TABLE OF AUTHORITIES

Cases

A & M Produce 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. Vintero Sales 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 Witter Reynolds Inc. v. Prouse,
831 F. Supp. 328 (S.D.N.Y. 1993)............................ 30

Doctor’s Assoc., 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 Options of 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. State Farm 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. Gateway 2000, Inc.,
105 F.3d 1147 (7th Cir.),
cert. denied, 118 S.Ct. 47, 139 L. Ed. 2d 13 (1997)..... 12, 13

IBEW, Local 4 v. 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. UHC Management 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 Systems Corp. v. UIPS,
956 F.Supp. 538 (N.D. Cal. 1994)............................ 23

Marquette Nat’l Bank of Minneapolis v. First of Omaha Service Corp.,
439 U.S. 299, 99 S.Ct. 540, 58 L. 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

Mitsubishi Motors 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.2d 183, 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 Paint Corp. v. Flood & Conklin Mfg., Co.,
388 U.S. 395, 87 S. Ct. 1801, 18 L.Ed.2d 1270 (1967)........ 15

R.M. Perez & Assocs., Inc. v. Welch,
960 F.2d 534 (5th Cir. 1992)................................ 30

Rand Bond of North America, Inc. v. Saul Stone & Co.,
726 F.Supp. 684 (N.D. Ill. 1989)............................ 31

Roberson v. The Money Tree of Alabama, Inc.,
954 F.Supp. 1519 (M.D. Ala. 1997)................... 20, 21, 29

Rollins, Inc. v. Foster,
991 F.Supp. 1426 (M.D. Ala. 1998)....................... 24, 25

S.A. Mineracao Da Trindade-Samitri v. Utah Int’l, Inc.,
745 F.2d 190 (2d Cir. 1984).................................. 4

Schacht v. Beacon Ins. Co.,
742 F.2d 386 (7th Cir. 1984)................................ 16

Schoenberg v. Exportadora de Sal, S.A. de C.V.,
930 F.2d 777 (9th Cir. 1991)................................. 6

Seus v. John Nuveen & Co.,
146 F.3d 175 (3d Cir. 1998),
cert. denied, 119 S.Ct. 1028, 143 L.Ed.2d 38 (1999)..... 18, 19

Shearson Lehman Brothers v. Kilgore,
871 S.W.2d 925 (Tex. App. 1994)............................. 15

Simeone v. Simeone,
525 Pa. 392, 581 A.2d 162 (1990)............................ 13

Smith v. Creative Resources, Inc.,
No. 97-6749, 1998 U.S. Dist. LEXIS 18545
(E.D. Pa. Nov. 23, 1998).................................... 14

Spence v. Omnibus Industries,
44 Cal.App.3d 970, 119 Cal.Rptr. 171 (1975)................. 25

Stiles v. Home Cable Concepts,
994 F.Supp. 1410 (M.D. Ala. 1998)........................... 21

Stirlen v. Supercuts, Inc.,
51 Cal.App.4th 1519, 60 Cal.Rptr. 2d 138 (1997)............. 19

Thrasher v. Rothrock,
377 Pa. 562, 105 A.2d 600 (1954)............................ 13

Tiffany v. National Bank of Missouri,
85 U.S. (18 Wall.) 409, 21 L.Ed. 862 (1874).................. 9

Tose v. First Pennsylvania Bank, N.A.,
648 F.2d 879, 900 (3d Cir. 1981)............................ 13

Trott v. Paciolla,
748 F.Supp. 305 (E.D. Pa. 1990)............................. 20

Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ.,
489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)........ 24

Wetzel v. Baldwin Hardware Corp.,
No. 98-3257, 1999 U.S. Dist. LEXIS 1227
(W.D. Pa. Jan. 29, 1999).................................... 20

Whisler v. H.J. Meyers & Co.,
948 F. Supp. 798 (N.D. Ill. 1996)........................... 30

Statutes

12 U.S.C. § 484(a)............................................ 10

12 U.S.C. § 85............................................ 10, 33

9 U.S.C. § 1................................................... 1

9 U.S.C. § 4.................................................. 32

Cal. Bus. & Prof. Code § 17200................................ 22

Cal. Civ. Code § 1789.30....................................... 9

Cal. Civ. Code § 1789.31(a)................................ 9, 10

Cal. Const. art. XV, §1(2)..................................... 9

Other Authorities

Restatement (Second) of Conflict of Laws § 187.............. 6, 7

I.
INTRODUCTORY STATEMENT

This joint reply memorandum is submitted on behalf of defendant Monetary Management of California, Inc. (“MMCal”) and proposed intervenor-defendant Eagle National Bank (the “Bank”), in further support of their joint motion to compel arbitration of plaintiff’s claims and to stay this action pending the award of the arbitrator.[1]

Plaintiff does not oppose the motion of the Bank — the identified lender in each of plaintiff’s loan transactions — for leave to intervene as a defendant in this action, nor does he dispute the Bank’s relationship with him as the lender in each of his loan transactions.

