Opinion
Civil Action No. 01-40076-NMG.
March, 2002.
MEMORANDUM ORDER
The plaintiff, Catherine Fluehmann ("Fluehmann"), filed a putative class action lawsuit against Associates Financial Services Company, Inc. ("Associates"), claiming that the lender failed to comply with its disclosure obligations under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., as amended by the Home Owners Equity Protection Act ("HOEPA"). Fluehmann alleges that the defendant made inaccurate disclosures with respect to the annual percentage rate ("APR") applicable to a mortgage secured by her spouse, Mathias Fluehmann, from Associates. Plaintiff alleges, inter alia, an individual claim for rescission to clear Associates' lien from her property and class action claims for declaratory relief and damages.
This action is here under federal question jurisdiction. Plaintiff alleges that the defendant violated TILA, HOEPA and Regulation Z. Fluehmann also alleges claims under the Massachusetts analogue of TILA, the Massachusetts Consumer Credit Cost Disclosure Act ("CCDA"), M.G.L. c. 140D. The plaintiff contends she has standing to challenge the legality of Associates' disclosure practices on the ground that she executed a mortgage deed in favor of Associates, a consumer loan creditor pursuant to TILA.
Venue is properly established in the District of Massachusetts pursuant to 28 U.S.C. § 1391(b). The plaintiff is a resident of Worcester, Massachusetts while the defendant has a principal place of business in New Hampshire although it conducts business in the Commonwealth.
Although several consolidated motions are currently pending, this Court, in the interest of judicial economy, will address only the defendant's motion to stay this action pending arbitration and to strike class claims pursuant to the overall loan transaction and any agreements therein. Associates contends that a stay is warranted because the dispute at issue falls within the purview of the Federal Arbitration Act (FAA), 9 U.S.C. § 2.
In addition to the motion dealt with here, the plaintiff has filed 1) a motion for class certification, 2) a cross-motion for summary judgment, 3) a motion for partial summary judgment, and 4) a motion for leave to file an Amended Complaint. The defendant, for its part, has filed a motion to dismiss and a motion to strike.
The plaintiff, in response, has filed a motion to enjoin arbitration on the grounds that 1) she did not enter into an Arbitration Agreement with the defendant, 2) in any event, she rescinded the Loan Agreement and the related Arbitration Agreement pursuant to her TILA rescission demand, 3) Associates waived its right to arbitrate because its demand was not timely and 4) the cost of arbitration is excessive.
I. Background A. The Mortgage
The plaintiff and her husband own and reside at the premises in Worcester, Massachusetts for which the plaintiff's husband obtained a 17.46% consumer mortgage loan ("the loan") on June 28, 2000 from Associates in the principal amount of $14,161. Plaintiff also executed the mortgage deed in order to subject her interest in the home to the mortgage. Only the husband, Mathias Fluehmann, however, signed the promissory note ("Loan Agreement") and the Arbitration Agreement.
The mortgage loan obtained by Mr. Fluehmann was a new lending product called a Track Reduction Adjustable Mortgage ("TRAM"), a sub-prime mortgage program offering lower rates to mortgagors once they establish a history of on-time payments. At the urging of the Department of Treasury, lenders developed different variants of TRAMs for consumers with poor credit ratings so they could rehabilitate those ratings without incurring the cost of refinancing. Although TRAMs are designed to buoy the financial standing of the less credit worthy, they are, as is the case with many loan instruments, rife with complexities that may make them incomprehensible to the average consumer.
B. The Rate Reduction Rider
Under the structure of the Associates TRAM at issue, Mr. Fluehmann executed a Rate Reduction Rider ("the Rider") at the closing which provided that he could earn a reduction in the interest rate of 0.5% at any time during the life of the loan by making 12 consecutive payments not more than 30 days late. Mr. Fluehmann could achieve a second reduction of 0.75% by maintaining another consistent payment period and a third reduction of 1.0% by continuing that same payment pattern. In sum, Mr. Fluehmann could earn a maximum reduction of 2.25% over the life of the loan by complying with a pattern of timely payments. Such reductions were limited, however, by the minimum rate requirement of the highest "prime rate" plus 1.0% on the effective date of the reduction.
The defendant did not explain in its loan disclosure statement or at the closing the potential loan adjustments under this elaborate rate reduction scheme. Indeed, the defendant failed altogether to reference the potential rate reduction in the TILA disclosure statement or in the advance HOEPA disclosures it submitted to the Fluehmanns.
