right to bring a class action, so agreeing in an arbitration clause to forego the class action
mechanism does not amount to a waiver of a protection provided by or statutory right under the
CROA. Cf Johnson v. W. Suburban Bank, 225 F.3d 366, 371 (3d Cir. 2000) (reaching the same
result with respect to a Truth-in-Lending Act (“TILA”) claim); Lopez v. Plaza Fin. Co., 1996
USS. Dist. LEXIS 5566, No. 95-C-7567, 1996 U.S. Dist. LEXIS 5566, at *7 (N.D. Ill. Apr. 25,
1996) (“Congress has not created a statutory right to bring class actions under [the] TILA”).
4. Prohibitive Expenses

Plaintiffs’ final argument against arbitration is their strongest. The United States
Supreme Court has recognized that “the existence of large arbitration costs could preclude a
litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum.” Green
Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000). “[W]here . . . a party seeks to
invalidate an arbitration agreement on the ground that arbitration would be prohibitively
expensive, that party bears the burden of showing the likelihood of incurring such costs.” Id. at
92. Plaintiffs attempt to meet this burden. Arbitration, plaintiffs’ claim, would proceed under
the American Arbitration Association’s Commercial Dispute Resolution Procedures and would
cost in excess of $4000 per plaintiff, not including the costs of renting a room, traveling to
Florida, or reimbursing the arbitrator for time spent on pre-hearing matters. Plaintiffs point out
that the arbitration agreements do not provide for the splitting of costs between the parties.
Plaintiffs reason that “common sense” suggests that such expenses would be prohibitive for
consumers, like them, who sought credit repair services precisely because they were in debt.

(Resp. at 13.)

19


state and federal law and plaintiffs have an interest in obtaining convenient and effective relief.
On this record, it does not appear that forcing Goldstar to litigate this matter in Illinois would
impose a constitutionally intolerable burden.
B. Subject Matter Jurisdiction

Defendants argue that this court lacks subject matter jurisdiction. Plaintiffs’ only federal
cause of action arises under the CROA, which does not apply to non-profit organizations. 15
U.S.C. § 1679a(3)(B)(i). O’ Toole avers that Gibson Trust, Inc., Goldstar’s successor-in-interest,
is a non-profit corporation. As plaintiffs observe in response, however, their contracts were with
Goldstar, which was not a non-profit organization. Plaintiffs also assert that they were not
informed about the transfer of their accounts to Gibson Trust until well after the alleged
wrongdoing took place. In their reply brief, defendants do not dispute any of these assertions.
Obtaining non-profit status after the fact cannot protect an entity from liability for its previous
misdeeds. This court therefore has subject matter jurisdiction.*
C. Arbitration Clause

Defendants, citing § 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 ef seq., ask
this court for an order compelling “binding arbitration in accordance with the terms of the

agreements at issue” (Mem. at 4.) Defendants assert that each of plaintiffs’ contracts included

*After quoting a choice-of-law provision in the contracts, defendants assert in a single
sentence that “[t]he pendant state law claims fail because Florida law governs the agreement.”
(Mem. at 3.) Counts II and III allege claims under Illinois law, but defendants fail to establish
that facts consistent with the complaint could not give rise to recovery under Florida law. What
amounts to a Rule 12(b)(6) motion by defendants is therefore denied.

13


had no communications with the plaintiffs and performed no services on their behalf. In support
of this argument, plaintiffs cite three documents: (1) a letter sent to plaintiff Dorsey printed on
letterhead listing both Goldstar and “The Law Office of Dashia N. Trowers”; (2) a statement in
the client information sheet advising that late payments would render “ATTORNEY’S agent or
subcontractor” unable to make timely disbursements to creditors; and (3) a reference on
Goldstar’s website boasting of its “full legal staff.” (Pls.’ Resp. at 5.) The second and third
documents make no reference to Trowers. While the joint letterhead does tend to refute
Trowers’s claim that her law offices had no connection to Goldstar, the letterhead sheds no light
on the capacity in which Trowers and her law offices acted. Her averments that Goldstar’s
management made all the decisions concerning client transactions and that she acted only in her
capacity as an employee of Goldstar stand unrebutted and bring her within the fiduciary shield
doctrine endorsed by the Illinois Supreme Court. Because her only contacts with Illinois
apparently derived from, and were motivated by, her employment status, the Illinois constitution
prohibits the exercise of personal jurisdiction over her and her law firm.’ All claims against
Trowers’s law offices are therefore dismissed.

