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. The Court first analyzed Pennsylvania law of unconscionability and concluded that arbitration is not substantively unconscionable because it does not unreasonably favor either party, nor does either party give up any of its substantive rights:

Moreover, even if we were to assume arguendo that the Form U-4 is a contract of adhesion, it would not be unenforceable. A contract of adhesion is invalid only where its terms unreasonably favor the other party. See e.g., Witmer v. Exxon Corp., 495 Pa. 540, 434 A.2d 1222, 1228 (Pa. 1981). In order for a contract to be invalidated as a contract of adhesion, the plaintiff “must allege both a lack of meaningful choice about whether to accept the provision in question, and that the disputed 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.2d 1382 (3d Cir. 1989). The district court found, however, that the terms of Seus’s Form U-4 were neither oppressive nor unconscionable. Similarly, the district court in Beauchamp v. Great West Life Assurance Co. concluded that the Form U-4 is not oppressive or unconscionable, explaining: The Gilmer [v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)] court has held that plaintiff is not giving up substantive statutory rights through arbitration of her Title VII claim. Thus, her agreement to arbitrate is not substantively unconscionable. Nor is the language of the U-4 form unconscionable in that it misrepresents the existence or scope of the arbitration clause. The U-4 form clearly states that the applicant should read its provisions very carefully and that any claim between plaintiff and her firm would be arbitrated if required by the arbitration code of the organization with which she registered.

Id., 146 F.3d at 184-85. Applying this reasoning to the case at bar, because plaintiff cannot make any of the required showings — absence of meaningful choice, oppressive contract provisions and relinquishment of statutory rights — the arbitration clause in plaintiff’s promissory note may not be set aside on unconscionability grounds.[7]

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

In addition, this court does not find that Mr. Wetzel was subject to an adhesion contract. “Mere inequality of bargaining power . . . is not a sufficient reason to hold that arbitration agreements are never enforceable . . . .” Gilmer, 500 U.S. at 33. Defendant’s CDRP is not so unfair or unreasonable as to offend public policy and so be void as an adhesion contract.

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

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

Authorities from 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 arbitration agreement was an unconscionable adhesion contract. Like plaintiff in this case, plaintiffs in Roberson asserted that the arbitration agreement contained in their loan documents was a contract of adhesion because they were offered no meaningful choice or opportunity to negotiate the terms and did not understand their significance. The court held that even if the contract was adhesive, that did not make it unconscionable. It then observed that “[a] court must be wary of finding a contract unconscionable where the plaintiff is ‘left with some place to go . . . .’” Id. The court concluded that “the arbitration clause [was not] so unfavorable to the Robersons that it simply would not have been reasonable for them knowingly to accept it, given any meaningful choice.” Id. at 1525.

See also, e.g., Gammaro v. Thorp Consumer Discount Co., 15 F.3d 93, 95 (8th Cir. 1994) (clause requiring binding arbitration before the National Arbitration Forum held to be “not unconscionable”); Stiles v. Home Cable Concepts, 994 F.Supp. 1410, 1418 (M.D. Ala. 1998) (“contracts of adhesion are not per se unconscionable, and have a number of social benefits”); Kelly v. UHC Management Company, Inc., 967 F.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 to arbitration rather than sue in court.”); Graham v. State Farm Mutual Automobile Ins. Co., 565 A.2d 908 (Del. 1989) (provision of insurance policy requiring arbitration of uninsured motorist coverage dispute was not unconscionable, even though policy was a contract of adhesion, where the arbitration clause did not unfairly favor the insurer).

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

D. The Arbitration Clause Is Not “Revocable” Merely Because Plaintiff May Be Required To Pay Arbitration Costs.

The very essence of arbitration is that the parties, by agreement, submit their dispute to a private, non-judicial forum for resolution; that forum, unlike the courts, is paid for by the parties themselves, rather than from taxpayer receipts. Federal policy strongly favors this private, non-judicial system of resolution of disputes. Mitsubishi Motors Corp. v. Soler Chrysler-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 ground that the aggrieved party could be required to contribute to the costs of arbitrator compensation and forum fees, then the FAA’s policy objectives could be easily thwarted by any party to an arbitration agreement who asserts or feigns indigence. For this reason, not one single federal court had adopted the argument advanced by plaintiff in this case — that arbitration is unfair because it costs more than the essentially “free” public courts — despite its frequent assertion.

