The opinion of the court was delivered by: DuBOIS, J.
This is a usury action in which plaintiff asserts claims under the Pennsylvania Consumer Discount Company Act ("CDCA"), 7 P.S. § 6201, et seq., the Pennsylvania Loan Interest Protection Law ("LIPL"), 41 P.S. § 101, et seq., and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201-1, et seq. Plaintiff's claims arise out of a high-interest "payday loan" made to plaintiff by defendant indirectly through a loan marketer/servicer operating under the name Check'N Go. Presently before the Court is the Motion of Defendant First Bank of Delaware to Stay and Compel Arbitration of Plaintiff's Claims (Document No. 2, filed November 16, 2009), pursuant to an arbitration provision contained in plaintiff's loan agreement. For the reasons set forth below, the Court grants defendant's motion to compel arbitration, refers the dispute to arbitration pursuant to the arbitration agreement, and stays the proceedings until further order of the Court.
In August 2005, plaintiff Yulon Clerk was facing a shortfall in meeting her living expenses -- including mortgage payments, car payments, other bills, groceries, child care costs, and health care costs for one of her two children. (Declaration of Yulon Clerk, ¶¶ 11-17) (hereinafter "Clerk Decl.") As a result, she sought financial assistance in the form of a loan. (Clerk Decl. ¶¶ 18-19.) Unable to obtain a loan from a traditional lender, plaintiff turned to a "payday lender." (Clerk Decl. ¶ 20; Pl.'s Opp'n at 2.) On August 15, 2005, plaintiff entered into a loan agreement with defendant First Bank of Delaware, which serviced the loan through Eastern Specialty Finance, a loan marketer/servicer operating via storefront properties in Pennsylvania under the fictitious name "Check'N Go." (Stephen J. Schaller Declaration, ¶¶ 3, 4, 11) (hereinafter "Schaller Decl.") The five-page document, entitled Customer Installment Loan Agreement ("Loan Agreement"), provided for a loan with a principal of $600 and a finance charge of $468.22, to be paid over a four month period, for an annualized interest rate of 388.93 percent. (Loan Agreement at 1.) Plaintiff executed the Loan Agreement and received the loan amount of $600 at a Check'N Go store located in Darby Pennsylvania. (Schaller Decl. ¶ 11.)
The Loan Agreement contained a separately signed, two-page, single-spaced document, written in small and densely compacted font, entitled Waiver of Jury Trial and Arbitration Provision. (Loan Agreement at 4-5.) The arbitration provision calls for the arbitration of all legal disputes arising from the Loan Agreement, prohibits any class action against defendant, and selects the American Arbitration Association ("AAA"), the National Arbitration Forum ("NAF") or any other arbitrator mutually agreed upon by the parties to arbitrate any dispute. (Loan Agreement at 4.) According to the provision, the arbitration hearing is to be conducted in "the county of [plaintiff's] residence, or within 30 miles of such county... or in such other place as... ordered by the arbitrator," and "pre-arbitration discovery may be limited." (Loan Agreement at 4.) The provision further states that all arbitration fees will be advanced by defendant, and that plaintiff need not reimburse defendant for the payment of said fees, regardless of whether or not she is successful in arbitration. (Loan Agreement at 4-5.) However, the provision requires that "throughout the arbitration, each party shall bear his or her own attorney's fees and expenses, such as witness and expert witness fees." (Loan Agreement at 4.) It goes on to state, "[i]f allowed by statute or applicable law, the arbitrator may award statutory damages and/or reasonable attorneys' fees and expenses." (Loan Agreement at 5.)
The Loan Agreement permitted plaintiff to rescind the loan without penalty by returning to Check'N Go within one (1) business day and returning the full loan amount of $600. (Loan Agreement at 1.) The arbitration provision also offered plaintiff the option of rejecting the agreement to arbitrate, by sending a letter to defendant within seven (7) days of the date of the Loan Agreement, with no other effect on the loan terms. (Loan Agreement at 4.)