With respect to Goldstar, the case law applying the Illinois constitution provides less

clear guidance, but tends to point in the other direction, at least with respect to plaintiffs Arnold

'For similar reasons, exercising personal jurisdiction over Trowers might also violate
federal due process. See Hanson v. Denckla, 357 U.S. 235, 253 (1958) (“The unilateral activity
of those who claim some relationship with a nonresident defendant cannot satisfy the
requirement of contact with the forum State.”); cf Burger King Corp. v. Rudzewicz, 471 U.S.
462, 479 n.22 (1985) (“{W]Jhen commercial activities are ‘carried on in behalf of? an out-of-state
party those activities may sometimes be ascribed to the party, at least where he is a ‘primary
[participant]’ in the enterprise and has acted purposefully in directing those activities.”) (citations
omitted).


Defendants make only two points in reply. First, citing Green Tree, they argue that
because the agreements are silent as to who will bear the costs of arbitration, plaintiffs have
failed to show that they will be required to do so. Second, defendants assert that plaintiffs will
not need to travel to Florida given the technology available for video and voice communication.
Plaintiffs have stated that they want to testify in person as to the oral promises and affirmations
of fact underlying their claims. This does not seem like an unreasonable decision. Defendants
offer no explanation as to why they should be able to dictate the method by which plaintiffs’
evidence is presented. But even setting aside reasonable travel expenses, plaintiffs have shown a
real likelihood that they will not be able to afford to arbitrate their claims.

The starting point, as both sides recognize, is Green Tree. There, the Court found that
“{t]he record reveals only the arbitration agreement’s silence on the subject [of whether claimaint
would bear the costs], and that fact alone is plainly insufficient to render it enforceable.” Id. at
91, The Court specifically declined to reach the question of how detailed the initial showing of
prohibitive expense would need to be before the burden of production shifted to the proponent of
arbitration because “in this case neither during discovery nor when the case was presented on the
merits was there any timely showing at all on the point.” Jd. at 92. Green Tree is easily
distinguishable from the case at bar.

Even at this relatively early stage of litigation, plaintiffs here have done much more than
merely point to the absence of contractual language concerning arbitration costs. Although
plaintiffs do not state exactly what portion of the $4000 estimate (unchallenged by defendants)
they are likely to bear, the figure is easily calculable. Plaintiffs state that the filing fee will be

$750 each, as compared with the single $150 fee for filing in federal court. This initial fee

20


UI. Conclusion

This court has subject matter jurisdiction. Because personal jurisdiction over the Law
Offices of Dashia Trowers is lacking, however, the claims against that entity (and the putative
defendant class represented thereby) are dismissed. So too Dorsey’s claims against Goldstar are
dismissed for lack of personal jurisdiction. On the other hand, this court finds that Arnold and
Sorbo have made out prima facie cases of personal jurisdiction with respect to Goldstar, so the
court denies defendants’ motion to dismiss the claims of those two plaintiffs against Goldstar.
Finally, the court construes defendants’ motion to compel arbitration as a motion to stay
proceedings pending arbitration and denies the motion because plaintiffs have shown a genuine
likelihood that they would incur prohibitive costs in arbitration.

ENTER:

Ade,

JOAN BY GOTTSCHALL
inited States District Judge

/

DATE: August 20, 2002

22


suggest that this general choice-of-law provision indicates that the parties opted for Florida rather
than federal law to control the issue of arbitrability. It certainly would have been within the
power of the parties to reach such an agreement. See Volt Info. Sciences v. Bad. of Trustees, 489
U.S. 468, 474-79 (1989) (declining to overturn a California court’s conclusion that a general
choice-of-law provision covered the issue of arbitrability). The question is whether they did so in
this case, which is itself a question of contract interpretation governed by Florida law.

The only case this court has found considering the question under Florida law holds that a
general choice-of-law provision does not displace federal law on the issue of arbitrability. Paul
Davis Sys., Inc. v. Paul W. Davis Sys., Inc., No. 98 C 2027, 1998 U.S. Dist. LEXIS 16912, at *7
(N.D. II. Oct. 15, 1998). Applying Illinois and New York law, the United States Supreme Court
has reached the same conclusion. Mastrobuono y, Shearson Lehman Hutton, Inc., 514 US. 52,
60 n.4 (1995); id. at 71-72 (Thomas, J., dissenting). This court believes that Florida courts
would follow suit. The normal purpose of general choice-of-law clauses “is to determine that the
law of one State rather than that of another State will be applicable; they simply do not speak to
any interaction between state and federal law.” Volt Info., 489 U.S. at 488 (Brennan, J.,
dissenting). Moreover, because “the laws of the State of Florida” include federal laws under
settled principles of supremacy, the literal language of the contract gives no indication of any
intent to exclude application of the Federal Arbitration Act. Jd. at 490-91. Finally, Florida
courts, like federal courts, read contractual ambiguity in favor of arbitration. Paul Davis, 1998
US. Dist. LEXIS 16912, at *7 (citing Ronbeck Constr. Co. v. Savanna Club Corp., 592 So. 24
344, 346 (Fla. App. 1992)). At most, the choice-of-law provision creates some uncertainty as to

which body of law governs arbitrability; uncertainty must be resolved in favor of arbitration.

