Sanders v. JGWPT Holdings, Inc. et al

Filing 208

OPINION AND ORDER. For the reasons stated in the accompanying Opinion and Order, the Court grants Settlement Funding's motion 181 and compels arbitration of Plaintiffs' claims against Settlement Funding. The Court stays Plaintiffs' claims against Settlement Funding pending resolution of the arbitration. The Court dismisses related case Settlement Funding, LLC v. Sanders, Case No. 14-6266 (N.D. Ill. filed August 14, 2014), as resolved by Case No. 14-9188's transfer to the Northern District of Illinois and the Courts order to compel arbitration as sought in the petition. Signed by the Honorable Sara L. Ellis on 9/27/2017:Mailed notice(rj, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
VALERIO SANDERS, KENNETH
JENNINGS AND KEVIN RINCK,

)
)
)
Plaintiffs,
)
)
v.
)
)
JGWPT HOLDINGS, LLC; J.G.
)
WENTHWORTH LLC; PEACHHI, LLC,
)
PEACH HOLDINGS, INC.; PEACHTREE
)
FINANCIAL SOLUTIONS, LLC;
)
PEACHTREE SETTLEMENT FUNDING
)
LLC; SETTLEMENT FUNDING, LLC D/B/A )
PEACHTREE SETTLEMENT FUNDING;
)
BRIAN P. MACK; AND THE MACK LAW )
GROUP, P.C.,
)
)
Defendants.
)

No. 14 C 9188
Judge Sara L. Ellis

OPINION AND ORDER
Plaintiffs Valerio Sanders, Kenneth Jennings, and Kevin Rinck all were beneficiaries of
annuity payments paid to them as part of structured settlement contracts, and they sold the rights
to those annuity payments to Defendant Settlement Funding, LLC d/b/a Peachtree Settlement
Funding (“Settlement Funding”) in “factoring” transactions. Plaintiffs believe that Settlement
Funding and Defendants JGWPT Holdings, Inc., JGWPT Holdings, LLC, J.G. Wentworth, LLC,
PeachHI, LLC, Peach Holdings, Inc., Peachtree Financial Solutions, LLC, and Peachtree
Settlement Funding LLC (collectively with Settlement Funding, the “JGWPT Defendants”) and
Defendants Brian P. Mack and The Mack Law Group, P.C. (collectively, the “Mack
Defendants”) conspired to cheat Plaintiffs out of money in the factoring transactions. Settlement
Funding moves to compel arbitration of Plaintiffs’ claims pursuant to arbitration clauses included
in the agreements memorializing the factoring transactions [181]. Because the parties do not

