Copies have been mailed to:

JAMES SHEDDEN, Esq.
MICHAEL S. HILICKI, Esq.
LINDA R. WALSH, Esq.
TONY KIM, Esq.

Beeler, Schad & Diamond, P.C.

332 South Michigan Avenue
Suite 1000
Chicago, IL 60604

DAVID J. PHILIPPS, Esq.
MARY E. PHILIPPS, Esq.
Gomolinski & Philipps, Ltd.
8855 South Roberts Road
Hickory Hills, IL 60457

Attorneys for Plaintiff

DAVID L. CLARK, Esq.
11 South LaSalle Street
Suite 1000

Chicago, IL 60603-1207

Attorney for Defendant



granted the TRO and issued a rule to show cause why Edge's application for a preliminary
injunction should not be granted. Plattner, in turn, filed an emergency motion to temporarily and
preliminarily enjoin enforcement of the New York state court order. Judge Gottschall granted
the motion for a TRO on November 11, 2003, and granted the preliminary injunction on
November 21, 2003. A second oral argument on Edge's motion to stay these proceedings was

held by this Court on November 18, 2003.

Il. Discussion

Edge asks this Court to stay proceedings in this case pending the outcome of an action to
compel arbitration in New York. Edge argues that a court in New York is the proper place to
bring the motion to compel arbitration because the Agreement governing this dispute contains a
forum selection clause and only a court in the selected forum can issue an order compelling
arbitration pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. § 1, ef seg., ("FAA").
See Arnold v. Goldstar Fin. Sys., No. 01 C 7694, 2002 WL 1941546, at *7 (N_D. Ill. Aug. 22,
2002) (citing Snyder v. Smith, 736 F.2d 409, 418-20 & n.8 (7th Cir. 1984)). Plattner, also relying
on Arnold, responds that the arbitration clause is unenforceable because it is unconscionable, and
therefore this Court should not stay these proceedings. See id. at *9-10 (finding an arbitration
clause unenforceable where the costs of the arbitration would be prohibitively expensive and
construing a motion to compel arbitration as a motion to stay proceedings and denying said

motion).

° We do not find it necessary to reach Plattner's remaining argument that he did not
knowingly waive his right to a trial by jury. As will be explained, this is a defense that should be
(continued...)

-4-



in a section titled "Other Programs and Services." Additionally, by reason of the Agreement
being a form contract, it appears to be a contract of adhesion. However, the contract was mailed
to Plattner, he had time to review it at his leisure, there is no evidence that he was under any
pressure to return the Agreement without fully reading the documents, the provision is written in
normal typeface, and it appears directly above a statement that he has reviewed the terms of the
Agreement which also warns him in all capital letters: "Do not sign [this Agreement] unless you
have carefully read and understood it in its entirety." Some disparity in bargaining power was
present, as Plattner is an unsophisticated consumer with severe financial difficulties and there is
no evidence what his other options might have been besides bankruptcy. See Ranieri v. Bell
Atlantic Mobile, 759 N.Y.S.2d 448, 449 (N.Y. App. Div. 2003) (inequality of bargaining power
alone does not invalidate a contract as one of adhesion where the purchase can be made
elsewhere).

Nevertheless, in exceptional cases, a provision in a contract may be so outrageous that it
should be held unenforceable on the ground of substantive unconscionability alone. Gillman,
534 N.E.2d at 829; Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569, 575 (N.Y. App. Div.
1998). The question of substantive unconscionability "entails an analysis of the substance of the
bargain to determine whether the terms were unreasonably favorable to the party against whom
unconscionability is urged... ." Gillman, 534 N.E.2d at 829. We must consider whether the
"who decides" clause requiring Plattner to choose an arbitrator in New York to determine issues
of arbitrability falls in this category. We answer this question in the affirmative. Plattner is a
resident of Illinois. He contacted Edge for assistance in dealing with his consumer debt. Edge

knew, at the time the bargain was entered into, that Plattner was in dire financial straits. Yet, it

-9-



In resolving this issue, the court first noted that just as parties can agree to arbitrate a
dispute ("arbitrability"), they can also agree whether an arbitrator or the court will decide
arbitrability (referred to as the "who decides" question). First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 943 (1995). The question for the court becomes whether the parties
agreed that the arbitrator would decide if a dispute should be arbitrated. Air Line Pilots Ass'n,
Int'l v. Midwest Express Airlines, Inc.,279 F.3d 553, 555 (7th Cir. 2002) (while the arbitrability
question is usually for a court, "parties to a contract can if they wish assign the determination of
the arbitrability of a dispute to an arbitrator — but then the question of whether they have done
that is for the court").

