Gay v. CreditInform

Opinions of the United

2007 Decisions States Court of Appeals

for the Third Circuit

12-19-2007

Gay v. CreditInform

Precedential or Non-Precedential: Precedential

Docket No. 06-4036

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007

Recommended Citation

"Gay v. CreditInform" (2007). 2007 Decisions. Paper 5.

http://digitalcommons.law.villanova.edu/thirdcircuit_2007/5

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 06-4036

MARY GAY, ON BEHALF OF HERSELF AND

ALL OTHERS SIMILARLY SITUATED,

Appellant

v.

CREDITINFORM; INTERSECTIONS, INC.

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civ. No. 05-cv-06729)

Honorable James T. Giles, District Judge

Argued October 17, 2007

BEFORE: FISHER, ALDISERT and

GREENBERG, Circuit Judges

(Filed December 19, 2007)

James A. Francis (argued)

Francis & Mailman

Suite 208

100 South Broad Street

Land Title Building, 19th Floor

Philadelphia, PA 19110

David A. Searles

Donovan Searles

Suite 1100

1845 Walnut Street

Philadelphia, PA 19103

Attorneys for Appellant Mary Gay

Carleton O. Strouss

David R. Fine (argued)

Kirkpatrick & Lockhart Preston Gates Ellis

Market Square Plaza

17 North Second Street

Harrisburg, PA 17101

Attorneys for Appellee Intersections Inc.

Christopher D. Thomas

Nixon Peabody

P.O. Box 31051

Clinton Square

Rochester, NY 14603

Attorneys for Amicus-Appellee National Organization of

Consumer Credit Attorneys

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This case arises from appellant Mary Gay’s purchase of

credit repair services from defendants CreditInform and

Intersections Inc. (“Intersections”). Gay, however, filed a notice

2

of voluntary dismissal as to CreditInform on April 14, 2006,1 and,

accordingly, we will refer to Intersections as though it has been the

sole defendant throughout the proceedings in the District Court and

here. Gay claims that in selling its services Intersections violated

its obligations under the Credit Repair Organizations Act, 15

U.S.C. §§ 1679, et seq. (“CROA”), and the Pennsylvania Credit

Services Act, 73 Pa. Cons. Stat. Ann. §§ 2181, et seq. (West 1993)

(“CSA”).2 In addition to allegations concerning her purchase of the

credit repair services from Intersections, Gay’s complaint includes

allegations supporting prosecuting the case as a class action.

Nevertheless, in response to Intersections’ motion to stay the case

and compel arbitration, the District Court ordered the parties to

arbitrate the dispute on an individual basis pursuant to an

arbitration provision included in Gay’s purchase agreement

(“Agreement”) for the credit repair services.

Gay appeals from the District Court’s order as she contends

that under both the CROA and the CSA she has a right to assert her

claims in a judicial forum and that under the CROA she has a right

to bring her case as a class action. She further argues that both

1

CreditInform is not a legal entity but merely is a trademark

Capital One has registered through which to market products and

services through Capital One Services, Inc. Intersections then

provides the products and services. Gay filed the notice of

dismissal as to Capital One Services, Inc. We are uncertain as to

the relationship, if any, between Intersections and Capital One.

2

In its brief on this appeal, after describing the background

of the CROA, Intersections includes the following footnote:

“Intersections notes that there are credit-repair businesses that

comply with the CROA. Intersections’ products, however, are not

credit-repair products and thus are not governed by the CROA.”

Appellee’s br. at 5 n.3. Rather, it indicates that it supplies a

“credit-monitoring product.” Id. at 5. Gay disputes this

contention, stating that “Intersections falls squarely within the

definition of a credit repair organization and CROA’s coverage.”

Reply br. at 2. Inasmuch as Intersections, notwithstanding its claim

that the CROA does not apply to it, treats the CROA as applicable

in this case, we will do the same.

3

statutes prohibit a consumer of services that those statutes regulate

from waiving those rights. Alternatively, Gay argues that even if

the statutes do not provide her with these nonwaivable rights, the

arbitration provision in her Agreement with Intersections does not

include her claims and is unconscionable and therefore a court

should not enforce it. The Supreme Court and, as far as we are

aware, no court of appeals has addressed the issues that we now

address under the CROA.

For reasons that we will discuss, we will affirm the District

Court’s order to stay the proceedings and compel arbitration on an

individual basis.

II. FACTS AND PROCEDURAL HISTORY

Gay alleges that on or about January 21, 2005, she entered

into her Agreement with Intersections for the purchase of services

related to monitoring and improving her credit history. Gay further

alleges that between February 2005 and September 2005, she made

monthly payments of $4.99 to Intersections pursuant to the

Agreement. According to Gay, she made the payments before

Intersections fully performed any services for her. Gay claims that

Intersections violated the CROA by requiring her to pay for credit

repair services before it rendered them, and violated the CROA and

CSA by requiring her to waive certain rights and protections that

the statutes afforded to her as a consumer of a product governed by

them. Gay also claims that Intersections violated the CROA and

the CSA by failing to make disclosures that the statutes required.

Additionally, as we have indicated, she makes allegations in

support of class action treatment of her claims.

Intersections filed its motion on February 27, 2006, to stay

the case and compel arbitration pursuant to the arbitration provision

in the Agreement that states:

Any claim arising out of or relating to

the Product shall be settled by binding

arbitration in accordance with the

commercial arbitration rules of the

4

American Arbitration Association on

an individual basis not consolidated

with any other claim.

J.A. at 98. As we have indicated, on June 12, 2006, the District

Court granted the motion, stayed the case, and ordered the parties

to submit their dispute to arbitration on an individual basis.

Gay subsequently moved to certify the District Court’s order

for an interlocutory appeal, and on June 29, 2006, the District

Court granted her motion. Gay then petitioned us to accept her

interlocutory appeal and we granted Gay’s petition on August 30,

2006.

III. JURISDICTION

The District Court had subject matter jurisdiction over this

case pursuant to 28 U.S.C. §§ 1331 and 1367, and we have

jurisdiction pursuant to 28 U.S.C. § 1292(b).3

We exercise plenary review over legal questions concerning

the applicability and scope of an arbitration agreement. Medtronic

AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 53

(3d Cir. 2001). If we reviewed the District Court’s interpretation

as distinguished from construction of the Agreement, we would

apply the clearly erroneous standard. We are not concerned,

however, with the sometimes elusive distinction between

contractual interpretation and construction as there can be no

question that, as we explain below, as written the arbitration clause

includes Gay’s claim. See id. at 53 n.2.

3

Although 9 U.S.C. § 16(b) provides that “an appeal may

not be taken from an interlocutory order . . . directing arbitration to

proceed under section 4 of this title,” the provision creates an

exception for appeals taken pursuant to 28 U.S.C. § 1292(b).

5

IV. DISCUSSION

A. Did the District Court err in holding that Gay’s

claims based on the CROA, 15 U.S.C. §§ 1679, et

seq., and the CSA, 73 Pa. Cons. Stat. Ann. §§ 2181,

et seq., are subject to arbitration?

1. The parties’ arguments

Gay argues that her claims are not arbitrable because both

the CROA and the CSA protect a consumer’s right to assert her

claims in a judicial forum, and the CROA further protects a

consumer’s right to prosecute her claim on a class action basis.

Thus, in her view, there are irreconcilable conflicts between the

statutes on the one hand and the arbitration provision in the

Agreement on the other hand. She also argues that the arbitration

provision does not cover her claims, and that, in any event, it is

unconscionable and unenforceable.

Preliminarily we reject out of hand her contention that the

arbitration provision does not cover her claims. As we explain

below, a court determines whether the parties have agreed to

submit a dispute to arbitration. It is perfectly clear that the

arbitration provision in Gay’s Agreement which covers “[a]ny

claim arising out of or relating to the Product” includes Gay’s

claims. Thus, we pass to the more substantial issues raised on this

appeal.

In contending that the statutes preclude arbitration of her

claims, Gay points to 15 U.S.C. § 1679g, the CROA provision

which prescribes the bases for determining civil liability and

includes several references to a “court” and class actions in its

discussion of punitive damages. In particular, section 1679g(a)(2)

states:

(2) Punitive damages

(A) Individual actions

In the case of any action by an

individual, such additional amount as

6

the court may allow.