dispute that the arbitration clauses are mandatory and because Plaintiffs fail to establish a
defense to arbitration, the Court compels arbitration of Plaintiffs’ claims against Settlement
Funding. Therefore the Court grants Settlement Funding’s motion to compel arbitration and
stays Plaintiffs’ case against Settlement Funding pending the outcome of the arbitration.
Because the Court compels arbitration, the related case of Settlement Funding, LLC v. Sanders,
No. 14-6266 (N.D. Ill. filed August 14, 2014), is moot, and the Court dismisses it with prejudice.
BACKGROUND
Plaintiffs’ structured settlement contracts provide periodic payments from annuities to
satisfy settlement obligations. Settlement Funding is in the business of purchasing these annuity
payments for an amount discounted to present cash value, in a process known as “factoring.”
Plaintiffs each entered into factoring transactions with Settlement Funding, memorialized in
Absolute Assignment and UCC Article 9 Security Agreements (the “Agreements”). Pursuant to
the Illinois Structured Settlement Protection Act (“SSPA”), 215 Ill. Comp. Stat. 153/1 et seq.,
Settlement Funding and Plaintiffs sought court approval orders of each Agreement and factoring
transaction. Sanders sold future annuity payments in three Agreements, Jennings sold future
annuity payments in two Agreements, and Rinck sold future annuity payments in two
Agreements.
Each Agreement contains an arbitration clause that reads:
ARBITRATION
Any and all controversies, claims, disputes, rights, interests, suits
or causes of action arising out of or relating to this Agreement and
the negotiations related thereto, or the breach thereof, shall be
settled by binding arbitration administered by the American
Arbitration Association. The demand for arbitration shall be filed
in writing with the other party to this Agreement and with the
American Arbitration Association offices in your state of
residence. The arbitration shall be held in the largest city in your
state of residence. The arbitration shall be held before a single
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arbitrator selected in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect at the time
that the demand for arbitration is filed. Discovery, specifically
including interrogatories, production of documents and depositions
shall be at the discretion of the arbitrator and to the extent
permitted shall be conducted in accordance with, and governed by
the Federal Rules of Civil Procedure.
***
No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, an
additional person or entity not a party to this Agreement, except by
written consent of the parties hereto, containing a specific
reference to this Agreement and signed by the entity sought to be
joined.
***
The award rendered by the arbitrator shall be final, and judgment
entered upon it in accordance with applicable law in any court
having jurisdiction thereof. Such arbitrator shall identify the
substantially prevailing party and shall include legal fees and
expenses for the substantially prevailing party.
This provision does not apply to the extent inconsistent with
applicable state law regarding the transfer of structured settlement
payments. In such case any disputes between the parties will be
governed in accordance with the laws of the domicile state of the
payee and the domicile state of the payee is the proper venue to
bring any cause of action arising out of a breach of the agreement.
Doc. 169-4, Ex. B at 2 (Sanders Agreement); see also Doc. 169-6, Ex. B at 2 (Sanders
Agreement); Doc. 169-8, Ex. B at 2 (Sanders Agreement); Doc. 169-10, Ex. C at 2 (Jennings
Agreement); Doc. 169-11 at 12–13 (Jennings Agreement); Doc. 169-13, Ex. A at 2 (Rinck
Agreement); Doc. 169-14, Ex. A at 2 (Rinck Agreement).
Believing he had been defrauded out of money in his factoring transactions with
Settlement Funding, Sanders filed suit in St. Clair County, Illinois on February 11, 2014 and then

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amended. The JGWPT Defendants removed Sanders’ suit to federal district court in the
Southern District of Illinois on April 9, 2014.
On May 13, 2014, Settlement Funding filed a motion for extension of time to answer or
otherwise plead. Settlement Funding argued that Sanders had included as Defendants entities
who had not entered into factoring transactions with Sanders and that Sanders was compromising
Settlement Funding’s ability to arbitrate disputes arising from Sanders’ Agreements. To try to
avoid parallel proceedings in arbitration and litigation, Settlement Funding asked the court to
defer Settlement Funding’s responsive pleading in order to preserve Settlement Funding’s right
to arbitrate pending the court’s ruling on the other JGWPT Defendants’ joint motion to
dismiss—if the other JGWPT Defendants’ motion to dismiss was successful then Settlement
Funding would file to compel arbitration; if the other JGWPT Defendants’ joint motion to
dismiss was unsuccessful, then “Settlement Funding would likely then choose to answer.” Doc.
24 at 6. On June 4, 2014, Settlement Funding withdrew its motion for extension of time and
filed a motion to compel arbitration. Sanders and new Plaintiffs Jennings, Rinck, Ramon
Rosario, and Janeka Hicks then filed a second amended complaint on July 14, 2014.
On August 14, 2014, Settlement Funding filed a petition seeking to arbitrate Sanders,
Jennings, and Rinck’s claims in the Northern District of Illinois, which was assigned to this
Court. In the petition, Settlement Funding alleged that the arbitration clauses in the Agreements
required arbitration in Chicago. Settlement Funding then moved on August 15, 2014 to dismiss
Sanders, Jennings, and Rinck’s claims in the Southern District of Illinois for improper venue
based on the arbitration clauses or to transfer Plaintiffs’ claims to this District. Settlement
Funding also moved to dismiss the claims of Rosario and Hicks, whom Settlement Funding did
not believe could arbitrate because they were not bound by similar arbitration clauses. The other

