In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 01-4124, 01-4147 & 01-4148
GLENN A. HAWKINS and NEDRA J. HAWKINS,
Plaintiffs-Appellants,
v.
AID ASSOCIATION FOR LUTHERANS,
Defendant-Appellee.
AID ASSOCIATION FOR LUTHERANS,
Plaintiff-Appellee,
v.
MARTIN F. RADMER, et al.,
Defendants-Appellants.
____________
Appeals from the United States District Court
for the Eastern District of Wisconsin.
Nos. 00-C-1327 & 99-C-1205—Charles N. Clevert, Jr., Judge.
____________
ARGUED MAY 30, 2002—DECIDED AUGUST 5, 2003
____________
Before FLAUM, Chief Judge, and HARLINGTON WOOD, JR.,
and MANION, Circuit Judges.
FLAUM, Chief Judge. Three groups of plaintiffs filed
putative class actions against Aid Association for Lutherans
(“AAL”), a fraternal benefit society that provides them with
2 No. 01-4124, 01-4147 & 01-4148
life insurance, alleging that AAL engaged in fraudulent
sales practices. These policyholders want their claims
resolved in a judicial forum, but a federal district court
ordered them to arbitration. We affirm.
I. BACKGROUND
Located in Appleton, Wisconsin, AAL is a fraternal
benefit society, i.e., a nonprofit, nonstock, membership
organization with a representative governing system, see
Wis. Stat. § 614.01, that provides life insurance and other
benefits to its members. Like other fraternal benefit
societies, AAL is not regulated by the same laws as com-
mercial insurance companies. Instead, every state, includ-
ing Wisconsin, has a regulatory scheme that governs these
organizations based on a Model Fraternal Code. See id.
§§ 614 et seq., 632 et seq. While commercial insurers utilize
“closed” contracts, i.e., self-contained agreements with set
terms, fraternal benefit societies employ “open” contracts.
Open contracts are memorialized by the member’s applica-
tion, the insurance certificate, and the society’s articles of
incorporation and bylaws. Central to this dispute, open
contracts also explicitly recognize that the articles of incor-
poration and bylaws are subject to change, and that any
subsequent amendment to them is incorporated into the
preexisting open contract as long as it does not destroy or
diminish the benefits promised in the original contract. See
id. § 632.93(1)-(2). As required by Wisconsin law, AAL’s life
insurance contracts specify that AAL’s articles of incor-
poration and bylaws are part of the agreement and state
explicitly that any subsequent amendments to the bylaws
are binding on the policyholder.
When the plaintiffs purchased their policies, AAL’s
bylaws did not prescribe a means for resolving disputes. In
March 1999, however, AAL’s Board of Directors amended
the organization’s bylaws to include a mandatory arbitra-
No. 01-4124, 01-4147 & 01-4148 3
tion provision. Under the amended bylaws, binding arbitra-
tion is the sole means to resolve any dispute with AAL. The
arbitration program has three steps. If the first two steps
(“appeal” and “mediation”) fail, the parties proceed to bind-
ing arbitration in accordance with American Arbitration
Association (“AAA”) rules. AAL pays the costs of arbitra-
tion, but does not pay for the member’s attorney’s fees.
In April 1999 AAL filed its amended bylaws with the
Wisconsin Commissioner of Insurance pursuant to
Wis. Stat. § 614.12(4). It also filed certified copies of the
amended bylaws with the requisite government department
in each of the plaintiffs’ home states. In May 1999 AAL
published a brief synopsis of the new mediation program in
Correspondent, its official publication.