C. The Rescission Demand
Prior to initiating this litigation, Fluehmann made a rescission demand to Associates pursuant to TILA and Regulation Z, which allow consumers to void credit contracts where the lender fails to make the requisite disclosures for its non- purchase money security interest in the consumer's residence. 15 U.S.C. § 1635(b). The status of that rescission demand has not yet been decided by this Court. On October 5, 2001, Mr. Fluehmann, however, paid off the subject loan in full and Associates discharged its mortgage on the Fluehmann residence.
D. The Interconnected Mortgage, Loan Agreement and Arbitration Agreement
The Mortgage Deed signed by the Fluehmanns specifically references the "Loan Agreement" on four separate occasions. The Loan Agreement, which only Mr. Fluehmann signed, expressly states, in a section titled "ARBITRATION" that "the parties have on this date entered into a separate Arbitration Agreement, the terms of which are incorporated herein and made part hereof by reference." (emphasis added).
That Arbitration Agreement, again only signed by Mr. Fluehmann, expressly provides for arbitration whenever there is a dispute relating to the Loan Agreement. Indeed, it clearly states that either party has an "absolute right" to demand that any dispute be submitted to arbitration and further provides in, relevant part:
Either you and or we can start arbitration any time a dispute arises between you and us. If either party brings a lawsuit, counterclaim, or other action in a court against the other party, the other party can, within a reasonable time after service of the lawsuit, counterclaim or other action (but in no event after judgment is entered), demand arbitration of the entire dispute. If arbitration is demanded, you and we agree that the entire dispute must be arbitrated in accordance with this agreement and any lawsuit, counterclaim, or other action must be discontinued. (emphasis added)
Perhaps to reiterate the point, the Arbitration Agreement stipulates that all claims "arising out of, in connection with or relating to" 1) the subject loan, 2) negotiations between the parties, 3) an allegation of misrepresentation and 4) federal statutory rights, among other things, are subject to arbitration. The Arbitration Agreement expressly notifies Mr. Fluehmann that disputes as to whether the claim is arbitrable or the Arbitration Agreement is valid in the first instance also must be arbitrated. Moreover, it provides that its terms remain in effect even if Mr. Fluehmann repays his loan.
Finally, the Arbitration Agreement even anticipates the filing of class actions. In that event, the Agreement provides that its provisions are binding and that "there shall be no class action arbitration pursuant to this agreement."
E. The Arbitration Demand
Three months after the commencement of the instant suit, Associates initiated arbitration with the American Arbitration Association and filed a motion in this Court to stay this action pending arbitration. Fluehmann contends that she is not obliged to participate in such arbitration and has moved this Court to enjoin it.
II. Discussion A. The Purpose and Procedures of TILA 1. Meaningful Disclosure
TILA imposes disclosure obligations upon creditors to assure the "informed use of credit" by consumers. 15 U.S.C. § 1601; Anderson Bros. Ford v Valencia, 452 U.S. 205, 219 (1981). Under TILA, Congress sought to promote "a meaningful disclosure of credit terms so that the consumer will be able to compare more Nreadily the various credit terms available to him." 15 U.S.C. § 1601. By its plain language, TILA does not provide a clear empirical process to determine what constitutes "meaningful disclosure", but as the Supreme Court has observed, the statute requires a delicate balancing between thoroughness and brevity: "Meaningful disclosure does not mean more disclosure. Rather, it describes a balance between competing considerations of complete disclosure . . . and the need to avoid . . . [informational overload]." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568 (1980) (quoting S.Rep. No. 96-73, p. 3 (1979)) (internal quotation marks omitted).
The CCDA (the state statute) closely parallels TILA and therefore this Court's analysis of TILA is intended to relate to the CCDA as well. Mills v. Andover Bank, 1999 WL 1336606, *2 n. 4 (Mass. 1999).
2. Class Actions
Pursuant to TILA, an aggrieved party may recover actual as well as statutory damages. With respect to class actions, the statute explicitly limits the maximum potential recovery to the lesser of $500,000 or 1.0% percent of the net worth of the creditor. 15 U.S.C. § 1640(a)(1)(B). Although class actions are clearly within the contemplation of the statute, the law does not expressly confer upon borrowers a right to commence them or suggest a congressional intent to exempt putative class action claims from binding arbitration clauses. Johnson v. West Suburban Bank, 225 F.3d 366, 377-78 (3d Cir. 2000). Even though TILA plaintiffs act as "private attorneys general" there is no inherent conflict between TILA and arbitration. The rationale is that
[t]he Arbitration Act, standing alone . . . mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue . . . If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent will be deducible from [the statute's] text or legislative history, or from an inherent conflict between arbitration and the statute's underlying purposes.
Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226-27 (1987).
Although the First Circuit Court of Appeals has not squarely addressed the interrelationship between TILA and class actions, this Court, consistent with other federal courts considering the issue at hand, finds that the substantive rights and judicial remedies established under TILA do not create a non-waivable "right" to judicial redress. See, e.g., Johnson, 225 F.3d at 378 n. 5; Bowen v. First Family Financial Services, Inc., 233 F.3d 1331, 1338 (11th Cir. 2000); Wood v. Cooper Chevrolet, Inc., 102 F. Supp.2d 1345, 1350 (N.D.Ala. 2000); Thompson v. Illinois Title Loans, Inc., 2000 WL 45493, *3-4 (N.D.Ill. 2000). Although a borrower may contract to arbitrate a statutory claim, he does not, by implication, also waive his substantive rights under the statute. Rather, such a contract is merely an agreement by the parties about the forum in which to resolve their dispute as opposed to a consideration of the merits thereof. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991).
Because there is no inherent conflict between TILA and arbitration, this Court will not, at this stage in the litigation, address that portion of the defendant's motion which seeks to strike the class claims.
B. Interpreting HOEPA
HOEPA, an amendment to TILA, was a congressional response to the substantive abuses of creditors offering alternative, typically high-interest rate, home loans to residents in certain geographic areas. The statute was enacted to ensure that consumers most vulnerable to abuse would be afforded a safety net without impeding the flow of credit altogether. H.R. Rep. No. 103-652, at 159 (1994). HOEPA establishes a set of requirements, including a cost threshold, which, once met, prompts certain restrictions on creditors' practices with respect to high risk loans. 15 U.S.C.A. § 1602(aa)(1).
To qualify as a mortgage loan within the definition of HOEPA, the loan must be a "consumer credit transaction" secured by the "consumer's principal dwelling." 15 U.S.C. § 1602 (f)(h)(v). The loan also must meet either of two requirements: 1) that the Annual Percentage Rate ("APR") exceed certain levels or 2) that the total "points and fees" payable by the borrower at or before closing will exceed the greater of 8% of the total loan amount or $400. 15 U.S.C. § 1602(aa)(1)(A)(B). If HOEPA covers the subject mortgage, the creditor must make additional disclosures to the borrower at least three days prior to closing including, among other things, the APR in the case of a credit transaction with a fixed interest rate. 15 U.S.C. § 1639; 12 C.F.R. § 226.32(c).
The parties do not dispute that the present cause of action falls within the parameters of TILA or HOEPA, but they vigorously contest whether the scope of those statutory rights should be decided by arbitration or litigation.
C. The Scope of the Federal Arbitration Act
In determining whether the claims at issue are subject to arbitration, this Court must first consider whether the parties agreed to submit their claims to arbitration. The question of arbitrability and whether the parties agreed to arbitrate is a decision for the court "[u]nless the parties clearly and unmistakably provide otherwise." AT T Technologies v. Communications Workers of America, 475 U.S. 643, 649 (1986).
On balance, any point of ambiguity in the agreement should be resolved in favor of arbitration consistent with the "liberal federal policy favoring Arbitration Agreements." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983). Notwithstanding such policy prerogatives, "arbitration under the [FAA] is a matter of consent, not coercion . . . and a contract cannot bind a nonparty." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).
1. The Intersection of Contract Law and the FAA
Under the FAA, courts look to contract law principles to determine the validity of arbitration clauses. Although the FAA "directs courts to place arbitration agreements on equal footing with other contracts . . . it does not require parties to arbitrate when they have not agreed to do so." Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 91 (2000) (citing Volt 489 U.S. at 478); 9 U.S.C. § 2 (1994).
Mindful of that statutory and judicial background, the question before this Court is, at first blush, one of contract interpretation. This Court must determine whether the plaintiff's execution of the mortgage deed with the power of sale in favor of the defendant makes her an indispensable party to the loan transaction so that she is subject to the Arbitration Agreement which she never signed. Because the issue at hand implicates an arbitration provision involving interstate commerce, it must be resolved according to federal law. McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994); 9 U.S.C. § 2. This court may look to state common law as a model for developing federal common law unless policy prerogatives otherwise mandate a uniform federal rule. Id. at 356.