(B) Class actions

In the case of a class action, the sum of –

(i) the aggregate of the amount which

the court may allow for each named

plaintiff; and

(ii) the aggregate of the amount which

the court may allow for each other

class member, without regard to any

minimum individual recovery.Gay

also refers to section 1679g(b), which

prescribes the factors to be considered

in awarding punitive damages and

states:

(b) Factors to be considered in

awarding punitive damages

In determining the amount of any

liability of any credit repair

organization under subsection (a)(2)

of this section, the court shall

consider, among other relevant factors

–

(1) the frequency and persistence of

noncompliance by the credit repair

organization;

(2) the nature of the noncompliance;

(3) the extent to which such

noncompliance was intentional; and

(4) in the case of any class action, the

number of consumers adversely

affected.

7

Gay argues that we should construe section 1679g’s references to

a “court” and class actions in a way that recognizes that the CROA

grants a consumer a right to file suit for an alleged violation of the

statute in a judicial forum on a class action basis.4

Gay similarly argues that 73 Pa. Cons. Stat. Ann. § 2191

grants a consumer the right to sue for an alleged CSA violation in

a judicial forum. That section states:

Any buyer or borrower injured by a

violation of this act or by the credit

services organization’s or loan

broker’s breach of a contract subject

to this act may bring an action for

recovery of damages. Judgment shall

be entered for actual damages, but in

no case less than the amount paid by

the buyer or borrower to the credit

services organization or loan broker,

plus reasonable attorney fees and

costs. An award, if the trial court

deems it proper, may be entered for

punitive damages.

4

Gay also argues that 15 U.S.C. § 1679c(a) supports her

argument that the CROA creates a right for a consumer to bring

suit in a judicial forum. That section provides that an agreement

for services governed by the CROA must include a recital

providing that: “You have a right to sue a credit repair

organization that violates the Credit Repair Organization Act.” But

the section does not specify the forum for the resolution of the

dispute and therefore does not support Gay’s argument that the

CROA provides a consumer with the right to bring suit in a

judicial, rather than an arbitral, forum for CROA violations.

Moreover, even if the use of the word “sue” implies the availability

of a judicial forum for an action against a credit repair

organization, use of the word would not mean that the organization

could not assert defenses that it had to such an action including the

right to invoke a contractual arbitration provision to change the

forum.

8

As with the CROA, Gay argues that the CSA’s reference to a

“court” provides a consumer with the right to assert CSA claims in

a judicial forum. We note, however, that Gay does not point to

language in the CSA to support an argument that it, like the CROA,

provides a consumer with the right to bring suit on a class action

basis.

In addition to arguing that the statutes create a right for a

consumer to an adjudication in a judicial forum, and that the

CROA gives a consumer the further right to proceed in a class

action, Gay contends that the statutes prohibit a consumer from

waiving those rights. Gay refers to a provision of the CROA which

provides:

(a) Consumer waivers invalid

Any waiver by any consumer of any

protection provided by or any right of

the consumer under this subchapter–

(1) shall be treated as void; and

(2) may not be enforced by any

Federal or State court or any other

person.

(b) Attempt to obtain waiver

Any attempt by any person to obtain a

waiver from any consumer of any

protection provided by or any right of

the consumer under this subchapter

shall be treated as a violation of this

subchapter.

(c) Contracts not in compliance

Any contract for services which does

not comply with the applicable

provisions of this subchapter –

9

(1) shall be treated as void; and

(2) may not be enforced by any

Federal or State court or any other

person.

15 U.S.C. § 1679f.

Gay also refers to the CSA anti-waiver provision which

provides:

(a) Waiver – Any waiver by a buyer or

borrower of the provisions of this act

shall be deemed contrary to public

policy and shall be void and

unenforceable. Any attempt by a

credit services organization or a loan

broker to have a buyer or borrower

waive rights given by this act shall

constitute a violation of this act.

73 Pa. Cons. Stat. Ann. § 2189(a).

Intersections’ answer to Gay’s claims is straightforward. It

argues that the arbitration provision governs Gay’s claims and is

enforceable. Moreover, it contends that neither the CROA nor the

CSA provides a consumer with the right to bring suit for its alleged

violation in a judicial forum or on a class action basis. It also

argues that the statutes’ anti-waiver provisions do not preclude a

consumer from waiving whatever right she might have to bring an

action in a court individually or on a class action basis, and that a

consumer therefore may agree to submit her claims to arbitration.5

5

The National Organization of Consumer Credit Attorneys

filed an amicus curiae brief in opposition to this appeal. In arguing

that the District Court’s order compelling arbitration should be

affirmed, it makes essentially the same arguments as Intersections,

namely, that the CROA does not prohibit arbitration of claims

brought pursuant to the statute and that the CROA’s anti-waiver

statute does not extend to a right either to bring suit in a judicial

10

2. The enforcement of arbitration agreements for

statutory claims

Of course, this case implicates the Federal Arbitration Act

(“FAA”) which provides that:

[a] written provision in any maritime

transaction or a contract evidencing a

transaction involving commerce to

settle by arbitration a controversy

thereafter arising out of such contract

or transaction . . . shall be 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. § 2.6 Congress enacted the FAA “to reverse the

longstanding judicial hostility to arbitration agreements that had

existed at English common law and had been adopted by American

courts, and to place arbitration agreements upon the same footing

as other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20, 24, 111 S.Ct. 1647, 1651 (1991).

The circumstance that Gay’s claims are statutory does not

mean that the Agreement could not specify that the parties to it

would submit their controversies, if any, arising from it to

arbitration for resolution. Id. at 26, 111 S.Ct. at 1652 (“It is by

now clear that statutory claims may be the subject of an arbitration

forum or to proceed on a class action basis. Though it approaches

the case from the perspective of attorneys who assist clients with

credit problems, in addressing both its and Intersections’

arguments, as a matter of convenience we will refer only to

Intersections’ brief.

6

Gay does not contend that the Agreement is not “a contract

evidencing a transaction involving commerce.” In fact she asserts

that Intersections “used instrumentalities of interstate commerce”

in marketing and performing its services. Appellant’s br. at 2.

11

agreement, enforceable pursuant to the FAA.”); see also

Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226,

107 S.Ct. 2332, 2337 (1987) (“This duty [of the courts] to enforce

arbitration agreements is not diminished when a party bound by an

agreement raises a claim founded on statutory rights.”); Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626,

105 S.Ct. 3346, 3354 (1985) (“There is no reason to depart from

these guidelines [for enforcing arbitration agreements] where a

party bound by [such an] agreement raises claims founded on

statutory rights.”). But even though statutory claims are subject to

arbitration agreements, “[l]ike any statutory directive, the [FAA]’s

mandate may be overridden by a contrary congressional

command.” McMahon, 482 U.S. at 226, 107 S.Ct. at 2337.

A party seeking to avoid arbitration for a statutory claim has

the burden of establishing that Congress intended to preclude

arbitration of the claim. Congress’s intention “may be found in the

text, legislative history, or in an ‘inherent conflict’ between

arbitration and the statute’s underlying purposes.” Johnson v. W.

Suburban Bank, 225 F.3d 366, 371 (3d Cir. 2000) (quoting Gilmer,

500 U.S. at 26, 111 S.Ct. at 1652); see also Gilmer, 500 U.S. at 26,

111 S.Ct. at 1652 (“Although all statutory claims may not be

appropriate for arbitration, having made the bargain to arbitrate, the

party should be held to it unless Congress itself has evinced an

intention to preclude a waiver of judicial remedies for the statutory

rights at issue.”) (internal quotation marks and citation omitted).

“Throughout such an inquiry, it should be kept in mind that

questions of arbitrability must be addressed with a healthy regard

for the federal policy favoring arbitration.” Johnson, 225 F.3d at

371 (quoting Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652).

As we have indicated, Gay argues that the CROA and the

CSA both provide a consumer with the statutory right to bring suit

in a judicial forum, and that the CROA provides her with the

additional right to assert claims pursuant to the statute on a class

action basis. As we further have indicated, she rests her argument

on the provisions of both statutes that contain references to a

“court” in describing both the relief available to a consumer and the

forum for obtaining it, as well as on the CROA’s explicit reference

to class actions.

12

Gay, however, is confronted with Johnson in which we

rejected a similar argument under another consumer protection

statute. There we considered whether the Truth in Lending Act

(“TILA”), 15 U.S.C. §§ 1601, et seq., prohibited the parties to an

agreement subject to the statute from agreeing to arbitrate claims

asserted pursuant to the statute. The plaintiff in Johnson argued

that the TILA’s repeated references to “class action[s]” granted

consumers a statutory right to file TILA claims on a class action

basis, and that an arbitration agreement abrogating those rights

therefore was in irreconcilable conflict with the statute. In our

analysis, although we addressed only the third method identified in

McMahon by which Congress can demonstrate its intention to

preclude arbitration, i.e., inherent conflict between the allowance

of the arbitration of a dispute and the statute’s underlying purposes,

we noted that “[b]oth the statute and the legislative history . . . offer

insight into the question whether an ‘inherent conflict’ is to be

found between the statute and arbitration.” Johnson, 225 F.3d at

371.

