                             In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

Nos. 02-3624 & 02-8025
MARC LIVINGSTON, et al.,
                                              Plaintiffs-Appellees,
                                 v.

ASSOCIATES FINANCE, INC., et al.,
                                     Defendants-Appellants.
                          ____________
           Appeals from the United States District Court
       for the Northern District of Illinois, Eastern Division.
              No. 01 C 1659—David H. Coar, Judge.
                          ____________
     ARGUED MAY 12, 2003—DECIDED AUGUST 7, 2003
                    ____________


  Before BAUER, KANNE, and WILLIAMS, Circuit Judges.
  WILLIAMS, Circuit Judge. Marc and Michelle Livingston
sued Associates Finance, Inc. for violations of the Truth in
Lending Act, on behalf of themselves and a purported
class of similarly aggrieved borrowers. Associates, which
moved to compel arbitration pursuant to an arbitration
agreement, appeals the district court’s denial of its mo-
tion as well as the court’s grant of the Livingston’s motion
for class certification. Because we find the Arbitration
Agreement controlling, and Associates’ offer to pay arbitra-
tion fees sufficient to protect against potentially prohibi-
tive costs, we reverse the district court’s denial of arbi-
tration, vacate its class certification determination, and
2                                       Nos. 02-3624 & 02-8025

remand the case with instructions to the district judge to
stay the case to allow the parties to proceed on their
claims in arbitration.


                       I. BACKGROUND
  The Livingstons were frequent borrowers from Associates.
Their transactions with Associates began with one loan,
but they periodically took out loans to pay off their previ-
ous loans, which is typically called “loan-flipping.” When
the Livingstons took out their last loan, they signed an
Arbitration Agreement in which both parties waived
their rights to litigate in court any and all claims arising
between the parties on this loan and any and all existing
or previous loans. The Agreement permits either party to
demand arbitration in response to a lawsuit, and provides
that Associates may pay the arbitration costs at the
Livingstons’ request if they (the Livingstons) are unable
to do so themselves.1 The Agreement also precludes the


1
  The Arbitration Agreement provides that either party has “an
absolute right to demand that any dispute be submitted to an
arbitrator,” either directly or in response to the filing of a law-
suit by the other party, and that such right encompasses “all
claims and disputes arising out of, in connection with, or relating
to” any loans, documents relating to loans, negotiations, or the
validity of the Arbitration Agreement (among other things). The
Agreement also provides that the party seeking arbitration is
required to pay the filing fees, but the Livingstons may ask
Associates to pay the fee if they believe they are financially
incapable of paying it themselves. It further states that the
Commercial Arbitration Rules will determine which party will pay
the costs associated with arbitration, including attorneys’ fees and
the cost of the hearing, and those Rules provide that arbitration
costs “shall be borne equally by the parties unless they agree
otherwise or unless the arbitrator . . . assesses such expenses . . .
                                                      (continued...)
Nos. 02-3624 & 02-8025                                            3

Livingstons from joining a class action lawsuit if one is
filed, and from creating a class action in any arbitration
proceeding.
   When the Livingstons obtained their last loan, they
also received Truth in Lending disclosures that were
supposed to detail the implications of their loans and a
rate reduction rider that provided the interest rate on
their loan could be lowered through regular payments
over a period of time. The Livingstons believe the dis-
closures do not reflect the terms of the rate reduction
rider and thus do not disclose the true annual percentage
rate, finance charges, and total payments of the loan.
Believing this to be a violation of the Truth in Lending
Act (TILA), 15 U.S.C. § 1635(f), and Regulation Z govern-
ing truth in lending, 12 C.F.R. § 226.23, the Livingstons
filed suit in federal court and moved for certification of
a class of similarly aggrieved borrowers. Associates re-
sponded by filing a motion to compel arbitration pursuant
to the terms of the Arbitration Agreement, and a motion to
dismiss the class claims based on the Arbitration Agree-
ment’s prohibition against class actions. Associates also
filed a scheduling motion, explaining that it was not re-
sponding to the Livingstons’ class certification motion
and seeking to stay briefing and discovery on the class
certification question because resolution of the arbitra-
tion motion could moot the class certification question. In
response to Associates’ rescheduling motion, the district
court stayed all briefing and discovery on the class cer-
tification question.


