d 415 (8th Cir. 1993)................................. 4

Johnson v. Pennsylvania Nat’l. Ins. Cos.,
527 Pa. 504, 594 A.2d 296 (1991)............................. 8

Kelly v. UHCManagement Company, Inc.,
967 F.Supp. 1240 (N.D. Ala. 1997)........................... 21

Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)............ 5

MAI SystemsCorp. v. UIPS,
956 F.Supp. 538 (N.D. Cal. 1994)............................ 23

Marquette Nat’lBank of Minneapolis v. First of Omaha Service Corp.,
439 U.S. 299, 99 S.Ct. 540, 58L. Ed. 2d 534 (1978)......... 10

Mastrobuono v.Shearson Lehman Hutton, Inc.,
514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995)........... 8

McCarthy v.Providential Corp.,
122 F.3d 1242 (9th Cir. 1997),
cert. denied, 119 S.Ct. 275, 142 L. Ed.2d 227 (1998)....... 18

McMahan Secs.Co. L.P. v. Forum Capital Markets L.P.,
35 F.3d 82 (2d Cir. 1994).................................... 4

Mendelson v. Shrager,
432 Pa. 383, 248 A.2d 234 (1968)............................. 8

Merrill Lynch,Pierce, Fenner & Smith, Inc. v. King,
804 F.Supp. 1512 (M.D. Fla. 1992),
aff’d, 3 F.3d 443 (11th Cir. 1993).......................... 30

MitsubishiMotors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)..... 22, 30

Moncharsh v.Heily & Blaise,
3 Cal.4th 1, 10 Cal.Rptr.2d183, 832 P.2d 899 (1992)......... 7

Nachum v.Allstate Inso. Co.,
No. CV 97-4493, 1997 U.S. Dist. LEXIS 12670
(C.D. Cal. Jul. 21, 1997)................................... 23

Nedlloyd Lines B.V. v. Superior Court,
3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148(1992)...... 6

Pierson v.Dean, Witter, Reynolds, Inc.,
742 F.2d 334 (7th Cir. 1984)................................ 17

Prima PaintCorp. v. Flood & Conklin Mfg., Co.,
388 U.S. 395, 87 S. Ct. 1801, 18 L.Ed.2d 1270 (1967)........ 15

<![if !supportLists]>A.<![endif]>Pennsylvania Law Governs Plaintiff’s“Unconscionability” Claim.

Principles of state contract law govern the enforceabilityof contracts containing arbitration clauses.First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115S.Ct. 1920, 131 L.Ed.2d 985 (1995). Each of the promissory notes signed by plaintiff contains anexpress Pennsylvania choice-of-law clause.

Plaintiff, however, asks this Court to apply Californialaw in determining the enforceability ofthe arbitration clause contained in the Bank’s September 17, 1998 promissorynote, a clause that was contained only in the eighth and final promissory notehe signed. He has not challenged theinclusion of the Pennsylvania choice-of-law provision in each of the sevenprior notes he signed with the Bank.

The first step in thisanalysis is to apply the appropriate conflicts-of-law rules. Although defendants disagree withplaintiff’s analysis — federal common law conflicts rules, rather thanCalifornia state law rules, should be applied to this case — this is one disputethat this Court need not resolve; the application of either set of rulesproduces substantially the same result.<![if !supportFootnotes]>[3]<![endif]>

The California SupremeCourt most recently reached this issue in Nedlloyd Lines B.V. v. SuperiorCourt, 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834P.2d 1148 (1992), holding that a choice-of-law clause is bindingon the parties to a contract unless: (1) the chosen state does not have asubstantial relationship to either the parties or the transaction; or (2)application of the chosen state’s law would be contrary to a fundamental policyof a state with a materially greater interest in the particular issue. 834 P.2d at 1152 (adopting Restatement[Second] of Conflict of Laws § 187).

In the instant case,the Bank has its headquarters and sole offices in, and no branches outside,Pennsylvania. Flaherty Decl.,<![if !supportFootnotes]>[4]<![endif]> ¶2. The chosen state —Pennsylvania — isthe headquarters of defendant MMCal. Steed Decl., ¶6. Plaintiff’s loan application wastransmitted to the Bank’s headquarters in Pennsylvania for approval, and nofunds were advanced to plaintiff until after the application had been approvedby the Bank in Pennsylvania. Id.,¶7. The funds advanced to plaintiffwere credited to MMCal’s bank account in Pennsylvania by the Bank before beingadvanced by MMCal to plaintiff. Id.,¶8. Accordingly, Pennsylvania satisfiesthe “substantial relationship” test with respect to the parties, as required byRestatement (Second) of Conflict of Laws § 187.

The sole remainingchoice-of-law question, then, is whether Pennsylvania law on the issue ofarbitrability would be contrary to a fundamental policy of a law of the Stateof California (assuming, without conceding, California to be the state with the“materially greater interest”). Hereplaintiff goes completely astray and engages in an analysis of the respectivestates’ public policies regarding the underlying dispute, ratherthan the respective states’ public policies regarding the formation ofcontracts containing arbitration clauses.California has strong public policy favoring arbitration (see,generally, Moncharsh v. Heily & Blaise, 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899 [1992][“the Legislature has expressed a ‘strong public policy infavor of arbitration as a speedy and relatively inexpensive means of disputeresolution.’” (citations omitted)]).Pennsylvania public policy likewisestrongly favors arbitration on the same grounds. Johnson v. Pennsylvania Nat’l. Ins. Cos., 527 Pa. 504, 594 A.2d 296 (1991); Mendelson v. Shrager, 432Pa. 383, 248 A.2d 234 (1968); FlightwaysCorp. v. Keystone Helicopter Corp., 459 Pa. 660, 331 A.2d 184 (1975). Thus,even assuming, arguendo, that California were the state with the“materially greater interest” in the issue of arbitrability, California’s strongpublic policy favoring arbitration is in harmony with the policy of Pennsylvania,and it therefore would offend no policy of the State of California for thisCourt to apply Pennsylvania law.