We began our analysis in Johnson by discussing the

statutory language, observing that the TILA allowed plaintiffs to

recover:

in the case of a class action, such

amount as the court may allow, except

that as to each member of the class no

minimum recovery shall be applicable,

and the total recovery under this

subparagraph in any class action or

series of class actions arising out of

the same failure to comply by the

same creditor shall not be more than

the lesser of $500,000 or 1 per centum

of the net worth of the creditor.

Id. (quoting 15 U.S.C. § 1640(a)(2)(B)). The statute further stated

that:

[i]n determining the amount of award

in any class action, the court shall

consider, among other relevant

13

factors, the amount of any actual

damages awarded, the frequency and

persistence of failures of compliance

by the creditor, the resources of the

creditor, the number of persons

adversely affected, and the extent to

which the creditor’s failure of

compliance was intentional.

Id. (quoting 15 U.S.C. § 1640(a)). The plaintiff argued that section

1640’s multiple references to class actions demonstrated that

Congress intended to provide a consumer with the right to bring

TILA claims on a class action basis, and that the enforcement of

the arbitration agreement would deprive him of that right.

We rejected that argument, observing that while “the statute

clearly contemplates class actions, there are no provisions within

the law that create a right to bring them, or evince an intent by

Congress that claims initiated as class actions be exempt from

binding arbitration clauses.” Id. We explained that “[t]he ‘right’

to proceed to a class action, insofar as the TILA is concerned, is a

procedural one that arises from the Federal Rules of Civil

Procedure,” rather than from the TILA. Id.

Next, the plaintiff in Johnson argued that the legislative

history of the TILA demonstrated the “centrality of class actions”

to the enforcement of the statute. Id. at 373. In discussing the

legislative history, we noted that Congress responded to a

reluctance by the courts to hear TILA class action claims by

enacting limitations on the amounts recoverable in class actions,

and that it thereby acknowledged “the potential role that class

actions are meant to play in the enforcement of the TILA’s

substantive requirements.” Id. at 372. We also noted that several

years later Congress again addressed the role of class actions in the

enforcement of the TILA by raising the limits for class action

recoveries. Nonetheless, we concluded that “nothing in the

legislative history . . . clearly expresses congressional intent to

preclude the ability of parties to engage in arbitration,” and that the

plaintiff therefore must “demonstrate that arbitration irreconcilably

14

conflicts with the purposes of the TILA.”7 Id. at 373.

Finally, the plaintiff in Johnson argued that there was an

irreconcilable conflict between the role of class actions in TILA’s

enforcement scheme and the arbitration of such claims because

Congress intended the statute “to encourage private attorneys

general, and the statute as a whole [was] intended for public

purposes rather than private grievances.” Id. We rejected that

argument, stating that even if plaintiffs waive their right to proceed

as part of a class, “they retain the full range of rights created by the

TILA,” and that “[t]hese rights remain available in individual

arbitration proceedings.” Id. We explained:

Under the prevailing jurisprudence,

when the right made available by a

statute is capable of vindication in the

arbitral forum, the public policy goals

of that statute do not justify refusing to

arbitrate. The notion that there is a

meaningful distinction between

vindicating a statute’s social purposes

and adjudicating private grievances

for purposes of determining whether a

statute precludes compelling

arbitration under a valid arbitration

clause was rejected by the Supreme

Court in Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 111 S.Ct.

1647, 114 L.Ed.2d 26 (1991).

Id. at 374.

We noted in Johnson that although arbitration of cases that

7

In Johnson, we interchangeably used the terms “inherent

conflict,” which the Supreme Court used in Gilmer, 500 U.S. at 26,

111 S.Ct. at 1652, and “irreconcilable conflict,” which the parties

used in Johnson. 225 F.3d at 373. In keeping with our language

in Johnson, we will continue using the term “irreconcilable

conflict” in this opinion.

15

otherwise might have proceeded as class actions “potentially

reduces the number of plaintiffs seeking to enforce the TILA

against creditors, arbitration does not eliminate plaintiff incentives

to assert rights under the Act.” Id. We observed that “[t]he sums

available in recovery to individual plaintiffs are not automatically

increased by use of the class forum,” and that insofar as attorneys

could recover fees pursuant to the TILA, there was reason to

believe that the supply of attorneys would remain sufficient for

arbitration proceedings. Id. We concluded that “[although]

pursuing individual claims in arbitration may well be less attractive

than pursuing a class action in the courts, we do not agree that

compelling arbitration of the claim of a prospective class action

plaintiff irreconcilably conflicts with TILA’s goal of encouraging

private actions to deter violations of the Act.” Id. at 374-75.

In Johnson, in concluding that there was not an

irreconcilable conflict between the role of class actions in the

enforcement of the statute and the arbitration of a plaintiff’s claims,

we also considered the TILA’s administrative enforcement

provisions to be significant. After identifying the different

administrative enforcement mechanisms that the TILA provided,

we explained that while “[i]t may be true that Congress saw value

in maintaining the availability of class actions, . . . that does not

translate to the conclusion that it intended to preclude private

parties from contracting around their availability.” Id. at 375.

We recognized that:

When [legislative] history is used . . .

merely to demonstrate that the judicial

remedies provided for or contemplated

by a statute are important, it is of

noticeably reduced value. The

importance of statutory judicial

remedies [is] always evident from

their mere existence – Congress

obviously enacted them for a reason.

Were they not the object of a

congressional goal, they would not

have been enacted . . . . Insofar as

Congress’s intent, broadly

16

contemplated, is concerned, we must

give equal consideration to Congress’s

policy goals in enacting the FAA.

Id. at 375-76. We explained that “[the plaintiff’s] reliance on the

legislative history . . . is fundamentally flawed” because he used it

only “to show that class actions have important purposes under the

statute,” but failed to identify any passages demonstrating that

parties cannot choose to waive judicial remedies in favor of

arbitration. Id. at 376. We observed that though “[i]t may be true

that the unavailability of class actions removes an incentive for

lenders to comply with the statute, . . . it is far from the only

incentive to do so.” Id.

We reiterate that Gay relies on the CROA and the CSA

references to a “court” and class actions in arguing that the statutes

give consumers a right to pursue these procedures. Although the

statutes clearly contemplate consumers’ actions being brought in

a judicial forum and, in the case of the CROA, on a class action

basis, and to that extent may be said to recognize a consumer’s

right to proceed in court, they neither contain provisions creating

such rights nor indicate that Congress or the Pennsylvania

Legislature, respectively, intended to exclude claims asserted under

the CROA or the CSA from arbitration agreements.8 Rather than

creating substantive rights the statutes merely recognize that a party

who believes she has been wronged may bring an action in a court

seeking a remedy for her injuries and may do so on a class action

basis if she satisfies the criteria for bringing such an action. This

recognition is hardly surprising because ordinarily persons

considering themselves to have been wronged may seek judicial

remedies. Moreover, whatever role judicial forums and class

actions may have in the enforcement of the substantive

requirements of the respective statutes, Gay has not identified

anything in the legislative history of either statute that “clearly

expresses [legislative] intent to preclude the ability of parties to

8

Our conclusion on this point with respect to the Legislature

relieves us of the need to consider whether there is a conflict

between the CSA and the FAA. See Southland Corp. v. Keating,

465 U.S. 1, 16, 104 S.Ct. 852, 861 (1984).

17

engage in arbitration . . . .” Id. at 373.

Significantly, Gay does not demonstrate that there is an

irreconcilable conflict between requiring a consumer to arbitrate

her claims and the enforcement of either the CROA or the CSA.

If this case proceeds to arbitration instead of litigation in a judicial

forum, Gay will “retain the full range of rights created by [the

statutes],” and “[t]hese rights remain available in individual

arbitration proceedings.” Id.; see also Mitsubishi, 473 U.S. at 628,

105 S.Ct. at 3354 (“By agreeing to arbitrate a statutory claim, a

party does not forgo the substantive rights afforded by the statute;

it only submits to their resolution in an arbitral, rather than a

judicial, forum.”).