Plaintiff argues disingenuously that, but for the arbitration clause, he would have had the option of pursuing this dispute in small claims for a mere $20 filing fee. Pl. Mem. at p. 14. As this Court can well imagine, if this proceeding were solely about matters cognizable in small claims, and if plaintiff had indeed pursued them in that forum only, it is extremely unlikely that defendants would have sought to compel arbitration. Rather, plaintiff admits that he seeks to act as a “private attorney general” under Cal. Bus. & Prof. Code § 17200; he prays for restitution not only for himself but also for every similarly situated borrower, as well as for injunctive relief against the Bank’s lending practices. Pl. Mem. at pp. 2, 6. The Court may properly assume that the stakes for the Bank are substantial, as indeed the Bank asserts in its unopposed motion for leave to intervene. Having voluntarily assumed the task of vindicating not only his own putative rights of minimal dollar value, but also those of a potentially very large class of non-parties,[8] plaintiff should not be heard to complain of the unfairness of the costs of arbitration relative to the size of his claims alone.

Nevertheless, even if plaintiff’s rights alone were sought to be vindicated, federal policy so 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, resisted arbitration by claiming that the arbitration clause in their franchise agreement was unconscionable because it did not disclose, inter alia, that: (1) the American Arbitration Association charges as much as $5,000 for filing and administration fees; (2) the high cost of arbitrating in Connecticut — including travel and lodging expenses for the franchisee and his or her attorney — necessitates the franchisee to win the arbitration to break even financially; and (3) the franchisee must pay half of the hourly charges of the arbitrators, who are often attorneys with high-priced rates. These claims were rejected by the Second Circuit. Quoting Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), the Court of Appeals restated 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 prominently posted and made available to plaintiff, but which he claims to have failed to take, read and retain — put plaintiff on notice that he was potentially responsible 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 generally Volt Info. Sciences, 489 U.S. at 479 (‘Arbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.’).” Id. at 981.

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

Although the Supreme Court has stated that “courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide the grounds ‘for the revocation of any contract,’” Gilmer v. 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. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985)), the Court has also noted that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. at 941.

Id. at 1439.

Plaintiff relies heavily on a California case, Spence v. Omnibus Industries, 44 Cal.App.3d 970, 119 Cal.Rptr. 171 (1975), for the proposition that a court may refuse to enforce an arbitration clause when the arbitration filing fee may be beyond the means of a consumer claimant. As noted above, Pennsylvania law — not California law — applies to the formation of the parties’ arbitration agreement. Nevertheless Spence is otherwise readily distinguishable from the case at bar. The arbitration clause in Spence was, 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 the document; the “surprise” element of the inclusion of the arbitration clause figured heavily in the Spence court’s decision. In contrast, here the arbitration clause appears in bold-face print immediately above plaintiff’s signature in a concise, single-page document, all of which is highly legible and in ten-point type. In any event, under the FAA — in contrast to California state law — a court may not take into account the prominence of an arbitration clause in determining its enforceability. Doctor’s Assocs., Inc. v. Casarotto, supra, 517 U.S. at 687.

Finally, and most importantly, in contrast to the Spence plaintiff, where the American Arbitration Association’s rules required payment of a substantial filing fee, the J·A·M·S/Endispute rules applicable to the case at bar expressly provide for plaintiff to proceed in forma pauperis,[9] and the defendants herein have already agreed to advance plaintiff’s filing fee, thereby assuring him of a forum for this dispute without limitation on remedies.

Had Spence been determined under the FAA instead of under state law, a contrary result would certainly have obtained.[10] Once having found an arbitration agreement to have been made, a district court has no discretion on this issue; the FAA mandates that parties be directed to arbitrate. 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 and unconscionability, under federal law, must be decided by the arbitrator, not by the Court.

The closest any federal court has come to adopting plaintiff’s arguments regarding the “unconscionable” costs of arbitration is Cole v. Burns Int’l Secur. Svcs., Inc., 105 F.3d 1465 (D.C. Cir. 1997), and its facts are instructive. Cole, a former security guard employed by Burns, sought to overturn the district court’s order dismissing his Title VII employment-discrimination complaint and compelling arbitration of his disputes. The lower court had held that his statutory claims of employment discrimination were arbitrable pursuant to the FAA, and it directed arbitration before the American Arbitration Association in accordance with the parties’ agreement. On appeal, Burns raised what the Court of Appeals characterized as “an issue not directly presented in Gilmer or any other Supreme Court case to date: can an employer require an employee to arbitrate all disputes and also require the employee to pay all or part of the arbitrators’ fees?” 105 F.3d at 1467.

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

By conditioning arbitration on the employer’s assumption of arbitrator costs, [footnote omitted] the majority engages in pure judicial fee shifting which finds no support in the FAA, Gilmer or the parties’ agreement, not one of which addresses arbitration fee allocation. Yet, relying on this very silence, the majority now declares that the employer must bear the costs, regardless of the outcome or the merits of the parties’ positions, because of the majority’s own speculation on what the arbitration costs will be and who will be required to pay them — factual matters never presented to the district court or even argued by the parties on appeal.

Id. at 1489.

