interest rate or payment schedule, which riders were not reflected in their TILA disclosures. As a
result, the disclosures of the annual percentage rate, finance charge, and total of payments are
each incorrect. Count III is a proposed class claim for statutory damages according to 15 U.S.C.
§ 1635(g) on behalf of the same class as Count I.

Count IV is a proposed class claim alleging that the Associates Defendants engaged in
unfair and deceptive acts and practices in violation of the Mlinois Consumer Fraud Act, by
engaging in “loan flipping.” This proposed class would be limited to Illinois, Count V concems
an arbitration agreement that defendants began using during the last couple of years, apparently
after learning that they were under a Federal Trade Commission investigation that was likely to
give rise to private litigation such as this case. Plaintiffs contend that the arbitration agreements
were imposed on the proposed class in furtherance of the unlawful scheme and are therefore
invalid for that reason.

The party seeking certification bears the burden of proving that its action is appropriate as
aclass action and that it satisfies all of the requirements of Rule 23. Retired Chicago Police
Assoc. v. City of Chicago, 7 F.3d 584, 596 (7th Cir, 1993). Federal Rule of Civil Procedure 23
permits a class action to be maintained if: (1) the class is so numerous that joinder of all class
members is impracticable; (2) there are questions of law or fact common to the class; (3) the
claims or defenses of the representative parties are typical of the claims or defenses of the class;
and (4) the representative parties will fairly or adequate protect the interests of the class, Fed. R.
Civ. P. 23(a). In addition, the court must also find: (1) that the prosecution of separate actions by
the individual class members would create a risk of inconsistent adjudications or substantially

impair the abilities of other class members to protect their interests; (2) that the party opposing

the class has acted or failed to act on grounds generally applicable to the class, thereby making



The Class of Count V, alleging that certain arbitration agreements that the Associates
Defendants began using after learning that their conduct was under investigation by the Federal
Trade Commission, consists of all persons who are members of the classes for purposes of

Counts 1, Ll, and IV.

Enter:
Ohad loan.
David H, Coar

United States District Judge

Dated: September 17, 2002



class members satisfies the numerosity requirement when, as here, the plaintiff alleges all claims
are based on standard rate reduction rider forms, on standard arbitration agreements, and on

standard, general business practices. See e.¢., Kort v. Diversified Collections Servs., Inc,, No. 01

C 0689, 2001 WL 1617213, at *1 (N.D. Ill. Dec. 17, 2001); Hamid v. Blatt, et. al., No. 00 C

4511, 2001 WL 1543516, at *3 (N.D. IIL. Nov. 30, 2001); Wells v. McDonough, No. 97 C 3288,
1998 WL at 160876, at *2 (N.D. Ill. Mar. 31, 1998).
Commonality and Typicality

Under Rule 23(a)(2), commonality is not a demanding requirement; one issue of fact or

law common to all class members will suffice. Gilmore v. Southwestern Bell Mobile Sys., No.

01 C 2900, 2001 WL 1539157 at *3 (N.D. Ill. Nov. 30, 2001). Similarly, Rule 23(a)(3) requires
that the claims or defenses of the class representative be typical of the claims or defenses of the
class. The typicality requirement is closely related to the commonality requirement. Hamid,
2001 WL 1543516, at *5. A plaintiff's claim is typical if it arises from the same event or
practice or course of conduct that gives rise to the claims of other class members and his claims

are based on the same legal theory. De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232
(7th Cir. 1983), Therefore, the typicality prong “may be satisfied even if there are factual
distinctions between the claims of the named plaintiffs and those of the other class members.”
Id. Further, where a question of law involves “standardized conduct of the defendants toward
members of the proposed class, a common nucleus of operative facts is typically presented... .”

Franklin y. City of Chicago, 102 F.R.D. 944, 949 (N.D. Ill. 1984).

In the present case, both the commonality and the typicality requirements are met. As to
Counts I and Ill, the common question is whether each class member is entitled to rescind
because the terms of riders or side agreement were not reflected in his or her TILA agreements.