Furthermore, as is particularly germane to the claimed right

to bring this case as a class action, as we observed with respect to

the TILA in Johnson, the CROA provides for the administrative

enforcement of the rights created by the statute. The CROA

provides that “[c]ompliance with the requirements imposed under

this subchapter with respect to credit repair organizations shall be

enforced under the Federal Trade Commission Act [15 U.S.C. §§

41, et seq.] by the Federal Trade Commission.” 15 U.S.C. §

1679h(a). In particular, section 1679h(b)(1) states that “any

violation of any requirement or prohibition imposed under this

subchapter with respect to credit repair organizations shall

constitute an unfair or deceptive act or practice in commerce in

violation of section 5(a) of the Federal Trade Commission Act [15

U.S.C. §§ 45(a), et seq.].” 15 U.S.C. § 1679h(b)(1). The CROA

also grants the states authority to enforce the statute, providing

that:

In addition to such other remedies as

are provided under State law,

whenever the chief law enforcement

officer of a State, or any official or

agency designated by a State, has

reason to believe that any person has

violated or is violating this subchapter,

the State –

(A) may bring an action to enjoin such violation;

18

(B) may bring an action on behalf of

its residents to recover damages for

which the person is liable to such

residents under section 1679g of this

title as a result of the violation; and

(C) in the case of any successful

action under subparagraph (A) or (B),

shall be awarded the costs of the

action and reasonable attorney fees as

determined by the court.

15 U.S.C. § 1679h(c). Clearly, these provisions for administrative

enforcement supply procedures for obtaining remedies reasonably

substituting for those available in a class action.

Moreover, it is important to recognize that the right of any

injured party to sue in court and, in an appropriate case, to do so on

a class action basis, is inherent when a statutory substantive right

is created as a party conceiving herself to be wronged would have

had a right to sue in a court and, in an appropriate case, to do so on

a class action basis, that would have preexisted the newly created

substantive right allegedly infringed. Thus, when Congress or a

legislature creates a statutory substantive right a party injured by a

statutory violation may seek her remedy for its violation in court,

and, if the ordinary criteria specified by the Federal Rules of Civil

Procedure or the parallel state rules are satisfied, may do so on a

class action basis, unless Congress or the legislature, as the case

may be, validly precludes her from doing so.9 Accordingly,

identification of a court as a forum for an allegedly wronged party

to seek relief adds nothing to the statute helpful to resolution of the

issue before us, i.e., whether a party consensually may bind herself

to arbitrate her claims for injuries resulting from violation of the

statutes.

9

We say “validly” because a state law expressly precluding

arbitration might not be valid as the FAA could preempt an anti-

arbitration clause. See supra note 8. We are not concerned with

resolution of a situation of that type here as the CSA, in terms, does

not preclude arbitration.

19

We reiterate that Gay argues that the CROA and the CSA

both prohibit the waiver of rights the respective statutes have

created, in particular a consumer’s right to assert her claims in a

judicial forum and, in the case of the CROA, a consumer’s right to

proceed on a class action basis. But even if the CROA’s and the

CSA’s references to a “court,” and the CROA’s references to class

actions, give consumers rights to proceed in a judicial forum on a

class action basis and thus may be said to be broader than we

construe them to be, we then would have to determine whether

consumers may waive such rights, i.e., whether the rights would

fall outside of the statutes’ respective anti-waiver provisions. As

we will explain, at least with respect to the CROA, the statute’s

anti-waiver provision as a matter of legislative intent would not

apply to a right to assert claims in a judicial forum or on a class

action basis, and a consumer asserting claims pursuant to the

CROA may therefore waive such rights.10

The Supreme Court addressed a similar issue in McMahon

in considering whether section 29(a) of the Exchange Act, 15

U.S.C. § 78cc(a), prohibited arbitration agreements. The Court

acknowledged that section 27 of the Act provides that “[t]he

district courts of the United States . . . shall have exclusive

jurisdiction of violations of this [chapter] or the rules and

regulations thereunder, and of all suits in equity and actions at law

brought to enforce any liability or duty created by this [chapter] or

the rules and regulations thereunder.” McMahon, 482 U.S. at 227,

107 S.Ct. at 2338 (quoting 15 U.S.C. § 78aa). Furthermore, section

29(a) declares void “[a]ny condition, stipulation, or provision

binding any person to waive compliance with any provision of [the

Act].” Id. (quoting 15 U.S.C. § 78cc(a)). The plaintiffs in

McMahon argued that section 29(a) prohibited waiver of the right

10

There is nothing for a consumer to waive under our

understanding of the provisions of the statutes dealing with judicial

forums and class actions for, as we have explained, the rights to

judicial forums and class action resolution of disputes exist outside

of the statutes. Consequently, at this point, in discussing waiver of

rights we are treating the statutes as creating rights to bring actions

in judicial forums and, in the case of the CROA, to do so on a class

action basis, though we have concluded that they do no such thing.

20

to bring suit in a federal district court pursuant to section 27.

The Supreme Court rejected that argument, stating that

“[w]hat the antiwaiver provision of § 29(a) forbids is enforcement

of agreements to waive ‘compliance’ with the provisions of the

statute,” and that “§ 27 itself does not impose any duty with which

persons trading in securities must ‘comply.’” Id. at 228, 107 S.Ct.

at 2338. The Court distinguished between the procedural right that

section 27 provided, namely, the right to file an action in a federal

district court, and the substantive rights that section 29(a) provided.

As the Court explained, “[b]y its terms, § 29(a) only prohibits

waiver of the substantive obligations imposed by the Exchange

Act,” and “[b]ecause § 27 does not impose any statutory duties, its

waiver does not constitute a waiver of ‘compliance with any

provision’ of the Exchange Act under § 29(a).” Id., 107 S.Ct. at

2338.

Similarly, in Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477, 109 S.Ct. 1917 (1989), the Court

addressed the question of whether section 14 of the Securities Act,

15 U.S.C. § 77n, prohibited arbitration of claims brought pursuant

to section 12(2) of the Act. Section 14 provides:

Any condition, stipulation, or

provision binding any person

acquiring any security to waive

compliance with any provision of this

subchapter or of the rules and

regulations of the Commission shall

be void.

15 U.S.C. § 77n. The Court had answered the arbitration question

36 years earlier in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182

(1953), when it held that section 14’s prohibition against waiving

compliance with the statute extended to agreements for arbitration

of disputes. Id. at 435, 74 S.Ct. at 186. But the Court revisited the

issue in Rodriguez de Quijas and overruled Wilko. After

acknowledging “[t]he shift in the Court’s views on arbitration away

from those adopted in Wilko,” the Court determined that “[o]nce

the outmoded presumption of disfavoring arbitration proceedings

is set to one side, it becomes clear that the right to select the

21

judicial forum and the wider choice of courts are not such essential

features of the Securities Act that § 14 is properly construed to bar

any waiver of these provisions.” Rodriguez de Quijas, 490 U.S. at

481, 109 S.Ct. at 1920.

In Rodriguez de Quijas the Court distinguished between

substantive provisions in the statute, e.g., the requirement that a

seller prove a lack of scienter in a claim of fraud, 15 U.S.C. § 77l,

and procedural provisions, e.g., providing for venue in the federal

courts, the existence of nationwide service of process in the federal

courts, the extinction of the amount-in-controversy requirement for

fraud suits based on diversity jurisdiction, and the grant of

concurrent jurisdiction in state courts. The Court held that “[t]here

is no sound basis for construing the prohibition in § 14 on waiving

‘compliance with any provision’ of the Securities Act to apply to

these procedural provisions.” Rodriguez de Quijas, 490 U.S. at

482, 109 S.Ct. at 1920; see also Mitsubishi, 473 U.S. at 628, 105

S.Ct. at 3354 (“By agreeing to arbitrate a statutory claim, a party

does not forgo the substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather than a judicial,

forum.”).

The CROA provides that:

Any waiver by any consumer of any

protection provided by or any right of

the consumer under this subchapter –

(1) shall be treated as void; and

(2) may not be enforced by any

Federal or State court or any other

person.

15 U.S.C. § 1679f. Significantly, the section in which this anti-

waiver provision appears is entitled “Noncompliance with this

subchapter.” Id. It is appropriate for us to consider this title for the

Supreme Court in Almendarez-Torres v. United States, 523 U.S.

224, 234, 118 S.Ct. 1219, 1226 (1998), “note[d] that the title of a

statute and the heading of a section are tools available for the

resolution of a doubt about the meaning of a statute.” (internal

22

quotation marks and citation omitted).

Clearly, even Gay recognizes that this title is important as

she set it forth in her brief in bold type thus ensuring that we would

not overlook it. Appellant’s br. at 9. It appears, then, that the

CROA’s anti-waiver provision is no broader than the anti-waiver

provisions that the Supreme Court considered in McMahon and

Rodriguez de Quijas, which extended to “compliance with any

provision” of the Exchange Act and the Securities Act,

respectively, but which the Court nevertheless held did not extend

to the right to sue in a judicial forum. As with the “compliance

with any provision” to which the anti-waiver clauses in McMahon

and Rodriguez de Quijas refer, under the CROA, a claimant may

not waive the “protection[s]” provided by the statute which, if

violated, would constitute “[n]oncompliance with” the statute. We

therefore construe the CROA’s anti-waiver provision as only

extending to rights premised on the imposition of statutory duties,

absent contrary language in the statute. See McMahon, 482 U.S.

at 228, 107 S.Ct. at 2338 (“Because § 27 does not impose any

statutory duties, its waiver does not constitute a waiver of

‘compliance with any provision’ of the Exchange Act under §

29(a).”).