1
   (...continued)
against any specified party.” Comm. Arb. R. 52. With respect to
attorneys’ fees, the Rules provide that “[t]he award of the
arbitrator may include . . . an award of attorneys’ fees if all par-
ties have requested award or it is authorized by law or their
arbitration agreement.” Comm. Arb. R. 45(d)(b).
4                                   Nos. 02-3624 & 02-8025

   The Livingstons responded to Associates’ motion to
compel arbitration, arguing that the Arbitration Agree-
ment is unenforceable because they (the Livingstons)
rescinded the last loan, the costs of arbitrating are prohibi-
tively high, the American Arbitration Association (AAA)
is biased in favor of Associates,2 and Associates fraudu-
lently induced them to enter the Arbitration Agreement.
They also moved for leave to seek discovery on the prohibi-
tive costs question. The Magistrate Judge recommended
rejecting most of the Livingstons’ arguments but permit-
ting discovery on whether the costs of arbitration would
be prohibitively high. The district court adopted the
Magistrate Judge’s recommendations, rejecting the Liv-
ingstons’ arguments on rescission, AAA bias, and fraudu-
lent inducement, and allowing limited discovery on the
prohibitive costs question. Associates then agreed to “pay
[the Livingstons’] arbitration costs to the extent those
costs exceeded what [the Livingstons] would incur in
litigation in federal court,” at which point the Livingstons
discontinued all discovery into whether arbitration costs
would be prohibitively high and dropped the issue en-
tirely before the district court.
  The district court rejected Associates’ arbitration mo-
tion, finding that the Arbitration Agreement was unen-
forceable because Associates’ offer to pay fees was “vague”
and “nebulous” and had not “eliminated any possibility
that the costs of arbitration could prove prohibitively
high.” The district court stated that “[d]efendants com-
pletely fail to iterate exactly which litigation costs would
offset arbitration costs. This ‘offer’ is an invitation to
further litigation about costs, nothing more.” The district
court also found that the “uncertainty of an [attorneys’ fee]
award by an arbitrator using his or her ‘discretion,’ coupled


2
   The Arbitration Agreement provides that the AAA’s arbitra-
tion rules govern any arbitration between the parties.
Nos. 02-3624 & 02-8025                                     5

with the uncertainty inherent in [Associates’] nebulous
offer to pay arbitration costs only to the extent they ex-
ceed litigation costs, impermissibly impedes [the Liv-
ingstons’] exercise of their rights under TILA.” Associates
filed a motion for reconsideration, clarifying that its offer
to pay costs was meant to be sufficient, but that they
would further agree to pay “all costs of arbitration” with-
out regard to the comparative costs in federal court. The
district court rejected Associates’ clarified offer and de-
nied its reconsideration motion.
  Finding the Arbitration Agreement unenforceable, the
district court summarily denied Associates’ motion to
dismiss the class claims, which was based on the Arbitra-
tion Agreement’s prohibition of class actions and class
claims in arbitration, and proceeded to certify the class.
The district court reached the class certification question
by considering Associates’ motion to dismiss class claims
as its substantive response to the Livingstons’ motion for
class certification, despite the court’s earlier decision
staying all briefing and discovery on the issue.
   On appeal, Associates argues that the Arbitration Agree-
ment should be enforced and arbitration should be com-
pelled. It also argues that the class certification should
be vacated because the district court’s inquiry was insuf-
ficient and the class claims should be dismissed. The
Livingstons argue that Associates’ offers to pay the arbi-
tration costs are a material change to the Arbitration
Agreement that they do not accept, therefore the Arbitra-
tion Agreement is unenforceable. They also reiterate the
rescission argument that was rejected by the district
court and raise a new theory of judicial estoppel by asking
the court to take judicial notice of a California case that
they believe binds Associates to a position in favor of
litigation and class certification.
6                                   Nos. 02-3624 & 02-8025

                      II. ANALYSIS
A. Motion to Compel Arbitration
  The Federal Arbitration Act (FAA) provides that a writ-
ten provision in any contract evidencing an intent to settle
by arbitration any future controversy arising out of
such contract “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. The purpose of
the FAA is “ ‘to reverse the longstanding judicial hostility
to arbitration agreements . . . and to place them on the
same footing as other contracts.’ ” Green Tree Fin. Corp.-
Ala. v. Randolph, 531 U.S. 79, 89 (2000) (quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)); see
also Sweet Dreams Unlimited, Inc. v. Dial-a-Mattress Int’l,
Ltd., 1 F.3d 639, 641 (7th Cir. 1993) (“It is beyond perad-
venture that the [FAA] embodies a strong federal policy in
favor of arbitration.”). A party seeking to invalidate an
arbitration agreement must establish that the agree-
ment precludes them from effectively “vindicating [their]
statutory cause of action in the arbitral forum.” Green Tree,
531 U.S. at 90. We review the denial of a motion to
compel arbitration de novo. CK Witco Corp. v. Paper Allied
Indus., 272 F.3d 419, 422 (7th Cir. 2001); Iowa Grain Co. v.
Brown, 171 F.3d 504, 508-09 (7th Cir. 1999).
  The district court denied Associates’ arbitration motion,
in part, because Associates had not “eliminated any pos-
sibility that the costs of arbitration could prove prohibi-
tively high.” This misplaces the burden that parties must
meet in order to avoid arbitration due to prohibitive costs.
In Green Tree, the Supreme Court acknowledged that a
legitimate reason to deny arbitration may exist if a party
would “be saddled with prohibitive [arbitration] costs.” 531
U.S. at 90-92. The Court stated, however, that “[the] party
seek[ing] to invalidate an arbitration agreement on
the ground that arbitration would be prohibitively expen-
Nos. 02-3624 & 02-8025                                         7