A party seeking to compel arbitration must therefore show, at the outset, that arbitration is consistent with the clear intent of the parties and the plain language of the contract. To that end, mutual assent as objectively manifested by the contract itself is a necessary condition for the creation of a binding arbitration agreement. Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 854 (11th Cir. 1992). Accordingly, the party seeking a judicial rather than an arbitral forum must not only unambiguously allege that the parties never consummated an agreement to arbitrate but also must offer "some evidence" to substantiate such a denial. Id. at 854 (citing T R Enters. v. Continental Grain Co., 613 F.2d 1272, 1278 (5th Cir. 1980)).
2. The Scope of the Arbitration Agreement
Given that contract law principles are controlling, the language of the arbitration provision under consideration is the requisite starting point. To that end, courts have consistently drawn a distinction between narrow arbitration clauses specifically identifying the issues to which they apply and broader forms of arbitration clauses. Elzinga Volkers, Inc. v. LSSC Corp., 47 F.3d 879, 881 (7th Cir. 1995); Local Union No. 637, IBEW v. Davis H. Elliot Co., 13 F.3d 129, 132-33 (4th Cir. 1993).
In the instant case, the subject arbitration provision is ostensibly broad, covering any dispute that may "arise under" or "relate to" the Loan Agreement. When confronted with such broad language, courts presume the validity of an agreement to arbitrate, Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 910 (7th Cir. 1999), and generally find that similarly broad arbitration clauses governing "all disputes" arising under the agreement apply even to a nonsignatory. Thyssen, Inc. v. M/V Markos N, 1999 WL 619634, *4 (S.D.N.Y. 1999). The baseline assumption here, therefore, is that the Arbitration Agreement casts a wide net.
3. The Application of Arbitration Agreements to Non-Signatories
Fluehmann asserts that because she did not sign the Arbitration Agreement, she never assented to its terms and thus is not required to arbitrate her claims. Assent, however, often cannot be determined with mathematical precision but rather depends upon the context and character of the transaction under consideration. The issue "is not whether the parties, like the scrivener of old, followed some talismanic formula, but whether they manifested a mutual intent to arbitrate disputes arising out of the contracts . . ." Tepper Realty Co. v. Mosaic Tile Co., 259 F. Supp. 688, 691 (S.D.N.Y. 1966). A signature on a contract, while one manifestation of assent, is not the only one nor the end of the inquiry.
Indeed, it is well-established that a party may be bound by the terms of an unsigned arbitration agreement even absent a signature. Although the FAA requires a writing, it does not likewise require the parties' signatures. Genesco, Inc. v. T. Kakiuchi Co., 815 F.2d 840, 856 (2d Cir. 1987). As the First Circuit Court of Appeals has recognized, under certain contract and agency principles "nonsignatories sometimes can be obligated by . . . agreements signed by others, and these principles can apply to arbitration provisions." McCarthy, 33 F.3d at 356. Thus, the fact that Fluehmann did not sign the Arbitration Agreement does not automatically preclude Associates from seeking arbitration based upon the loan transaction. Id.
Normally, disputes over arbitration arise between two corporate actors. Case law, consequently, has focused on the operation of arbitration clauses in the corporate setting but the principles enunciated in that line of cases is, nevertheless, relevant to the instant dispute. The Second Circuit Court of Appeals has identified five grounds for binding nonsignatories to the arbitration agreements of others: "1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel." Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995). To that end, courts focus their inquiry on the relationship among the parties and, alternatively, the relationship between the claims and the contract containing the arbitration clause.
The principal question is not whether an issue or claim is explicitly covered in the text of the agreement but rather whether it "arises under" that agreement. Pritzker v. Merrill Lynch, Pierce, Fenner Smith, Inc., 7 F.3d 1110, 1113 (3d Cir. 1993). A court's focus should be on the relationship established under the agreement and the duties and obligations set out therein. Initially, it considers whether the non-signatory seeking to avoid arbitration was an "integral participant in the events underlying the arbitrable disputes" and whether those disputes are so "inextricably intertwined" as to require arbitration. Clarendon Nat. Ins. Co. v. Lan, 152 F. Supp.2d 506, 519 n. 7 (S.D.N.Y. 2001); Hughes Masonry Co. v. Greater Clark County School Bldg. Corp., 659 F.2d 836 (7th Cir. 1981).