In contrast, we note that as a matter of statutory

interpretation, the anti-waiver provision in the CSA does not limit

itself to rights based on compliance with the statute and therefore

is broader than the provisions which the Supreme Court discussed

in McMahon and Rodriguez de Quijas. Nevertheless, even if we

interpret the CSA anti-waiver provision as granting consumers with

the right to assert claims pursuant to the statute in a judicial forum

and not be subject to arbitration defenses, the anti-waiver provision

probably would be invalid in this respect. We make this point for

the Supreme Court has stated with respect to the FAA that “[i]n

creating a substantive rule applicable in state as well as federal

courts, Congress intended to foreclose state legislative attempts to

undercut the enforceability of arbitration agreements.” Southland

Corp v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 861 (1984). But

we emphasize that the question of what the Pennsylvania

Legislature intended to do is separate from what it has the power

to do. We further emphasize that even if we are wrong with

respect to the scope of the CROA anti-waiver provision or the

23

validity of the CSA anti-waiver provision, our result in this case

would not change because the statutes did not create the underlying

rights, i.e., the right of consumers to sue in a judicial forum and, in

the case of the CROA, the right to do so on a class action basis.11

B. Did the District Court err in enforcing the arbitration

provision in her Agreement with Intersections?

Gay argues that to the extent that claims brought pursuant

to the CROA and the CSA may be arbitrated, the arbitration

provision in this case does not apply by its terms to her claims, an

argument that we rejected above, and further contends that even if

it does apply as written, the provision is unconscionable and

therefore a court should not enforce it. Beyond the arbitration

provision, Gay also argues that pursuant to 15 U.S.C. § 1679f(c),

the entire agreement is void and should not be enforced.

Intersections answers that the arbitration provision is applicable

and that Gay has waived her argument that the provision is

unconscionable under the CROA because she failed to raise that

argument in the District Court. It acknowledges, however, that

Gay preserved the unconscionabilty issue with respect to the CSA

by raising it in the District Court but contends that it is not

unconscionable. We have examined the record and agree with

Intersections on the waiver argument and thus will consider the

unconscionability issue only under the CSA.12

11

The parties spend considerable space in their briefs

discussing Alexander v. U.S. Credit Management, Inc., 384 F.

Supp.2d 1003 (N.D. Tex. 2005), a case that undoubtedly supports

Gay’s contentions, but we will not do so as it does not bind us and

we do not agree with it.

12

We note, however, that we cannot comprehend in view of

the consistent purposes and provisions in the CROA and the CSA

how we would reach a different result under the two statutes if we

had considered Gay’s CSA unconscionability argument under the

CROA. We reach this conclusion even though Intersections, in

contending that Gay’s CSA unconscionability argument does not

apply to the CROA, correctly states that “one cannot simply argue

that a provision is unconscionable with respect to one statute and

24

In reviewing the District Court’s decision to compel

arbitration, we are limited to a “narrow scope” of inquiry. Great

W. Mortgage Corp. v. Peacock, 110 F.3d 222, 228 (3d Cir. 1997).

As we have explained:

Under the FAA the district court must

be satisfied that the parties entered

into a valid arbitration agreement. In

conducting this inquiry the district

court decides only whether there was

an agreement to arbitrate, and if so,

whether the agreement is valid. In so

deciding, the district court is not to

consider the merits of the claims

giving rise to the controversy, but is

only to determine, as we have stated,

whether there is a valid agreement to

arbitrate. Once such an agreement is

found, the merits of the controversy

are left for disposition to the arbitrator.

Id. (internal citations omitted). As the Supreme Court has

explained, “unless the challenge is to the arbitration clause itself,

the issue of the contract’s validity is considered by the arbitrator in

the first instance.” Buckeye Check Cashing, Inc. v. Cardegna, 546

U.S. 440, 445-46, 126 S.Ct. 1204, 1209 (2006); see also Medtronic

AVE, 247 F.3d at 54-55 (“While a court asked to stay proceedings

pending arbitration must determine whether there is a valid

agreement to arbitrate and, if so, whether the specific dispute falls

within the substantive scope of that agreement, ‘[its] function

[nevertheless] is very limited when the parties have agreed to

submit all questions of contract interpretation to the arbitrator. It

is confined to ascertaining whether the party seeking arbitration is

making a claim which on its face is governed by the contract.’”)

(quoting United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S.

assume that the argument applies to all statutes.” Appellee’s br. at

33 n.16. Though we agree that such an assumption cannot be

made, certainly the same result can be reached after analysis of

complementary statutes.

25

564, 567-68, 80 S.Ct. 1343, 1346 (1960)); PaineWebber Inc. v.

Hofmann, 984 F.2d 1372, 1381 (3d Cir. 1993) (“‘Whether

‘arguable’ or not, indeed even if it appears to the court to be

frivolous,’ the merits of an arbitrable claim is for the arbitrators to

decide.”) (quoting AT&T Techs. v. Commc’ns Workers of Am.,

475 U.S. 643, 649-50, 106 S.Ct. 1415, 1419 (1986)).

We recently have described the proper scope of a court’s

inquiry in determining whether a case should be arbitrated. In

Certain Underwriters at Lloyd’s London v. Westchester Fire

Insurance Co., 489 F.3d 580 (3d Cir. 2007), we summarized the

limitations that a court faces in making such a determination:

[T]he question of ‘whether the parties

have submitted a particular dispute to

arbitration, i.e., the “question of

arbitrability,” is an issue for judicial

determination unless the parties

clearly and unmistakably provide

otherwise.’ . . . [W]hereas one might

call any potentially dispositive

gateway question a ‘question of

arbitrability,’ ‘the phrase . . . has a far

more limited scope.’ Such questions

of arbitrability are raised only in

‘narrow circumstance[s]’ where courts

must determine ‘gateway matter[s],’

such as a dispute about ‘whether the

parties are bound by a given

arbitration clause’ or . . . ‘a

disagreement about whether an

arbitration clause in a concededly

binding contract applies to a particular

type of controversy.’

Id. at 585 (quoting Howsam v. Dean Witter Reynolds, Inc., 537

U.S. 79, 83-84, 123 S.Ct. 588, 592 (2002)). We observed that

“‘only when there is a question regarding whether the parties

should be arbitrating at all’ is a question of arbitrability raised for

the court to resolve,” and that “[i]n other circumstances, resolution

by the arbitrator remains the presumptive rule.” Id. (quoting

26

Dockser v. Schwartzberg, 433 F.3d 421, 426 (4th Cir. 2006)). This

allocation of roles between courts and arbitrators promotes

efficiency because “an expectation that aligns (1) decisionmaker

with (2) comparative expertise will help better to secure a fair and

expeditious resolution of the underlying controversy – a goal of

arbitration systems and judicial systems alike.” Howsam, 537 U.S.

at 85, 123 S.Ct. at 593.

In determining whether a matter should be arbitrated, “there

is a strong presumption in favor of arbitration, and doubts

‘concerning the scope of arbitrable issues should be resolved in

favor of arbitration.’” Great W. Mortgage, 110 F.3d at 228

(quoting Moses H. Cone Mem’l Hosp., 460 U.S. 1, 24-25, 103

S.Ct. 927, 941 (1983)); see also Medtronic AVE, 247 F.3d at 55

(“An order to arbitrate ‘should not be denied unless it may be said

with positive assurance that the arbitration clause is not susceptible

of an interpretation that covers the asserted dispute.’”) (quoting

United Steelworkers of Am. v. Warrior and Gulf Navigation Co.,

363 U.S. 574, 582-83, 80 S.Ct. 1347, 1353 (1960)). Nonetheless,

“while interpretive disputes should be resolved in favor of

arbitrability, a compelling case for nonarbitrability should not be

trumped by a flicker of interpretive doubt.” Medtronic AVE, 247

F.3d at 55 (internal quotations omitted).

Gay argues that both the arbitration provision and the

Agreement as a whole are unconscionable. We are limited,

however, to addressing the first issue, i.e., whether to enforce the

arbitration provision. The question of whether the Agreement as

a whole is unconscionable is a separate issue that, if we find that

arbitration of the case would be appropriate, the arbitrator must

decide.