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Defendants also moved to dismiss the second amended complaint. Rosario then voluntarily
dismissed his claims on October 8, 2014.
On November 13, 2014, the Southern District of Illinois transferred Sanders, Jennings,
Rinck, Rosario, and Hicks’ case and second amended complaint to the Northern District of
Illinois. The Court then found this case related to the petition for arbitration, and this case was
reassigned to the Court. After the Seventh Circuit found that the Rooker-Feldman doctrine did
not bar all of Plaintiffs’ claims, the Court ruled on the pending motions to dismiss the second
amended complaint, dismissing some of Sanders, Jennings, Rinck, and Hicks’ claims with
prejudice and allowing amendment of other claims.
Sanders, Jennings, and Rinck filed a third amended complaint on September 2, 2016.
Hicks did not participate in the third amended complaint and so is no longer a Plaintiff to the
suit. Settlement Funding filed a new motion to compel arbitration in response to the third
amended complaint, and the other Defendants’ filed motions to dismiss, which the Court granted
in part and denied in part, ordering the other Defendants to answer the third amended complaint.
LEGAL STANDARD
Congress passed the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., to codify the
federal policy favoring the resolution of disputes through arbitration. Kawasaki Heavy Indus. v.
Bombardier Recreational Prods., 660 F.3d 988, 994 (7th Cir. 2011). Section 2 of the FAA states
that contractual provisions “to settle by arbitration a controversy thereafter arising out of such
contract or transaction” are “valid, irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Section 3 of the FAA
requires courts to stay a proceeding and to compel the arbitration of any matter covered by a
valid arbitration agreement. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344, 131 S. Ct.

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1740, 179 L. Ed. 2d 742 (2011). A federal court may compel arbitration where there is (1) a
written agreement to arbitrate, (2) a dispute within the scope of the agreement, and (3) a refusal
to arbitrate by one of the parties to the agreement. Zurich Am. Ins. Co. v. Watts Indus., Inc., 417
F.3d 682, 687 (7th Cir. 2005). Agreements mandating arbitration are “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. Contract defenses, such as fraud, duress, and unconscionability, apply
to agreements to arbitrate. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68, 130 S. Ct. 2772,
177 L. Ed. 2d 403 (2010). The party seeking to avoid arbitration bears the burden of establishing
why the arbitration agreement should not be enforced. Green Tree Fin. Corp.-Ala. v. Randolph,
531 U.S. 79, 91–92, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000).
ANALYSIS
Settlement Funding argues that the Court must compel arbitration because there is a valid
agreement to arbitrate, Plaintiffs’ dispute with Settlement Funding falls within the scope of the
agreement to arbitrate, and Plaintiffs refuse to arbitrate. Plaintiffs do not dispute that the three
necessary elements for arbitration exist. Instead, they argue that the Court cannot compel
arbitration because Settlement Funding waived its right to arbitrate, judicial and equitable
estoppel preclude arbitration, the arbitration agreement is procedurally and substantively
unconscionable, and Settlement Funding’s alleged breach of fiduciary duty precludes arbitration.
The Court addresses each of Plaintiffs’ arguments, in turn.
I.

Applicable Law
But before addressing Plaintiffs’ defenses, the Court must first turn to the parties’ dispute

to determine whether the FAA or the Illinois Uniform Arbitration Act (“IUAA”), 710 Ill. Comp.
Stat. 5/1 et seq., controls. Regardless of whether the FAA or the IUAA apply, the outcome

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would be the same because the FAA and IUAA are comparable, and Illinois courts look to the
FAA when interpreting the IUAA. See J & K Cement Const., Inc. v. Montalbano Builders, Inc.,
456 N.E.2d 889, 893, 119 Ill. App. 3d 663, 75 Ill. Dec. 68 (1983) (noting common origins of
federal and state acts and traditional reliance on federal decisions interpreting the FAA).
Because Illinois looks to the FAA to interpret the IUAA and because the arbitration clause falls
within the subject matter of the FAA because the Agreements “evidenc[e] a transaction
involving commerce,” 9 U.S.C. § 2, where structured settlement contract payment rights were
sold in factoring transactions by Illinois residents to a Georgia company, the Court applies the
FAA.
II.