In August 1999 Martin Radmer and three other policy-
holders (the “Radmer plaintiffs”) filed a class action against
AAL in Missouri state court, alleging that AAL had engaged
in illegal churning by encouraging them to borrow against
their current policies to purchase new ones to their detri-
ment. See IDS Life Ins. Co. v. Royal Alliance Assocs., Inc.,
266 F.3d 645, 652 (7th Cir. 2001). AAL removed the case on
diversity grounds, 28 U.S.C. § 1332, but a federal district
court in Missouri remanded the case to state court because
not every plaintiff satisfied the amount-in-controversy
requirement. In October 1999 AAL filed a petition in a
federal district court in Wisconsin to compel the Radmer
plaintiffs to arbitrate their claims pursuant to the Federal
Arbitration Act, 9 U.S.C. §§ 1 et seq. (“FAA”). The Radmer
plaintiffs filed a motion to dismiss for lack of jurisdiction,
which the court denied.
In November 1999 another policyholder, Charles Sattler,
filed his own class action (the “Sattler plaintiffs”) in Illinois
state court, asserting similar allegations against AAL. AAL
removed the case to a federal district court in Illinois, and
then amended its petition in the Eastern District of Wis-
4 No. 01-4124, 01-4147 & 01-4148
consin, which sought to compel the Radmer plaintiffs to
arbitrate, to include the Sattler plaintiffs. The federal
district court in Illinois then transferred the Sattler plain-
tiffs’ action to the federal district court in Wisconsin under
28 U.S.C. § 1404(a).
In July 2000 AAL was sued again, this time by policy-
holders Glenn and Nedra Hawkins (the “Hawkins plain-
tiffs”), who filed a class action in Indiana state court that
was similar to the suits filed by the Radmer and Sattler
plaintiffs in Missouri and Illinois. AAL removed the case to
federal district court in Indiana. The Hawkins plaintiffs
challenged removal, but the district court denied their
motion and transferred the case under § 1404(a) to the
Eastern District of Wisconsin. AAL then moved to compel
the Hawkins plaintiffs to arbitrate.
The district court in Wisconsin ultimately granted AAL’s
petitions to compel arbitration of the Radmer, Sattler, and
Hawkins plaintiffs’ claims. The court also dismissed with-
out prejudice the underlying complaints filed by the Sattler
and Hawkins plaintiffs, ordering the parties to take no fur-
ther action in any court until the completion of arbitration.
In response, the Missouri state court then stayed the un-
derlying Radmer case. This court consolidated the appeals
of all plaintiffs.
II. DISCUSSION
A. Jurisdiction
Appellants first challenge the federal court’s subject
matter jurisdiction. The Hawkins plaintiffs assert that the
district court did not have jurisdiction under 28 U.S.C.
§ 1332(a)(1) because their claims did not exceed $75,000.
The court believed that the amount-in-controversy thresh-
old had been met because the value of the Hawkins plain-
tiffs’ policies surpassed $75,000, but the Hawkins plaintiffs
No. 01-4124, 01-4147 & 01-4148 5
insist this was error because they are not seeking the full
cash value of the policies. We agree with the district court.
The Hawkins plaintiffs are not only seeking money dam-
ages, but are also attacking the validity of their policies by
seeking to nullify the arbitration provisions and to enjoin
AAL from cancelling policies of class members who fail
to pay premiums. And as AAL correctly points out, when
the validity of a policy (as opposed to the insurer’s obliga-
tion to pay) is in dispute, the face value of that policy is a
proper measure of the amount-in-controversy. Keck v. Fid.
& Cas. Co. of N.Y., 359 F.2d 840, 841 (7th Cir. 1966). See
also Budget Rent-A-Car, Inc. v. Higashiguchi, 109 F.3d
1471, 1473 (9th Cir. 1997); Guardian Life Ins. Co. of Am. v.
Muniz, 101 F.3d 93, 94 (11th Cir. 1996); Mass. Cas. Ins. Co.
v. Harmon, 88 F.3d 415, 416 (6th Cir. 1996). Accordingly,
we find that the court had subject matter jurisdiction to
compel the Hawkins plaintiffs to arbitration.
Next, the Radmer plaintiffs assert that the district court
did not have subject matter jurisdiction over their claims
because it was required to give preclusive effect to the
Missouri district court’s prior remand. The Missouri district
court returned the case to state court because not every
plaintiff satisfied § 1332(a)’s amount-in-controversy thresh-
old. This remand, however, was not entitled to preclusive
effect because it was unappealable under 28 U.S.C.