The court in Carbajal then turned to the Supreme Court case of Prima Paint Corp. v.
Flood & Conklin Mfg., 388 U.S. 395 (1967). In Prima Paint, the Court held that an arbitration
clause is separable from the contract in which it appears. Jd. at 402. In other words, under this
concept of "separability," an arbitration provision might be enforceable even if the underlying
contract in which it appears is not. The court should decide any defenses relating to the
formation of the arbitration provision, but, if it is enforceable, any defenses relating to the
formation of the "contract generally" should be decided by the arbitrator. Id. at 404.

The court in Carbajal extended this holding, and held that two levels of separability were
appropriate: "Not only is the arbitration clause separable from the larger container contract, but
the "who decides" clause is separable from the larger arbitration provision." 2003 WL 22159473,
at *7. Under this approach, the court first determined whether the "validity or enforceability
clause" was enforceable on its own terms as a separate contract. Jd, at *8. The plaintiff had

failed to argue that the "validity or enforceability" clause was unenforceable, and the court could

-6-



Although we agree with the law of the Arnold case, we find that a recent thoughtful
decision not cited by either party is more persuasive for our initial analysis because it contains
one factual similarity to the instant case which was not present in Arnold — a provision within the
arbitration clause stating that the arbitrator shall have the exclusive authority to resolve any
disputes relating to the enforceability of the Agreement, including the enforceability of the
arbitration clause itself. See Carbajal v. Household Bank, FSB, No. 00 C 0626, 2003 WL
22159473, at *2 (N.D. Il. Sept. 18, 2003).°

In Carbajal, the defendants filed motions to compel arbitration based on a
broadly-worded arbitration provision found in the agreement between the plaintiff and the
defendants. The arbitration provision included a clause that "any claim or dispute . . . including
the validity or enforceability of this arbitration provision or any part thereof. . . shall be resolved,
upon the election of either party, by binding arbitration” which the court referred to as the
"validity and enforceability" clause. 2003 WL 22159473, at *2. The plaintiff objected to the
motion to compel arbitration, arguing, in pertinent part, that the entire agreement as well as the
arbitration provision contained therein were induced by fraud and were unconscionable and
therefore unenforceable. The defendant replied that the enforceability of the arbitration provision
should be decided by the arbitrator pursuant to the terms of the "validity and enforceability"

clause.

5(...continued)
brought before the arbitrator.

® This case has been appealed to the Court of Appeals for the Seventh Circuit.

-5-



disputes must be resolved under New York state law pursuant to agreement by the parties, unless
the state laws give special treatment to arbitration agreements in which case they are
inapplicable).

Facially, it appears that the "who decides" clause should be enforced. But, there is one
important difference between Carbajal and this case. In Carbajal, any participatory arbitration
hearing would take place in the federal judicial district in which the plaintiff lived. 2003 WL
22159473, at *2. Thus, there was no undue burden on the plaintiff. In this case, the arbitrator,
who should decide the enforceability of the arbitration provision, would be in New York,
because according to the terms of the Agreement, the arbitration must be brought in Suffolk
County, New York. This raises arguments that the "who decides" clause is unenforceable as
unconscionable similar to the arguments brought by Plattner when he argued that the entire
arbitration provision was unenforceable.

