Smith v. Steinkamp, 02-2649.

• Decision Date: 10 February 2003
• Docket Number: No. 02-2649.,No. 02-2650.,02-2649.,02-2650.
• Parties: Sheila SMITH, et al., Plaintiffs-Appellees, v. John STEINKAMP, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

318 F.3d 775

Sheila SMITH, et al., Plaintiffs-Appellees, v. John STEINKAMP, et al., Defendants-Appellants.

No. 02-2649.

No. 02-2650.

United States Court of Appeals, Seventh Circuit.

Argued January 6, 2003.

Decided February 10, 2003.

Clifford W. Shepard (argued), Indianapolis, IN, for Plaintiffs-Appellees.

Thomas E. Satrom, Locke Reynolds, Indianapolis, IN, Jeffrey T. Mitchell (argued), Konicek & Dillon, St. Charles, IL, for Defendants-Appellants in No. 02-2649.

Jeffrey T. Mitchell (argued), Konicek & Dillon, St. Charles, IL, for Defendant-Appellant in No. 02-2650.

Before POSNER, DIANE P. WOOD, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

The defendants appeal from the denial of their motion to submit the claims of two of the plaintiffs to arbitration. 9 U.S.C. § 16(a)(1)(B). The defendants are Instant Cash, Inc., a small-loan company active in Indiana, and its lawyer, Steinkamp (also Steinkamp's firm, but it can be ignored). Instant Cash made "payday" loans to the four plaintiffs. A payday loan is a loan of short duration, typically two weeks, at an astronomical annual interest rate, here more than 500 percent. As the name implies, it is a loan to poor or improvident borrowers who have no savings or credit and run out of money for their living expenses before they receive their weekly or biweekly paycheck. The borrowers must be desperate, since the annual percentage rate of the loans is disclosed to them in clear and conspicuous type on the loan instrument.

The plaintiffs defaulted and Steinkamp represented Instant Cash in suits against them in small-claims court. (The status of the small-claims litigation is unclear.) They riposted with this federal suit, in which they charge the defendants with RICO violations (Steinkamp they further charge with violating the federal Fair Debt Collection Practices Act) and also with violating Indiana usury law. Indiana's supreme court has held that payday loans at the interest rates typically and here charged by the lenders are usurious and therefore unenforceable. Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572, 574-77 (Ind.2001). The plaintiffs have other Indiana claims as well, but we can ignore those.

The defendants moved for an order to arbitrate their federal and state law disputes with the plaintiffs, invoking an arbitration agreement that the plaintiffs had signed. It might seem that the defendants would have little to gain from arbitration, given Livingston. But they may think that an arbitrator is more likely to ignore or mistake the law than a judge would be; anyway there are other claims in the case besides the usury claim and the defendants may fear being dragged into class action suits if borrowers can proceed against them in state or federal court. The defendants' desire to arbitrate is therefore understandable on multiple grounds.

All the plaintiffs had signed the arbitration agreement but two of them had not signed it at the time they took out the loans on which they base this suit. Sheila Smith had borrowed $150 from Instant Cash on July 12, 2000, to be repaid on the 26th. On the same day that she signed the loan agreement she signed a separate agreement, entitled "Additional Terms and Conditions of This [Loan] Agreement. Waiver of Jury Trial and Arbitration Agreement" (we'll call this the "waiver agreement"), which provided that all disputes would be resolved by arbitration with the exception of disputes within the jurisdiction of a small-claims court. "Disputes" are defined in the waiver agreement to

include, without limitation (a) any federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the [loan-application form], this Agreement [i.e., the loan agreement] (including this arbitration provision and the fees charged), or any prior agreement or agreements between you and us; (b) all counterclaims, cross-claims and third-party claims; (c) all common law claims, based upon contract, tort, fraud, and other intentional torts; (d) any claims based upon a violation of any state or federal constitution, statute or regulation; (e) all claims asserted by us against you, including claims for money damages to collect any sum we claim you owe us; (f) all claims asserted by you individually, as a private attorney general, as a representative and or member of a class of persons, or in any other Representative capacity, against us and/or any of our employees, agents, [etc.].

The agreement thus (in clause (f)) also authorizes agents of Instant Cash, such as Steinkamp, to demand arbitration of their disputes with the borrowers.

On August 15, Smith signed another loan agreement, this one for $125, with repayment again due in two weeks. But this time she didn't sign a waiver agreement. Although the back of the loan agreement contains a list of additional terms and conditions (the same list had appeared on the back of her July loan agreement) including a waiver clause, this clause, unlike what we are calling the waiver agreement, does not refer to arbitration or litigation.

The facts pertaining to plaintiff Hicks are the same. But the other two plaintiffs signed the waiver agreement every time they borrowed from Instant Cash, and the district judge held that they were bound by the agreement and so had to arbitrate their RICO and other claims. These other two plaintiffs do not appeal from this ruling, and could not if they wanted to because the grant of a motion to compel arbitration is not appealable unless the judge dismisses the case. 9 U.S.C. § 16(b); McCaskill v. SCI Management Corp., 298 F.3d 677, 678 (7th Cir.2002). But the judge held that Smith and Hicks did not have to arbitrate, because, he ruled, the waiver agreement that they had signed when taking out the earlier loans was inapplicable to the...