17


Illinois, sent her a fax in Illinois, and entered into a long-term contractual relationship with an
Illinois resident obligating itself to withdraw funds monthly from an Illinois checking account.
On the other hand, O’Toole avers that the company has no offices in Illinois, has never
had any personnel in Illinois, and has never solicited business in Illinois. He further declares that
the contracts “were completed in Florida” and that the place of performance is in Florida. (Defs.”
Mem. Ex. A.) Physical absence, standing alone, is not decisive. “Although territorial presence
frequently will enhance a potential defendant’s affiliation with a State and reinforce the
reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a
substantial amount of business is transacted solely by mail and wire communications across state
lines, thus obviating the need for physical presence within a State in which business is
conducted.” Burger King, 471 U.S. at 476; accord Daniel J. Hartwig Assoc., Inc. v. Kanner, 913
F.2d 1213, 1219 n.3 (7th Cir. 1990). Nor is the location of contract formation or performance
dispositive. Burger King, 471 U.S. at 478 (“The Court jong ago rejected the notion that personal
jurisdiction might turn on ‘mechanical’ tests, or on ‘conceptualistic . . . theories of the place of

contracting or of performance.””) (citations omitted). However O’Toole may define “place of
performance” in his affidavit, he does not dispute Sorbo’s allegation that the agreement called for
monthly withdrawals by Goldstar from her checking account.

O’Toole does not dispute the existence or the content of the alleged pre-agreement
conversation between Sorbo and Dudley and does not suggest that Sorbo has ever left Illinois. A
business phone call made to a person in Illinois obviously counts as solicitation in Illinois. See

Lung v. Yachts Int’l, Ltd., 980 F. Supp. 1362, 1368 (D. Haw. 1997) (holding that telephone calls

to the forum qualify as active solicitation). It is therefore difficult to reconcile O’Toole’s


2. Federal Due Process Clause
The existence of personal jurisdiction over Goldstar therefore turns on the strictures

imposed by the federal due process clause. Due process requires that a nonresident defendant
have “minimum contacts with [the forum state] such that the maintenance of the suit does not
offend traditional notions of fair play and substantial justice.” Jnt’l Shoe Co. v. Washington, 326
USS. 310, 316 (1945) (internal quotation marks omitted). The touchstone is foreseeablility,
whether “the defendant’s conduct and connection with the forum State are such that he should
reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 297 (1980). Only purposeful acts count, and a defendant may not be haled into a
jurisdiction solely as a result of “random,” “fortuitous,” or “attenuated” contacts. Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (citation omitted).

Jurisdiction is proper, however, where the contacts proximately

result from actions by the defendant himself that create a

“substantial connection” with the forum State. Thus where the

defendant “deliberately” has engaged in significant activities

within a State, or has created “continuing obligations” between

himself and residents of the forum, he manifestly has availed

himself of the privilege of conducting business there, and because

his activities are shielded by “the benefits and protections” of the

forum’s laws it is presumptively not unreasonable to require him to

submit to the burdens of litigation in that forum as well.
Id. at 475-76 (citations omitted). Once it has been decided that a defendant purposefully
established minimum contacts within the forum State, the reasonableness of asserting personal
jurisdiction may be evaluated in light of “the burden on the defendant,” “the forum State’s

interest in adjudicating the dispute,” “the plaintiff’s interest in obtaining convenient and effective

relief,” “the interstate judicial system’s interest in obtaining the most efficient resolution of


and Sorbo.” Neither of the two cases cited by defendants on the personal jurisdiction question
applies the Illinois constitutional standard. Khan v. Van Remmen, Inc., 756 N.E.2d 902 (Ill. App.
Ct. 2001); MJC-A World of Quality, Inc. v. Wishpets Co., No. 00 C 6803, 2001 U.S. Dist. LEXIS
13178 (N.D. Ill. Aug. 22, 2001). Nor does this court’s independent research reveal especially
helpful case law. To the extent the Illinois case law is applicable, it suggests that these two
plaintiffs clear the state constitutional hurdle. Plaintiffs allege (and defendants do not dispute)
that each entered into a long-term contractual relationship with Goldstar, ranging in estimated
duration between four and five years. Goldstar telephoned Arnold and Sorbo in Illinois and
entered into ongoing commercial relationships that would continue for years to have substantial
impacts on the interests of Illinois residents. See Alderson v. Southern Co., 747 N.E.2d 926, 948
(UL. App. Ct. 2001) (holding that it was “fair, just, and reasonable” under the Illinois due process
clause to exercise personal jurisdiction over defendants whose economic activities had “a
substantial effect upon interests located in Illinois”); of Viktron L.P. v. Program Data, Inc., 759
N.E.2d 186, 195 (iil. App. Ct. 2001) (“Where there is an ongoing commercial relationship, each
party will typically have a substantial jurisdictional claim at home against the other.”) (internal
quotation marks and citation omitted). This type of activity is apparently sufficient to ground

personal jurisdiction under Illinois law.