A contract is unconscionable when entered into if it was both "procedurally and
substantively unconscionable when made ~ i.e., some showing of an absence of meaningful
choice on the part of one of the parties together with contract terms which are unreasonably
favorable to the other party." Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824, 828
(N.Y. 1988) (internal quotations omitted). Under the procedural element of unconscionability,
Plattner must show that deceptive or high-pressure tactics were employed during the contract
formation process, that fine print was used in the contract, that he is inexperienced or that there
was disparity in bargaining power. See id. Plattner has a difficult time meeting this hurdle. He
claims that he did not read the arbitration provision (of which the "who decides" clause is a part),

that the provision was hidden in twelve pages of information, and that it was misleadingly placed

-8-



&  Minote Order Form (06/97) »

United States District Court, Northern District of Illinois

Sitting Judge if Othe: i
aan Mosier ate Judes Joan B. Gottschall thar Assinved Sudee Martin C. Ashman
CASE NUMBER 03 C 2646 DATE 12/1/2003
CASE Donald Plattner vs. Edge Solutions, Inc.
TITLE

[ln the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY:

@ a Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due

@) Oo Answer brief to motion due___. Reply to answer brief due.

(4) oO Ruling/Hearingon___setfor___—_at

(5) D0 Status hearing{held/continued to] {set for/re-set for]on__—ssetfor_ at_ >

(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on___——s set fora

7) Oo Trial[set for/re-set for}on saat

(8) oO (Bench/Jury trial] [Hearing] held/continued toa

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) (Local Rule 41.1 CIFRCP41(a)(1) CIFRCP41(a)(2).

(10) || [Other docket entry] Enter memorandum opinion and order. Defendant’s motion to stay

proceedings pending action to compel arbitration [8-1] is denied in part and granted in part.

(a1) [For further detail see order attached to the original minute order.]

No notices required, advised in open court, WO0O6E GortscHatc]
3

No notices required,
lo notices req -qumnber of nosices

o | Notices mailed by judge's staff, DEC 0 2 2003

Notified counsel by telephone.

Docketing to maif notices. 3 [
Mail AO 450 form. a é
; ; - 51914 isia’s n EA. als
| Copy to judge/magisteate judge, Lund qua _
is deputy gl WY 2- Tad EU senate
initials
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Jd. It also has a sound basis in New York law under which excessive fees may be grounds for
finding an arbitration provision unenforceable. See Brower, 676 N.Y.S.2d at 574 ("Barred from
resorting to the courts by the arbitration clause in the first instance, the designation of a
financially prohibitive forum effectively bars consumers from this forum as well; consumers are
thus left with no forum at all in which to resolve a dispute.")

Neither side has requested that, in the alternative, the arbitration take place in a location
closer to where Plattner lives. Plattner only argues that the travel to New York is prohibitively
expensive when combined with the arbitration fees, but he does not argue that the arbitration fees
of $500 to $1,550, standing alone, are prohibitively expensive. Because it is only the portion
requiring a New York arbitrator to be selected that makes the "who decides" clause
unconscionable, we find that if this portion were separated out, the remainder of the "who
decides" clause would be enforceable. See c.f Brower, 676 N.Y.S.2d at 575 (finding that portion
of arbitration provision requiring arbitration before a certain arbitration association with
excessive fees was unconscionable, but remanding case to trial court with instruction to
substitute a different arbitration association and enforce the remainder of the arbitration
provision). Under the analysis we have used, an arbitrator should decide arbitrability questions
including whether the arbitration provision (absent the location) is enforceable, but the arbitrator
should be located within a reasonable distance from where Plattner resides. Therefore, we find
that Edge's motion to stay these proceedings pending the outcome of a motion to compel
arbitration in New York is denied. However, we will stay these proceedings pending arbitration
in Cook County, Illinois, in accordance with the balance of the arbitration clause and in

accordance with the terms of the Agreement.

-ll-



inserted a clause into its form contract requiring Plattner to travel to New York to arbitrate even
the dispute of whether the arbitration clause was enforceable in the first place. Plattner has
asserted, and we believe, that the costs of such a trip, especially when combined with the costs of
arbitration® would be prohibitively expensive, and serve to prevent him from seeking relief on
any claims he might have against Edge. Edge, by this "who decides" clause, effectively insulated
itself and immunized itself from any claims against itself by Plattner. Allowing an arbitrator in
New York to decide whether the location of arbitration in New York is unconscionable is absurd
because the harm to Plattner by reason of unconscionability would have occurred. Plattner is
unable to litigate in New York. For this reason, the "who decides" clause unreasonably favors
Edge, and it is unconscionable and therefore unenforceable.