Plaintiff claims that defendants have committed violationsof California usury law and that California has a substantial interest inhaving its laws applied to the purported violations.<![if !supportFootnotes]>[5]<![endif]> Plaintiff then “puts the rabbit in the hat”by concluding that California’s substantive-law interest requires thisCourt to apply California law to the issue of arbitrability.

This argument makes no logical sense; it fails for theclear reason that the contract-law principles which determine the arbitrabilityof a dispute may be entirely different from those which determine the underlyingsubstantive-law rights of the parties, and arbitrators may apply the law of anyappropriate jurisdiction to determine the outcome. See, generally, Mastrobuono v. Shearson Lehman Hutton,Inc., 514 U.S. 52, 115S.Ct. 1212, 131 L.Ed.2d 76 (1995).

There is, however, an overarching consideration whichplaintiff misses altogether (and one which is dispositive of plaintiff’sunderlying substantive claims): California has deregulated bank consumerlending, and California has no policy interest whatsoever in the rates and feescharged on loans made by banks; in fact, California has expressly disclaimedany such interest in no less an authority than its state Constitution. Cal. Const. art. XV, § 1(2). Moreover, the California statute under which plaintiff purportsto sue, Cal. Civ. Code § 1789.30et seq., expressly (and necessarily) exemptsfederally chartered banks from its ambit.Cal. Civ. Code § 1789.31(a).

Plaintiff outrageously misstates applicable law when heasserts that “Eagle National Bank and its subsidiaries are required to registerin California to conduct their check cashing business. This is pursuant to the same set of laws asthe ones Plaintiff seeks to enforce.” Pl.Mem. at p. 9. Not only is theBank exempt from the provisions of the California check-cashing law under theexpress terms of the statute itself, Cal. Civ. Code § 1789.31(a), as noted above, but also, as a matter ofpreemptive federal law, California may not regulate the lending activities ofthe Bank. (see, e.g., Tiffany v. National Bank of Missouri,85 U.S. [18 Wall.] 409, 412-13, 21L. Ed. 862 [1874]), nor may the State ofCalifornia examine or supervise the Bank’s lending activities in theState. 12 U.S.C. § 484(a); Barnett Bank v. Nelson, 517 U.S. 25, 116S.Ct. 1103, 134 L.Ed.2d 237 (1996); Franklin Nat’l Bank v. New York, 347U.S. 373, 74 S.Ct. 550, 98 L.Ed. 767 (1954); Conference of Fed. Sav. & Loan Ass’ns v.Stein, 604 F.2d 1256 (9th Cir. 1979), aff’d mem., 445 U.S.921, 100 S.Ct. 1304, 63L.Ed.2d 754 (1980).

No important public-policy interest of California isfrustrated by compelling arbitration of this dispute; California policystrongly favors arbitration of disputes.California has disclaimed any public-policy interest in regulating theinterest rates charged by banks. Buteven if California had such a policy, any such policy would be preempted underSection 30 of the National Bank Act, 12 U.S.C. § 85. Marquette Nat’l Bank of Minneapolis v. First of Omaha ServiceCorp., 439 U.S. 299, 99S.Ct. 540, 58 L. Ed. 2d 534 [1978](a national bank may charge whatever interest is permitted by thelaw of the state where the bank is located).

Accordingly, this Court should apply the substantive lawof contracts of the Commonwealth of Pennsylvania — the law agreed to by theparties in each of plaintiff’s promissory notes — to determine thearbitrability of plaintiff’s claims.

<![if !supportLists]>B.<![endif]>The Arbitration Clause Is Not Procedurally Unconscionable.

Plaintiff’s“unconscionability” argument has both procedural and substantive prongs. First, plaintiff alleges that the procedureemployed by defendants in procuring his assent to the arbitration clause wasunconscionable because the arbitration clause first appeared in the eighth andfinal in a series of “adhesion contracts,” and that inclusion of that newclause in the final form was not called to his attention. Plaintiff also alleges that arbitrationwould be substantively unconscionable as sought to be enforced because of theburden on him of paying tribunal fees.Each of these claims fails.

<![if !supportLists]>1.<![endif]>Under Pennsylvania Law, The Arbitration Agreement WasNot Formed By Unconscionable Means.

The arbitration agreement was set forth in the penultimateparagraph of plaintiff’s September 17, 1998 promissory note, a succinct,single-page promissory note,<![if !supportFootnotes]>[6]<![endif]>in bold-face type of the same size print as the remainder of the promissorynote; the entire paragraph is in bold print, and the heading (“ARBITRATION”) is both bold-faced andcapitalized. The final paragraph of thepromissory note contains plaintiff’s representation in bold, capitalized print:“PRIOR TO SIGNING THIS NOTE, I READ ANDUNDERSTOOD ALL THE PROVISIONS OF THIS NOTE.”

Plaintiff does not complain that any other part of thepromissory note was procedurally unconscionable. Plaintiff thus insists that defendants had a duty to call onlythe arbitration clause to his attention.Such insistence cannot withstand scrutiny under the FAA.