Waiver of Right to Arbitrate
Plaintiffs argue that Settlement Funding waived its right to arbitrate. A party can waive

the right to arbitrate either explicitly or implicitly. Kawasaki, 660 F.3d at 994. For an implicit
waiver, “[c]ourts must ‘determine whether based on all the circumstances, the party against
whom the waiver is to be enforced has acted inconsistently with the right to arbitrate.’” Halim
v. Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 562 (7th Cir. 2008) (quoting Sharif v.
Wellness Int’l Network, Ltd., 376 F.3d 720, 726 (7th Cir. 2004)). “Although a variety of factors
may be considered, diligence or a lack thereof should weigh heavily in the court’s determination
of whether a party implicitly waived its right to arbitrate.” Id. “Other factors that [are]
consider[ed] include whether the allegedly defaulting party participated in litigation,
substantially delayed its request for arbitration, or participated in discovery.” Kawasaki, 660
F.3d at 994.

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A.

Participation in Court Proceedings

First, Plaintiffs argue that Settlement Funding waived its right to arbitrate by
substantively participating in proceedings in federal court. Plaintiffs argue that Settlement
Funding has repeatedly been involved in litigation as this case has progressed, pointing out that
Settlement Funding removed this case to federal court and watched other Defendants move to
dismiss Plaintiffs’ amended complaints for failure to state a claim. A party does not waive its
right to arbitrate simply by removing a case from state court. See Bahoor v. Varonis Sys., Inc.,
152 F. Supp. 3d 1091, 1102 (N.D. Ill. 2015) (finding that the defendant did not waive its right to
arbitrate by removing its case to federal court and then moving to compel arbitration); Halim,
516 F.3d at 562 (finding that the defendant did not waive arbitration after removing case). And
Settlement Funding itself has not moved to dismiss Plaintiffs’ claims for failure to state a claim,
which regardless would not automatically constitute waiver. 1 See Halim, 516 F.3d at 562
(noting that a motion to dismiss does not automatically waive arbitration).
But Plaintiffs primarily take issue with Settlement Funding’s motion for extension of
time where Settlement Funding told the court in the Southern District of Illinois that Settlement
Funding wanted time to file a motion to compel arbitration to first see whether or not the other
Defendants’ arguments could dispose of Plaintiffs’ claims. Delaying arbitration to weigh options
is frowned upon. See Cabinetree of Wis. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir.
1995) (“That is the worst possible reason for delay.”). Settlement Funding’s motion for
extension of time admitted that Settlement Funding was contemplating whether it wanted to

1

The parties agree that Settlement Funding never moved to dismiss Plaintiffs’ claims. Settlement
Funding moved to dismiss Hicks’ and Rosario’s claims, which Settlement Funding admitted were not
covered by an agreement to arbitrate. Doc. 67 at1 nn.1–2. Settlement Funding also moved to dismiss
Sanders, Jennings, and Rinck’s claims for improper venue in order to compel arbitration. Doc. 68. To
the extent Plaintiffs seek to hold Settlement Funding accountable for the acts of other JGWPT
Defendants, the JGWPT Defendants are all separate legal entities and the Court rejects that contention.

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move to compel arbitration based on the court’s rulings on other Defendants’ motions. The
motion for extension of time thus was a clear admission that Settlement Funding was weighing
its options.
But Settlement Funding also championed arbitration from the beginning. It consistently
told the court, even when filing the motion for extension of time, that it wanted to preserve its
right to arbitrate. The motion for extension of time noted that Sanders’ joinder of the JGWPT
Defendants was making it difficult for Settlement Funding to arbitrate. And Settlement Funding
quickly withdrew the motion for extension of time, but did not do so because of any adverse
rulings. Cf. Penn. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, No. 09 C 5619, 2011 WL
210805, at *4 (N.D. Ill. Jan. 20, 2011) (finding waiver after eight-month delay and motion to
dismiss that indicated the plaintiff wanted judicial forum until it received unfavorable rulings). It
then filed a motion to compel arbitration and motions and petitions in order to be in front of a
court with the ability to compel arbitration in Chicago.
All in all, Settlement Funding filed its motion to compel arbitration less than two months
after the JGWPT Defendants removed this case to federal court and less than a month after filing
its motion for extension of time. It only weighed its options for a short period of time, filing a
motion to compel arbitration in this case and a petition for arbitration in a parallel case. And it
never took advantage of discovery, a motion to dismiss, or a ruling on another Defendant’s
motion to dismiss while seeking arbitration. Consequently, the Court finds that Settlement
Funding’s actions do not constitute waiver.
B.