As to Count IV, the common questions are whether the Associates Defendants cngaged in a



injunctive or declaratory relief appropriate for the class; or (3) that common questions of law or
fact predominate over questions affecting only individual members and the class action is the
best method for fairly and efficiently adjudicating the controversy. Fed. R. Civ. P. 23(b). In this
case, Plaintiffs seek to certify a class under Fed. R. Civ. P. 23(b)(3). With these principles in
mind, this Court turns to whether Plaintiffs have met the requirements of Rule 23.
1. Rule 23(a)
Numerosity

To satisfy numerosity, it is not necessary to determine the exact number of members in
the class; a reasonable estimate will suffice and courts are entitled to make common sense
assumptions in order to support a finding of numerosity. Keele v. Wexler, No. 95 C 3483, 1996
WL 124452, at *3 (N.D. Ill. 1996), aff'd, 149 F.3d (7th Cir. 1998). With respects to Counts I, ITT
and V, Plaintiffs allege that the purported class is broad -- at least 2,400 individuals based on a
computer search of real estate records in the Chicago metropolitan area -- and it consists of those
who received mortgage loans by Associates Finance during the relevant time period. With
respect to Count IV, a 1996 SEC filing by one of the Associates Defendants states that they have:
(a) 9.4 million customers; (b) receivables, cxclusive of credit cards, totaling over $20 billion; and
(c) a business strategy of “generat[ing] repeat loans and migrat[ing] existing customers to other
finance products. In its consumer branch delivery systems, the Company seeks to migrate
existing finance customers toward home equity loans by employing analytical tools to identily
those customers who have good payment and credit histories and who may desire additional
credit. Home equity loans typically have higher balances and lower levels of risk to the

Company.” Even though Plaintiffs speculate rather than allege the total number of individuals in

the purported classes, this Court finds that it is appropriate to assume that the number of potential



adjudication of this controversy’, Accordingly, the Court finds that the requirements of Rule
23(b)(3) are met.
Conclusion

For the foregoing reasons, Defendants’ motion to compel arbitration and stay proceedings
and to dismiss class claims is denied, Plaintiffs’ motion for class certification [4-1] is
GRANTED. The certified classes shall be defined as follows:

The class for Count I, seeking a declaration that the plaintiffs and class members have the
right to rescind their loans for violated of TILA, 15 U.S.C. § 1635, and the class for Count III,
secking damages for violation of TILA, consists of all natural persons who satisfy the following
criteria:

a. They obtained a residential mortgage loan secured by real estate from an Associates
Defendant;

b. The loan included riders or side agreements changing the rate or payment schedule,

c. The TILA disclosures did not take into account the effect of such agreements;

d. Their mortgage is dated on or after March 8, 1998 (three years prior to the filing of
this action), or such longer period as results pursuant to 15 U.S.C, § 1635(f) from the institution
on March 7, 2001 of an action in the U.S. District Court for the Northern District of Georgia by
the Federal Trade Commission against defendants conceming matters complained of herein.

The class of Count IV, alleging violation of the Illinois Consumer Fraud Act, 815 ILCS
505/2, the class consists of all natural persons in Illinois who obtained two or more consumer
loans from the Associates, one of which was used to pay off another Associates loan, during the

period of January 1, 1995 to the present.

? This Court’s concern is heightened by the importance of class certification issue in
TILA cases in particular, where the small amounts of money involved and the difficult financial
situations of many of the litigants may inhibit individualized litigation. See Williams v.
Chartwell Financial Servs., Ltd., 204 F.3d 748, 760-61 (7th Cir. 2000)(collecting cases).

8



Minute Order Form (08/97)

. United States District Court, Northern District of Hlinois
sy Magitrate Judge David HL Coar han Acsigved Jade
CASE NUMBER 01C 1659 DATE 9/17/2002

CASE Livingston, et. al. v. Associates Finance, Inc., et. al.
TITLE
[in the following bax (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the mation being presented. |
DOCKET ENTRY:
(1) oO Filed motion of [ use listing in “Motion” box above.]
Q@ Oo Brief in support of motion due,
(3) Oo Answer brief to motion due . Reply to answer brief due.
(4) O Ruling/Hearingon set for at
(5) Oo Status hearing [held/continued to] [set for/re-set for] on 0. set for at
(6) Oo Pretrial conference [held/continued to] |sct for/re-set for] on set for at
(7) Oo Trial [set for/re-set for) on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) a] This case is dismissed [with/without] prejudice and without costs [by/agreement/pursuant to]
OFRcP4(m) OGeneral Rule 21 CFRCP41(a\(1) [9 FRCP41(a)(2).

