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CAMPBELL v. MITSUBISHI AIRCRAFT INTL.

July 11, 1978

CHARLES E. CAMPBELL, t/d/b/a CAMPBELL AIR SERVICE, Plaintiff,
v.
MITSUBISHI AIRCRAFT INTERNATIONAL, INC., Defendant



The opinion of the court was delivered by: ZIEGLER

 I. History of Case

 Presently before this court is defendant's Motion for Summary Judgment. Defendant, Mitsubishi Aircraft International, Inc. ("Mitsubishi") is a Texas corporation engaged in the business of assembling and selling aircraft. Its principal office and place of business is in the State of Texas. Plaintiff, Charles E. Campbell ("Campbell") was a Mitsubishi distributor from February, 1969 to December 31, 1974 and, as such, purchased aircraft from Mitsubishi which in turn, was sold to others. Campbell operated his business from a site in Allegheny County, Pennsylvania known as "Campbell Airport." During this period, Campbell purchased aircraft from Mitsubishi and executed a series of promissory notes for the balance of the purchase price. These notes required monthly interest payments.

 Campbell filed this civil action on June 27, 1975, claiming that, in connection with certain aircraft purchases between himself and Mitsubishi, Mitsubishi had contracted for, charged or was paid interest in excess of the maximum rate permitted under Texas law. He seeks to recover the sum of $612,023.06 representing alleged penalties and interest, plus attorney's fees in the amount of $244,809.00, or a total of $856,832.06.

 Plaintiff's claims rest on the assumption that the validity of the interest payments provided for in the notes is governed by the laws of Texas. In particular, Campbell relies upon the Texas usury act which provides:

 
"Except as otherwise fixed by law, the maximum rate of interest shall be 10 percent per annum. A greater rate of interest than 10 percent per annum, unless otherwise authorized by law shall be deemed usurious. All contracts for usury are contrary to public policy and shall be subject to the appropriate penalties prescribed in Article 1.06 of this subtitle." Texas Rev. Civ. Stat., Art. 5069-1.02. *fn1"

 The instant notes involved obligations to pay interest at rates either expressly or computed to be higher than 10 per cent per annum and thus plaintiff alleges they were usurious under Texas law.

 The interest rates are not in excess of those permitted under Pennsylvania law, since each of the notes exceeded the sum of $50,000. See 41 P.S. § 3.

 Mitsubishi moves for summary judgment on two distinct grounds. First, defendant contends that the interest payments were lawful because Pennsylvania law governs the validity of the interest rates assessed in the transactions. Secondly, defendant asserts that, even if Texas law governs the transactions, plaintiff's claims cannot be enforced in a diversity action brought in a federal district court sitting in Pennsylvania because the Texas statute is penal in nature and cannot be accorded extraterritorial effect. We hold that this court cannot enforce the Texas usury statute on which Campbell's cause of action is based. Since we do not reach the question of what law governs the validity of the interest rates allegedly charged herein, we will dismiss plaintiff's Complaint without prejudice. *fn2"

 II. Enforceability of Texas Statute

 Under accepted principles in diversity cases of this type, a federal court must follow the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1940). The long standing rule in Pennsylvania provides that Pennsylvania courts will not enforce the penal statute of another jurisdiction and, in determining whether or not a statute of a foreign jurisdiction is penal, Pennsylvania must follow the interpretation of the statute by the courts of the foreign jurisdiction. Commercial Nat'l Bank v. Kirk, 222 Pa. 567, 71 Atl. 1085 (1909); accord, Nesbit v. Clark, 272 Pa. 161, 165, 116 Atl. 404, 406 (1922); Popkin v. Eastern Air Lines, Inc., 204 F. Supp. 426, 434, n.17 (E. D.Pa. 1962). As a result, a Pennsylvania court, including a federal district court sitting in Pennsylvania, cannot undertake an independent assessment as to whether the Texas usury statute is penal, unless the Texas courts have failed to resolve the issue. Commonwealth Nat'l Bank v. Kirk, supra at 570.

 The Texas courts have consistently held that the Texas usury law in question is a penal statute. In Guetersloh v. C.I.T. Corp., 451 S.W.2d 759, 761 (Tex. Civ. App. 1970) the court stated:

 
"The usury statute is penal in nature. Its purpose is to penalize those who intentionally charge an interest in excess of that allowed by law." (emphasis added).

 See also, Pinemont Bank v. DuCroz, 528 S.W.2d 877, 879 (Tex. Civ. App. 1975) ("The Legislative intent was to punish lenders for usurious interest."); and Stacks v. East Dallas Clinic, 409 S.W.2d 842, 844 (Tex. Sup. Ct. 1966) (". . . a cause of action to recover double the amount of interest paid ...


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