§ 1447(d). See Benson v. SI Handling Sys., 188 F.3d 780,
783 (7th Cir. 1999). Moreover, the ruling was contrary to
this circuit’s precedent, which holds that when one named
plaintiff meets the minimum amount-in-controversy thresh-
old, a district court may exercise supplemental jurisdiction
under 28 U.S.C. § 1367(a) over the remaining plaintiffs’
claims, even if their individual claims do not exceed that
amount. See In re Brand Name Prescription Drugs Antitrust
Litig., 123 F.3d 599, 607 (7th Cir. 1997).
6 No. 01-4124, 01-4147 & 01-4148
B. Arbitrability
We now turn to the central controversy of this case—
whether the district court erred by ordering Appellants to
submit their claims to arbitration. We review de novo the
court’s decision to compel arbitration based on its finding
that the parties entered into an enforceable agreement.
Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126,
1130 (7th Cir. 1997). Federal policy strongly favors arbitra-
tion, as embodied in the FAA. Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985);
Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 662 (7th
Cir. 2002). Arbitration is a matter of contract—no party can
be required to arbitrate a claim if they have not agreed to
do so. Harter v. Iowa Grain Co., 220 F.3d 544, 553 (7th Cir.
2000). Whether the parties agreed to arbitrate is a matter
of state contract law. Tinder v. Pinkerton Sec., 305 F.3d 728,
733 (7th Cir. 2002). Here, we look to Wisconsin law because
the district court applied it below, a decision unchallenged
by the parties on appeal. See Kritikos v. Palmer Johnson,
Inc., 831 F.2d 418, 421 (7th Cir. 1987).
1. Unconscionability
Appellants’ primary argument is that the arbitration pro-
vision is unconscionable and therefore invalid. Specifically,
they complain that they should not have to arbitrate their
claims because they had no opportunity to review, negoti-
ate, or comment on the AAL Board’s mediation program.
But unlike policyholders of private insurance companies,
members of fraternal benefit societies expressly delegate
decision-making power to their elected representatives:
As long as he remains a member, the terms of his mem-
bership, including obligations and benefits relating to
the insurance funds of the society, are subject to change
without his individual consent. The control over those
No. 01-4124, 01-4147 & 01-4148 7
terms is vested by him and his fellow members in the
elected representative government of their society as
authorized and regulated by the law of [the State].
Order of United Commercial Travelers of Am. v. Wolfe, 331
U.S. 586, 606 (1947). Appellants here did not buy insurance
from a private insurance carrier; they instead chose to
become AAL members and entered into the type of open
contract associated with fraternal benefit societies and
required by Wisconsin law. See Wis. Stat. § 632.93(1)-(2).
And in Wisconsin, agreements between a fraternal benefit
society and its members include the society’s bylaws, as
well as any subsequent amendments, provided they do not
destroy or diminish benefits promised in the policy. Id.
In this case Appellants do not even argue that the
arbitration provision destroyed or diminished their benefits
under the policy. Instead, they complain about losing their
right to go to court. But Appellants cite no authority sup-
porting the position that losing access to court destroys or
diminishes the insurance benefits promised in the policy.
Moreover, the preamendment version of the bylaws did not
reserve the right to a judicial forum, it merely established
a default limitations period for bringing suit. Accordingly,
we agree with the district court that the AAL Board’s
decision to add the arbitration provision was permissible,
and the fact that Appellants were not consulted is of no
consequence. See Geldermann, Inc. v. Commodity Futures
Trading Comm’n, 836 F.2d 310, 318 (7th Cir. 1987) (mem-
ber who signed written agreement promising to abide by
exchange rules and all subsequent amendments was bound
by arbitration procedures later adopted by the exchange).