Dorsey, who has Illinois debts but is not an Illinois resident, presents a more difficult
case, See infra. Because plaintiffs clearly fail to make out a prima facie case under the federal
due process clause for personal jurisdiction over Goldstar with respect to Dorsey’s claim, the
court expresses no opinion as to the Illinois constitutional question and rests its holding with
respect to Dorsey’s claim on federal grounds instead.

5


Thus, this court holds that the arbitration provisions in the present contracts are governed by
federal, not Florida, law and that plaintiffs’ reliance on FastFunding is therefore misplaced. See
Buckeye Check Cashing, Inc. v. Cardegna, No. 4D01-3549, 2002 Fla. App. LEXIS 10336, at *3-
4 (Fla. Dist. Ct. App. July 24, 2002) (distinguishing /astFunding where the contract provided
that federal law would govern arbitrability).
3. Class Action Prohibition

Plaintiffs’ next argument is based on the contractual provision prohibiting plaintiffs’
participation in any class action. This prohibition renders the arbitration clause unenforceable
because, according to plaintiffs, it constitutes an impermissible waiver of a “protection provided
by” or a “right of the consumer under” the CROA. 15 U.S.C. § 1679f(a). Plaintiffs cite no case
law in support of this theory. This court’s own research has failed to reveal any judicial decision
directly addressing the question of whether the CROA renders void an arbitration clause that
prohibits class actions. Nonetheless, it is clear that plaintiffs’ argument fails. The burden of
showing that Congress intended to preclude arbitration for a statutory claim rests with the party
who seeks to avoid arbitration. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991).
“Tf such an intention exists, it will be discoverable in the text of the [statute], its legislative
history, or an ‘inherent conflict’ between arbitration and the [statute]’s underlying purposes.” Jd.
Any doubts as to Congress’s intent are to be resolved in favor of arbitrability. Jd.

Plaintiffs here rely solely on the statutory text. As a general matter, the right to bring a
class action in federal court is a procedural right created by Rule 23 of the Federal Rules of Civil
Procedure. The only references to class actions in the CROA concern the calculation of punitive

damages. 15 U.S.C. §§ 1679g(a)(2)(B), (b)(4). These provisions do not create a substantive

18


Dorsey was never an Illinois resident at any time relevant to her claim against Goldstar is
bolstered by plaintiffs’ argument that Goldstar “purposefully directed its activities to Illinois
residents such as Plaintiffs Arnold and Sorbo” (Pls.’ Resp. at 4), and by the omission of Dorsey
from Count III, which is premised on Illinois law. The only relevant connection to Illinois is
apparently Goldstar’s alleged failure to make payments on behalf of Dorsey to an Illinois
creditor, Loyola College. This lone contact with Illinois is far too fortuitous and attenuated to
support the exercise of personal jurisdiction over Goldstar with respect to Dorsey’s claims.
Dorsey’s claims against Goldstar are dismissed.
b. Sorbo

The plaintiff with the next strongest case for personal jurisdiction is Sorbo. Sorbo alleges
that she is an Illinois resident. It is unclear whether she was in Illinois at all relevant times, but it
is reasonable to draw such an inference. In their response brief, plaintiffs describe Sorbo as an
Illinois resident and nothing in the record suggests a change in her place of residence. Sorbo
alleges that, prior to signing her client agreement in November 1999, a Goldstar “specialist,”
Roby Dudley, made various representations and promises to her, encouraging her to sign up for
services from Goldstar. The president of Goldstar, Patrick O’Toole, avers that all
communications with the plaintiffs were initiated in Florida, so Dudley must have placed the call
to Sorbo. After this communication, Goldstar faxed Sorbo a contract which included her
address. Under the contract, Goldstar was to pay her creditors from funds automatically
withdrawn from her checking account on a monthly basis for an estimated period of 51 months.

To summarize, Sorbo has alleged sufficient facts to infer that Goldstar called her at least once in


‘Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

Sitting Judge if Other
than Assigned Judge

Joan B. Gottschall

CASE NUMBER 01 C 7694 DATE 8/20/2002
CASE Jon Arnold, et al. vs. Goldstar Financial Systems, Inc., et al.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
qd) Oo Filed motion of [ use listing in “Motion” box above.]
(2) a Brief in support of motion due
(3) oO Answer brief to motion due__ . Reply to answer briefdue__
(4) Oo Ruling/Hearing on set for at :
(5) | Status hearing set for 9/16/2002 at 9:30 A.M..
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(7) qo Trial[set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)

OOFRCP4(m) ClLocal Rule 41.1 CIFRCP41(a)(1)  FRCP41(a)(2).