In Doctor’s Assocs., Inc. v.Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134L.Ed.2d 902 (1996),the Supreme Court invalidated a Montana statute that had required the firstpage of a contract providing for arbitration to contain a notice in underlined,capital letters that the contract is subject to arbitration. The Court held that arbitration agreementscannot be subjected to special notice requirements not applicable to contractsgenerally:

Courts may notinvalidate arbitration agreements under state laws applicable only toarbitration provisions. By enacting § 2[of the FAA], we have several times said, Congress precluded States fromsingling out arbitration provisions for suspect status, requiring instead thatsuch provisions be placed “upon the same footing as other contracts.” Montana's [statute] directly conflicts with§ 2 of the FAA because the State's law conditions the enforceability ofarbitration agreements on compliance with a special notice requirement notapplicable to contracts generally.

Id. at 686 (citations omitted).

In Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7thCir.), cert. denied, 118 S.Ct. 47, 139 L. Ed. 2d 13 (1997), the Court of Appealsrejected an argument virtually identical to that espoused by plaintiffhere. In Gateway, plaintiffargued that the arbitration clause — contained in the list of terms which hadbeen sent to plaintiff in the shipping box containing the computer purchased bymail order — was not prominent, did not “stand out” and thus wasunenforceable. 105 F.3d at 1148. The Court rejected that argument in wordsequally applicable to the present case: “Doctor’s Assocs. . . . holdsthat [§ 2] of the Federal Arbitration Act is inconsistent with anyrequirement that an arbitration clause be prominent.” Id. (emphasis added). The present case is an even stronger one forcompelling arbitration, because plaintiff actually signed the promissory notecontaining the arbitration clause, and the clause itself was in bold-face type.

Moreover, as the Gatewaycourtheld, plaintiff, who signed the promissory note containing the arbitrationagreement and expressly acknowledged that he had read, understood and agreed tothe terms thereof, is bound by what he signed.105 F.3d at 1148-49 (“A contract need not be read to be effective;people ... take the risk that the unread terms may in retrospectprove unwelcome ....Competent adults are bound by such documents, read or unread.”).

Pennsylvania law demands the same result: a literate adultmay not avoid a contractual obligation on the ground he did not read orunderstand the terms of the contract. Tosev. First Pennsylvania Bank, N.A., 648 F.2d 879, 900 (3d Cir. 1981)(“Ignoranceof the contents of a document or failure to read before signing is no defenseto a contractual obligation under Pennsylvania law”); Simeone v. Simeone,525 Pa. 392, 581 A.2d 162, 165 (1990)(contracts cannot be voided on ground that an unhappy party failedto read or understand the terms “irrespective of whether the agreementsembodied reasonable or good bargains”); Thrasher v. Rothrock, 377 Pa.562, 105 A.2d 600, 604 (1954)(that contract was not read or was signed in haste is not groundsfor reformation or invalidation). Inshort, under Pennsylvania law, defendants had no obligation to ensure thatplaintiff digested the promissory note’s terms, consulted with counsel or hadtime to deliberate or negotiate. Smithv. Creative Resources, Inc., No. 97-6749, 1998 U.S. Dist. LEXIS 18545 (E.D.Pa. Nov. 23, 1998).

<![if !supportLists]>2.<![endif]>Plaintiff Cannot Avoid Arbitration By Claiming That TheBank Surreptitiously Included An Arbitration Clause In His Final Loan Agreement.

Businesses often change their preprinted forms; and the consumerswith whom they deal often assert in litigation that they were privileged toassume, without reading the new forms, the absence of any change in terms. These assertions are uniformly rejected byfederal courts in the context of arbitration agreements.

In Bhatia v.Johnston, 818 F.2d 418 (5th Cir. 1987), the plaintiff entered into a preprintedcustomer agreement with a brokerage firm that differed from his previouscontract form. Among other things, thenew agreement contained a compulsory arbitration provision which had not beenpresent in his prior contract form.Bhatia alleged, in a manner similar to the claims of the plaintiffherein:

I signed these Agreements according tothe instructions given by Erik Johnston, and I signed where he indicated that Ishould. Mr. Johnston did not explainany of the fine print clauses contained in the Customer’s Agreements. Particularly, he did not explain thesignificance of paragraph 16, the arbitration clause . . . . The Customer’s Agreements were printed and preparedby Dean Witter. I did not negotiatetheir contents nor did I discuss those contents with either Erik Johnston orany other representative of Dean Witter. I was never given any indication thatI could delete or modify paragraph 16 or any other clause in the Agreements . .. I was not aware of the existence ofparagraph 16 until after I brought this lawsuit . . . . .

In a later affidavit, plaintiff averred:

On or about July 21, 1982, Mr. Johnstonbrought over a stack of papers for me to sign, which he on occasion did. Amongthose papers were the Customer’s Agreements with Dean Witter. He pointed themout and instructed me to sign them, telling me that they were the same as theCustomer’s Agreements I had signed at Rotan Mosle . . . .

At no time did Mr. Johnston inform methat the Arbitration Clause in the Dean Witter Agreements was in any waydifferent from the Arbitration Clause in the Rotan Mosle Agreements. At no timedid Mr. Johnston inform me that my legal rights under Dean Witter Agreements werein any way different than my rights had been under the Rotan Mosle Agreements.

Id.at 422. Finding the issueone that went to the formation of the entire agreement and not to thearbitration clause alone, the Court found the issue of the making of theagreement to be arbitrable under the doctrine of Prima Paint Corp. v.Flood & Conklin Mfg., Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270(1967), and directed the parties toarbitrate.