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

This is exactly the result reached by the court in Couglin v. Shimizu America Corp., 991 F.Supp. 1226 (D. Ore. 1998). The Coughlin plaintiff asked the court to take judicial notice of the American Arbitration Association’s applicable rules, which, he claimed, would “unconscionably” require him to advance a $2,000 filing fee to pursue his employment-discrimination claim. The court told Coughlin to direct this argument to the arbitrator. Id. at 1232.

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

E. Plaintiff Has Failed To Exhaust Or Even Explore His Ability To Proceed In Forma Pauperis In Arbitration

Although plaintiff claims to be unable to afford arbitration, he has not exhausted or even attempted to invoke the procedures of J·A·M·S/Endispute, the parties’ chosen arbitration forum, that would allow him to proceed in forma pauperis.

Plaintiff conveniently attaches to his opposition papers a copy of the J·A·M·S/Endispute Financial Services Rules and Procedures, which provide, in pertinent part, as follows:

(d) A Party who claims an inability to pay J·A·M·S/Endispute’s fees and expenses may file a request that such fees and expenses be assessed to other Parties in the Arbitration, subject to a re-allocation of such fees and expenses by the Arbitrator . . . . The J·A·M·S/Endispute Financial Services Product Manager under the supervision of the Vice President of Professional Services will promptly rule on such a request and, under appropriate circumstances, J·A·M·S/Endispute may attempt to reach agreement between the Parties as to a different allocation of costs. J·A·M·S/Endispute may reallocate fees and expenses relating to the Arbitration only when a Party to a pending Arbitration sufficiently demonstrates the need. However, under such circumstances J·A·M·S/Endispute shall, at a minimum, charge the Party a reasonable non-refundable administrative fee.

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

Defendants already have unequivocally agreed to pay the “reasonable non-refundable administrative fee”[11] required under J·A·M·S/Endispute Rule 28(d) for initiation and processing of plaintiff’s claim. Thus, plaintiff is not deprived of access to a forum. In the language of Roberson v. The Money Tree of Alabama, Inc., supra, 954 F.Supp. at 1525, plaintiff is “‘left with some place to go . . . .’” Plaintiff should be required to seek in forma pauperis relief from J·A·M·S/Endispute in accordance with its rules.

F. The Arbitration Clause Applies To All Prior Transactions Between The Parties

Plaintiff disingenuously argues — despite the express language of the final promissory note indicating his acceptance of defendants’ Fair Treatment Guarantee requiring him to arbitrate “disputes” — that such arbitration should be limited only to the final transaction and not to any of plaintiff’s prior transactions with defendants. That claim cannot stand in face of the language of the note itself, which is not limited to disputes arising out of that particular transaction. Courts routinely construe such clauses to extend to prior transactions, for the simple reason that “[t]he parties’ intentions are generously construed as to issues of arbitrability.” Mitsubishi, 473 U.S. at 626. Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir. 1982), abrogated on other grounds by Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.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 alleged that defendants had mishandled their securities brokerage accounts for more than two years. Defendants moved to compel 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 clause did not apply to transactions conducted prior to their execution of the contract containing the arbitration clause, the court compelled arbitration. The court held that because the arbitration clause applied to controversies arising out of “my accounts,” the transactions that occurred prior to the signing of the contract were covered by the arbitration clause. Any doubts, the court instructed, were required by the FAA to be resolved in favor of arbitration. 948 F.Supp. at 802.

Likewise, in Rand Bond of North America, Inc. v. Saul Stone & Co., 726 F.Supp. 684 (N.D. Ill. 1989), plaintiff argued that an arbitration clause contained in a contract with defendant could not be enforced to compel arbitration of a dispute that had matured before the contract was signed. The clause applied to any claim or controversy arising out of or relating to “your accounts.” The court held that plaintiff was required to arbitrate the pre-existing dispute because it applied to “accounts”: “What is 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 Arbitration Agreement.” Id. at 688.

Whisler and Rand Bond merely illustrate the well-established principle that parties are free to contract for almost any lawful application of 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 battle or ordeal, or . . . by a panel of three monkeys, parties can stipulate to whatever procedures they want to govern the arbitration of their disputes; parties are as free to specify idiosyncratic terms of arbitration as they are to 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 are obligated to enforce the parties’ agreement to arbitrate in accordance with its terms. 9 U.S.C. § 4.

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

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

III.
CONCLUSION

Preemptive federal law requires that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Mitsubishi, 473 U.S. at 626. Plaintiff has attempted to generate such doubts and to deflect the Court’s attention from his unequivocal agreement for the arbitration of “disputes” with defendants, including disputes relating to “prior events.” Plaintiff does not, however, satisfy the heavy burden of showing “with positive assurance” that he should 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 to preserve for appeal his objection to well-settled principles of existing law, are adequately addressed in defendants’ opening brief (at pp. 11-13) and are not replied to in this memorandum.