(10) «il [Other docket entry] Enter Memorandum Opinion and Order. Defendants’ motion to dismiss or to
compel arbitration [9-1] is granted in part and denied in part. A status hearing is set for 9:30 a.m. on September
16, 2002.
qi) a [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required. Fotis

2002

Notices mailed by judge’s staff.

AUG 22

[| Notified counsel by telephone. date docketed

\ [ Docketing to mail notices. _ }
Mail AO 450 form. i ide dep pin

Copy to judge/magistrate judge.

AO

AUG 2 2 2002
VA courtroom | iled notice
deputy's
a initials U
Date/time received in
central Clerk's Office Ting deputy ihiats



ec. Arnold

Plaintiff Jon Arnold’s factual allegations are more detailed than those of the other
plaintiffs. He is an Illinois resident. As with Sorbo, there is no reason to think that any of
Goldstar’s contacts with Arnold took place while Arnold was in another state. Around October
1999, Arnold responded to Internet advertising by visiting Goldstar’s website. On the website,
he apparently submitted personal information for analysis by Goldstar. Roby Dudley, the same
Goldstar agent who later contacted Sorbo, followed up with a phone call to Arnold, encouraging
him to sign up for services with Goldstar. On October 4, 1999, Arnold received an email from
Goldstar which included instructions for activating an account and a draft contract. After signing
and returning the contract, estimated to last 57 months, Arnold made his scheduled November
payment through the website. In the next few months, Goldstar sent Arnold at least one letter
and several billing statements. Jim Faust, a representative of Goldstar’s, called Amold once to
discuss issues relating to Arnold’s contract.

Goldstar’s alleged contacts with Arnold in Illinois easily clear the minimum level
required by the federal due process clause to support personal jurisdiction in this forum.
Goldstar purposefully established a contractual relationship with an Illinois resident which was
expected to last nearly five years. Although it does not appear that Goldstar agreed to perform
any services in Illinois, there is no question that the company created “continuing obligations”
between itself and Arnold, an Illinois resident. Burger King, 471 U.S. at 476. Goldstar
repeatedly directed its activities at Illinois, telephoning Amold twice, sending him statements on
a monthly basis, and emailing him at least once. Goldstar’s website bolsters a finding of

sufficient minimum contacts in two ways. First, by inviting visitors to submit personal

11


statement that Goldstar never solicited business in Illinois with his statement that any
communication with the plaintiffs was initiated in Florida. Perhaps O’Toole is operating under
the false premise that solicitation in a state requires a physical presence therein. Resolving this
tension in favor of Sorbo, as the court must, Goldstar’s agent initiated contact with Sorbo in
Illinois in a successful attempt to procure a contractual relationship with an Illinois resident that
would span over four years and that would obligate Goldstar to make monthly withdrawals from
an Illinois checking account.

Goldstar could reasonably anticipate being haled into an Illinois court on the basis of
these contacts. Active solicitation of a forum resident resulting in a single agreement is sufficient
to support personal jurisdiction under the federal due process clause. Madison Consulting Group
v. South Carolina, 752 F.2d 1193, 1202-03 (7th Cir. 1990). More important, Goldstar knowingly
undertook “continuing obligations” to an Illinois resident. Burger King, 471 U.S. at 476. The
case at bar closely resembles Daniel J. Hartwig, in which the Seventh Circuit held that
“[b]ecause [defendant] knowingly reached out to a Wisconsin business and created a continuing
relationship with that business[, which lasted four years], we cannot say that [defendant]’s
contacts with Wisconsin were ‘random, fortuitous or attenuated.” 913 F.2d at 1219. That at
least one monthly Illinois act was contemplated by the agreement bolsters the court’s conclusion
that Sorbo has made out a prima facie showing of sufficient purposeful minimum contacts
between Goldstar and Illinois. See id. at 1219 (“Although not dispositive, the fact that a plaintiff
performs a substantial amount of a contract in the forum state constitutes another meaningful

contact between the defendant and the forum.”).

10


controversies,” and the “shared interest of the several States in furthering fundamental
substantive social policies.” Jd. at 477 (quoting World-Wide Volkswagen, 444 U.S. at 292).
These factors can either lower the level of minimum contacts required or, if the defendant puts
forward a compelling case, render the exercise of personal jurisdiction unreasonable. Jd. at 477-
78.