Appellants offer various other reasons why the arbi-
tration provision is unfair. In their view, the arbitration
clause is invalid because it requires certificate holders
to arbitrate disputes against AAL, but does not require AAL
to do the same. Under the modern rule of contract law,
8 No. 01-4124, 01-4147 & 01-4148
however, “mutuality of obligation” is unnecessary if the
purported contract is supported by consideration. Klug v.
Flambeau Plastics Corp., 214 N.W.2d 281, 285-86 (Wis.
1974) (contract does not lack mutuality merely because
every obligation of one party is not met by an equivalent
counter obligation of the other; rather, mutuality means
sufficient consideration so that one promise may support
another); see also Restatement (Second) of Contracts § 79
(1979). Appellants cite no binding authority suggesting that
the contracts at issue here require mutuality of obligation
in addition to consideration; therefore, their argument fails.
Appellants also contend that the arbitration provision is
unconscionable because it limits the remedies available to
them. Specifically, they complain that the clause is invalid
because arbitration prohibits them from obtaining (1) in-
junctive relief, (2) compensatory damages, and (3) punitive
damages and attorney’s fees. Appellants’ arguments are
without basis. First, the AAL bylaws do not prohibit injunc-
tive relief; indeed, the AAA Commercial Arbitration Rules
empower the arbitrator to grant equitable relief. Second,
the AAL bylaws specifically allow for the recovery of actual
damages. And third, even though Appellants are correct
that the arbitration procedures established by AAL do not
provide for the recovery of attorney’s fees or punitive dam-
ages, complaints about the unavailability of such remedies
first must be presented to the arbitrator. In analyzing a
motion to compel arbitration, courts must consider only the
issues relating to arbitrability. We Care Hair Dev., Inc. v.
Engen, 180 F.3d 838, 844 (7th Cir. 1999). “Once the court
determines that an arbitration clause is enforceable, the
status of the other contract terms is for the arbitrator to
decide.” Id. (citing Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 403-04 (1967)). Because the ade-
quacy of arbitration remedies has nothing to do with
whether the parties agreed to arbitrate or if the claims are
within the scope of that agreement, these challenges must
No. 01-4124, 01-4147 & 01-4148 9
first be considered by the arbitrator. See Boomer v. AT&T
Corp., 309 F.3d 404, 418 n.18 (7th Cir. 2002); Bob Schultz
Motors, Inc. v. Kawasaki Motors Corp., U.S.A., No. 02-2323,
2003 WL 21498876, at *3 (8th Cir. July 1, 2003); Musnick
v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1261
(11th Cir. 2003); Thompson v. Irwin Home Equity Corp.,
300 F.3d 88, 92 (1st Cir. 2002); Great W. Mortgage Corp. v.
Peacock, 110 F.3d 222, 230-31 (3d Cir. 1997); cf. Metro E.
Ctr. v. Qwest Communications, Inc., 294 F.3d 924, 929 (7th
Cir.) (FCC is proper forum (instead of district court) to
consider lawfulness of tariff with fee-shifting provision,
though arbitrator may play role as well), cert. denied, 123
S. Ct. 707 (2002). The same reasoning applies to Appellants’
complaint that they are prohibited from proceeding in arbi-
tration as a class. See Boomer, 309 F.3d at 418 n.18.
Appellants further contend that federal district court
is the appropriate forum to lodge their “limitation of reme-
dy” grievance, relying on Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 26 (1991). Their reliance is misplaced.
According to Appellants, Gilmer mandates that arbitration
procedures offer remedies similar to those available in a
judicial forum. But Appellants are mistaken—Gilmer
merely holds that litigants may not waive their right to a
judicial forum if they are litigating federal statutory claims
and if Congress has evinced its intention to preclude such
a waiver for the statutory rights at issue. Appellants here,
however, are pursuing only state common-law claims and so
Gilmer’s rule precluding waiver is not applicable.
