The opinion of the court was delivered by: MCCUNE
This suit is a class action asserted on behalf of eighteen named plaintiffs and all other persons similarly situated against all lending institutions in the four-county
Pittsburgh, Pennsylvania Standard Metropolitan Statistical Area (SMSA) nominally represented by 23 savings and loan associations, one savings bank, four national banks, and the Federal National Mortgage Association (FNMA, "Fannie Mae")
which use the accounting methods complained of in the complaint.
The claims asserted in the complaint arise out of the practice of the defendants of requiring mortgagors, in connection with mortgage loans, to establish and maintain accounts with the defendant banks into which plaintiffs are required to deposit each month payments equal to one-twelfth of the annual taxes levied against the mortgaged premises and one-twelfth of the annual premium for fire insurance on the property. Out of these accounts the defendants pay the taxes and insurance on the property mortgaged. The defendants pay no interest on the account balances; nor do they deduct such accumulated balances from the unpaid principal debt balances when calculating the interest owing by the plaintiffs while these amounts are in deposit in their institutions, i.e., they do not "capitalize" the accounts. Funds accumulated in the tax and insurance accounts are not held separately but are commingled with the general funds of the bank.
The class of plaintiffs is defined as all property owners who have borrowed money from the representative and class defendants against the security of mortgages of real property to the representative and class defendants.
Plaintiffs allege that the lending practices are violations of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1-7; the Consumer Credit Protection Act ("Truth-in-Lending Act"), 15 U.S.C. § 1601 et seq.; and Pennsylvania State Law relating to usury, unjust enrichment and breach of fiduciary duty.
This suit is now before the court on defendants' motion to dismiss which asserts that the court has no jurisdiction over the subject matter of the Sherman Act claim; that the Truth-in-Lending and Sherman Acts claims fail to state a claim upon which relief can be granted; and that the state law claims are not a proper subject for the exercise of pendent jurisdiction.
We shall deal first with counts 1, 2, and 3 of the complaint
which allege violations of the Sherman Act. The Sherman Act counts can be summarized as follows:
The first count alleges that the defendants entered into an unlawful combination and conspiracy on or about January 1, 1960, to stop their former practice of deducting the monthly tax and insurance payments from the principal debt balance of the loan, i.e., "capitalizing," and to begin to account for such payments in so called "escrow" accounts bearing no interest and that this conspiracy restrained trade.
The second count alleges that the extension of credit is conditioned on the deposit by the borrower of escrow funds and that conditioning the extension of credit to an escrow payment requirement is an illegal tying arrangement.
The third count alleges that the banks would not extend credit unless the borrowers would offer to make escrow deposits and that maintaining an escrow payment requirement as a condition of securing credit is an illegal reciprocal dealing arrangement.
A. The defendants argue in their motion to dismiss that counts 1, 2 and 3 of the plaintiffs' complaint do not fall within the subject matter jurisdiction of the court because the mortgage practices in question are local, not in or affecting ...