Personal jurisdiction may be either “general” or “specific.” Since plaintiffs here do not
claim that Goldstar had “continuous and systematic general business contacts” with Illinois,’
each plaintiff must show that his or her claim arises out of or is related to Goldstar’s contacts
with Illinois, Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984),
and that those contacts were not “random,” “fortuitous,” or “attenuated.” Burger King, 471 U.S.
at 475, Each plaintiff has his or her own claims against Goldstar. The personal jurisdiction
analysis therefore must be plaintiff-specific. Cf Phillips Exeter Academy v. Howard Phillips
Fund, Inc., 196 F.3d 284, 289 (1st Cir. 1999) (“Questions of specific jurisdiction are always tied
to the particular claims asserted.”). But since the three claims asserted by any particular plaintiff
rest on a common set of operative facts, there is no need to examine the three claims separately.
a. Dorsey

Plaintiffs fail to establish sufficient contacts between Goldstar and Illinois with respect to
plaintiff Dorsey. The complaint alleges that Dorsey is a resident of Pennsylvania and signed an
agreement with Goldstar in or about May 2000. Plaintiffs attach to their response brief a letter

dated June 1, 2000 from Goldstar to Dorsey at a Pennsylvania address. The inference that

3Although plaintiffs point to Goldstar’s maintenance of an interactive website, they do not
assert that Goldstar actually did business through the website with anyone other than plaintiffs.

7


apparently will be born entirely by plaintiffs. Defendants do not object to plaintiffs’ reliance on
either a two-days-per-plaintiff hearing duration or a $1800-per-day arbitrator’s fee, so the court
accepts as an accurate estimate $3600 per plaintiff in arbitrator’s fees. According to a recent case
cited by plaintiffs, “[t]he AAA’s Commercial Rules provide that the arbitrator’s fees .. . , travel
expenses, rental of a hearing room, and other costs are borne equally by the parties, absent some
agreement between the parties . . . or a different division made at the discretion of the arbitrator.”
Phillips y. Assocs. Home Equity Servs., 179 F. Supp. 2d 840, 846 (N.D. Ill. 2001). Hence, even
excluding one half of travel expenses (or video conferencing costs) and rental fees, it is
uncontested that arbitration presumptively will cost each plaintiff $2550 (the $750 filing fee plus
half of the $3600 arbitrator’s fee). This is seventeen times the cost of proceeding in district
court. Although one might have preferred affidavits from plaintiffs stating that this amount was
prohibitive, defendants do not take issue with the view that individuals, like plaintiffs, with debt
problems are unable to afford such costs. Cf Giordano v. Pep Boys--Manny, Moe & Jack, Inc.,
No. 99-1281, 2001 U.S. Dist. LEXIS 5433, at *24 (E.D. Pa. Mar. 29, 2001) (“[N]othing in Green
Tree requires courts to undertake detailed analyses of the household budgets of low-level
employees to conclude that arbitration costs in the thousands of doilars deter the vindication of
employees’ claims in arbitral fora.”). Unlike Green Tree, this case squarely presents the question
of whether a party resisting arbitration has made an adequate showing of prohibitive expenses.
Although plaintiffs’ showing on this point is less than overwhelming, this court believes that it
suffices to shift the burden to defendants, who offer in reply only Green Tree and a vague

promise of cost-saving technology.

21


1. Illinois Law

In cases involving a federal question, a plaintiff must show that the defendant is amenable
to service in the forum state and that exercising jurisdiction over the person of the defendant
would not offend constitutional standards of due process. Cent. States, S.E. & S.W. Areas
Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000). Because no
special rule or statute applies here, service is effective to establish jurisdiction over a defendant
only if that defendant would be subject to the jurisdiction of an Illinois state court. Fed. R. Civ.
P. 4(k). The Illinois long-arm statute provides for jurisdiction on any basis permitted by the
Illinois and federal constitutions. 735 ILCS 5/2-209(c). Under the Illinois constitution,
“(jJurisdiction is to be asserted only when it is fair, just, and reasonable to require a nonresident
defendant to defend an action in Illinois, considering the quality and nature of the defendant’s
acts which occur in Illinois or which affect interests located in Illinois.” Rollins v. Ellwood, 565
N.E.2d 1302, 1316 (Ill. 1990). Of particular relevance here, the Illinois Supreme Court has held
that where an individual defendant’s conduct in Illinois “was a product of, and was motivated by,
his employment situation and not his personal interests, . . . it would be unfair to use this conduct
to assert personal jurisdiction over him as an individual.” Jd. at 1318.

Defendant Trowers swears that Goldstar management made all decisions for transactions
with its clients, that prior to this lawsuit she was not aware that any of the named plaintiffs were
clients of Goldstar, that she had no agreement to provide any services to them, that she does not
remember performing any services for them, and that she signed contracts on Goldstar’s behalf
only as an employee of Goldstar and not in any other capacity. (Defs.” Mem. Supp. Mot. Dismiss

Ex. B.) Plaintiffs argue in response that the evidence contradicts Trowers’s averments that she


the following provision:

Any dispute between us that cannot be amicably resolved; [sic] as

to all claims or controversies arising out of this Agreement, shall

be settled solely and exclusively by binding arbitration in Ft.

