QuickClick Loans, LLC v. Russell

Citations: 943 N.E.2d 166; 407 Ill. App. 3d 46; 347 Ill. Dec. 876; 2011 Ill. App. LEXIS 63Docket: 1-10-0436

Court: Appellate Court of Illinois; February 1, 2011; Illinois; State Appellate Court

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QuickClick Loans, LLC initiated collection proceedings against Melody A. Russell for defaulting on a loan agreement and promissory note. In response, Russell filed a counterclaim alleging violations of multiple consumer protection laws including the Truth in Lending Act, Regulation Z, the Illinois Consumer Installment Loan Act, and the Illinois Interest Act. QuickClick's motion to compel arbitration and stay proceedings was denied by the circuit court, leading to QuickClick's appeal.

The Appellate Court of Illinois affirmed the circuit court's judgment, concluding that the arbitration agreement specified two exclusive arbitration organizations, both of which were unavailable, rendering the arbitration agreement unenforceable. The court ruled that it could not appoint an alternative arbitration administrator as the designation of the two organizations was a fundamental aspect of the agreement.

Jurisdiction for the appeal was confirmed under Illinois Supreme Court Rule 307(a)(1) following the circuit court's denial of the motion to compel arbitration on January 14, 2010, and QuickClick's subsequent interlocutory appeal filed on February 9, 2010. The arbitration provision in the loan agreement allowed either party to initiate arbitration for claims arising from the loan, outlining the claims covered and the procedure for starting arbitration. However, it excluded small claims court actions, which could be compelled to arbitration if escalated to a different court.

A notice for arbitration can be initiated through a motion or petition to compel arbitration, requiring compliance with the Arbitration Agreement and applicable arbitration rules. The party seeking arbitration must select either the American Arbitration Association (AAA) or the National Arbitration Forum (NAF) as the Administrator. Arbitrators must be lawyers with at least 10 years of experience. If the selected Administrator is unable to serve, the party has 20 days to choose a new one. Participation in class actions or class-wide arbitration is prohibited under the Arbitration Agreement. The agreement is governed by the Federal Arbitration Act.

On July 17, 2009, the NAF entered a consent judgment mandating its divestiture from consumer dispute arbitration, leading it to cease such activities. Following this, the AAA imposed a moratorium on consumer debt collection arbitrations, outlining the claims affected and the reasons for the moratorium. The moratorium will remain until adequate due process protocols are established.

In the case concerning Russell, QuickClick initiated collection proceedings on November 6, 2008, alleging default on a loan agreement, resulting in a default judgment on January 29, 2009. Russell successfully vacated this judgment and filed a counterclaim against QuickClick on March 4, 2009, citing violations of several consumer protection laws. QuickClick filed a citation to discover assets, which was dismissed. On July 24, 2009, QuickClick moved to compel arbitration of Russell's counterclaims, asserting that they fall under the Arbitration Agreement and must be arbitrated individually, naming the AAA as the Administrator.

Arbitration is deemed impossible in this case due to the parties' Arbitration Agreement, which limits the selection of arbitrators to either the National Arbitration Forum (NAF) or the American Arbitration Association (AAA), both of which are unavailable. The NAF cannot participate in consumer arbitrations due to a settlement agreement, and the AAA is under a moratorium on consumer arbitrations that applies to QuickClick's claims. Russell contended that QuickClick waived its arbitration rights, and the class action waiver is unenforceable. 

In its reply, QuickClick acknowledged the NAF's unavailability but argued that the AAA's moratorium should not apply since it was Russell who filed the counterclaim. On January 14, 2010, the circuit court denied QuickClick's motion to compel arbitration, concluding that external legal constraints prevent arbitration of Russell's counterclaims. The court ruled that the Arbitration Agreement's specification of the NAF and AAA as exclusives meant that no alternative arbitrator could be chosen, rejecting QuickClick's assertion that section 5 of the Act allows for court appointment of a different arbitrator.

Following the denial, QuickClick's counsel reached out to the AAA to confirm its stance on the moratorium. The AAA responded that it would not intervene without mutual agreement or court direction, noting that the issue had been thoroughly litigated. On February 9, 2010, QuickClick filed an interlocutory appeal against the circuit court's decision, arguing that the AAA's moratorium did not apply since Russell initiated arbitration and challenging the circuit court's interpretation of the Arbitration Agreement and section 5 of the Act.

QuickClick asserts that the Arbitration Agreement includes a class action waiver and requests the court to compel Russell to arbitrate individually, rather than as a class. Russell counters that arbitration cannot occur since the agreement restricts arbitrator selection to the AAA or NAF, both of which are currently unavailable—NAF no longer handles consumer debt cases, and AAA has a moratorium that applies to this arbitration. Russell also contends that QuickClick cannot unilaterally modify the agreement to appoint a different arbitrator, as the agreement stipulates an administrator consistent with its terms. Furthermore, Russell claims QuickClick has waived its right to arbitration by previously pursuing litigation in circuit court while attempting to force Russell into arbitration. He also argues that both the Arbitration Agreement and the class action waiver are unconscionable and against public policy. 

The review of interlocutory appeals typically follows an abuse of discretion standard, but if the circuit court's decision is based solely on legal analysis without evidentiary hearings, it is subject to de novo review. Established case law supports that arbitration agreements are favored in legal contexts as a valid method of dispute resolution, and the Federal Arbitration Act aims to treat such agreements equally with other contracts. However, it is emphasized that parties are only obligated to arbitrate issues they have explicitly agreed to arbitrate.

An arbitration agreement cannot be extended by construction or implication, and its unambiguous terms must be interpreted according to their plain meaning. A court must first assess if the arbitration agreement addresses statutory issues; if so, it must also consider external legal constraints that might prevent arbitration. The Arbitration Agreement specifies that the party requesting arbitration must choose between the National Arbitration Forum (NAF) or the American Arbitration Association (AAA) as the administrator. If neither is available, the requesting party has 20 days to select an alternative administrator. In this case, both parties acknowledge the NAF's unavailability, while there is a dispute over the AAA's availability. The AAA's moratorium prohibits it from participating in certain consumer debt collection cases where it is the filing party and the consumer has not agreed to arbitration at the dispute's onset. Since QuickClick initiated arbitration and filed the initial complaint, the moratorium applies, effectively foreclosing arbitration. Consequently, the circuit court cannot enforce the Arbitration Agreement due to the unavailability of the designated administrators. QuickClick also claims that a substitute arbitrator should be appointed under section 5 of the Act in cases of a lapse in naming an arbitrator. However, a court may only appoint a substitute if the designated forum is not integral to the arbitration agreement, as established in Carr v. Gateway, Inc.

The court determined that the selection of an arbitral forum is essential to the arbitration agreement, emphasizing that it is not merely a logistical issue. The agreement specifically requires the parties to choose between the NAF or AAA as the sole administrators, indicating that this designation is integral rather than ancillary. The language of the agreement firmly directs that the parties "must choose" one of these options, precluding any interpretation that allows for other arbitral forums. Consequently, the court did not need to consider Russell's arguments regarding waiver or public policy. The judgment of the circuit court of Cook County was affirmed, with Justices Karnezis and Connors concurring. Additionally, Russell had the opportunity to contest the Arbitration Agreement but did not do so within the specified timeframe, thus accepting its incorporation into the loan agreement and promissory note.