In arguing that the arbitration provision is unconscionable,

Gay relies on Pennsylvania law but Intersections argues that

Virginia law applies because there is a choice-of-law provision in

the Agreement that states: “These Terms of Use are governed by

the laws of the Commonwealth of Virginia, USA, exclusive of its

choice of law principles.” J.A. at 98. Intersections argues that

under Virginia law, and for that matter under Pennsylvania law

should it apply, the arbitration provision is not unconscionable.

27

We begin our disposition of this issue by emphasizing the

overarching principle that “[f]ederal law determines whether an

issue governed by the FAA is referable to arbitration.” Harris v.

Green Tree Fin. Corp., 183 F.3d 173, 178 (3d Cir. 1999).

“Questions concerning the interpretation and construction of

arbitration agreements are determined by reference to federal

substantive law.” Id. at 179; see also Moses H. Cone Mem’l Hosp.,

460 U.S. at 25 n.32, 103 S.Ct. at 942 n.32 (“[The FAA] creates a

body of federal substantive law establishing and regulating the duty

to honor an agreement to arbitrate . . . .”). Section 2 of the FAA

sets forth the basic rule of federal law:

A written provision in . . . a contract

evidencing a transaction involving

commerce to settle by arbitration a

controversy thereafter arising out of

such contract or transaction, or the

refusal to perform the whole or any

part thereof, . . . shall be 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.

Nevertheless, notwithstanding the supremacy of federal law,

courts repeatedly have held that “in interpreting [arbitration]

agreements, federal courts may apply state law, pursuant to section

two of the FAA.” Harris, 183 F.3d at 179. In particular, “generally

applicable contract defenses, such as fraud, duress, or

unconscionability, may be applied to invalidate arbitration

agreements without contravening § 2.” Doctor’s Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1656 (1996). In

applying ordinary state law principles to evaluate arbitration

agreements, First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938, 944, 115 S.Ct. 1920, 1924 (1995), the cases have indicated

that courts may look in particular to the laws of the involved state

or territory. See, e.g., Parilla v. IAP Worldwide Servs. VI, Inc.,

368 F.3d 269, 276 (3d Cir. 2004) (applying Virgin Islands law to

determine whether arbitration agreement was enforceable in

28

lawsuit based on Title VII); Spinetti v. Serv. Corp. Int’l, 324 F.3d

212, 214 (3d Cir. 2003) (applying Pennsylvania law to determine

whether arbitration agreement was enforceable in action based on

Title VII and the ADEA); Blair v. Scott Specialty Gases, 283 F.3d

595, 603 (3d Cir. 2002) (applying Pennsylvania law to determine

whether arbitration agreement was enforceable in lawsuit based on

Title VII); Harris, 183 F.3d at 181-84 (applying Pennsylvania law

to determine whether arbitration agreement was unconscionable in

lawsuit based on RICO).13

The cardinal principle of the law of arbitration is that “under

the [FAA, arbitration] is a matter of consent, not coercion, and

parties are generally free to structure their arbitration agreements

as they see fit.” Volt Info. Sciences, Inc. v. Bd. of Trustees of the

Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248,

1256 (1989). That freedom extends to choice-of-law provisions

governing agreements, including agreements to arbitrate. See

Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.

2005) (applying New York law pursuant to choice-of-law provision

in determining whether to enforce arbitration agreement); Gen.

Elec. Co. v. Deutz AG, 270 F.3d 144, 155 (3d Cir. 2001) (“In

general, we respect the choice of law that parties agree upon to

resolve their private disputes.”); see also Suburban Leisure Ctr.,

Inc. v. AMF Bowling Prods., Inc., 468 F.3d 523, 526 (8th Cir.

13

We recognize that courts including our court look to the

law of the forum state or another state related to the circumstances

of the dispute in determining as a matter of federal law whether an

issue is referable to arbitration. Yet one might wonder why the

consideration of state law is so confined. After all, if, as is the

case, federal common law developed under the FAA is at issue

then it is logical that the law should be uniform throughout the

country. In this regard it could be asked whether federal common

law should be one thing in a district court in California but be

different in a district court in Pennsylvania. But if a further

examination of that point ever is needed it will be at some later day

as we have no need to consider it now. The need to examine the

question might arise if a party contended that the law of an

involved state to which a court might look in applying federal

common law is aberrational.

29

2006) (applying Virginia law pursuant to choice-of-law provision

after determining that both Virginia and the forum state of Missouri

enforce choice-of-laws provisions); Overstreet v. Contigroup Cos.,

462 F.3d 409, 411 (5th Cir. 2006) (applying Georgia law pursuant

to choice-of-law provision in determining whether to enforce

arbitration agreement); Pro Tech Indus., Inc. v. URS Corp., 377

F.3d 868, 872 (8th Cir. 2004) (applying Texas law pursuant to

choice-of-law provision to determine whether to enforce arbitration

agreement).

Gay challenges the choice-of-law provision in the

Agreement providing that Virginia law governs its terms of use, but

does not explain what state’s law to apply in evaluating the

provision. The Agreement is not helpful on this point as it provides

that its selection of Virginia law with respect to its “terms of use”

does not extend to Virginia choice-of-law principles. But

inasmuch as Gay argues that Pennsylvania law governs the

arbitration provision and the Agreement as a whole, it seems

reasonable to use Pennsylvania law in evaluating the choice-of-law

provision. The use of Pennsylvania law on this choice-of-law

question is consistent with what we said in Spinetti that “[t]he

federal policy encouraging recourse to arbitration requires federal

courts to look first to the relevant state law of contracts . . . in

deciding whether an arbitration agreement is valid under the FAA.”

324 F.3d at 214. Furthermore, if the District Court’s jurisdiction

in this federal question case had been based on diversity of

citizenship of the parties we would apply Pennsylvania’s choice-of-

law principles as the court was in the Eastern District of

Pennsylvania. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 61 Sup. Ct. 1020 (1941). Accordingly, we look to

Pennsylvania law to determine which state’s law we should use in

considering the unconscionability argument.

Applying Pennsylvania law, we recognized in Kruzits v.

Okuma Machine Tool, Inc., 40 F.3d 52 (3d Cir. 1994), that

“Pennsylvania courts generally honor the intent of the contracting

parties and enforce choice of law provisions in contracts executed

by them.” Id. at 55 (citing Smith v. Commonwealth Nat. Bank,

557 A.2d 775, 777 (Pa. Super. Ct. 1989)). In Kruzits, we noted

that Pennsylvania courts have adopted section 187 of the

Restatement (Second) Conflict of Laws, which provides that

30

choice-of-law provisions will be enforced:

unless either (a) the chosen state has

no substantial relationship to the

parties or the transaction and there is

no other reasonable basis for the

parties’ choice, or (b) application of

the law of the chosen state would be

contrary to a fundamental policy of a

state which has a materially greater

interest than the chosen state in the

determination of the particular issue

....

Id. “Pennsylvania courts will uphold choice-of-law provisions in

contracts to the extent that the transaction bears a reasonable

relation to the chosen forum.” Churchill Corp. v. Third Century,

Inc., 578 A.2d 532, 537 (Pa. Super. Ct. 1990) (citing 13 Pa. Cons.

Stat. Ann. § 1105(a) (West 1999) (“Except as otherwise provided

in this section, when a transaction bears a reasonable relation to

this Commonwealth and also to another state or nation the parties

may agree that the law either of this Commonwealth or of such

other state or nation shall govern their rights and duties.”)).

Gay’s Agreement states that she purchased services

“provided by Intersections Inc.,” which is “located in Chantilly,

Virginia.” J.A. at 98. Virginia therefore has a “substantial

relationship” to Intersections. Inasmuch as we see no reason to

conclude that Pennsylvania “has a materially greater interest” in the

enforceability of the arbitration agreement, or that applying

Virginia law to determine whether it should be enforced “would be

contrary to a fundamental policy” of Pennsylvania, under

Pennsylvania’s choice-of-law rules we are satisfied that there is no

reason not to honor the parties’ choice of Virginia law in

considering the unconscionability claim. Though it certainly is true

that Pennsylvania has an interest in protecting its consumers, we

cannot say that Virginia has a lesser interest in protecting

businesses located in it. Thus, even if we adopt Gay’s position that

the arbitration provision is advantageous to Intersections, we see no

reason not to honor the parties’ choice of Virginia law to govern

the terms of use of the Agreement. Overall, applying Pennsylvania

31

law for our selection of the applicable state law, we will apply

Virginia law in considering the enforceability of the arbitration

provision.