Similarly, and even more to the point, in Shearson Lehman Brothers v. Kilgore, 871 S.W.2d 925 (Tex. App. 1994), no representations were made by the partyresisting arbitration with respect to the absence of changes in the “new”form. The failure to disclose thechange in the agreement was once again held to be an attack on the contract asa whole, rather than merely on the arbitration clause, resulting in a directionthat the parties arbitrate. The courtheld that the attack on the contract was

. . . not sufficiently focused upon the arbitration agreementwhen a party merely fails to read the contract which contains an arbitrationclause of which he is unaware. Eventhough that party may have been induced to sign the contract without reading itby someone with whom he has had prior agreements or oral understandings thatdid not include an arbitration agreement, if there have been no specificnegotiations or representations concerning arbitration, any fraudulentinducement is considered to be directed at the signing of the contractgenerally and not at the arbitration clause within that contract. SeeBhatia; R.M. Perez & Associates, Inc. v. Welch, 960 F.2d 534,538-39 (5th Cir. 1992).

In the present case, Glover admits thatPalmacci, Shearson’s agent, never discussed arbitration with him prior toGlover signing the written agreement. Therefore, in accordance with the federalcourts’ interpretation of the Federal Arbitration Act, we hold that Glover'sallegation of fraud is directed at the contract as a whole, rather than at thearbitration agreement specifically, and that the trial court incorrectly failedto abate the present lawsuit pending arbitration.

Id.at 928-29(emphasis added); accord, Haynsworth v. The Corporation, 121 F.3d956, 963-64 (5th Cir. 1997); Benoay v. Prudential-Bache Secs. Inc.,805 F.2d 1437, 1441 (11th Cir. 1986)(statingthat claims of “adhesion, unconscionability, waiver of judicial remedieswithout knowledge, and lack of mutuality of obligation” are to be decided byarbitrator); Schacht v. Beacon Ins. Co., 742 F.2d 386, 389-90 (7th Cir.1984)(same).

Thus, any dispute regarding the manner in which the September17, 1998 promissory note was presented to and executed by plaintiff must bereferred to arbitration in accordance with the parties’ agreement.

<![if !supportLists]>C.<![endif]>Arbitration Is Not An Inherently Unconscionable MeansOf Resolving Consumer Disputes.

Plaintiffargues that the arbitration agreement contained in the promissory note isunconscionable because it is substantively unfair. He points out that, even though defendants will advance hisfiling fees for the arbitration of this dispute, he may be compelled to payarbitration costs if he loses — costs he would not be required to pay if herewere merely an unsuccessful litigant in a state or federal court.

As a threshold matter, plaintiff argues that the arbitrationagreement is unconscionable because it is adhesive in nature. However, plaintiff’s promissory notes arenot truly contracts of adhesion.Plaintiff was not required to seek a loan from defendants; a similarservice is offered at hundreds of other retail outlets in California. Moreover, upon maturity of his final loan,instead of entering into the eighth transaction with the Bank containing thearbitration clause, plaintiff could have refinanced his Bank loan with theproceeds of a loan from a competitor.Instead, plaintiff voluntarily chose to engage in each of histransactions with the Bank and agreed to be bound by the proffered contractualterms, one of which was arbitration.

The Ninth Circuit’s rejection of this “substantive unconscionability”notion came relatively early in Cohen v. Wedbush,Noble, Cooke, Inc., 841 F.2d 282, 285 (9th Cir. 1988), a case whichdefendants have previously cited in their opening brief. This Circuit’s Court of Appeals adopted theSeventh Circuit’s reasoning in Pierson v. Dean, Witter, Reynolds, Inc.,742 F.2d 334, 339 (7th Cir. 1984), where the plaintiff alleged,as plaintiff does here, “thatthe arbitration clause is unenforceable as an unconscionable provision of acontract of adhesion.” 841 F.2d at285. The Court of Appealsrejected the claim that an agreement to arbitrate was unconscionable whereplaintiffs made no showing that the agreement was commercially unreasonable orthat they had no reasonable opportunity to understand it. In the case at bar, as in Cohen, itcannot be said that the arbitration clause contained in the Bank’s promissorynote was either commercially unreasonable or that plaintiff had no opportunityto understand it. Accord, McCarthyv. Providential Corp., 122 F.3d 1242 (9th Cir. 1997), cert. denied,119 S.Ct. 275, 142 L.Ed.2d 227 (1998).

There is overwhelming authority under Pennsylvania law forthe proposition that arbitration agreements are not unconscionable even if theyare, as plaintiff asserts, “adhesive.” In the leading Third Circuit case, Seus v. John Nuveen & Co., 146 F.3d 175 (3d Cir. 1998), cert. denied, 119 S.Ct.1028, 143 L.Ed.2d 38 (1999), plaintiff sought to avoid arbitration of herstatutory employment-discrimination claim against her employer. The Court first analyzed Pennsylvania law ofunconscionability and concluded that arbitration is not substantivelyunconscionable because it does not unreasonably favor either party, nor doeseither party give up any of its substantive rights:

Moreover, even if we were to assume arguendo that the Form U-4is a contract of adhesion, it would not be unenforceable. A contract of adhesionis invalid only where its terms unreasonably favor the other party. Seee.g., Witmer v. Exxon Corp., 495 Pa. 540, 434 A.2d 1222, 1228 (Pa. 1981). In order for a contract to be invalidated asa contract of adhesion, the plaintiff“must allege both a lack of meaningful choice about whether to accept the provision in question, and that thedisputed provisions were so one-sided as to be oppressive.” Stebok v. American Gen. Life &Accident Ins. Co., 715 F.Supp. 711, 714 (W.D. Pa.), aff’d, 888 F.2d1382 (3d Cir. 1989). The district courtfound, however, that the terms of Seus’s Form U-4 were neither oppressive norunconscionable. Similarly, the district court in Beauchamp v. Great WestLife Assurance Co. concluded that the Form U-4 is not oppressive orunconscionable, explaining: The Gilmer[v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)] courthas held that plaintiff is not giving up substantive statutory rights througharbitration of her Title VIIclaim. Thus, her agreement to arbitrateis not substantively unconscionable.Nor is the language of the U-4 form unconscionable in that it misrepresentsthe existence or scope of the arbitrationclause. The U-4 form clearly states that the applicant should read itsprovisions very carefully and that any claim between plaintiff and her firmwould be arbitrated if required by the arbitration code of the organization with which she registered.

Id., 146 F.3d at 184-85. Applying thisreasoning to the case at bar, because plaintiff cannot make any of the requiredshowings — absence of meaningful choice, oppressive contract provisions andrelinquishment of statutory rights — the arbitration clause in plaintiff’spromissory note may not be set aside on unconscionability grounds.<![if !supportFootnotes]>[7]<![endif]>

The same result was reached with respect to an arbitrationclause contained in an employee handbook:

Inaddition, this court does not find that Mr. Wetzel was subject to an adhesioncontract. “Mere inequality of bargaining power . . . is not a sufficientreason to hold that arbitrationagreements are never enforceable ....” Gilmer, 500 U.S. at 33. Defendant’sCDRP is not so unfair or unreasonable as to offend public policy and so be voidas an adhesion contract.

Wetzel v. BaldwinHardware Corp., No. 98-3257,1999 U.S. Dist. LEXIS 1227 (W.D. Pa. Jan. 29, 1999).

In Trottv. Paciolla, 748 F.Supp. 305, 309 (E.D. Pa. 1990), the court rejected an argument thata similar arbitration clause in a customer agreement between an investor and abrokerage firm was a contract of adhesion, holding: “Most importantly, however,plaintiffs have cited no authority to support the notion that an arbitrationclause is a contractual term that plaintiffs should have opposed or one that isinherently favorable to [the draftsman].On the contrary, such a proposition flies in the face of strong publicpolicies favoring arbitration.”

Authoritiesfrom other jurisdictions are universally in accord. The court in Roberson v. The Money Tree of Alabama,Inc., 954 F.Supp. 1519 (M.D. Ala. 1997), also rejected allegations that an arbitrationagreement was an unconscionable adhesion contract. Like plaintiff in this case, plaintiffs in Robersonasserted that the arbitration agreement contained in their loan documents was acontract of adhesion because they were offered no meaningful choice oropportunity to negotiate the terms and did not understand theirsignificance. The court held that evenif the contract was adhesive, that did not make it unconscionable. It then observed that “[a] court must bewary of finding a contract unconscionable where the plaintiff is ‘left withsome place to go ....’”Id.Thecourt concluded that “the arbitration clause [was not] so unfavorable to theRobersons that it simply would not have been reasonable for them knowingly toaccept it, given any meaningful choice.”Id.at1525.

See also, e.g., Gammaro v.Thorp Consumer Discount Co., 15 F.3d 93, 95 (8th Cir. 1994)(clause requiring binding arbitration before the NationalArbitration Forum held to be “not unconscionable”); Stiles v. Home CableConcepts, 994 F.Supp. 1410, 1418 (M.D. Ala. 1998)(“contracts of adhesion are not per se unconscionable, and have anumber of social benefits”); Kelly v. UHC Management Company, Inc., 967F.Supp. 1240, 1257 (N.D. Ala. 1997)(“nothing about the present [arbitration]agreement is unconscionable or overbearing.It simply requires the plaintiffs to submit their . . . claims toarbitration rather than sue in court.”); Graham v. State Farm MutualAutomobile Ins. Co., 565 A.2d 908 (Del. 1989)(provision of insurance policy requiring arbitration of uninsuredmotorist coverage dispute was not unconscionable, even though policy was acontract of adhesion, where the arbitration clause did not unfairly favor theinsurer).

Therefore, plaintiff’s arbitration agreement should beenforced, as required by the FAA, in accordance with its terms.

<![if !supportLists]>D.<![endif]>The Arbitration Clause Is Not “Revocable” MerelyBecause Plaintiff May Be Required To Pay Arbitration Costs.

Thevery essence of arbitration is that the parties, by agreement, submit theirdispute to a private, non-judicial forum for resolution; that forum, unlike thecourts, is paid for by the parties themselves, rather than from taxpayerreceipts. Federal policy stronglyfavors this private, non-judicial system of resolution of disputes. Mitsubishi Motors Corp. v. SolerChrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444(1985). If arbitration agreements were subject to avoidance on the groundthat the aggrieved party could be required to contribute to the costs ofarbitrator compensation and forum fees, then the FAA’s policy objectives couldbe easily thwarted by any party to an arbitration agreement who asserts orfeigns indigence. For this reason, notone single federal court had adopted the argument advanced by plaintiff in thiscase — that arbitration is unfair because it costs more than the essentially“free” public courts — despite its frequent assertion.

