Apex 1 Processing, a "payday loan" business, includes in its loan contracts a compulsory arbitration provision. Akeala Edwards brought a class action
FACTS AND PROCEDURAL HISTORY
Apex makes payday loans
Apex loaned Edwards $300. On four occasions during the two months thereafter, Apex renewed Edwards' loan after charging her a $90 finance charge each time. Thus, Edwards was ultimately charged $360 in finance charges without any reduction in the $300 principal amount.
After Edwards brought her action, Apex moved to dismiss and to compel Edwards to arbitrate as an individual, not as a class representative. Edwards argued the arbitration clause is unconscionable
DISCUSSION AND DECISION
Another panel of this court recently addressed a nearly-identical arbitration provision in a contract between Edwards and a different payday lender. Geneva-Roth Capital, Inc. v. Edwards, 956 N.E.2d 1195 (Ind.Ct.App.2011), petition for reh'g pending. The Geneva-Roth panel determined the contract language, which required arbitration "by and under the Code of Procedures of [NAF]," id. at 1197, and required claims be filed at an NAF office, indicated the choice of NAF as arbitrator was "integral" to the arbitration provision. Id. at 1203. Because the consent judgment rendered NAF unavailable to arbitrate the dispute, the arbitration provision failed due to impossibility. Id.
The language of the Apex contract, like that in the Geneva-Roth contract, provides claims "shall be resolved by binding ... arbitration by and under the Code of Procedure of [NAF]." (Appellee's App. at 93.) Rule one of the NAF Code of Procedure is that the Code can be administered by only NAF or an entity providing services by agreement with NAF. A claim must be filed at an NAF office or on an NAF website. As NAF is no longer arbitrating disputes, nor have the parties suggested there are any entities arbitrating by agreement with NAF, selection of a replacement arbitrator who could resolve the parties' disagreement "by and under the Code of Procedure of [NAF]" is impossible. Thus, the identification of NAF as the arbitrator was integral to the contract, and the arbitration provision fails. We adopt the Geneva-Roth panel's reasoning and agree with the trial court that the Apex arbitration provision is impossible to perform because the choice of arbitrator is integral to the arbitration agreement.
In addition, we address a related issue extensively briefed and argued by the parties during oral argument—whether, in this case, Section 5 of the Federal Arbitration
Apex maintains in its brief that even if the arbitration clause is impossible to enforce because of NAF's unavailability, the trial court nevertheless failed to consider preemptive federal law that mandates enforcement of the parties' arbitration agreement under Section 5 of the FAA. That Section states:
9 U.S.C. § 5. In other words, Section 5 provides a mechanism for, and in fact requires on application of a party, the appointment of an arbitrator in the event the arbitrator chosen by the parties is unavailable. See, e.g., Carr v. Gateway, Inc., 241 Ill.2d 15, 348 Ill.Dec. 374, 944 N.E.2d 327, 333 (2011) (Section 5 of the Act may be applied to name a substitute arbitrator where the parties' designated arbitral forum fails). Based on this Section, Apex contends the trial court was authorized to select and should have appointed a substitute arbitrator.
Although this was an issue of first impression when Edwards and Apex briefed and argued the case before us, a panel of this court has since decided Geneva-Roth. That panel, after reviewing case law from our sister states, noted that while some courts have used Section 5 to uphold arbitration clauses where the chosen forum is unavailable, other courts have held Section 5 cannot save an arbitration provision where the chosen, but unavailable, arbitrator is integral to the arbitration provision because the arbitration provision fails due to impossibility. Geneva-Roth, 956 N.E.2d at 1200. After evaluating the reasoning of both lines of case law, mindful that federal and state policy favor arbitration, that panel adopted the `integral' or `ancillary logistical concern test' as a means for deciding whether arbitration may be compelled even though the chosen arbitrator is unavailable. This test "is consistent with general principles of contract law requiring courts to give effect to the intent of the parties and ... `best complies with the admonition of the United States Supreme Court that a fundamental purpose of the FAA is to require that courts enforce arbitration agreements according to their terms.'" Id. at 1201 (quoting Rivera v. Am. Gen. Fin. Servs., Inc., 150 N.M. 398, 259 P.3d 803, 812 (2011)).
At a minimum, for the selection of an arbitrator to be "integral" under our test the arbitration clause must include an express statement designating a specific arbitrator. Id. An express designation of a single arbitration provider weighs in favor of finding the designated provider is integral to the agreement to arbitrate. Id.
As noted above, the arbitration provision in the Apex loan agreement provided that all claims "shall be resolved" by binding arbitration pursuant to "to the Code of Procedure of the [NAF]" in effect at the time the claim is filed. (Appellee's App. at
Having concluded NAF as the arbitral forum was integral to the arbitration agreement, and given that NAF is no longer available to conduct consumer arbitrations, the arbitration provision is null and void on grounds of impossibility. Section 5 does not save the arbitration provision and cannot be used as a mechanism to appoint a substitute arbitrator. Therefore, the trial court properly denied Apex's motion to compel arbitration, and we accordingly affirm.
NAJAM, J., and RILEY, J., concur.
Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572, 574 (Ind.2001), superseded by statute on other grounds, Cash in a Flash, Inc. v. McCullough, 853 N.E.2d 533, 536 (Ind.Ct.App. 2006). Edwards alleged her loan carried an interest rate of 782%. (Appellant's App. at 18.)