The opinion of the court was delivered by: Norma L. Shapiro, J.
Plaintiffs filed an amended class action complaint alleging that defendants' financial lending practices are illegal under Pennsylvania law. Before the court is defendants' motion to compel individual arbitration and stay litigation, based on an arbitration provision contained in each plaintiff's loan agreement. For the reasons discussed below, the motion will be granted.
Plaintiffs Peter Alfeche and Kim Saunders, Pennsylvania citizens, filed an amended class action complaint alleging illegal, unfair, and deceptive lending practices by defendants in violation of Pennsylvania's Loan Interest Protection Law ("LIPL"), 41 P.S. §§ 101, 502 et seq., Consumer Discount Company Act ("CDCA"), 7 P.S. § 6201 et seq., and Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201-1 et seq., and contractual unconscionability.
Defendant Cash America International, Inc. ("Cash America") is a Texas corporation with its principal place of business in Texas. The other defendants, Cash America Net of Pennsylvania, LLC, Cash America Net of PA, LLC, and Cash America Net of Nevada, LLC ("Cash America of Nevada"), are wholly owned subsidiaries of defendant Cash America. All defendants are Texas citizens. See Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010) (a limited liability company is a citizen of each state of which its members are citizens); Swiger v. Allegheny Energy, Inc., 540 F.3d 179, 182 (3d Cir. 2008) (citing 28 U.S.C. § 1332(c)) (a corporation is citizen of its state of incorporation and state of its principal place of business). Defendants have operated a website, www.CashNetUSA.com, and a call center associated with the website, to provide short-term loan contracts, also called "payday" loans,*fn1 to individuals.
Plaintiffs Alfeche and Saunders purport to represent a class of thousands of Pennsylvania citizens who have obtained usurious payday loans from defendants during the four years preceding the filing of this action. Plaintiffs allege defendants have negotiated or made short-term loans of less than $25,000 with interest rates greatly exceeding the ceilings allowed under the Pennsylvania usury and small-loan laws. Pennsylvania has a general usury ceiling of six percent (6%), but licensed small-loan lenders can make consumer loans for amounts less than $25,000 at interest rates as high as twenty-four percent (24%) APR. See 41 Pa. Cons. Stat. Ann. § 201; 7 Pa. Con. Stat. Ann. § 6203. Plaintiffs allege that defendants, who were not licensed as small-loan lenders, charged Pennsylvania customers illegal interest rates (from 261% to 1141%).
The Commonwealth Court of Pennsylvania has held, and the Pennsylvania Supreme Court recently affirmed, that defendants' lending practices were unlawful under the CDCA because defendants were not licensed by the Pennsylvania Department of Banking. Cash Am. Net of Nev., LLC v. Pa. Dep't of Banking, 978 A.2d 1028, 1038 (Pa. Commw. Ct. 2009), aff'd, 8 A.3d 282 (Pa. 2010). The Pennsylvania Department of Banking is enforcing the Commonwealth Court's order prospectively only. Cash Am., 8 A.3d at 298-99. Plaintiffs' claims in the amended class action complaint are not the subject of an enforcement action because their claims arose before the Commonwealth Court held defendants' lending practices unlawful.
Plaintiffs Alfeche and Saunders entered into short-term loan agreements over the internet with defendant Cash America of Nevada. Mr. Alfeche obtained twenty-three loans from Cash America of Nevada between November 2006 and September 2007. Ms. Saunders obtained five*fn2 loans from Cash America of Nevada between July 2007 and January 2008. The amended complaint alleges that plaintiffs Alfeche and Saunders are typical of payday borrowers forced into a cycle of repetitive borrowing: borrowers requiring a loan between paychecks are often unable to repay the loan when it is due, so they may roll-over the loans to future payment periods and incur additional interest and finance charges, or seek additional loans to pay off an earlier loan. Compl. ¶¶ 18, 47, 60.
The loan agreements, signed by plaintiffs by clicking a link on
defendants' website, each state: "This Customer Agreement will be
governed by the laws of the State of Nevada, except
that the arbitration provision is governed by the Federal Arbitration
Act ("FAA")." Defs.' Mot. to Compel Arbitration & Stay, Exs. 1 & 2.
Each loan agreement contains a "Waiver of Jury Trial and Arbitration
Provision," stating that borrowers must raise all claims against
lenders in arbitration proceedings on an individual basis.*fn3
Id. ¶¶ 1-3. Borrowers waive their right to file lawsuits in
court, except in a small claims tribunal. Id. ¶ 2. Borrowers also
waive their right to seek relief on a class or representative basis.
Id. ¶ 3.
The arbitration provision permits borrowers to select either the American Arbitration Association or the National Arbitration Forum, or a local arbitrator who is an attorney, retired judge, or arbitrator registered and in good standing with an arbitration association. Id. ¶ 4. The arbitrator is to apply applicable substantive law (consistent with the FAA), may award statutory damages and/or reasonable attorney's fees allowed by applicable law, and may decide any motion that is substantially similar to a motion to dismiss for failure to state a claim or a motion for summary judgment. Id. ¶ 5. However, the arbitrator may not apply federal or state rules of civil procedure or evidence. Id. Regardless of who demands arbitration, the lender advances the borrower's portion of arbitration expenses, but the parties bear their own attorney's fees and costs such as witness and expert fees. Id. If the arbitrator's award is in favor of the borrower, the borrower need not reimburse the lender for the expenses advanced, and the lender will reimburse the borrower for any arbitration expenses previously paid; if the award is in favor of the lender, the borrower is required to reimburse the expenses advanced, not to exceed the amount of court costs incurred for a small claims filing, less any arbitration expenses the borrower has already paid. Id.
Plaintiffs allege that defendant Cash America has earned approximately $10 million per year from payday lending to Pennsylvania citizens. Plaintiffs claim actual damages from alleged interest, finance charges, and bank fees of $1,959.07 for Mr. Alfeche and $571.25*fn4 for Ms. Saunders. Plaintiffs also seek: damages in the amount of three times all illegal interest and finance charges; attorney's fees and costs under the LIPL and UTPCPL; and three times all bank fees incurred as a result of plaintiffs' transactions with defendants under the UTPCPL. Finally, plaintiffs request a declaratory judgment holding the choice of law and class action waiver provisions, contained in the loan agreement's arbitration provision, unconscionable and unenforceable under Pennsylvania law.
We have subject matter jurisdiction under the Class Action Fairness Act because there is diversity of citizenship between the parties and the aggregate amount in controversy from all putative class members exceeds $5 million. See 28 U.S.C. § 1332(d)(2).
II. Defendants' Motion to Compel Individual Arbitration
Defendants move, based on the plain language of the arbitration provision contained in each loan agreement, to compel individual arbitration and stay litigation pending completion of arbitration. Plaintiffs respond that the arbitration provision, in particular its class action waiver, is procedurally and ...