Plaintiffargues disingenuously that, but for the arbitration clause, he would have hadthe option of pursuing this dispute in small claims for a mere $20 filingfee. Pl. Mem. at p.14. As this Court can well imagine, ifthis proceeding were solely about matters cognizable in small claims, and ifplaintiff had indeed pursued them in that forum only, it is extremely unlikelythat defendants would have sought to compel arbitration. Rather, plaintiff admits that he seeks toact as a “private attorney general” under Cal. Bus. & Prof. Code § 17200;he prays for restitution not only for himself but also for everysimilarly situated borrower, as well as for injunctive relief against theBank’s lending practices. Pl. Mem.at pp. 2, 6. The Court may properlyassume that the stakes for the Bank are substantial, as indeed the Bank assertsin its unopposed motion for leave to intervene. Having voluntarily assumed the task of vindicating not only hisown putative rights of minimal dollar value, but also those of a potentiallyvery large class of non-parties,<![if !supportFootnotes]>[8]<![endif]>plaintiff should not be heard to complain of the unfairness of the costs ofarbitration relative to the size of his claims alone.

Nevertheless,even if plaintiff’s rights alone were sought to be vindicated, federal policyso strongly favors arbitration that arbitration must be compelled. In Doctor’s Assoc., Inc. v. Stuart,85 F.3d 975 (2d Cir. 1996), defendants, plaintiff’s franchisees, resistedarbitration by claiming that the arbitration clause in their franchiseagreement was unconscionable because it did not disclose, inter alia,that: (1) the American Arbitration Association charges as much as $5,000 forfiling and administration fees; (2) the high cost of arbitrating in Connecticut— including travel and lodging expenses for the franchisee and his or herattorney — necessitates the franchisee to win the arbitration to break evenfinancially; and (3) the franchisee must pay half of the hourly charges of thearbitrators, who are often attorneys with high-priced rates. These claims were rejected by the SecondCircuit. Quoting Volt Info.Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), the Court of Appealsrestated that “The federal policy is simply to ensure the enforceability,according to their terms, of private agreements to arbitrate.” 85 F.3d at 980.

Defendants’ Fair Treatment Guarantee — which was prominentlyposted and made available to plaintiff, but which he claims to have failed totake, read and retain — put plaintiff on notice that he was potentiallyresponsible for costs of arbitration.As the Second Circuit held in Stuart, “[c]ertainly [plaintiff]could have inquired about the typical fees charged by [the tribunal administrator]and its arbitrators. See generallyVolt Info. Sciences, 489 U.S. at 479 (‘Arbitration under the [FAA] is amatter of consent, not coercion, and parties are generally free to structuretheir arbitration agreements as they see fit.’).” Id.at 981.

Similar claims in avoidance of arbitration were consideredin Rollins, Inc. v. Foster, 991 F.Supp. 1426 (M.D. Ala. 1998).Foster had sought the services of Rollins to spray her trailerhome for roaches. When a dispute laterarose, Foster alleged that she was unable to afford the costs of arbitrationand that she should be permitted to litigate her dispute in court. The district court rejected her claim:

Althoughthe Supreme Court has stated that “courts should remain attuned towell-supported claims that the agreement to arbitrate resulted from the sort offraud or overwhelming economic power that would provide the grounds ‘for the revocation of any contract,’” Gilmerv. Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111 S.Ct. 1647, 1656,114 L. Ed. 2d 26 (1991) (quoting Mitsubishi Motors Corp. v. SolerChrysler-Plymouth, Inc., 473 U.S. 614,627, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985)), the Court has alsonoted that “any doubts concerning the scope of arbitrable issues should beresolved in favor of arbitration.” MosesH. Cone, 460 U.S. at 24-25, 103 S.Ct. at 941.

Id.at 1439.

Plaintiff relies heavily on a California case, Spencev. Omnibus Industries, 44 Cal.App.3d 970, 119 Cal.Rptr. 171 (1975), for the proposition that a court may refuse toenforce an arbitration clause when the arbitration filing fee may be beyond themeans of a consumer claimant. As notedabove, Pennsylvania law — not California law — applies to the formation of theparties’ arbitration agreement.Nevertheless Spence is otherwise readily distinguishable from thecase at bar. The arbitration clause in Spencewas, as plaintiff notes, “hidden in a printed page of ‘terms and conditions’”of more than 2,000 words, with the arbitration clause on the reverse of thedocument; the “surprise” element of the inclusion of the arbitration clausefigured heavily in the Spence court’s decision. In contrast, here the arbitration clauseappears in bold-face print immediately above plaintiff’s signature in aconcise, single-page document, all of which is highly legible and in ten-pointtype. In any event, under the FAA — incontrast to California state law — a court may not take into account theprominence of an arbitration clause in determining its enforceability. Doctor’sAssocs., Inc. v. Casarotto,supra, 517 U.S. at 687.

Finally, and most importantly,in contrast to the Spence plaintiff, where the American ArbitrationAssociation’s rules required payment of a substantial filing fee, the J·A·M·S/Endisputerules applicable to the case at bar expressly provide for plaintiff to proceed informa pauperis,<![if !supportFootnotes]>[9]<![endif]>and the defendants herein have already agreed to advance plaintiff’s filingfee, thereby assuring him of a forum for this dispute without limitation onremedies.

Had Spence beendetermined under the FAA instead of under state law, a contrary result wouldcertainly have obtained.<![if !supportFootnotes]>[10]<![endif]> Once having found an arbitration agreementto have been made, a district court has no discretion on this issue; the FAA mandates that parties be directed toarbitrate. Dean Witter Reynolds Inc.v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).As noted supra, p. 17, claims of adhesion andunconscionability, under federal law, must be decided by the arbitrator, not bythe Court.