4. The Relationship Between the Parties, the Claims and the Agreements
The defendant contends that because the Fluehmanns together, as tenants by the entirety, granted Associates a mortgage on their principal residence, they are both parties to the loan transaction of which the Arbitration Agreement is a constituent part. Here, it is manifest that Fluehmann's claim against Associates is based upon its allegedly inadequate disclosure in connection with the loan to Mr. Fluehmann and surely arose under the Loan Agreement (and thus, by incorporation, the Arbitration Agreement).
Although Fluehmann signed neither the Loan Agreement nor the Arbitration Agreement, she played no small part in securing her husband's mortgage from Associates. Indeed, Fluehmann's role as the co-signor of the mortgage deed in the loan transaction gave her standing in the first instance under TILA to rescind the entire transaction and sue for damages.
Applying traditional contract principles in the context of the FAA, courts, under an estoppel theory, have compelled arbitration when a non-signatory has exploited or benefitted from a contract that contained an arbitration clause. In that regard, Fluehmann cannot have it both ways, i.e. elect to secure only the benefits of the agreements at issue without likewise assuming their burdens. Foster v. Sears Roebuck and Co., 837 F. Supp. 1006, 1008 (W.D.Mo. 1993) (quoting A.L. Williams Assoc. v. McMahon, 697 F. Supp. 488, 494 (N.D.Ga. 1988)). If the Loan Agreement and mortgage deed are sufficiently interdependent so as to give Fluehmann a cause of action under TILA, Associates can likewise invoke the Arbitration Agreement against her. Deloitte Noraudit A/S v. Deloitte Haskins Sells, U.S., 9 F.3d 1060, 1064 (2nd Cir. 1993); Keystone Shipping Co. v. New England Power Co., 1995 WL 1146893, *2-3 (Mass. 1995); Foster, 837 F. Supp. at 1008; McAllister Bros. v. A S Transportation Co., 621 F.2d 519, 524 (2nd Cir. 1980).
Finally, in practice, the implication of Fluehmann's contention is untenable because it creates the potential for gaming the system. Suppose Associates attempted to take possession of the Fluehmanns' residence pursuant to the Loan Agreement after a hypothetical default. Fluehmann, ostensibly not bound by the Arbitration Agreement, could proceed to sue Associates to delay foreclosure. In that situation, it would be anomalous to suggest that Fluehmann is not subject to arbitration. Any other result would allow her to limit Associates' legal interest in her residence, thus materially altering the bargain struck in the Loan Agreement. Indeed, the purpose of requiring Fluehmann to sign the mortgage deed was to subject her interest in the family residence to Associates and, by implication, to bind her to the terms of her husband's mortgage. The inter-dependence between the transactions suggests that the mortgage deed Fluehmann signed was integrally linked to the Loan and Arbitration Agreements thus seriously undercutting her denial of coverage as a nonsignatory.
D. The Effect of Rescission
Fluehmann next contends that she cannot be subject to the Arbitration Agreement because she rescinded the Loan Agreement. Pursuant to TILA, a consumer has the power to rescind a credit transaction by notifying the creditor before a certain date of his intent to rescind. 15 U.S.C. § 1635(a)(b). By placing consumers in a strong bargaining position, rescission under Section 1635 operates as an enforcement mechanism to police creditor practices. Rescission effectively voids the security interest at issue and annuls the contract, returning "the parties to the status quo ante." Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Intern., Ltd., 1 F.3d 639, 641 (7th Cir. 1993).
The practical effect of rescission creates a conundrum: if the contract is, by statute, null and void, can the dispute, which serves as the basis for that rescission, "arise out" of the contract so as to void the Arbitration Agreement. Id. The Supreme Court, in considering the effect of rescission on an arbitration agreement, has held that although a federal court may proceed to adjudicate issues that implicate the formation of such an agreement, a claim of contract invalidity does not foreclose an arbitral forum. Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967). Indeed, particularly where the provisions of an arbitration agreement are broad, they are more likely to encompass the plaintiff's claims of rescission. Id. (observing that the parties' "contractual language is easily broad enough to encompass [the plaintiff's] claim that [the agreement is void].").
Although the plaintiff attempts to invalidate the Loan and Arbitration Agreements by virtue of rescission, her action is "nonetheless a result of the agreement[s] and has its origins in [them]." Sweet Dreams, 1 F.3d at 642. Mindful of the Supreme Court's instruction that a court must order arbitration unless "it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute" United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960), the plaintiff's putative rescission here does not render the Arbitration Agreement null and void.