Appellants next assert that AAL’s arbitration provision
is unconscionable because it is vague and arbitrary. Ac-
cording to Appellants, the provision is vague because it
does not specify which set of AAA rules apply and it is
arbitrary because the applicable AAA rules can be changed
at any time. Appellants, however, failed to present these
arguments to the district court; therefore they have waived
10 No. 01-4124, 01-4147 & 01-4148
them on appeal. Grayson v. City of Chicago, 317 F.3d 745,
751 (7th Cir. 2003).
Finally, Appellants complain that arbitration robs them
of their right to a jury trial. Unfortunately for Appellants,
there is no constitutional right to a civil jury trial outside of
an Article III forum. Commodity Futures Trading Comm’n
v. Schor, 478 U.S. 833, 848-49 (1986); Koveleskie v. SBC
Capital Markets, Inc., 167 F.3d 361, 368 (7th Cir. 1999). By
acquiescing to the terms and conditions of their open
contract with AAL, Appellants waived their right to a trial
by jury and agreed to resolve their dispute through AAA
arbitration procedures instead.
2. Absence of Mutual Assent and Consideration
Appellants argue that they cannot be forced to arbitrate
their claims because they did not assent to arbitration, nor
did they provide any independent consideration for imple-
menting the clause into their policies. But the addition of
the arbitration provision was not an independent contract
requiring mutual assent or consideration; rather, it was the
policyholders’ insurance contracts that created their obliga-
tions. See Geldermann, 836 F.2d at 318-19. And as dis-
cussed previously, these contracts explicitly bound Appel-
lants to subsequent changes in AAL’s bylaws. See id. Since
these agreements were supported by ample consider-
ation—the policyholders received life insurance coverage
and access to other fraternal benefits provided by AAL—
the district court correctly concluded that the insurance
contracts are not invalid for lack of mutual assent and
consideration.
3. Notice
Appellants next contend that the arbitration provision is
invalid because the AAL failed to give proper notice of the
No. 01-4124, 01-4147 & 01-4148 11
amended bylaw. Section 26 of AAL’s bylaws states that “all
amendments to the Articles of Incorporation and Bylaws of
the Association shall be published in Correspondent not
later than four months after the date of filing such amend-
ments with the Commissioner of Insurance of the State of
Wisconsin.” (App. 113.) Although AAL did not publish the
text of the amended bylaws, it did publish a timely synopsis
of the new procedures, which the district court concluded
was in substantial compliance with the bylaws. Disputes
between a voluntary association and its members are
governed by the law of contracts, with the bylaws creating
legally enforceable obligations. Austin v. Am. Ass’n of
Neurological Surgeons, 253 F.3d 967, 968 (7th Cir. 2001).
And in contract law, substantial compliance with contrac-
tual duties is often compliance enough. Employers Ins. of
Wausau v. Browner, 52 F.3d 656, 664 (7th Cir. 1995).
Appellants cite no legal authority contradicting the dis-
trict court’s application of the general rule that substan-
tial compliance is enough, nor do they explain how they
were harmed by the notice provided. Therefore, we agree
with the district court’s conclusion that AAL’s failure to
publish the full text of the bylaw amendment should not
invalidate the arbitration provision.
4. Failure to Comply With Missouri Law
Finally, the Sattler plaintiffs argue that AAL violated
Missouri law by not obtaining preapproval of the insurance
contracts from that state’s director of insurance. But be-
cause this argument was never presented to the district
court, it is now waived. See Grayson, 317 F.3d at 751.
Though Appellants present other contract defenses and
jurisdictional arguments on appeal, these remaining is-
sues are either undeveloped or frivolous and do not mer-
it further discussion.
12 No. 01-4124, 01-4147 & 01-4148
III. CONCLUSION
Because AAL is a fraternal benefit society, it is governed
by different laws than private insurance companies. Ac-
cordingly, members who enter into insurance contracts with
AAL are subject to its bylaws and any changes to those
bylaws, provided such changes do not destroy or diminish
the benefits promised. Appellants here agreed to be bound
by these rules when they purchased insurance from AAL
and therefore must accept the consequences of their agree-
ments, including the requirement that they arbitrate their
claims. The judgments of the district court are AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-5-03