Prior Waiver of Mandatory Arbitration

Second, Plaintiffs argue that Settlement Funding waived its right to arbitrate by using the
judicial process, rather than an arbitrator, to obtain approval of Plaintiffs’ factoring transactions.

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After the parties signed the Agreements, a state court judge approved Plaintiffs’ structured
settlement transfers, pursuant to the SSPA. Plaintiffs argue that Settlement Funding waived any
future right under the Agreements to invoke arbitration by not then using arbitration to approve
the transfers.
The Agreements’ arbitration clauses state that the parties are to arbitrate “[a]ny and all
controversies, claims, disputes, rights interest, suits or causes of action arising out of or relating
to [the Agreements] and the negotiations related thereto, or the breach thereof.” See, e.g., Doc.
169-4, Ex. B at 2. The arbitration clauses only call for the arbitration of disputes. The factoring
transactions were not disputes, so they were not covered by the arbitration clause. Plaintiffs fail
to show waiver. 2
III.

Estoppel
Plaintiffs argue that estoppel precludes Settlement Funding from arbitration because

Settlement Funding changed its position about arbitration with courts and with Plaintiffs.
Specifically, Plaintiffs complain that Settlement Funding took the position that it would not
move for arbitration if the court in the Southern District of Illinois denied some or all of the other
Defendants’ motions to dismiss and Plaintiffs’ case proceeded to discovery. Plaintiffs’ theory
appears to be an extension of their waiver argument.
A.

Judicial Estoppel

Plaintiffs argue that judicial estoppel precludes arbitration. “Where a party assumes a
certain position in a legal proceeding, and succeeds in maintaining that position, he may not
thereafter, simply because his interests have changed, assume a contrary position.” Matter of

2

The Court need not resolve whether the arbitration clause also might not be applicable to approvals of
factoring transactions because the arbitration clauses exempt their application that is inconsistent with the
SSPA and the SSPA mandated court approval of factoring transactions. See 215 Ill. Comp. Stat. 153/15.

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Cassidy, 892 F.2d 637, 641 (7th Cir. 1990). 3 Judicial estoppel applies to positions in different
proceedings, transferred cases, and the same case. Walton v. Bayer Corp., 643 F.3d 994, 1002
(7th Cir. 2011). “There are certain clear prerequisites that must obtain before judicial estoppel
applies: (1) the later position must be clearly inconsistent with the earlier position; (2) the facts at
issue should be the same in both cases; and (3) the party to be estopped must have convinced the
first court to adopt its position.” 1st Source Bank v. Neto, 861 F.3d 607, 612 (7th Cir. 2017)
(citation omitted) (internal quotation marks omitted). As discussed when reviewing waiver,
Settlement Funding withdrew its motion for extension of time, in which Settlement Funding said
it might not file a motion to compel arbitration, and then filed a motion to arbitrate. As a result,
Settlement Funding never succeeded in maintaining its first position—this Court and the court in
the Southern District of Illinois did not adopt it—and so Settlement Funding cannot be held to
that position as a result. Plaintiffs’ argument as to judicial estoppel fails.
B.