Theclosest any federal court has come to adopting plaintiff’s arguments regardingthe “unconscionable” costs of arbitration is Cole v. Burns Int’l Secur. Svcs., Inc., 105 F.3d 1465 (D.C. Cir. 1997), and its facts areinstructive. Cole, a former securityguard employed by Burns, sought to overturn the district court’s orderdismissing his Title VII employment-discrimination complaint and compellingarbitration of his disputes. The lowercourt had held that his statutory claims of employment discrimination werearbitrable pursuant to the FAA, and it directed arbitration before the AmericanArbitration Association in accordance with the parties’ agreement. On appeal, Burns raised what the Court ofAppeals characterized as “an issue not directly presented in Gilmer orany other Supreme Court case to date: can an employer require an employee toarbitrate all disputes and also require the employee to pay all or part of thearbitrators’ fees?” 105 F.3d at 1467.

The D.C. Circuit resolved the issue by striking an aberrantcompromise: it found the dispute to be arbitrable under the FAA, butthen directed Burns to pay all of Cole’s tribunal fees. Id.at 1486. The dissent makesclear how aberrant the majority holding is:

By conditioning arbitration on the employer’sassumption of arbitrator costs, [footnote omitted] the majority engages in purejudicial fee shifting which finds no support in the FAA, Gilmer or theparties’ agreement, not one of which addresses arbitration fee allocation. Yet, relying on this very silence, themajority now declares that the employer must bear the costs, regardless of theoutcome or the merits of the parties’ positions, because of the majority’s ownspeculation on what the arbitration costs will be and who will be required topay them — factual matters never presented to the district court or even arguedby the parties on appeal.

Id.at 1489.

The case at bar is thus distinguishable from Cole becauseof the explicit provision, in both the Fair Treatment Guarantee and the forumrules of J·A·M·S/Endispute (see discussion, infra, p. 28) provide for fee-shifting under precisely the circ*mstancesof indigence that plaintiff claims.Since plaintiff has an arbitral remedy for precisely the fee issue ofwhich he complains, he should be compelled to pursue it. Accordingly, defendants urge that the Courtshould refer the extent and nature of any fee-shifting to the arbitrationtribunal to be determined in accordance with its rules and the parties’ agreement.

This is exactly the result reached by the court in Couglinv. Shimizu America Corp., 991 F.Supp.1226 (D. Ore. 1998). The Coughlinplaintiff asked the court to take judicial notice of the American ArbitrationAssociation’s applicable rules, which, he claimed, would “unconscionably”require him to advance a $2,000 filing fee to pursue hisemployment-discrimination claim. Thecourt told Coughlin to direct this argument to the arbitrator. Id.at1232.

In the instant case, plaintiff can and should be told todirect his claims of indigence to the arbitration tribunal. As noted in the following section, the rulesof the tribunal provide for precisely the relief plaintiff seeks.

<![if !supportLists]>E.<![endif]>Plaintiff HasFailed To Exhaust Or Even Explore His Ability To Proceed In Forma Pauperis InArbitration

Although plaintiffclaims to be unable to afford arbitration, he has not exhausted or evenattempted to invoke the procedures of J·A·M·S/Endispute, the parties’chosen arbitration forum, that would allow him to proceed in formapauperis.

Plaintiff convenientlyattaches to his opposition papers a copy of the J·A·M·S/EndisputeFinancial Services Rules and Procedures, which provide, in pertinent part, asfollows:

(d) A Party who claims an inability topay J·A·M·S/Endispute’s fees and expenses may file a request that such fees andexpenses be assessed to other Parties in the Arbitration, subject to are-allocation of such fees and expenses by the Arbitrator . . . . The J·A·M·S/Endispute Financial ServicesProduct Manager under the supervision of the Vice President of ProfessionalServices will promptly rule on such a request and, under appropriatecirc*mstances, J·A·M·S/Endispute may attempt to reach agreement between theParties as to a different allocation of costs.J·A·M·S/Endispute may reallocate fees and expenses relating to theArbitration only when a Party to a pending Arbitration sufficientlydemonstrates the need. However, undersuch circ*mstances J·A·M·S/Endispute shall, at a minimum, charge the Party areasonable non-refundable administrative fee.

J·A·M·S/Endispute Financial Services Rules andProcedures at p. 12, Rule 28.

Defendants already have unequivocally agreed to pay the“reasonable non-refundable administrative fee”<![if !supportFootnotes]>[11]<![endif]>required under J·A·M·S/Endispute Rule 28(d) for initiation and processing ofplaintiff’s claim. Thus, plaintiff isnot deprived of access to a forum. Inthe language of Roberson v.The Money Tree of Alabama, Inc., supra,954 F.Supp. at 1525, plaintiff is “‘left with some place to go....’” Plaintiffshould be required to seek in forma pauperis relief fromJ·A·M·S/Endispute in accordance with its rules.