sive . . . bears the burden of showing the likelihood of
incurring [prohibitive] costs.” Id. at 92. While the Court
did not state how detailed that showing must be before
the party seeking to compel arbitration must come for-
ward with contrary evidence, see id., the party opposing
arbitration nevertheless must provide some individ-
ualized evidence that it likely will face prohibitive costs
in the arbitration at issue and that it is financially incapa-
ble of meeting those costs. See Bradford v. Rockwell Semi-
conductors Sys., Inc., 238 F.3d 549, 557 (4th Cir. 2001).
  In the present case, the Livingstons have not offered
any specific evidence of arbitration costs that they may
face in this litigation, prohibitive or otherwise, and have
failed to provide any evidence of their inability to pay
such costs, even though the district court permitted dis-
covery on that very question. Tellingly, their only “evidence”
of prohibitive arbitration costs is an unsubstantiated
and vague assertion that discovery in an unrelated arbitra-
tion matter disclosed fees of nearly $2,000 per day. This
bare assertion of prohibitive costs, without more, is too
speculative and insufficient to shift the burden to Associ-
ates to show how the costs are not prohibitive. Green Tree,
531 U.S. at 91. Furthermore, the fact that Associates
agreed to pay all costs associated with arbitration fore-
closes the possibility that the Livingstons could endure
any prohibitive costs in the arbitration process. See Large
v. Conseco Fin. Servicing Corp., 292 F.3d 49, 56-57 (1st Cir.
2002). Under these circumstances, Associates’ motion to
compel arbitration was improperly denied.3


3
  The Livingstons do not dispute that they failed to provide any
evidence of prohibitive arbitration costs, nor that Associates
offer moots their prohibitive costs argument. Instead, they pre-
sent a variety of unpersuasive arguments that merit minimal
attention. For example, they argue that Associates’ offer to pay
                                                   (continued...)
8                                       Nos. 02-3624 & 02-8025

   The district court’s other reason for denying Associate’s
arbitration motion was its concern that the arbitrator’s
discretion to award attorneys’ fees was not in accord with
TILA’s restrictions on such awards to defendants. (Notably,
while Associates rebuts this conclusion, the Livingstons
do nothing to support it.) The TILA provides that a defen-
dant is liable to a successful plaintiff for “the costs of
the action, together with a reasonable attorney’s fee as
determined by the court.” 15 U.S.C. § 1692(k)(a)(3). If
the plaintiff is not successful, the defendant is not en-
titled to attorneys’ fees unless there is a finding that the
plaintiff brought the action in “bad faith and for the
purpose of harassment.” Id. The Arbitration Agreement
in this case provides that attorneys’ fees will be deter-
mined by the arbitrator pursuant to the Commercial
Arbitration Rules, and those rules provide that “[t]he award
of the arbitrator may include . . . an award of attorneys’ fees


3
   (...continued)
all costs of arbitration constitutes an offer to rewrite the Arbitra-
tion Agreement that they do not accept and therefore the Arbitra-
tion Agreement is invalid in its entirety. That belies the fact
that the Arbitration Agreement and the Commercial Arbitration
Rules provide that the parties may agree that one or the other (in
this case Associates) may bear the costs of arbitration if the other
side (the Livingstons) is financially incapable of doing so. More-
over, the Livingstons cannot plead prohibitive costs on the one
hand and then reject Associates’ offer to pay all costs when that
offer is in accordance with the provisions of the Agreement.
   The Livingstons also argue that they rescinded the loan
agreement and thereby the Arbitration Agreement as well. As
the Magistrate Judge and district court properly acknowledged,
however, this court has held that rescission is an argument for
the arbitrator to decide because it is a dispute encompassed by
the “arising out of, in connection with, or relating to” language
contained in the Arbitration Agreement. Sweet Dreams Unlim-
ited, 1 F.3d at 641-43; see also Large, 292 F.3d at 54-55.
Nos. 02-3624 & 02-8025                                      9