Equitable Estoppel

Plaintiffs also argue that equitable estoppel applies. “Equitable estoppel applies where:
(1) a party has made some misrepresentation or omission of a material fact; (2) that party has
knowledge, either actual or implied, that the representations were false at the time that they were
made; (3) the other party was not aware that the representations were false both at the time that
they were made and the time that they were acted upon; (4) the party making the representations
intended or expected the representations to be acted upon; (5) the party to whom the
representations were made did in fact rely upon the representations; and (6) the party acting upon

3

Federal and Illinois law are interchangeable on judicial estoppel. Kale v. Obuchowski, 985 F.2d 360,
361 (7th Cir. 1993); Anderson v. Holy See, 878 F. Supp. 2d 923, 937 n.7 (N.D. Ill. 2012) (“Federal courts
apply federal judicial estoppel rules in state law cases, though the Seventh Circuit has used Illinois law
and federal law related to judicial estoppel interchangeably because the cases use consistent approaches.”
(citations omitted)), aff’d sub nom. Anderson v. Catholic Bishop of Chicago, 759 F.3d 645 (7th Cir.
2014), and aff’d sub nom. Anderson v. Catholic Bishop of Chicago, 759 F.3d 645 (7th Cir. 2014).

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the representations would be prejudiced unless the party making the representations was
estopped.” Dale v. Groebe & Co., 431 N.E.2d 1107, 1111, 103 Ill. App. 3d 649, 59 Ill. Dec. 350
(1981).
Plaintiffs argue that Settlement Funding’s motion for extension of time led them to
believe that Settlement Funding would not assert its right to arbitration. “Under both federal and
Illinois law, in order to invoke equitable estoppel, a plaintiff must show not only misconduct by
the defendants, but also that he actually and reasonably relied on the misconduct.” Ashafa v.
City of Chicago, 146 F.3d 459, 463 (7th Cir. 1998) (citing Hamilton v. Komatsu Dresser Indus.,
Inc., 964 F.2d 600, 605 (7th Cir.1992), and Augustus v. Somers, 662 N.E.2d 138, 144, 278 Ill.
App. 3d 90, 214 Ill. Dec. 784 (1996)). Settlement Funding withdrew its motion for extension of
time less than one month after it filed the motion. Settlement Funding then filed a motion to
arbitrate. Plaintiffs could not have reasonably relied on the withdrawn motion for extension of
time, especially in light of Settlement Funding’s subsequent and continuous assertion of its right
to arbitrate.
Plaintiffs also argue that immediately after the motion for extension time, they failed to
file a motion for default judgment against Settlement Funding in reliance on Settlement
Funding’s position. First, Sanders was the only Plaintiff at the time; Jennings and Rinck had yet
to join the case so they could not have relied on the motion for extension of time. And the party
to be estopped must know “at the time he or she made the representations that they were untrue.”
Boelkes v. Harlem Consol. Sch. Dist. No. 122, 842 N.E.2d 790, 797, 363 Ill. App. 3d 551, 299
Ill. Dec. 753 (2006). The motion for extension of time equivocated on whether Settlement
Funding would forego its claimed right to arbitration. See Doc. 24 at 6 (“Settlement Funding
would likely then choose to answer, as well.”). The motion for extension of time clearly stated

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that Settlement Funding wanted to file a motion to compel arbitration. The motion for extension
of time asked for more time for Settlement Funding to determine the best course of action. The
Court finds no intent by Settlement Funding to make knowingly untrue statements. Plaintiffs’
argument as to equitable estoppel fails.
IV.

Unconscionability
Plaintiffs argue that the arbitration clauses are procedurally and substantively

unconscionable and thus invalid under Illinois law. “Unconscionability can be either
‘procedural’ or ‘substantive’ or a combination of both.” Razor v. Hyundai Motor Am., 854
N.E.2d 607, 622, 222 Ill. 2d 75, 305 Ill. Dec. 15 (2006).
A.

Procedural Unconscionability

Plaintiffs argue that the arbitration clause is procedurally unconscionable. “Procedural
unconscionability refers to a situation where a term is so difficult to find, read, or understand that
the plaintiff cannot fairly be said to have been aware he was agreeing to it” and “also takes into
account the disparity of bargaining power.” Id. at 622 (citation omitted); Kinkel v. Cingular
Wireless LLC, 857 N.E.2d 250, 264, 223 Ill. 2d 1, 306 Ill. Dec. 157 (2006). Plaintiffs argue that
(1) they did not know that the Agreements were form contracts instead of negotiated by
Plaintiffs’ representatives, (2) they did not receive the Agreements ahead of time, (3) they had no
ability to read the Agreements before they signed, (4) they were never shown the entirety of the
Agreements, and (5) the Agreements and their contents were never explained by Settlement
Funding or Mack before Plaintiffs signed them. Plaintiffs attack the Agreements as a whole as
procedurally unconscionable; they make no argument that only the arbitration agreement is
procedurally unconscionable. Because Plaintiffs attack the entirety of their Agreements and how
they were presented to Plaintiffs, not just the arbitration clauses in the Agreements, these issues