In reaching our conclusion that Virginia law applies we

have not overlooked Gay’s argument that the choice-of-law

provision should not be enforced for two reasons. First, she

contends that the provision governs only the “Terms of Use,” and

that the issue of whether the arbitration provision is enforceable

does not arise from those terms of use. Appellant’s reply br. at 12.

But Gay’s complaint undercuts her argument. After all, in her

allegations she refers to those terms of use as “terms of the

contract,” and the choice-of-law provision appears in the “copy of

the contract” that Gay includes as an exhibit to her complaint. J.A.

at 79, 98. Indeed, we regard her argument on this point as being

insubstantial. Plainly, as written, the choice-of-law provision

pointing to Virginia law applies to her unconscionability argument.

Second, Gay argues that the choice-of-law provision itself

is unconscionable because, “like the arbitration clause, [it] is buried

in small print at the end of the contract drafted by a sophisticated

party with superior bargaining power.” Appellant’s reply br. at 12.

Under Pennsylvania law, however, a contract is not unconscionable

simply because there is a disparity in bargaining power between the

contracting parties, absent a showing that the terms were

unreasonable. Witmer v. Exxon Corp., 434 A.2d 1222, 1228 (Pa.

1981). Gay fails to explain how the application of Virginia law, as

opposed to Pennsylvania law, is so unreasonable that it invalidates

the choice-of-law provision.

Inasmuch as we have determined that we should enforce the

terms of use choice-of-law provision selecting the application of

Virginia law, we consider whether the arbitration provision in the

Agreement is unconscionable under that law.14 We reiterate that

the arbitration provision states:

14

In considering the matter under Virginia law we are laying

to one side the effect of the FAA. We point out, however, that as

a matter of pure federal common law we see no reason to conclude

that the arbitration provision is unconscionable.

32

Any claim arising out of or relating to

the Product shall be settled by binding

arbitration in accordance with the

commercial arbitration rules of the

American Arbitration Association on

an individual basis not consolidated

with any other claim.

J.A. at 98. Gay argues that the arbitration provision is

unconscionable because it was “drafted by Intersection[s] and

lacking any choice on the part of Ms. Gay,” and “bears all the

earmarks of an unconscionable contract of adhesion . . . .”

Appellant’s br. at 19.

In describing unconscionability under Virginia law, the

Supreme Court of Virginia has stated that:

[w]hile the jurisdiction undoubtedly exists

in the courts to avoid a contract on the

ground that it makes an unconscionable

bargain, nevertheless an inequitable and

unconscionable bargain has been defined to

be ‘one that no man in his senses and not

under a delusion would make, on the one

hand, and as no fair man would accept, on

the other.’ The inequality must be so gross

as to shock the conscience.

Mgmt. Enters., Inc. v. Thorncroft Co., 416 S.E.2d 229, 231 (Va.

1992) (quoting Smyth Bros.-McCleary-McClellan Co. v.

Beresford, 104 S.E. 371, 382 (Va. 1920)). The doctrine “deals

primarily with a grossly unequal bargaining power at the time the

contract is formed . . . .” Envirotech Corp. v. Halco Eng’g, Inc.,

364 S.E.2d 215, 220 (Va. 1988).

Although Gay surely did not have the same bargaining

power as Intersections when she entered into the Agreement, she

has not provided a basis for finding that the inequality in

bargaining power was “so gross as to shock the conscience.”

33

Mgmt. Enters., 416 S.E.2d at 231.15 Nor do the terms of the

Agreement, namely to arbitrate disputes on an individual basis,

constitute an unconscionable bargain. In Johnson, we observed

that “even if plaintiffs who sign valid arbitration agreements lack

the procedural right to proceed as part of a class, they retain the full

15

Though we doubt that in the highly unlikely event that a

consumer before entering into an agreement with Intersections

attempted to negotiate to remove the arbitration provision she

would have been successful, a consumer considering contracting

with Intersections certainly could have decided to forego obtaining

its services. Without in any way besmirching its services, we

cannot characterize them as something that a consumer must obtain

from one source or another. On the other hand, Gay seems not be

burdened by the constraints we feel in characterizing the value of

Intersections’ services as she contends that credit repair

“organizations are in reality, at least, mere letter writing services

that . . . consumers would probably not retain . . . if they knew the

truth.” Appellant br. at 8.

Furthermore, Gay has not demonstrated that only

Intersections supplies services of the kind for which she contracted

with it. Quite to the contrary, she does not deny Intersections’

assertion that there are other businesses that supply credit repair

services. See supra note 2. In the circumstances, this case does not

involve, in the words of Mitsubishi, “well supported claims that the

agreement to arbitrate resulted from the sort of fraud or

overwhelming economic power that would provide grounds for the

revocation of any contract.” 473 U.S. at 627, 105 S.Ct. at 3354

(internal quotation marks and citation omitted). Furthermore, we

can see no basis for a claim that the Agreement was the product of

Intersections’ fraud. Moreover, we do not understand how a party

can claim to be subject to overwhelming economic power when

contracting for a service that costs only $4.99 a month and is

available from more than one source and, in any event, she may not

need as it may be essentially worthless. Clearly, if Gay objected to

the terms of the Agreement she could have walked away from it.

Thus, her position is different, for example, from that of a

homeowner facing a mortgage foreclosure who accepts onerous

refinancing terms in a desperate attempt to save her home.

34

range of rights” created by the relevant statute, and that “[t]hese

rights remain available in individual arbitration proceedings.” 225

F.3d at 373. Inasmuch as Gay retains her substantive rights

pursuant to the CROA and the CSA, the terms of the arbitration

agreement surely do not “shock the conscience.” Mgmt. Enters.,

416 S.E.2d at 231.

Moreover, even if we disregard the Agreement’s choice-of-

law provision and apply Pennsylvania law in considering the

enforceability of the arbitration clause, as Gay urges us to do, we

would reach the same result, largely because federal law requires

that we do so and Pennsylvania law must conform with federal law.

In discussing the doctrine of unconscionability under Pennsylvania

law, we have stated that “‘[u]nconscionability requires a two-fold

determination: that the contractual terms are unreasonably

favorable to the drafter and that there is no meaningful choice on

the part of the other party regarding acceptance of the provisions.’”

Harris, 183 F.3d at 181 (internal quotation marks and citations

omitted).

Gay argues that the arbitration provision is unconscionable

because she agreed to it at a time when she lacked any bargaining

power to negotiate its terms, and the Agreement is one of adhesion.

In Harris, however, we reiterated that “inequality of bargaining

power, alone, is not a valid basis upon which to invalidate an

arbitration agreement.” Id. at 183. Moreover, she does not contend

that she was under any compulsion to sign the Agreement.16

Gay argues with respect to its terms that the arbitration

provision is unconscionable because it requires cases to proceed

“on an individual basis not consolidated with any other claim,” J.A.

at 98, and therefore is “the functional equivalent of a denial of Ms.

Gay’s request to represent a class of similarly situated consumers.”

Appellant’s br. at 14. In Johnson, however, we described the right

to a class action as “merely a procedural one” pursuant to the

Federal Rules of Civil Procedure, and stated that the right “may be

waived.” 225 F.3d at 369.

16

See supra note 15.

35

We recognize that Gay has support for her claim that the

arbitration provision is unconscionable in two Pennsylvania

Superior Court cases, Lytle v. CitiFinancial Services, Inc., 810

A.2d 643 (Pa. Super. Ct. 2002), and Thibodeau v. Comcast Corp.,

912 A.2d 874 (Pa. Super. Ct. 2006). In Lytle the Superior Court

considered whether an arbitration provision in a loan agreement

was unconscionable. The plaintiffs challenged several aspects of

the provision, including a section that prohibited a consumer from

bringing class action claims against the defendant. The Lytle court

began its analysis by observing that “class actions are favored in

this Commonwealth as a means of resolving many meritorious

claims which would otherwise, due to the amounts involved,

escape prosecution.” 810 A.2d at 655. It noted that “[t]he

arbitration provision at issue . . . specifically prohibits any use of

or participation in a class action by the Lytles.” Id. at 665-66. The

Lytle court discussed our analysis in Johnson of whether the waiver

of the right to class actions would undermine the public policy

goals of the TILA. Id. at 666 (discussing Johnson, 225 F.3d at

374-75). The Lytle court concluded that the record before it was

“devoid of any evidence that would establish that the damages

claimed by appellants are insufficient to permit the Lytles to seek

legal redress for their injuries in the absence of a class action,” and

remanded the case to the trial court to develop the record on that

issue. Id.

In Thibodeau, 912 A.2d 874, the Superior Court considered

whether a waiver of a right to class action contained in an

arbitration agreement was unconscionable. There, the court

described the reasons for encouraging class actions:

Class action lawsuits are and remain

the essential vehicle by which

consumers may vindicate their lawful

rights. The average consumer, having

limited financial resources and time,

cannot individually present minor

claims in court or in an arbitration.