By Complaint filed on September 23, 2009, in the Court of Common Pleas of Philadelphia, plaintiff asserted claims under, inter alia, CDCA, LIPL, and UTPCPL, alleging that she was charged usurious interest rates in relation to the above-described loan, in violation of Pennsylvania law. In the Complaint, plaintiff seeks certification of a class of similarly situated Pennsylvania residents who received similar "payday loans" from defendant at usurious interest rates. The Complaint includes a prayer for declaratory relief, fines, restitution in the form of treble damages for interest payments exceeding the statutory rate of six percent, restitution of all excess interest and charges collected by defendant, disgorgement of all profits obtained by defendant, and statutory damages of not less than $100 per class member.
In a Notice of Removal filed on November 6, 2009, defendant removed the case to federal court, pursuant to the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d). In the Notice, defendant alleged that "plaintiff and the members of the putative class are citizens of the Commonwealth of Pennsylvania," and that defendant is "chartered under the laws of the State of Delaware with its principal place of business in the State of Delaware" and is therefore a "Delaware citizen for CAFA purposes." (Def.'s Notice of Removal, ¶¶ 8-9.) The Notice also stated that defendant "made loans to Pennsylvania residents at rates that would not be permitted by Pennsylvania law, if applicable, to more than 100 individuals who meet the class definition set forth in... the Complaint." (Def.'s Notice of Removal, ¶ 11.) Finally, defendant averred in the Notice that "based on the relief requested as well as the number and amount of loans it made to the putative class, the amount in controversy exceeds $5,000,000." (Def.'s Notice of Removal, ¶ 12.) Plaintiff has not challenged any of these averments in her subsequent filings.
Defendant asserts that jurisdiction lies in this Court pursuant to CAFA. "CAFA generally 'permits defendants to remove certain class actions to federal court if minimal diversity of citizenship exists.'" Schwartz v. Comcast Corp., No. 05-2340, 2006 WL 487915, at *2 (E.D. Pa. Feb. 28, 2006) (quoting Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805, 806 (7th Cir. 2005)). Specifically, CAFA provides that district courts shall have original jurisdiction of class actions in which: (1) the proposed plaintiff class contains 100 or more members, 28 U.S.C. § 1332(d)(5); (2) the aggregate amount in controversy exceeds five million dollars, 28 U.S.C. § 1332(d)(2); and (3) at least one member of the plaintiff class is diverse from at least one defendant, 28 U.S.C. § 1332(d)(2)(A-C). Defendant avers that it has met CAFA's numerosity, amount in controversy, and minimal diversity requirements, and plaintiff does not challenge jurisdiction. Therefore, for purposes of deciding this motion, the Court concludes that the requirements of § 1332(d) are satisfied. See Kaneff v. Delaware Title Loans, Inc., 587 F.3d 616, 620 (3d Cir. 2009); Kahn v. Option One Mortgage Corp., No. 05-5268, 2006 WL 156942, at *1 n.1 (E.D Pa. Jan. 18, 2006); Jones v. Chubb Inst., No. 06-4937, 2007 WL 2892683, at *2 (D.N.J. Sept. 28, 2007).*fn1
Motions to compel arbitration are reviewed under the standard for summary judgment found in Federal Rule of Civil Procedure 56(c). Kaneff, 587 F.3d at 620; Bellevue Drug Co. v. Advance PCS, 333 F. Supp. 2d 318, 322 (E.D. Pa. 2004). Thus, if there is doubt as to whether an agreement to arbitrate exists, the matter should be submitted to a jury. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980). "Only when there is no genuine issue of fact concerning the formation of the agreement should the court decide as a matter of law that the parties did or did not enter into such an agreement." Id. The court must consider all evidence presented by the party opposing arbitration and construe all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Versarge v. Twp. of Clinton, 984 F.2d 1359, 1361 (3d Cir. 1993); Bellevue Drug, 333 F. Supp. 2d at 322.