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are better left for the arbitrator than decided by the Court. See Gore v. Alltell Commn’s, 666 F.3d
1027, 1036–37 (7th Cir. 2012) (holding that issue regarding whether arbitration was procedurally
unconscionable “is properly resolved by the arbitrator in the first instance because [the plaintiff]
attacks the entire [agreement], not just the arbitration clause itself”). Plaintiffs have failed to
show that the arbitration clause itself is procedurally unconscionable and so the Court turns to
substantive unconscionability.
B.

Substantive Unconscionability

Substantive unconscionability “concerns the actual terms of the contract and examines
the relative fairness of the obligations assumed.” Kinkel, 857 N.E.2d at 267 (citation omitted)
(internal quotation marks omitted). It is found when contract terms are “so one-sided as to
oppress or unfairly surprise an innocent party,” when there is an “overall imbalance in the
obligations and rights imposed by the bargain,” or when there is a “significant cost-price
disparity.” Id. (citation omitted) (internal quotation marks omitted).
Plaintiffs first argue that a “cost-shifting provision” makes the arbitration clause in each
Agreement prohibitively unfair. Doc. 204 at 19. Plaintiffs hypothesize that they could end up
winning on some claims but remain required to pay the substantially prevailing Settlement
Funding’s fees and expenses. But Plaintiffs cite no Illinois law that such a bilateral cost-shifting
provision is unconscionable, and, further, the cost-shifting provision would apply equally to
either side, not just to Plaintiffs. Because Plaintiffs only speculate that the provision would be
unfair to them and because speculation is not enough to show unconscionability, see Livingston
v. Assocs. Fin., Inc., 339 F.3d 553, 557 (7th Cir. 2003) (“[T]he party opposing arbitration . . .
must provide some individualized evidence that it likely will face prohibitive costs in the
arbitration at issue and that it is financially incapable of meeting those costs.”), this point fails.

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Plaintiffs also argue that it is unfair that the arbitration clauses in the Agreements bar
Plaintiffs from participating in a judicial proceeding but still allow Settlement Funding to seek
court approval of factoring transactions. As discussed when reviewing waiver, the factoring
transactions themselves were not covered by the arbitration clauses. Further, Plaintiffs provide
no reason why Settlement Funding would not be compelled to arbitrate a dispute covered by the
arbitration clause. This point fails as well.
Plaintiffs next argue that the location of arbitration in Illinois’ largest city, Chicago, is
unfair to Sanders. Rinck and Jennings appear to live in Cook County, Illinois, but Plaintiffs
represent that Sanders lives five hours away from Chicago. But Plaintiffs have not shown that
Sanders cannot travel that distance, how much it costs to travel that distance, or that Sanders
cannot pay to travel. Cf. Plattner v. Edge Sols., Inc., No. 03-CV-2646, 2004 WL 1575557, at *1
(N.D. Ill. Apr. 1, 2004) (finding that arbitration clause was substantively unconscionable because
the estimated $1300–$2500 travel costs for plaintiff were prohibitive in light of the plaintiff’s
financial difficulties). Plaintiffs fail to show that this requirement is unconscionable.
Plaintiffs also challenge the provision in the arbitration clause that prohibits the joinder or
addition of any other party other than the parties that signed the Agreement. Both parties
interpret the provision as a class action waiver. Class action waivers are valid in arbitrations.
Am. Exp. Co. v. Italian Colors Rest., --- U.S. ----, 133 S. Ct. 2304, 2312, 186 L. Ed. 2d 417
(2013) (class action arbitration waiver was not to be ignored in face of costs to plaintiff);
Concepcion, 563 U.S. at 352 (California law against class action waivers preempted by FAA).
Further Plaintiffs’ concern is with potential “plaintiffs who may be seeking remedies for small
amounts but who will be unable to vindicate them as a result of legal fees, travel fees and
arbitration costs.” Doc. 204 at 20. But Plaintiffs allege that they and class members are each

