APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 78-0975
Before Adams, Rosenn and Hunter, Circuit Judges.
Although loans for educational purposes on attractive terms are easily obtainable and often irresistible, repayment may be difficult and inconvenient. It is the inconvenience that is the genesis of this litigation. Plaintiffs, individual low-income residents of western Pennsylvania who had obtained loans guaranteed by the Pennsylvania Higher Education Assistance Agency ("PHEAA" or "Agency"), sought to enjoin PHEAA from suing them in Dauphin County, Pennsylvania, on the loans in default. They contend that by bringing suit in a forum as much as 200 miles from their homes, PHEAA had denied them the right of access to the courts, a violation of the fourteenth amendment of the United States Constitution. The United States District Court for the Western District of Pennsylvania agreed with plaintiffs' contention and enjoined PHEAA from instituting or further maintaining suits against the plaintiffs in Dauphin County. The district court also decided a pendent state claim and ordered PHEAA not to collect attorneys' fees in actions on the loans, except where the collection of such fees is authorized in the loan agreement.*fn1 We reverse.
Kathleen Phillips, Rebecca McGaffick, and Edna Greeley initiated this class action on September 1, 1978, on behalf of themselves and all other similarly situated persons, against PHEAA and two of its officers, Kenneth Reeher, executive director, and Charles Russell, deputy director for loans. Donna and Raymond Mareno subsequently were permitted to intervene as plaintiffs. PHEAA, as guarantor of loans made to plaintiffs by commercial lending institutions,*fn2 had purchased these loans after default by paying the private institutions the full amount due on each loan. Phillips and McGaffick have been sued by PHEAA, which filed complaints in assumpsit against them in Dauphin County. The Agency has also taken legal action in Dauphin County against intervenors Donna and Raymond Mareno, but by entering a confession of judgment against them, rather than by filing a complaint in assumpsit. Greeley, not yet sued by PHEAA, has made no payments in a number of years and therefore anticipates such suit.
Plaintiffs purported to represent two classes of persons. Members of both classes share certain attributes. First, by definition, all are low-income*fn3 residents of Allegheny, Beaver, Butler or Lawrence Counties in the western part of Pennsylvania. Second, all members are stated to be borrowers of funds who have defaulted on their loans. The loans have been purchased by PHEAA, pursuant to its guaranty agreement with the lending institutions. The only distinction between the classes is based on the response of PHEAA to the defaults. Class I, represented by Phillips, McGaffick and intervenors Mareno, is composed of persons, meeting the general requirements of class membership, who have already been sued by PHEAA in the Court of Common Pleas of Dauphin County. Class II, represented by Greeley, consists of persons, again having shared characteristics, who have not yet been, but allegedly will be sued by PHEAA in Dauphin County. The primary contention of both classes is that suit against them in Dauphin County, approximately 200 miles from their homes, deprives them because of their indigency of access to the courts and denies them due process.
To understand fully the issues in this case, it is necessary to examine briefly the primary operations of PHEAA. The United States encourages the individual states to establish higher education student-assistance programs by providing loan insurance and fiscal support. 20 U.S.C. §§ 1070-1089 (1976 & Supp. III 1979). Responding to this federal impetus, Pennsylvania created PHEAA to offer grants and low-interest loans to Pennsylvania residents, thereby enabling them to finance their higher education. Pa.Stat.Ann. tit. 24, §§ 5101-5189 (Purdon Supp. 1981). The PHEAA loan program is regulated, then, by both federal and state law. Under the legislation, PHEAA follows certain procedures in administering its loan program.
A person desiring a PHEAA-guaranteed low-interest loan first consults a lending institution, usually a bank. When the prospective borrower completes an application, which requires disclosure of both financial condition and the circumstances of the proposed educational venture, the institution forwards the forms to PHEAA offices in Harrisburg (Dauphin County) for administrative review. When PHEAA has determined the amount of the loan it will guarantee, it notifies both the lending institution and the applicant directly by mail. If the applicant decides to accept the offered loan, he or she signs a promissory note evidencing that indebtedness, the promise to repay and the Agency's address in Dauphin County. The lending institution then provides the funds to aid in payment of the student's educational costs. The borrower is not required to make any payments to the lending institution until nine months after his or her schooling has ended.