This finding is consistent with Judge Gottschall's decision in Arnold. In that case, the
arbitration (excluding travel costs to Florida) would have cost each plaintiff in the class at least
$2550 for the filing fee plus half of the arbitrator's fee. 2002 WL 1941546, at *10. The court
found that the plaintiffs, who were persons with debt problems, had met their burden of showing

that these expenses were prohibitive and it denied the defendants’ motion to stay proceedings.”

® Plattner has estimated the total cost of the trip and the arbitration to be between $1,340
and $2,540. These estimates appear to be reasonable and we find that he has met his burden of
showing the likelihood of incurring such costs. See c.f Green Tree Fin. Corp. v. Randolph, 531
U.S. 79, 92 (2000) (holding that a party seeking to invalidate an arbitration agreement on the
ground that such arbitration would be prohibitively expensive bears the burden of showing the
likelihood of incurring such costs). Plattner has also sworn that such costs are prohibitively
expensive and we find this assertion that he is unable to afford these costs credible as he was
recently so close to bankruptcy that he was forced to seek out a credit repair and debt counseling
organization.

° As mentioned above, the court construed the defendants’ motion to compel arbitration
as a motion to stay proceedings pending arbitration.

-10-



not find any reason to not enforce it. /d. (noting that "we cannot see how one could view this
clause standing alone as so one-sided and oppressive as to shock the conscience"). Because this
question was answered in the affirmative, the motion to compel arbitration was granted, and the
remaining issues relating to arbitrability (including whether the entire arbitration provision was
enforceable) were for the arbitrator to decide. Id.

Without losing sight of the fact that this is a motion to stay rather than a motion to
compel as in Carbajal, we nevertheless come to the conclusion that the first issue in this case,
which neither side argued, is whether the "who decides" clause in the Agreement is enforceable.
If it is, then the issue of the enforceability of the arbitration provision (which we normally would
address in order to decide the motion to stay) would be left up to the arbitrator. Plattner would
have the opportunity to argue the same defenses in front of the arbitrator that he has argued in
front of this Court. Thus, we will enforce the "who decides" clause, unless the clause could be
revoked upon grounds that exist at law or in equity for the revocation of any contract. See c.f 9
US.C. § 2 (arbitration provisions "shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract"); Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 684-686; Carbajal, 2003 WL 22159473, at *8. Because the Agreement
contains a choice of law provision,’ we find that New York state law applies. See Stone v.

Doerge, 328 F.3d 343, 345 (7th Cir. 2003) (affirming holding of trial court that most interpretive

7 There is no reason to find that the choice-of-law provision is unenforceable because
parties can agree that state rather than federal Jaw controls the issues of "who decides" and
arbitrability. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 ("The
choice-of-law provision, when viewed in isolation, may reasonably be read as merely a substitute
for the conflict-of-laws analysis that otherwise would determine what law to apply to disputes
arising out of the contractual relationship.)

-7-



account were not brought up to date. Plattner maintains that he was not aware that Citibank had
threatened to sue him because Edge insisted that all creditors deal directly with it. He also
alleges that Edge did not make payments on the Citibank account because Citibank was not
willing to negotiate a lower debt and Edge would not collect any fees. In June 2001,’ Citibank
sued Plattner. Furthermore, according to Plattner, although Edge told him that it would no longer
provide services to him after he was sued by Citibank, it continued to take the $1000 from his
personal account, but failed to use this money to complete payments on a settlement with
Household Bank that it had negotiated.