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owed thousands and thousands of dollars by Settlement Funding, not small amounts. Plaintiffs
fail to show unconscionability here.
Finally, Plaintiffs argue that arbitration deprives Plaintiffs of an effective remedy—in
arbitration, Plaintiffs will not be able to overturn the state court approvals of their factoring
transactions because the arbitrator will have no power to reverse the Illinois courts. As the Court
has already ruled and as Plaintiffs acknowledge in their brief, Plaintiffs have no power to void
those state court approval orders in federal court. Doc. 167 at 13. Plaintiffs can only seek to
void and overturn the state court judgments in state court. Therefore, by proceeding to
arbitration, Plaintiffs would not lose a remedy that they would have in federal court and therefore
they would be no worse off in arbitration. Plaintiffs’ last argument for substantive
unconscionability fails.
V.

Breach of Fiduciary Duty
Finally, Plaintiffs argue that the Court cannot compel arbitration because they have

alleged in their third amended complaint that Settlement Funding breached its fiduciary duty to
them and, therefore, they allege that any agreement with their fiduciaries, including the
agreements to arbitrate, are presumed fraudulent. It is true that “[o]nce a fiduciary relationship is
shown to exist, the presumption is that a transaction between the dominant and servient parties
which profits the dominant party is fraudulent.” In re Estate of Feinberg, 6 N.E.3d 310, 323,
2014 IL App (1st) 112219, 379 Ill. Dec. 233 (2014). But Plaintiffs have only alleged that
Settlement Funding breached a fiduciary duty when entering the Agreements; they have not
shown that a fiduciary duty existed or that the Agreements are fraudulent. If Plaintiffs could
escape arbitration by merely alleging that a breach of fiduciary duty bound them to the
arbitration clause, then every plaintiff seeking to avoid an arbitration clause would allege such a

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breach of fiduciary duty. Further, Plaintiffs’ argument attacks the entire Agreement for fraud,
not just the arbitration clause. “[F]raud as a defense to enforcement of an arbitration agreement
is limited to fraud in the making of the arbitration agreement itself, not fraud in the inducement
of the contract as a whole.” Felland v. Clifton, No. 10-CV-664-SLC, 2013 WL 3778967, at *5
(W.D. Wis. July 18, 2013). Plaintiffs thus fail to meet their burden of establishing this defense.
Therefore Plaintiffs fail to demonstrate a defense that precludes arbitration. Plaintiffs
must arbitrate their claims against Settlement Funding, and the claims in this litigation against
Settlement Funding will be stayed pending the outcome of the arbitration. See Wal-mart Stores,
Inc. v. Helferich Patent Licensing, LLC, 51 F. Supp. 3d 713, 721 & n.1 (N.D. Ill. 2014) (noting
that proper course of action is to stay proceedings until resolution of arbitration); cf. HTG
Capital Partners, LLC v. Doe, No. 15 C 02129, 2016 WL 612861, at *7–8 (N.D. Ill. Feb. 16,
2016) (noting that courts dismiss actions sent to arbitration where all claims are arbitrable and
court would have no other role except to confirm arbitration award).
CONCLUSION
For the foregoing reasons the Court grants Settlement Funding’s motion [181] and
compels arbitration of Plaintiffs’ claims against Settlement Funding. The Court stays Plaintiffs’
claims against Settlement Funding pending resolution of the arbitration. The Court dismisses
related case Settlement Funding, LLC v. Sanders, Case No. 14-6266 (N.D. Ill. filed August 14,
2014), as resolved by Case No. 14-9188’s transfer to the Northern District of Illinois and the
Court’s order to compel arbitration as sought in the petition.

Dated: September 27, 2017

______________________
SARA L. ELLIS
United States District Judge

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