PHEAA initiates recovery measures only when the relationship between the lending institution, usually a bank, and the borrower has broken down because of the borrower's failure to repay. When a payment is missed, a borrower is declared in potential default and PHEAA is notified. If, after 120 days, the borrower has not caught up in payments, PHEAA is obligated to purchase the note from the bank for its full value and succeeds to all the rights of the bank. After PHEAA has taken over the note, it goes to great lengths amicably to induce payment. Unlike commercial lending institutions, PHEAA is willing and able to accept reduced payments and work out a plan for convenient repayment. Further, when a borrower is unable to make payments, PHEAA accepts the situation with the hope that the borrower's financial condition will improve and payments will resume. By mail and by telephone, PHEAA attempts to maintain an accurate picture of the delinquent's condition and to persuade those able to pay to do so; as to the unemployed and indigent, the Agency may literally wait for years before resorting to legal action.*fn4
As a general rule, PHEAA takes no legal action for at least five years against indigent debtors who are unable to make payments. Indeed, the Agency maintains, and plaintiffs do not dispute, that it would continue indefinitely its policy of waiting for improvement on the financial condition of an indigent debtor were it not for its fear of the possible effect of the Pennsylvania statute of limitations.*fn5 PHEAA believes that if it does not bring suit within six years after default or the last payment on the note, whichever is later, it may be barred from attempting to collect on the notes through legal action.*fn6 Thus, a person admittedly indigent for six years, and therefore both unable and unexpected to make payments, could not thereafter be required to repay PHEAA, even if indigency has been supplanted by prosperity. See PHEAA v. Xed, 102 Dauph. 304 (Pa.C.P.1981).
To avoid such a situation, PHEAA adopted a policy of suing all debtors when five and one-half years had elapsed since default or the last payment, whichever was later. If the defendant in this state suit is indigent, PHEAA does not, while the indigency remains, further pursue collection of the debt. The mere filing of suit against such persons serves PHEAA's purpose of avoiding the running of the statute of limitations.
Under the policy, PHEAA has been filing a substantial number of suits often several hundred per month. As a matter of convenience and administrative efficiency, and because the transaction giving rise to the agency's course of action occurred in Dauphin County, PHEAA has generally filed these suits in the state court of that county. Federal plaintiffs contend that this procedure, when directed against them, is unconstitutional. Their complaint is directed at two specific elements of this procedure: (1) the decision to file suit and (2) the choice of Dauphin County as the forum. They do not dispute that PHEAA could properly sue them in court in plaintiffs' own counties. Although they have not challenged the matter of venue in the state courts, they contend that the simple act of PHEAA's filing suit not the obtaining of a default judgment or the execution on property in a forum 200 miles from their homes, unconstitutionally denies them access to the courts, as guaranteed by the fourteenth amendment. Boddie v. Connecticut, 401 U.S. 371, 91 S. Ct. 780, 28 L. Ed. 2d 113 (1971).
Implicit in plaintiffs' complaint is an attack on Pennsylvania's Rules of Civil Procedure, for if state law did not permit PHEAA to sue these western Pennsylvania residents in Dauphin County, these alleged constitutional violations could never occur. Therefore, it is important to be cognizant of Pennsylvania's procedural rules insofar as they are relevant to these suits.
One type of action brought by PHEAA is a suit by summons in assumpsit, commenced by the filing of specified papers with the Prothonotary of a particular Court of Common Pleas.*fn7 Pa.R.Civ.P. 1007. Another form of action relied on by PHEAA is the entry of the borrower's confession of judgment pursuant to Pa.R.Civ.P. 2951. By such procedures, PHEAA instituted the actions in dispute in this case in the Court of Common Pleas of Dauphin County. In considering the validity of this choice, it is necessary to examine separately procedures pertinent to for the two types of action.
Rule 1006 of the Pennsylvania Rules of Civil Procedure governs venue in assumpsit actions.*fn8 PHEAA has consistently maintained that venue is proper in the Court of Common Pleas of Dauphin County in accordance with Rule 1006(a) which provides for suit "only in a county ... where a transaction or occurrence took place out of which the cause of action arose...." PHEAA's view is that because the Agency's internal procedures, the attendant paperwork, and its decision to guarantee the loan occurred in Dauphin County, a transaction out of which the cause of action arose had taken place there.