(io =< [Other docket entry] For the reasons stated in the attached Memorandum and Opinion Order, this

Court DENIES Defendants’ motion to compel arbitration [24-1] and stay proceedings [24-2], and dismiss

class claims [24-3]. This Court GRANTS Plaintiffs’ motion forclass certificatiom [4-1].

alle
\ ¥ AAA
vod <

(il) @ [For further detail see Memorandum and Opinion Order attached to the original minute order. |

No notices required, advised in open caurt
No notices required

Notices mailed by judge’s staff,

Notified counse! by telephone

Docketing to mail notices

Mail AO 450 form,

Copy to judge/magistrate judge.

courtroom
depuly’s
initials

mds(Ie)

Document
Number

ZZ

rurher of natices

Date/lime received in
central Clerk’s Office

“gee 1 8 22

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14

Gate mailed notice

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ruling deputy initials



“flipping” scheme and whether the Associated Defendants thereby violated 815 ILCS 505/2. As
to Count V, the common question is whether defendants’ arbitration clauses are invalid because
they were adopted pursuant to an unlawful scheme or are subject to rescission along with the
remainder of the transactions. Further, because Plaintiffs’ claims present these very questions,

they are typical of the claims of the purported class.
Adequacy of Representation

Rule 23(a)(4) requires that the class representative have a sufficient stakc in the outcome
to ensure zealous advocacy, that the class representative does not have antagonistic or conflicting
claims with other class members, and that counsel for the named plaintiff is experienced,
qualified, and generally able to conduct the litigation. Retired Chicago Police Ass’n, 7 F.3d at
598. Here, this Court is satisfied that Plaintiffs’ counsel is experienced and able to conduct the
litigation, and the Plaintiffs and the potential class members all seek: a declaratory judgment
stating that Plaintiffs and the class members have a continuing right to rescind their loans and all
agrcements relating thereto; rescission in favor of each borrower so electing; and statutory
damages. Thus, there is no potential for conflicting interests between Plaintiffs and any other
class members in this action. This Court finds that the adequate representation requirement is

met.

2. Rule 23(b)(3)

There are two components to class certification under Rule 23(b)(3): (1) that common

questions predominate over individual questions; and (2) that a class action is the superior

method of adjudicating the claims of the parties. As discussed above, the questions of law and
fact to the members of the class, as defined by Plaintiffs, are similar to all of the proposed class
members and would predominate over any other questions affecting individual class members.

Furthennore, a class action is superior to the available methods for the fair and efficient



not award defendant attorneys’ fees unless the plaintiff brought the action “in bad faith and for
the purpose of harassment.” As the Defendants point out, the rules of the American Arbitration
Association (“AAA”) do not permit an arbitrator to ignore TILA’s statutory mandates regarding
attorneys’ fees and the arbitrator’s award is subject to subsequent judicial scrutiny to ensure that
the arbitrator complied with TILA’s requirements. In this case, however, the uncertainty of an
award by an arbitrator using his or her “discretion,” coupled with the uncertainty inherent in
Defendants’ ncbulous offer to pay arbitration costs only to the extent they exceed litigation costs,
impermissibly impedes Plaintiffs’ exercise of their statutory rights under TILA. Defendants’
motion to compel arbitration and stay proceedings is therefore denied.
Plaintiffs’ Motion for Class Certification

On March 12, 2001, Plaintiffs moved this Court to enter an order certifying a class for
Counts 1, U1, [V, and V of the complaint. On April 26, 2001, this Court stayed all briefing on the
motion for class certification. On March 4, 2002, this Court stayed discovery and class
certification proceedings pending a ruling on Defendants’ motion to compel arbitration and stay
proceedings. Defendants, however, included in theit motion to compel arbitration and stay
proceedings a motion to dismiss class claims---claims that this Court had not yet certified. ‘Thus,
this Court considers Defendants’ motion to dismiss class claims as their response to the
Plaintiffs’ motion for class certification.'