<![if !supportLists]>F.<![endif]>The Arbitration Clause Applies To All PriorTransactions Between The Parties

Plaintiff disingenuously argues — despite the expresslanguage of the final promissory note indicating his acceptance of defendants’Fair Treatment Guarantee requiring him to arbitrate “disputes” — that sucharbitration should be limited only to the final transaction and not to any ofplaintiff’s prior transactions with defendants. That claim cannot stand in face of the language of the noteitself, which is not limited to disputes arising out of that particulartransaction. Courts routinely construesuch clauses to extend to prior transactions, for the simple reason that “[t]he parties’ intentions are generously construedas to issues of arbitrability.” Mitsubishi, 473 U.S. at 626. Belkev. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir.1982), abrogated on other groundsby Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84L.Ed.2d 158 (1985); Buraczynski v. Eyring,919 S.W.2d 314, 319 (Tenn. 1996); R.M. Perez & Assocs., Inc. v. Welch,960 F.2d 534, 539 (5th Cir. 1992); Bevere v. Oppenheimer& Co., 862 F.Supp. 1243, 1246 n.4 (D.N.J. 1994); Dean Witter Reynolds Inc.v. Prouse, 831 F.Supp. 328, 331 (S.D.N.Y. 1993); Merrill Lynch, Pierce,Fenner & Smith, Inc. v. King, 804 F.Supp. 1512, 1514 (M.D. Fla. 1992), aff’d,3 F.3d 443 (11th Cir. 1993); Trott v. Paciolla, 748 F.Supp. 305,308-09 (E.D. Pa. 1990); A.G. Edwards & Sons,Inc. v. Syvrud, 597 So. 2d 197, 201 (Ala. 1992); Frates v. Edward D. Jones& Co., 760 P.2d 748, 752 (Mont. 1988); Bernstein v.Shearson/American Express, Inc., No. 86 Civ.5055, 1987 U.S. Dist. LEXIS 816719 (S.D.N.Y.Sep.10, 1987).

Illustrative of this principle is Whisler v. H.J.Meyers & Co., 948 F.Supp. 798, 800 (N.D. Ill. 1996), wherein plaintiffs allegedthat defendants had mishandled their securities brokerage accounts for morethan two years. Defendants moved tocompel arbitration pursuant to a clause which covered, inter alia,“[a]ny controversy arising out of or relating to any of my accounts ....” Although plaintiffs claimed that the clausedid not apply to transactions conducted prior to their execution of thecontract containing the arbitration clause, the court compelled arbitration. The court held that because the arbitrationclause applied to controversies arising out of “my accounts,” the transactionsthat occurred prior to the signing of the contract were covered by thearbitration clause. Any doubts, thecourt instructed, were required by the FAA to be resolved in favor ofarbitration. 948 F.Supp. at 802.

Likewise, in Rand Bond of North America, Inc. v. SaulStone & Co., 726 F.Supp. 684 (N.D. Ill. 1989), plaintiff argued that anarbitration clause contained in a contract with defendant could not be enforcedto compel arbitration of a dispute that had matured before the contract wassigned. The clause applied to any claimor controversy arising out of or relating to “your accounts.” The court held that plaintiff was requiredto arbitrate the pre-existing dispute because it applied to “accounts”: “Whatis involved is a straightforward assertion of a controversy or claim concerning. . . Rand Bond’s account with Stone.That comes squarely within the unconditional scope of the ArbitrationAgreement.” Id.at 688.

Whisler and Rand Bond merely illustrate the well-establishedprinciple that parties are free to contract for almost any lawful applicationof an arbitration clause that they desire.As was recently observed in Harper v. United Healthcare Corp.,No. 97 C 4497, 1998 U.S. Dist. LEXIS 15412 (N.D. Ill. Sep. 22, 1998):

“[S]hort of authorizing trial by battleor ordeal, or . . . by a panel of three monkeys, parties can stipulate towhatever procedures they want to govern the arbitration of their disputes;parties are as free to specify idiosyncratic terms of arbitration as they areto specify any other terms in their contract.”

quoting Baravati v. Josephthal, Lyon &Ross, Inc., 28 F.3d 704, 709 (7th Cir. 1994). Moreover, the FAA mandates that courts areobligated to enforce the parties’ agreement to arbitrate in accordance with itsterms. 9 U.S.C. § 4.

Accordingly, this Court should enforce the arbitrationagreement pursuant to its express terms and remit plaintiff’s “disputes” with defendantsto arbitration. A fortiori,given the express terms of the incorporated Fair Treatment Guarantee (“eitheryou or we may choose to resolve any dispute between you and us through bindingarbitration [and not the courts], including any dispute relating to priorevents or to this document,” Flaherty Decl., ¶8 and Exhibit“B” [emphasis added]), plaintiff may not avoid the arbitration of hispre-September 17, 1998 claims. Thebroad arbitration clause contained in the Fair Treatment Guarantee unquestionablycovers all of the claims asserted in the complaint. All of the claims in the complaint arise out of either the September17 loan extension or “prior events” and are thus subject to arbitration.

Accordingly, arbitration should be ordered of all of plaintiff’sclaims, not merely those relating to his final transaction with the Bank.

Preemptive federal law requires that “any doubts concerningthe scope of arbitrable issues should be resolved in favor ofarbitration.” Mitsubishi, 473U.S. at 626. Plaintiff has attempted togenerate such doubts and to deflect the Court’s attention from his unequivocal agreementfor the arbitration of “disputes” with defendants, including disputes relatingto “prior events.” Plaintiff does not,however, satisfy the heavy burden of showing “with positive assurance” that heshould not be required to arbitrate the claims he asserts in this action.

Plaintiff’s final arguments (Pl. Mem., pp.15-18), to the extent that they attack the concept of arbitration merely topreserve for appeal his objection to well-settled principles of existing law,are adequately addressed in defendants’ opening brief (at pp. 11-13) and arenot replied to in this memorandum.

For all of the reasons set forth herein, the partiesshould be directed to arbitrate, and this Court should stay this action pendingthe award of the arbitrator.