Plattner filed suit against Edge in the Northern District of Illinois. Edge responded by
filing the current motion to stay the proceedings pending an action to compel arbitration in New
York.’ Plattner objected to the motion to stay, and after both parties filed briefs in support of
their respective positions, an oral argument was held. At the oral argument, this Court gave the
parties the additional opportunity to further brief the issue of the enforceability of the arbitration
provision contained in the agreement between Edge and Plattner. In the meantime, before the
briefing schedule set by this Court had expired, Edge sought a temporary restraining order and
preliminary injunction in the Supreme Court for the State of New York preventing Plattner from

further prosecuting the proceedings in the Northern District of Illinois. The New York court

> The complaint alleges that Citibank sued Plattner in June of 2000, but this appears to be
a typographical error as Plattner did not enter into a business relationship with Edge until
December 2000. (See Compl. 4 19 ("In June 2000, while Defendant was managing Plaintiff's
Edge Account, Plaintiff was sued by Citibank.").) Regardless, the resolution of this factual
question is not necessary to decide the instant motion.

* Edge also contemporancously filed a motion to dismiss, or in the alternative, to transfer
venue which, by agreement, has not been briefed nor argued, and is not the subject of this
memorandum opinion and order.

-3-



Plattner that the company could provide him with debt counseling and credit repair services and
sent him follow-up material describing the program that it recommended for him. The program
Edge recommended was called the Debt Meltdown Program. Under this program, Plattner was
to make a single monthly payment into a personal bank account. Edge would negotiate
settlements with Plattner's creditors, and, once a settlement was reached, it would pay the creditor
out of the accumulated funds in the bank account. Edge took a fee equal to forty percent of the
money it had "saved" Plattner by negotiating down the amount that he owed.’ Plattner signed a
document called the "Debt Meltdown Program Agreement Letter" ("Agreement") which set forth
these terms on December 22, 2000. The two page Agreement also contained a provision right
above Plattner's signature which reads as follows:

In The [sic] event of any claim, dispute or controversy between the

parties hereto and relating to the validity, construction,

performance, breach or termination of this Agreement or

otherwise, both parties agree to submit such claim, dispute or

controversy to arbitration in Suffolk County, New York in

accordance with the rules of the American Arbitration Association

("AAA"). The Arbitrator shall be selected by the mutual

agreement of the parties and shall have exclusive authority to

resolve any dispute relating to the interpretation, applicability,

enforceability or formation of this Agreement, including but not

limited to any claim that all or in any part of this Agreement is

void. The arbitrator's decision shall be final and binding upon the

parties.

The relationship between Plattner and Edge deteriorated rapidly. Plattner alleges that his

creditor Citibank told Edge that it was going to sue Plattner if the payments on his Citibank

2 Edge also took a fee of $49.95 each month from Plattner's account for a "Debt Free Life
Membership and Coaching Program." It described the service as "enhanc[ing] the overall
Program experience for the client and to educate and inform the client on various tools regarding
their concerns."

-2-


IN THE UNITED STATES DISTRICT COURT DOCKET
FOR THE NORTHERN DISTRICT OF ILLINOIS )

EASTERN DIVISION DEC 9 9 2003

DONALD PLATTNER, )
an Illinois resident, )
)

Plaintiff, ) Case No. 03 C 2646
)

v. >) Judge Martin C. Ashman

)
EDGE SOLUTIONS INC., )
a New York corporation, )
)
Defendant. )

MEMORANDUM OPINION AND ORDER

This case is before the Court on Defendant's Motion to Stay Proceedings Pending Action
to Compel Arbitration.’ For the reasons set forth below, the Court finds that Defendant's motion

should be denied in part and granted in part.

I. Background

Plaintiff Donald Plattner filed this action against Edge Solutions, Inc., alleging violations
of the Credit Repair Organization Act, 15 U.S.C. § 1679, et seq., and breach of fiduciary duty.
Edge denies the allegations.

Edge holds itself out as a consumer advocacy company that assists its clients to lead debt
free lives. In September 2000, Plattner contacted Edge to explore options to resolve financial

difficulties he had been experiencing due to consumer debt. Edge's customer support staff told

' This matter comes before this Court pursuant to 28 U.S.C. § 636(b)(1)(A) and Local

Rule 72.1.


II. Conclusion
For the foregoing reasons, the Court denies Defendant's motion to stay these proceedings
pending an action to compel arbitration in New York, but stays these proceedings pending
arbitration in Cook County, Illinois.

ENTER ORDER:

Dea. C. G2

MARTIN C. ASHMAN
Dated: December 1, 2003. United States Magistrate Judge

-12-