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

Dated: May 14, 1999 LATHAM & WATKINS

Ernest J. Getto

Daniel Scott Schecter

HILARY B. MILLER

By:

Daniel Scott Schecter

Attorneys for Defendant Monetary

Management of California, Inc.

RICHMAN, LUNA, KICHAVEN & GLUSHON

Robert L. Glushon

BALLARD SPAHR ANDREWS
& INGERSOLL, LLP.

Alan S. Kaplinsky

Burt M. Rublin

By:

Robert L. Glushon

Attorneys for Proposed Intervenor-Defendant Eagle National Bank

[1] For convenience of reference, MMCal and the Bank are collectively referred to herein as “defendants,” even though the Bank’s unopposed motion for leave to intervene has not yet been granted.

[2] See, IBEW, Local 4 v. KTVI-TV, Inc., 985 F.2d 415, 416 (8th Cir. 1993); McMahan Secs. Co. L.P. v. Forum Capital Markets L.P., 35 F.3d 82, 88 (2d Cir. 1994) (citing S.A. Mineracao Da Trindade-Samitri v. Utah Int’l, Inc., 745 F.2d 190, 194-95 [2d Cir. 1984]).

[3] The rule in diversity cases cited by plaintiff — that federal courts must apply the conflict-of-laws principles of the forum state, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) — does not apply to federal-question cases, such those in the case at bar involving usury claims against a national bank. “Except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State.” Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see, e.g., Chuidian v. Philippine Nat’l Bank, 976 F.2d 561, 564 (9th Cir. 1992). “The use of federal common law in specialized areas where jurisdiction is not based on diversity has been sanctioned by the Supreme Court since the day Erie was decided . . . .” Corporation Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 795 (2d Cir. 1980) (resorting to federal common law choice-of-law rules in a federal question case), cert. denied, 449 U.S. 1080, 101 S.Ct. 863, 66 L.Ed.2d 804 (1981). Federal common law follows the approach of the Restatement (Second) of Conflicts of Laws, Schoenberg v. Exportadora de Sal, S.A. de C.V., 930 F.2d 777, 782 (9th Cir. 1991), and requires the courts to honor the parties’ choice unless “the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice” or “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue” and that state would be the state of applicable law in the absence of a choice-of-law clause. Restatement (Second) of Conflicts of Laws at § 187(2).

[4] References herein to “Flaherty Decl.” are to the declaration of Bernard J. Flaherty, vice president of Dollar Financial Group, Inc., dated April 15, 1999, and previously submitted in support of this joint motion.

[5] Plaintiff offers his counsel’s conclusory statement regarding the choice-of-law facts he considers “pretty apparent” (Plaintiff’s Memorandum [“Pl. Mem.”] at p. 9) but otherwise fails to show any facts which divorce plaintiff’s transactions from a Pennsylvania nexus.

[6] Cf., A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 486, 186 Cal.Rptr. 114 (1982), on which plaintiff relies (“‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms” [emphasis added].).

[7] While California law is apparently more liberal on the subject of unconscionability than Pennsylvania law, the cases principally relied on by plaintiff are readily and thoroughly distinguishable. In Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 60 Cal.Rptr. 2d 138 (1997), the Court of Appeal refused to enforce the parties’ contractual arbitration provision because it called for an unconscionable express waiver of damages that would otherwise be available in a judicial action, not because the parties’ rights were to be determined by arbitration. Likewise, in Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 171 Cal.Rptr. 604, 623 P.2d 165 (1981), the California Supreme Court declined to enforce an arbitration clause where the arbitrator was the labor union for one of the parties and of obvious partiality. In the case at bar, plaintiff has a full panoply of remedies available to him in arbitration, and the arbitration tribunal is completely neutral.

[8] While this Court need not reach this issue to determine defendants’ instant application to compel arbitration, plaintiff’s Section 17200 claims are cognizable in state court, but plaintiff lacks standing to assert them in this removed action. See, generally, MAI Systems Corp. v. UIPS, 956 F.Supp. 538, 541-42 (N.D. Cal. 1994); Nachum v. Allstate Inso. Co., No. CV 97-4493, 1997 U.S. Dist. LEXIS 12670 (C.D. Cal. Jul. 21, 1997).

[10] In the 24 years since Spence was decided, it has appeared increasingly questionable under current California law as well. See, Coon v. Nicola, 17 Cal.App.4th, 21 Cal.Rptr. 846 (1993).

[11] On April 11, 1999, defendant MMCal advised plaintiff’s counsel that it “will honor a request on behalf of your client that it advance all J·A·M·S/Endispute fees (subject to reallocation by the arbitrator in his award) in order to facilitate the initiation of such arbitration.” Flaherty Decl., ¶10 and Exhibit “D.”

I. INTRODUCTORY STATEMENT

II. ARGUMENT