Several Pennsylvania courts have considered the venue issue, raised under Pa.R.Civ.P. 1006(e), but they have not all agreed as to the propriety of Dauphin County venue. The Pennsylvania Commonwealth Court, a court of intermediate appellate jurisdiction, has held that a "transaction or occurrence" had taken place in Dauphin County, and thus venue was proper. PHEAA v. Christon, 42 Pa.Cmwlth. 165, 400 A.2d 1329 (1979). Crucial to that court's determination was its recognition of certain facts: (1) the debtor's original loan agreement was with both the lending institution and PHEAA; (2) the debtor knew PHEAA was the guarantor; and (3) the forms the debtor signed were supplied by PHEAA and co-signed by a PHEAA official. Because of PHEAA's substantial original involvement in the loan and because it was apparent from the forms and negotiations that PHEAA was based in Harrisburg in Dauphin County, the court held that venue in that county was proper.
In PHEAA v. Devore, 267 Pa.Super. 74, 406 A.2d 343 (1979), the Pennsylvania Superior Court, also an intermediate court of appeal, ruled that PHEAA could not sue Devore in Dauphin County because no "transaction or occurrence," Pa.R.Civ.P. 1006(a), transpired in Dauphin County. Devore, however, is of limited weight because it is based on the Pennsylvania court's belief that "Dauphin County has no relationship to the transaction (the formation or breach of the contract for the loan) except that it is the location of the assignee." 267 Pa.Super. at 77, 406 A.2d at 344. Apparently, before the trial court, PHEAA presented itself as nothing more than the assignee of the note. The record of PHEAA's relationship with the debtor was less complete than the record in Christon. When PHEAA sought to introduce on appeal evidence of its "substantial role in the process of transacting this loan," the Superior Court refused to consider it. Id. at 77 n.3, 406 A.2d at 344 n.3.*fn9
One state court has considered the question since Devore and Christon. In PHEAA v. Barksdale, No. 2666 S 1977 (Pa.C.P., Dauphin County 1980), the Court of Common Pleas followed Christon, finding venue in Dauphin County, and rejected Devore on the ground that the Superior Court improperly took jurisdiction of the appeal in that case. Regardless of the merits of the state appellate jurisdiction question, we believe that upon analysis of the statute and the body of Pennsylvania law pertaining to venue*fn10 the Pennsylvania Supreme Court would follow Christon and decide, especially when all relevant facts of the PHEAA guaranty are considered, that venue is proper in Dauphin County under Pa.R.Civ.P. 1006(a).
That conclusion, however, does not end the analysis of venue in assumpsit actions. Devore, Christon, and Barksdale addressed only one part of the state venue rule, the part defining the minimum requirements for venue. Not addressed was Pa.R.Civ.P. 1006(d), which permits a court to transfer an action on the petition of any party "(f)or the convenience of parties and witnesses."*fn11
A court evaluating an objection to venue under Pa.R.Civ.P. 1006(a) may consider only the few factors deemed material in that section. But much broader concerns are appropriate when a court is analyzing a petition for change of venue under Rule 1006(d). This wider inquiry is appropriate in view of the difference in remedies available through the two avenues of relief from venue. If a Rule 1006(a) challenge is successful, the case cannot be retained by that court. Possibly, it may be transferred to an appropriate court, see Pa.R.Civ.P. 1006(e), but if no other venue is proper, the action must be dismissed. A Rule 1006(d) petition, however, urges only that, although the court then entertaining the action has proper venue, the case should be heard elsewhere because of other considerations. For a Rule 1006(d) petition to receive favorable treatment, it must appear that there is another court which can hear the case, and hear it more conveniently. Under such a test, there is no danger that the plaintiff's action will be dismissed, and so relief is granted more readily.
We believe that the facts of indigency and limits on ability to travel, as urged plaintiffs in this case, would be relevant to a Rule 1006(d) petition, although it is plain that such circumstances are not material to a Rule 1006(a) determination of venue. Although Pennsylvania courts have declined to transfer cases solely on the ground that a certain venue is inconvenient to a defendant, e. g., Proctor & Schwartz, Inc. v. Cleveland Lumber Co., 228 Pa.Super. 12, 323 A.2d 11 (1974); Tarasi v. Settino, 223 Pa.Super. 158, 298 A.2d 903 (1972), other courts, recognizing the practical problems of particular cases, have granted transfers. E. g., ...