Count J is a proposed class claim seeking a declaration that Plaintiffs and the class
members have the right to rescind their real estate mortgages under TILA. The proposed class

would consist of all Associates mortgagors who were given riders to their loans changing the

' As Defendants base their arguments to dismiss class claims on the Plaintiffs’ being
precluded from class arbitration, and as this Court hereby denies Defendants’ motion to compel
arbitration, their motion to dismiss class claims is thercfore denied as well.



and the next day, on April 3, 2002, Defendants offered to pay Plaintiffs’ arbitration costs “to the
extent they exceeded the costs Plaintiffs would incur in litigation in federal court.” Before this Court
is Defendants’ fully bricfed motion to compel arbitration, stay proceedings, and dismiss class claims.
This Court DENIES Defendants’ motion to compel arbitration and stay proceedings and dismiss
class claims. Further, this Court GRANTS Plaintiffs’ pending motion for class certification.
Discussion

Motion to Compel Arbitration

Defendants argue that, by their offer to pay costs, they have eliminated any possibility
that the costs of arbitration could prove prohibitively high so that the Plaintiffs would be barred
from vindicating their rights in the arbitral forum. This Court, however, disagrees. Unlike the
defendants in the cases that Defendants cite, see Arellano v. Household Fin. Corp, I, No. 01 C
2433, 2002 WL 221604, at *3 (N.D. Ill. Feb. 13, 2002); Phillips v. Assocs. Home Equity Servs.
Inc., No. 01 CV1944, Minute Order, docket no, 45 (N.D. Ill. Oct. 22, 2001), Defendants here do
not offer to pay the arbitration costs; rather they qualify their offer to pay arbitration costs “to the
extent [the arbitration costs] exceed{] the costs plaintiffs would incur in litigation in federal
court.” It is this Court’s opinion that Defendants’ offer is vague, nebulous, and contrary to
Defendants’ assertion, it does vot eliminate any possibility that the costs of arbitration could
prove prohibitively high. Defendants completely fail to iterate exactly which litigation costs
would offset arbitration costs. This “offer” is an invitation to further litigation about costs,
nothing more.

In addition, Plaintiffs argue that the Arbitration Agreement violates TILA’s guarantees
regarding attorneys’ fees because it grants an arbitrator the discretion “to award attorney's fees as

he sees fit,” while TILA provides for the prevailing plaintiff to receive attorneys’ fees and does



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

MARC LIVINGSTON and MICHELLE
LIVINGSTON

)
)
)
Plaintiffs, )
) No. 01 C1659
HONORABLE DAVID H. COAR

)
)
ASSOCIATES FINANCE, INC.; )
CITIGROUP, INC.; CITIFINANCIAL y
CREDIT COMPANY; ASSOCIATES ,) agen tene
FIRST CAPITAL CORPORATION; and ) ee : cana
)
)
)
)
)

ASSOCIATES CORPORATION OF ronan
NORTH AMERICA oa )
SEP 1S 2002

Defendants.

MEMORANDUM OPINION AND ORDER

Marc and Michelle Livingston (“Plaintiffs”) sue Associates Finance, Inc., Citigroup, Inc.,
CitiFinancial Credit Company, Associates First Capital Corporation, and Associates Corporation of
North America (“Defendants”) under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seg.
and various state laws for engaging in numerous deceptive acts and practices to induce Plaintiffs and
other consumers to take out new or refinance loans that had high interest rates, costs, and fees, and
to purchasc high-cost credit insurance. Defendants moved to compel arbitration, stay proceedings,
and dismiss class claims. On March 4, 2002, this Court stayed Defendants’ motion to compel
arbitration, granted Plaintiffs leave to pursue limited discovery on the issue of cost of arbitration, and

granted Plaintiffs’ motion for extension of time to respond to Defendants’ motion to arbitration. On

April 2, 2002, this Court ordered Plaintiffs to respond to the Arbitration Motion by April 26, 2002,

7