if all parties have requested award or it is authorized by
law or their arbitration agreement.” Comm. Arb. R. 45(d)(b)
(emphasis added). We fail to see how the Arbitration
Agreement and the Commercial Arbitration Rules provide
the arbitrator with discretion to award attorneys’ fees to
Associates greater than that which is provided for in the
TILA or that in any way contravenes the TILA limita-
tions on such awards. Moreover, the availability of judi-
cial review ensures that an arbitrator’s award is not in
conflict with statutory requirements. “[T]here is no reason
to assume at the outset that arbitrators will not follow
the law; although judicial scrutiny of arbitration awards
necessarily is limited, such review is sufficient to ensure
that arbitrators comply with the requirements of the
statute.” Shearson/Am. Express, Inc. v. McMahon, 482
U.S. 220, 232 (1987) (citing Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 636-37, and
n.19 (1985); Kovaleskie v. SBC Capital Markets, Inc., 167
F.3d 361, 366 (7th Cir. 1999). Accordingly, we reject this
basis for denying arbitration.
  Because we find that Associates was improperly bur-
dened with the obligation to refute an unsubstantiated
assumption of prohibitive arbitration costs, and because
we find the district court’s concern over the arbitrator’s
ability to award attorneys’ fees to be unfounded, we
reverse the district court’s decision to deny arbitration and
remand this case for arbitration pursuant to the Agree-
ment.


B. Class Claims and Class Certification
  The district court also certified the Livingstons’ proposed
class, despite having stayed all briefing and discovery on
the class certification question, because it found Associates’
motion to dismiss class claims to be a sufficient response
to the Livingstons’ motion for class certification. The court
10                                      Nos. 02-3624 & 02-8025

did so while simultaneously noting that Associates’ mo-
tion to dismiss class claims was based solely on the Arbi-
tration Agreement’s preclusion of class claims and class
actions. Class certification requires a rigorous investiga-
tion into the propriety of proceeding as a class, and a
decision to certify a class should not be made based solely
on the arguments of one party. See, e.g., Szabo v. Bridgeport
Machs., Inc., 249 F.3d 672, 676 (7th Cir. 2001); In re Am.
Med. Sys., Inc., 75 F.3d 1069, 1086 (6th Cir. 1996). The
district court’s failure to provide Associates with an ade-
quate opportunity to respond substantively to the
Livingstons’ class certification motion, particularly in
light of the court’s decision to stay all briefing and dis-
covery into that question, effectively denied Associates’
due process rights on the question. Id. Accordingly, the
court’s decision to certify the class must be vacated. This
issue need not be remanded for further consideration,
however, because having found the Arbitration Agreement
enforceable we must give full force to its terms. 9 U.S.C.
§ 4; Champ v. Siegel Trading Co., Inc., 55 F.3d 269, 274
(7th Cir. 1995). The Arbitration Agreement at issue here
explicitly precludes the Livingstons from bringing class
claims or pursuing “class action arbitration,” so we are
therefore “obliged to enforce the type of arbitration to
which these parties agreed, which does not include arbi-
tration on a class basis.” Id. at 277; see also Randolph
v. Green Tree Fin. Corp.-Ala., 244 F.3d 814, 816-19 (11th
Cir. 2001); Johnson v. W. Suburban Bank, 225 F.3d 366,
369 (3d Cir. 2000).4



4
  The Livingstons argue that judicial estoppel prevents Asso-
ciates from arguing for arbitration and against class certification
in this litigation when it agreed to litigate a class action on
arguably similar claims in a California Superior Court action
involving different parties, see Morales v. Citigroup Inc., Judicial
                                                     (continued...)
Nos. 02-3624 & 02-8025                                           11

                      III. CONCLUSION
  For the foregoing reasons, the decision of the district
court denying arbitration is REVERSED and the decision
of the district court granting class certification is VACATED.
We REMAND to the district court for further proceedings
in accordance with this opinion, directing that a stay of
proceedings pending arbitration be entered.

A true Copy:
       Teste:

                           ________________________________
                           Clerk of the United States Court of
                             Appeals for the Seventh Circuit




4
  (...continued)
Council Coordination Proceeding No. 4197. Their failure to
present this argument to the district court waives it on appeal.
Belom v. Nat’l Futures Ass’n, 284 F.3d 795, 799 (7th Cir. 2002).
Even if there was no waiver, judicial estoppel still would not
apply, as the Livingstons have not shown that the facts at issue
were the same in both cases (the Morales lawsuit appears to
involve several claims that are not at issue in the present matter),
nor have they offered any evidence that Associates argued in
favor of litigation (and against arbitration) in that lawsuit. See
Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d
523, 525 (7th Cir. 1999).


                      USCA-02-C-0072—8-7-03