Plaintiff does not contest the interstate-commerce nexus of the transactions at issue, and he thus acquiesces in the application of federal law — the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”) — to the determination of this motion.

Plaintiff admits that he executed the Bank’s September 17, 1998 promissory note, which stated as follows:

ARBITRATION. In return for this loan, I have accepted Lender’s Fair Treatment Guarantee, which includes an agreement to arbitrate disputes at the option of either party. That arbitration agreement is part of this Note.

Plaintiff nevertheless opposes arbitration of his claims. Plaintiff argues that the arbitration clause contained in his September 17, 1998 promissory note is “revocable”; and he asks the Court to permit him to revoke it on three grounds:

First, plaintiff argues that the since the arbitration agreement was contained only in the last of his several transactions with the Bank, it should not apply to his prior transactions. Plaintiff makes this argument despite the unequivocal wording of the incorporated Fair Treatment Guarantee which, by its terms, applies to “any dispute,” including those relating to “prior events.”

Plaintiff claims that he did not receive a copy of the Fair Treatment Guarantee. However, the promissory note plaintiff signed states that he has accepted the Fair Treatment Guarantee and also refers to the arbitration agreement contained in that Fair Treatment Guarantee.

As defendants show by the accompanying declaration of Randy Steed, MMCal’s Director of Operations (“Steed Decl.”), the Fair Treatment Guarantee was prominently (and unavoidably) posted in front of the teller window where plaintiff transacted his September 17, 1998 loan, and a copy of the Fair Treatment Guarantee is offered to every borrower as a matter of invariable practice. Steed Decl., ¶5. Copies of the Fair Treatment Guarantee are affixed to a tear-off pad on an easel with the words “IMPORTANT INFORMATION – Please Take One” in large red letters. Photographs showing the prominence of this display at the Bakersfield store where plaintiff obtained his Bank loan accompany this memorandum. Steed Decl., ¶3 and Exhibit “A.”

Thus, defendants urge, plaintiff is charged with knowledge of the contents of the Fair Treatment Guarantee even if he did not actually choose to take a copy — not only because of the prominence of the display, but also, even more importantly, because plaintiff acknowledged in writing in the promissory note that he would be bound by it. Moreover, even if the Fair Treatment Guarantee had never been exhibited or offered to plaintiff, he would still unequivocally have agreed to arbitrate disputes as provided in the promissory note.

Second, plaintiff argues that the arbitration clause is unconscionable under California law, and he asks that he be permitted to “revoke” it. The FAA requires plaintiff’s claims of adhesion and unconscionability to be decided by the arbitrator, not by the district court.

But even if this Court wishes to address this issue, plaintiff alleges no facts (other than a conclusory statement of his counsel that he regards the choice-of-law facts as “pretty apparent”) as grounds to ignore the parties’ contractual choice of Pennsylvania substantive law. Under Pennsylvania law, the arbitration agreement is not unconscionable and would be required to be enforced in accordance with its terms.

In this regard, plaintiff argues that arbitration is “substantively” unconscionable, because J·A·M·S/Endispute, the parties’ contractual choice of independent arbitration administrator, charges fees which might ultimately be taxed to plaintiff if he does not prevail. This argument has been consistently rejected by every federal court that has considered it. The very nature of arbitration is that the parties choose a private (i.e., party-paid) forum for resolution of their disputes in lieu of the judicial system subsidized with tax dollars. In the instant case, because defendants have already expressed in writing their willingness to advance the forum fees to enable plaintiff to initiate arbitration with J·A·M·S/Endispute, plaintiff would not be effectively denied a forum for the resolution of this dispute. Moreover, because plaintiff has not even attempted to pursue the internal procedures of J·A·M·S/Endispute that could allow him to proceed in forma pauperis, his objection to arbitration on this ground is premature and unripe.

Third, and finally, plaintiff takes issue with the arbitrability of this dispute on the ground that the instant dispute is in a “rare category” of cases in which the legal issues involve issues of public policy which are “ill suited to arbitration.” Plaintiff acknowledges, however, and asks this Court to contravene, controlling U.S. Supreme Court precedent which requires precisely the opposite of the result plaintiff urges. Defendants have addressed these issues in their prior submission and do not belabor them here.

As defendants have previously argued, plaintiff bears the heavy burden of showing “with positive assurance”[2] that the parties’ agreement to arbitrate “any” dispute precludes arbitration of the claims he asserts in this action. Plaintiff has failed to carry that burden. Accordingly, arbitration should be directed, and this action should be stayed.