Our justice system resolves this

inherent inequality by creating the

procedural device which allows

consumers to join together and seek

36

redress for claims which would

otherwise be impossible to pursue.

Both the Federal and Pennsylvania

Rules of Civil Procedure delineate

specific rules for publicly selected trial

court judges to actively manage class

action lawsuits through the public

judicial system.

Id. at 884-85 (quotations omitted). The court proceeded to discuss

the federal and state rules providing for class actions, and

continued:

It is only the class action vehicle

which makes small consumer

litigation possible. Consumers joining

together as a class pool their

resources, share the costs and efforts

of litigation and make redress

possible. Should the law require

consumers to litigate or arbitrate

individually, defendant corporations

are effectively immunized from

redress of grievances.

Id. at 885 (quotations omitted).17 The court ultimately affirmed the

trial court’s ruling that the waiver of the right to a class action was

unconscionable. Id. at 886.

Though the arbitration provisions in both Lytle and

Thibodeau are distinguishable from the provision in this case, Gay

17

The Thibodeau court certainly has had much judicial

company in expressing its sentiments. It might be more

evenhanded, however, also to recognize that a business such as

Intersections which enters into transactions bringing it very small

revenues under any particular contract, perhaps $39.92 in the case

of Gay, has a legitimate reason to seek to avoid expensive litigation

to resolve disputes with its customers and instead resolve its

disputes less formally and probably less expensively in arbitration.

37

is correct that in both cases the Superior Court addressed the

waiver of the right to bring a class action specifically, and found

that such a provision would be unconscionable, Thibodeau, 912

A.2d at 886, if there are facts showing that “the costs associate[d]

with individual versus class-based litigation of their claim against

[the defendant] would . . . result in continuing immunity for [the

defendant] for its wrongful acts,” Lytle, 810 A.2d at 666. In doing

so, the two Superior Court panels recognized that under

Pennsylvania law, class actions are “favored,” id. at 665, and are

of “great public importance” as “the essential vehicle” for

vindicating consumer rights, Thibodeau, 912 A.2d at 884.

But those cases are hardly the end point of our

unconscionability analysis because we are concerned with the

federal law that Congress set forth in the FAA; the federal law is

controlling here and the Pennsylvania law must conform with it.18

In Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520 (1987), the

Supreme Court explained how courts should reconcile the

promotion of arbitration agreements with competing state interests:

[T]he text of § 2 provides the

touchstone for choosing between

state-law principles and the principles

of federal common law envisioned by

the passage of [the FAA]: An

agreement to arbitrate is valid,

irrevocable, and enforceable, as a

matter of federal law, ‘save upon such

18

Of course, Lytle and Thibodeau are Superior Court cases

and thus even if we were concerned with pure state law they would

not bind us. See State Farm Mut. Auto. Ins. Co. v. Coviello, 233

F.3d 710, 713 (3d Cir. 2000). We hasten to add, however, that

even if they were Pennsylvania Supreme Court cases our result

would be the same. We also note that in a very different context

from that here the Supreme Court of Pennsylvania has indicated

that “[w]hile we believe that Lytle was well intentioned in its

efforts to guard against pernicious lending practices, our

conclusion is that it swept too broadly.” Salley v. Option One

Mort. Corp., 925 A.2d 115, 129 (Pa. 2006).

38

grounds as exist at law or in equity for

the revocation of any contract.’ Thus

state law, whether of legislative or

judicial origin, is applicable if that law

arose to govern issues concerning the

validity, revocability, and

enforceability of contracts generally.

Id. at 492 n.9, 107 S.Ct. at 2527 n.9 (internal citations omitted).

The Court distinguished state law principles that apply to contracts

generally from those that are unique to arbitration agreements:

A state-law principle that takes its

meaning precisely from the fact that a

contract to arbitrate is at issue does not

comport with this requirement of § 2.

See Prima Paint [Corp. v. Flood &

Conklin Mfg. Co.,] 388 U.S. [395,]

404, 87 S.Ct. [1801,] 1806 [(1967)];

Southland Corp. v. Keating, 465 U.S.

[1,] 16-17[ ] n.11, 104 S.Ct. [852,] 861

[ ] n.11 (1984)]. A court may not,

then, in assessing the rights of litigants

to enforce an arbitration agreement,

construe that agreement in a manner

different from that in which it

otherwise construes nonarbitration

agreements under state law.

Id., 107 S.Ct. at 2527 n.9. The Court further admonished in a

critical explanation that: “Nor may a court rely on the uniqueness

of an agreement to arbitrate as a basis for a state-law holding that

enforcement would be unconscionable, for this would enable the

court to effect what we hold today the state legislature cannot. Id.,

107 S.Ct. at 2527 n.9.

Addressing the same competing interests that we face in this

case, namely, the promotion of arbitration agreements and the

protection of class actions prohibited by such agreements, we

observed in Johnson that the FAA “reflects ‘a liberal federal policy

favoring arbitration agreements,’” Johnson, 225 F.3d at 376

39

(quoting Moses H. Cone Mem’l Hosp., 460 U.S. at 24, 103 S.Ct.

at 941), and that “[w]hatever the benefits of class actions, the FAA

‘requires piecemeal resolution when necessary to give effect to an

arbitration agreement,’” id. at 375 (quoting Moses H. Cone Mem’l

Hosp., 460 U.S. at 20, 103 S.Ct. at 939). To the extent, then, that

Lytle and Thibodeau hold that the inclusion of a waiver of the right

to bring judicial class actions in an arbitration agreement

constitutes an unconscionable contract, they are not based “upon

such grounds as exist at law or in equity for the revocation of any

contract” pursuant to section 2 of the FAA, and therefore cannot

prevent the enforcement of the arbitration provision in this case.

9 U.S.C. § 2 (emphasis added).

Certainly the Pennsylvania Superior Court panels were

aware of Perry and thought that they were reaching outcomes in

considering the unconscionability issues consistent with it as well

as other Supreme Court cases. We, however, reject Lytle and

Thibodeau for we do not agree with them as there is no escape

from the fact that they deal with agreements to arbitrate, rather than

with contracts in general, and thus they are not in harmony with

Perry. It would be sophistry to contend, in the words of Perry, that

the Pennsylvania cases do not “rely on the uniqueness of an

agreement to arbitrate as a basis for a state-law holding that

enforcement would be unconscionable.” 482 U.S. at 492 n.9, 107

S.Ct. at 2527 n.9. After all, though the Pennsylvania cases are

written ostensibly to apply general principles of contract law, they

hold that an agreement to arbitrate may be unconscionable simply

because it is an agreement to arbitrate. A finding that the

arbitration provisions in those cases are unconscionable can be

reached only by parsing the provisions themselves to determine

what they provide.

Overall, it is perfectly obvious that Gay relies on the

uniqueness of the arbitration provision in framing her

unconscionability argument. Nothing could be clearer because her

argument is not predicated on a contention that Intersections misled

her as to the Agreement’s terms or forced her by some unlawful

coercion to enter into it and accept the arbitration provision. Nor

can she even fairly contend that she was under any compulsion to

enter into the Agreement which she clearly views as having been

essentially worthless to her. See supra note 15. Quite to the

40

contrary she contends that the provision is unconscionable because

of what it provides, i.e., arbitration of disputes on an individual

basis in place of litigation possibly brought on a class action basis.

Thus, with all due respect to the Pennsylvania Superior Court, we

will not apply state law as explicated in Lytle and Thibodeau and

thereby interfere with the appropriate application of the FAA. The

Commerce and Supremacy Clauses of the United States

Constitution are implicated here. U.S. Const. art. I, § 8, cl.3; VI,

cl. 2.

We cannot close our opinion without making one more

observation about the Pennsylvania Superior Court cases. Clearly

their reasoning with respect to the unconscionability of arbitration

provisions can be applied to arbitration provisions in all sorts of

contracts between vendors of goods and services on the one hand

and consumers on the other hand. Thus, their reasoning if applied

logically could result in a significant narrowing of the application

of the FAA. We express no view on whether that might be a

desirable result as it is not our function to do so. Rather, our

obligation is to honor the intent of Congress and that is what we are

doing. If the reach of the FAA is to be confined then Congress and

not the courts should be the body to do so.

V. CONCLUSION

For the foregoing reasons, we conclude that Gay’s claims

are subject to arbitration, and that the arbitration provision in this

case is not unconscionable. The District Court’s order of June 29,

2006, to stay the proceedings and compel arbitration on an

individual basis will be affirmed.

41