A. Federal Arbitration Act
The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-10, requires federal courts to enforce written agreements to arbitrate disputes. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001) ("[T]he FAA compels judicial enforcement of a wide range of written arbitration agreements."); Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003). The FAA evinces the "liberal federal policy favoring arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 104 (3d Cir. 2000) ("The FAA establishes a strong federal policy in favor of compelling arbitration over litigation."). "[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration...." Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25.
Section 2 is the primary substantive provision of the FAA. Id. at 24. It provides, in relevant part:
A written provision in any... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... or an agreement in writing to submit to arbitration an existing controversy arising out of such a 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 effect of [Section 2] is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Mem'l Hosp., 460 U.S. at 24.
However, a court cannot direct parties to arbitration unless the agreement to arbitrate is valid. Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 264 (3d Cir. 2003); Bellevue Drug, 333 F. Supp. 2d at 323. "The federal policy encouraging recourse to arbitration requires federal courts to look first to the relevant state law of contracts... in deciding whether an arbitration agreement is valid under the FAA." Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 214 (3d Cir. 2003). "An agreement to arbitrate may be unenforceable based on a generally applicable contractual defense, such as unconscionability." Alexander, 341 F.3d at 264. The power of courts to declare arbitration provisions unconscionable does not contradict the FAA or its liberal policy favoring arbitration. "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2 [of the FAA]." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996); Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir. 1999).
Thus, "[a] motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement." Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005) (citations omitted). If it is determined that an enforceable arbitration agreement exists, and that the dispute falls within the scope of the agreement, the FAA requires the court to refer the matter to arbitration proceedings. 9 U.S.C. § 3. In making this determination, the Court "will not consider the merits of the claims giving rise to the controversy." Cronin v. CitiFinancial Servs., No. 08-1523, 2008 WL 2944869, at *2 (E.D. Pa. July 25, 2008), aff'd, No. 09-2310, 2009 WL 2873252 (3d Cir. Sept. 9, 2009) (citing PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)).
As a threshold matter, the Court must determine which state law to apply in analyzing whether the arbitration provision is valid and enforceable.
(1) The Arbitration Provision and the Parties' Arguments
The Loan Agreement contains a choice of law clause which provides:
This Loan Agreement is made not only under the federal laws applicable to state banks making loans to out-of-state borrowers but also under Delaware state law. To the extent that such federal laws do not preempt state law, this Loan Agreement shall be governed and construed in accordance with the laws of Delaware. To the broadest extent possible, any state law claims you may assert against us relating to this Loan Agreement, and any state law claims we may assert against you relating to this Loan Agreement, will be governed by the laws of Delaware. (Loan Agreement at 2.) The arbitration provision in the Loan Agreement also contains a choice of law clause which provides, "[i]f a final non-appealable judgment of a court having jurisdiction over this transaction finds, for any reason, that the FAA does not apply to this transaction, then our agreement to arbitrate shall be governed by the arbitration law of the State of Delaware." (Loan Agreement at 5.)
Notwithstanding these choice of law clauses, plaintiff argues for the application of Pennsylvania law in this case, citing the following factors: (1) plaintiff is a citizen of Pennsylvania who applied for and obtained her loans at a Check'N Go store located in Pennsylvania, and deposited the funds into her Pennsylvania bank account; (2) plaintiff repaid the majority of her loans from her Pennsylvania bank account; (3) plaintiff seeks to represent other similarly situated Pennsylvania citizens; (4) defendant has extensively engaged in lending throughout Pennsylvania via storefront properties; (5) defendant has admitted to collecting in excess of five million dollars in fees and interest from members of the putative class; and (6) defendant charged interest rates far above those allowed by Pennsylvania law, thereby offending the public policy of Pennsylvania. (Pl.'s Opp'n at 10-13.)
Defendant urges the Court to apply of Delaware law, citing the following factors: (1) the choice of law provisions in the Loan Agreement call for the application of Delaware law; (2) defendant is incorporated under the laws of Delaware; (3) defendant is headquartered in Delaware; and (4) there is therefore a reasonable relation between the transaction at issue and the state of Delaware; and (5) the choice of law ...