Lauderdale, Florida. Arbitration shall be administered by, and

under the Commercial Arbitration Rules of the prevailing

American Arbitration Association. ... And judgment upon the

award rendered by the arbitrator(s) may be entered and enforced in

any court of competent jurisdiction.
(id. at 3.) Ina footnote, defendants claim that the agreements are attached as exhibits to the first
amended complaint. (Ud. at 3 n.4.) In fact, only Arnold’s agreement, which does contain the
quoted language, appears in the exhibits. Plaintiffs’ first response on the arbitration issue is that
defendants “should be required to prove” that the other two plaintiffs signed agreements
including the quoted language. (Resp. at 8.) However, plaintiffs do not deny the existence of
such agreements. There is no requirement in the Federal Rules of Civil Procedure that parties
attach complete copies of contracts rather than merely quote the relevant language. Mount
Hawley Ins. Co. v. Guardsmark, Inc., No. 01 C 5088, 2001 U.S. Dist. LEXIS 9196, at *3-4 (N.D.
Ill. July 2, 2001). By not disputing defendants’ assertion that each plaintiff signed a contract that
included this arbitration language, plaintiffs have conceded the point.
1. Order or Stay?

Having established the existence of arbitration agreements providing for arbitration in

Florida, a threshold question (mysteriously ignored by the parties) becomes whether this court
has the power to grant defendants’ request by entering an order compelling arbitration “in

accordance with the terms of the agreements at issue.” (Mem. at 4.) It does not. Where an

arbitration agreement contains a forum selection clause and the parties have not waived reliance

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matter of form than substance. An expeditious ruling is especially appropriate in the arbitration
context. See Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 29 (1983)
(‘The [FAA] calls for a summary and speedy disposition of motions or petitions to enforce
arbitration clauses.”). Finally, there is no indication that any overlapping litigation is currently
pending elsewhere, so there is no risk of duplicative effort or inconsistent judgments. Cf Roe v.
Gray, 165 F. Supp. 24 1164, 1174 (D. Colo. 2001) (declining to rule on the question of
arbitrability in the course of determining whether a § 3 stay was appropriate in deference to
simultaneously pending proceedings).
2. Mlegality

Plaintiffs seek to avoid arbitration on the ground that the underlying contract is illegal.
As a matter of federal law, this argument is a non-starter: the illegality of a contract containing an
arbitration clause does not infect the clause itself, See Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 403-04 (1967); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int 1,
Lid., | F.3d 639, 642 (7th Cir. 1993). This explains why the only case law plaintiffs muster in
support of their contrary position comes from state courts. Ala. Catalog Sales v, Harris, 794 So.
2d 312, 314 (Ala. 2000); FastFunding The Co., Inc. v. Betts, 758 So. 2d 1143, 1144 (Fla. Dist.
Ct. App. 2000). This court is bound by the Seventh Circuit’s interpretation of federal law and
nothing connects the case at bar to Alabama, so precedent from that jurisdiction is not helpful to
plaintiffs’ cause.

Although the parties apparently fail to realize it, plaintiffs’ reliance on FastFunding is
more intriguing. According to defendants, the contracts provide that all questions concerning

them are to be governed by Florida law. Perhaps plaintiffs, by citing a Florida case, mean to

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plaintiffs’ creditors to consolidate and reduce payments, would make the payments each month,
and would generally serve as a buffer between plaintiffs and their creditors. According to
plaintiffs, Goldstar violated both state and federal laws and generally failed to live up to its
promises and representations. Plaintiffs’ complaint consists of three counts: (1) violations of the
Credit Repair Organizations Act (“CROA”), 15 U.S.C. § 1679 et seq.; (2) illegality of contract;
and (3) violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815
ILCS 505/1 et seg. The first two counts are brought by all plaintiffs against all defendants; the
third is brought by Arnold and Sorbo, individually, against Goldstar alone. Defendants move to
dismiss the complaint for lack of personal and subject matter jurisdiction. In the alternative,
defendants seek an order compelling arbitration.
Il. Analysis
A. Personal Jurisdiction

Once personal jurisdiction is contested, a plaintiff has the burden of providing sufficient
evidence to establish a prima facie case of personal jurisdiction. “The allegations in the
complaint are to be taken as true unless controverted by the defendants’ affidavits; and any
conflicts in the affidavits are to be resolved in his favor.” Turnock v. Cope, 816 F.2d 332, 333
(7th Cir. 1987). A motion to dismiss for lack of personal jurisdiction should be denied if the
plaintiff alleges sufficient facts to support a reasonable inference that the defendant can be
subjected to jurisdiction of the court. Jackam vy. Hosp. Corp. of Am. Mideast, Ltd., 800 F.2d

1577, 1579 (11th Cir. 1986).


UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
JON ARNOLD, et al., )
)
Plaintiff, ) Case No. 01 C 7694
v. )
)
GOLDSTAR FINANCIAL SYSTEMS, INC., )
etal.., ) Judge Joan B. Gottschall
)
Defendants. )

MEMORANDUM OPINION & ORDER

In this putative class action, plaintiffs allege that defendants violated various state and
federal laws in the course of offering and providing them with credit repair services. Defendants
have moved for dismissal on jurisdictional grounds and for an order compelling arbitration. As
explained below, the request for dismissal is granted in part and denied in part, and the request
for an order compelling arbitration is denied. bi £ q F r B
I. Background AUG 2 2 2002

In their first amended complaint, plaintiffs Jon Amold, Cary Sorbo, and Julian Dorsey, on
behalf of themselves and similarly situated individuals, allege that Goldstar Financial Systems,
Inc. (“Goldstar”), doing business as Gibson Trust, Inc. (“Gibson”), and The Law Office of
Dashia Trowers, along with a putative defendant class of similarly situated attorneys, engaged in
fraudulent, unfair, and deceptive practices in promising to manage consumer debt, improve
plaintiffs’ credit, and prevent creditor harassment. In either late 1999 or early 2000, each

plaintiff entered into a credit repair services contract with Goldstar, which was estimated to last

LO

between four and five years. The basic notion was that Goldstar would work with each


information in the hope of later commercial gain, the website was “interactive” enough to
constitute “active solicitation” in Ilinois.4 Zippo Mfg. Co. v. Zippo Dot Com, 952 F. Supp. 1119,
1124-25 (W.D. Pa. 1997) (citing Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D. Mo.
1996)). As observed above, active solicitation in a forum leading to a contract with an in-forum
resident is sufficient grounds for personal jurisdiction. Madison Consulting, 752 F.2d at
1202-03. Second, Arnold’s submission of a monthly payment through the website suggests that
Goldstar was actually transacting business over the Internet, not merely exchanging information.
Zippo, 952 F. Supp. at 1123-25 (citing Compuserve, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.
1996)). This is roughly analogous to Goldstar setting up a 24-hour storefront in Illinois for
Arnold’s use.

Goldstar does not expressly argue, let alone put forward a compelling case, that
subjecting it to the personal jurisdiction of a court in Illinois would be unreasonable in light of
other constitutionally relevant factors. See World-Wide Volkswagen, 444 U.S. at 292. The only
hint of such an argument is O’Toole’s averment that, with the exception of the plaintiffs and any
records in their possession, all relevant documents and witnesses are in Florida. There is no
indication as to the number of such witnesses or documents. Goldstar fails to show that trying
this case in Illinois would be unduly burdensome for it or that transporting witnesses and
documents to Illinois would substantially hinder judicial efficiency. Even if most of the evidence

is in Florida, Illinois has a strong countervailing interest in protecting its residents’ rights under

‘Although Goldstar objects to the printed web pages attached by plaintiffs to their
response brief, Goldstar does not dispute Arnold’s allegation that he submitted personal
information and made a monthly payment via the website. Even ignoring the printed pages, the
website was interactive on the undisputed allegations of fact.

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on that clause, only a court in the selected forum can issue a § 4 order compelling arbitration.
Snyder v. Smith, 736 F.2d 409, 418-20 & n.8 (7th Cir. 1984). Defendants quote the forum
selection clause and seek an order compelling arbitration in accordance with the agreement, so
there is no waiver. If anyone has waived the issue, it is plaintiffs; they have not requested, even
in the alternative, that arbitration should take place in the Northern District of Illinois.

The question then is how to respond to defendants’ request for relief that is outside of the
power of this court to grant. At first blush, it is tempting simply to deny defendants’ motion for
this reason.° If plaintiffs had raised the objection instead of briefing the question of arbitrability,
then denying the motion may have been the appropriate course of action. But plaintiffs argued
the merits of the arbitration issue instead and now the question is fully briefed. Both parties are
apparently content to have this court decide whether arbitration in Florida is appropriate. This
court hesitantly accepts the invitation by interpreting defendants’ misguided motion for a § 4
order compelling arbitration as seeking the only relief actually available under the FAA from this
court, a § 3 stay pending arbitration. Requiring the parties to re-brief the issue of arbitrability in
another court would be a waste of judicial and attorney resources. Cf Fed. R. Civ. P. 1 (stating
that Federal Rules of Civil Procedure “shall be construed and administered to secure the just,
speedy, and inexpensive determination of every action”). Defendant obviously seeks a judicial

ruling that this matter must be arbitrated; the distinction between an order and a stay is more a

5If defendants had initiated this lawsuit seeking an order compelling arbitration in Florida,
then dismissal would be the appropriate remedy. Snyder, 736 F.2d at 420 (“In a case... where
the petition to compel arbitration [is] the only relief sought, the district court should dismiss the
petition or, upon motion, stay its proceedings.”); see also Merrill Lynch, Pierce, Fenner & Smith
v. Lauer, 49 F.3d 323, 328 (7th Cir. 1995). Not so here—plaintiffs are presumptively entitled to
their choice of judicial forum.

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