II.
ARGUMENT

A. Pennsylvania Law Governs Plaintiff’s “Unconscionability” Claim.

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

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

The first step in this analysis is to apply the appropriate conflicts-of-law rules. Although defendants disagree with plaintiff’s analysis — federal common law conflicts rules, rather than California state law rules, should be applied to this case — this is one dispute that this Court need not resolve; the application of either set of rules produces substantially the same result.[3]

The California Supreme Court most recently reached this issue in Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (1992), holding that a choice-of-law clause is binding on the parties to a contract unless: (1) the chosen state does not have a substantial relationship to either the parties or the transaction; or (2) application of the chosen state’s law would be contrary to a fundamental policy of 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.,[4] ¶2. The chosen state — Pennsylvania — is the headquarters of defendant MMCal. Steed Decl., ¶6. Plaintiff’s loan application was transmitted to the Bank’s headquarters in Pennsylvania for approval, and no funds were advanced to plaintiff until after the application had been approved by the Bank in Pennsylvania. Id., ¶7. The funds advanced to plaintiff were credited to MMCal’s bank account in Pennsylvania by the Bank before being advanced by MMCal to plaintiff. Id., ¶8. Accordingly, Pennsylvania satisfies the “substantial relationship” test with respect to the parties, as required by Restatement (Second) of Conflict of Laws § 187.

The sole remaining choice-of-law question, then, is whether Pennsylvania law on the issue of arbitrability would be contrary to a fundamental policy of a law of the State of California (assuming, without conceding, California to be the state with the “materially greater interest”). Here plaintiff goes completely astray and engages in an analysis of the respective states’ public policies regarding the underlying dispute, rather than the respective states’ public policies regarding the formation of contracts 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 in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’” (citations omitted)]). Pennsylvania public policy likewise strongly favors arbitration on the same grounds. Johnson v. Pennsylvania Nat’l. Ins. Cos., 527 Pa. 504, 594 A.2d 296 (1991); Mendelson v. Shrager, 432 Pa. 383, 248 A.2d 234 (1968); Flightways Corp. 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 strong public policy favoring arbitration is in harmony with the policy of Pennsylvania, and it therefore would offend no policy of the State of California for this Court to apply Pennsylvania law.

Plaintiff claims that defendants have committed violations of California usury law and that California has a substantial interest in having its laws applied to the purported violations.[5] Plaintiff then “puts the rabbit in the hat” by concluding that California’s substantive-law interest requires this Court to apply California law to the issue of arbitrability.

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

There is, however, an overarching consideration which plaintiff misses altogether (and one which is dispositive of plaintiff’s underlying substantive claims): California has deregulated bank consumer lending, and California has no policy interest whatsoever in the rates and fees charged on loans made by banks; in fact, California has expressly disclaimed any such interest in no less an authority than its state Constitution. Cal. Const. art. XV, § 1(2). Moreover, the California statute under which plaintiff purports to sue, Cal. Civ. Code § 1789.30 et seq., expressly (and necessarily) exempts federally chartered banks from its ambit. Cal. Civ. Code § 1789.31(a).

Plaintiff outrageously misstates applicable law when he asserts that “Eagle National Bank and its subsidiaries are required to register in California to conduct their check cashing business. This is pursuant to the same set of laws as the ones Plaintiff seeks to enforce.” Pl. Mem. at p. 9. Not only is the Bank exempt from the provisions of the California check-cashing law under the express terms of the statute itself, Cal. Civ. Code § 1789.31(a), as noted above, but also, as a matter of preemptive federal law, California may not regulate the lending activities of the Bank. (see, e.g., Tiffany v. National Bank of Missouri, 85 U.S. [18 Wall.] 409, 412-13, 21 L. Ed. 862 [1874]), nor may the State of California examine or supervise the Bank’s lending activities in the State. 12 U.S.C. § 484(a); Barnett Bank v. Nelson, 517 U.S. 25, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996); Franklin Nat’l Bank v. New York, 347 U.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, 63 L.Ed.2d 754 (1980).

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

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

B. The Arbitration Clause Is Not Procedurally Unconscionable.

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

1. Under Pennsylvania Law, The Arbitration Agreement Was Not Formed By Unconscionable Means.

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

Plaintiff does not complain that any other part of the promissory note was procedurally unconscionable. Plaintiff thus insists that defendants had a duty to call only the 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, 134 L.Ed.2d 902 (1996), the Supreme Court invalidated a Montana statute that had required the first page 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 agreements cannot be subjected to special notice requirements not applicable to contracts generally:

Courts may not invalidate arbitration agreements under state laws applicable only to arbitration provisions. By enacting § 2 [of the FAA], we have several times said, Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such 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 of arbitration agreements on compliance with a special notice requirement not applicable to contracts generally.

Id. at 686 (citations omitted).

In Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert. denied, 118 S.Ct. 47, 139 L. Ed. 2d 13 (1997), the Court of Appeals rejected an argument virtually identical to that espoused by plaintiff here. In Gateway, plaintiff argued that the arbitration clause — contained in the list of terms which had been sent to plaintiff in the shipping box containing the computer purchased by mail order — was not prominent, did not “stand out” and thus was unenforceable. 105 F.3d at 1148. The Court rejected that argument in words equally applicable to the present case: “Doctor’s Assocs. . . . holds that [§ 2] of the Federal Arbitration Act is inconsistent with any requirement that an arbitration clause be prominent.” Id. (emphasis added). The present case is an even stronger one for compelling arbitration, because plaintiff actually signed the promissory note containing the arbitration clause, and the clause itself was in bold-face type.

Moreover, as the Gateway court held, plaintiff, who signed the promissory note containing the arbitration agreement and expressly acknowledged that he had read, understood and agreed to the 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 retrospect prove unwelcome . . . . Competent adults are bound by such documents, read or unread.”).

Pennsylvania law demands the same result: a literate adult may not avoid a contractual obligation on the ground he did not read or understand the terms of the contract. Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879, 900 (3d Cir. 1981) (“Ignorance of the contents of a document or failure to read before signing is no defense to 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 failed to read or understand the terms “irrespective of whether the agreements embodied 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 grounds for reformation or invalidation). In short, under Pennsylvania law, defendants had no obligation to ensure that plaintiff digested the promissory note’s terms, consulted with counsel or had time to deliberate or negotiate. Smith v. Creative Resources, Inc., No. 97-6749, 1998 U.S. Dist. LEXIS 18545 (E.D. Pa. Nov. 23, 1998).

2. Plaintiff Cannot Avoid Arbitration By Claiming That The Bank Surreptitiously Included An Arbitration Clause In His Final Loan Agreement.

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

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

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

In a later affidavit, plaintiff averred:

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

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

Id. at 422. Finding the issue one that went to the formation of the entire agreement and not to the arbitration clause alone, the Court found the issue of the making of the agreement 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 to arbitrate.

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 party resisting arbitration with respect to the absence of changes in the “new” form. The failure to disclose the change in the agreement was once again held to be an attack on the contract as a whole, rather than merely on the arbitration clause, resulting in a direction that the parties arbitrate. The court held that the attack on the contract was

. . . not sufficiently focused upon the arbitration agreement when a party merely fails to read the contract which contains an arbitration clause of which he is unaware. Even though that party may have been induced to sign the contract without reading it by someone with whom he has had prior agreements or oral understandings that did not include an arbitration agreement, if there have been no specific negotiations or representations concerning arbitration, any fraudulent inducement is considered to be directed at the signing of the contract generally and not at the arbitration clause within that contract. See Bhatia; R.M. Perez & Associates, Inc. v. Welch, 960 F.2d 534, 538-39 (5th Cir. 1992).

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

Id. at 928-29 (emphasis added); accord, Haynsworth v. The Corporation, 121 F.3d 956, 963-64 (5th Cir. 1997); Benoay v. Prudential-Bache Secs. Inc., 805 F.2d 1437, 1441 (11th Cir. 1986) (stating that claims of “adhesion, unconscionability, waiver of judicial remedies without knowledge, and lack of mutuality of obligation” are to be decided by arbitrator); Schacht v. Beacon Ins. Co., 742 F.2d 386, 389-90 (7th Cir. 1984) (same).

Thus, any dispute regarding the manner in which the September 17, 1998 promissory note was presented to and executed by plaintiff must be referred to arbitration in accordance with the parties’ agreement.

C. Arbitration Is Not An Inherently Unconscionable Means Of Resolving Consumer Disputes.

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

As a threshold matter, plaintiff argues that the arbitration agreement is unconscionable because it is adhesive in nature. However, plaintiff’s promissory notes are not truly contracts of adhesion. Plaintiff was not required to seek a loan from defendants; a similar service 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 the arbitration clause, plaintiff could have refinanced his Bank loan with the proceeds of a loan from a competitor. Instead, plaintiff voluntarily chose to engage in each of his transactions with the Bank and agreed to be bound by the proffered contractual terms, 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 which defendants have previously cited in their opening brief. This Circuit’s Court of Appeals adopted the Seventh 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, “that the arbitration clause is unenforceable as an unconscionable provision of a contract of adhesion.” 841 F.2d at 285. The Court of Appeals rejected the claim that an agreement to arbitrate was unconscionable where plaintiffs made no showing that the agreement was commercially unreasonable or that they had no reasonable opportunity to understand it. In the case at bar, as in Cohen, it cannot be said that the arbitration clause contained in the Bank’s promissory note was either commercially unreasonable or that plaintiff had no opportunity to understand it. Accord, McCarthy v. 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 for the proposition that arbitration agreements are not unconscionable even if they are, 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 her statutory employment-discrimination claim against her employer.

I. INTRODUCTORY STATEMENT