E. Waiver
Fluehmann offhandedly asserts that Associates has waived its right to seek arbitration because it waited three months before filing its motion to stay this action. Courts accord deference to the federal presumption in favor of arbitration notwithstanding "an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone, 460 U.S. at 24-25. It is well-settled that "[w]aiver is not to be lightly inferred, and mere delay in seeking [arbitration] without some resultant prejudice to a party cannot carry the day." Page v. Moseley, Hallgarten, Estabrook Weeden, Inc., 806 F.2d 291, 293 (1st Cir. 1986) overruled on other grounds, Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (1987),(citing Rush v. Oppenheimer Co., 779 F.2d 885 (2d Cir. 1985)) (quotation marks omitted).
In determining whether there was prejudice, and consequently a waiver, several factors are relevant, including: 1) the length of Associates' delay in seeking the stay, 2) the extent to which it has participated in the lawsuit, 3) whether Associates has taken a position inconsistent with its arbitration right and 4) whether the "litigation machinery has been substantially invoked" and the consequent degree of preparation of the parties. Jones Motor Co., Inc. v. Chauffeurs, Teamsters, and Helpers Local Union No. 633, 671 F.2d 38, 44 (1st Cir. 1982) cert. denied, 459 U.S. 943 (1982) (quoting Reid Burton Constr., Inc. v. Carpenters Dist. Council, 614 F.2d 698, 702 (10th Cir. 1980)).
The First Circuit Court of Appeals has enunciated other significant criteria in assessing whether a party has waived its arbitration right:
Other relevant factors are whether the defendants have invoked the jurisdiction of the court by filing a counterclaim without asking for a stay of the proceedings, . . . whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration . . .] had taken place, . . . and whether the other party was affected, misled, or prejudiced by the delay. . . .
Id. (citations omitted) (bracketed text in original).
Applying these standards to the present dispute, the facts fail to establish that Fluehmann was prejudiced so as to compel a finding that Associates waived its right to arbitration. In the first instance, the defendant's three-month delay in moving for a stay was not excessive and, at that point, the "litigation machinery" had just been set in motion. Although Associates answered the original complaint before moving for a stay, a party need not assert, as an affirmative defense, its arbitration right under Fed.R.Civ.P. 8(c). Lifetime Medical Nursing Services, Inc. v. Cambridge Automation Corp., 780 F. Supp. 882, 885 (D.R.I. 1991).
Moreover, Fluehmann, for her part, offers no evidence in support of her bare averment that Associates waived its right to arbitration. Indeed, she has made no credible allegation of prejudice as a result of Associates' delay. Goldsmith v. Pinez, 84 F. Supp.2d 228, 234 (D.Mass. 2000). Given the baseline presumption in favor of arbitration, Fluehmann has failed to sustain her burden of demonstrating waiver.
F. Costs of Arbitration
Finally, the plaintiff seeks to invalidate the Arbitration Agreement on the ground that an arbitral forum would be prohibitively expensive. Although "large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights", the Supreme Court has nonetheless recognized that the party seeking to avoid arbitration bears the burden "of showing the likelihood of incurring [prohibitively high] costs." Green Tree, 531 U.S. at 92.
In the instant case, the plaintiff has presented no evidence that she would be saddled with arbitration costs that she cannot afford. Moreover, the defendant asserts in its pleadings that it will pay the plaintiff's costs if she can demonstrate financial need. Thus, the plaintiff has not met her burden of proving that the costs of arbitration render the agreement unenforceable.
III. Conclusion
Although Fluehmann neither signed the Loan Agreement nor the related Arbitration Agreement, the context and character of the instant dispute suggest that she is, nonetheless, bound by their terms. In seeking to enjoin arbitration, Fluehmann also fails to demonstrate conclusively that 1) her putative rescission bars the operation of the Arbitration Agreement, 2) the defendant waived its right to arbitration or 3) the costs of arbitration are prohibitively expensive. Accordingly, this Court will compel arbitration and stay this action but, pending resolution of the arbitration proceedings, this Court will reserve any action with respect to class claims, and the pending motion to strike such claims and all other pending motions will be denied, without prejudice.
ORDER
For the foregoing reasons, the defendant's motion (Docket No. 14) is, with respect to its request to stay this action pending arbitration, ALLOWED and is, with respect to defendant's request to strike class claims, DENIED, without prejudice.
So ordered.