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Yulon Clerk, On Behalf of Herself and All Others Similarly v. Cash America Net of Nevada

August 22, 2011


The opinion of the court was delivered by: Norma L. Shapiro, J.


Plaintiff Yulon Clerk filed a state class action complaint alleging that the financial lending practices of fourteen defendants were illegal under Pennsylvania law. Defendants removed the action to federal court. We severed plaintiff's claim against defendant Cash America Net of Nevada, LLC ("Cash America of Nevada") from the claims against the other thirteen defendants, and severed the claims against the other thirteen defendants from each other. We retained plaintiff's action against defendant Cash America of Nevada on our docket; the other thirteen actions were reassigned. Before the court is defendant's motion to compel individual arbitration and stay litigation. For the reasons discussed below, the motion will be granted.

I. Factual Background

Plaintiff, a Pennsylvania citizen, brings a putative class action on behalf of herself and all others similarly situated against defendant Cash America of Nevada. Plaintiff alleges that defendant engaged in illegal, unfair, and deceptive lending practices, 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. Plaintiff also brings a claim for unjust enrichment. Plaintiff requests: actual and statutory damages; treble damages under the LIPL; restitution of excess interest and charges collected by defendant; a declaration that the loan agreements signed by plaintiff are void and unenforceable; injunctive relief as the court deems proper; and attorney's fees and costs.

Defendant Cash America of Nevada operated a website,, to provide short-term loan contracts, also called "payday" loans,*fn1 to individuals. Defendant Cash America of Nevada, a limited liability company, is a wholly owned subsidiary of Cash America International, Inc., a Texas corporation with its principal place of business in Texas. A limited liability company is a citizen of each state of which its members are citizens. Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). Defendant Cash America of Nevada is a Texas citizen. 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).

Plaintiff alleges defendant 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. Plaintiff alleges that defendant, who was not licensed as a small-loan lender, charged Pennsylvania customers illegal interest rates exceeding Pennsylvania's six percent (6%) usury ceiling. The Commonwealth Court of Pennsylvania has held, and the Pennsylvania Supreme Court recently affirmed, that defendant's lending practices were unlawful under the CDCA because defendant was 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, 8A.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. Plaintiff's claims in the class action complaint are not the subject of an enforcement action because her claims arose before the Commonwealth Court held defendant's lending practices unlawful.

Between June and August, 2007, plaintiff entered into three short-term loan agreements over the internet with defendant Cash America of Nevada. The loan agreements, signed by plaintiff by clicking a link on defendant's 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")." Def.'s Mot. to Compel Arbitration & Stay, Ex. 1 attached to Ex. A. Each loan agreement contains a "Waiver of Jury Trial and Arbitration Provision," stating that a borrower must raise all claims against the lender in an arbitration proceeding on an individual basis.*fn2 Id. ¶¶ 1-3. A borrower waives the right to file a lawsuit in court, except in a small claims tribunal. Id. ¶ 2. A borrower also waives the right to seek relief on a class or representative basis. Id. ¶ 3.

The arbitration provision permits a borrower to select the American Arbitration Association, the National Arbitration Forum, or a local arbitrator who is an attorney, retired judge, or an 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 will advance 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.

II. Discussion

Defendant moves, 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. Plaintiff responds that the arbitration provision, in particular its class action waiver, is procedurally and substantively unconscionable, and unenforceable under Pennsylvania law.

A court, not an arbitrator, decides issues of arbitrability, i.e., whether the parties have submitted a particular dispute to arbitration by a valid arbitration agreement. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir. 1999). A motion to compel arbitration is granted if there are no genuine disputes of material fact that: (1) a valid agreement to arbitrate was entered by the parties; and (2) the parties' particular claims are within the scope of the arbitration agreement. Kaneff v. Del. Title Loans, 587 F.3d 616, 620 (3d Cir. 2009); Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005).

There are no disputes of material fact on the issues before the court. There were three agreements to arbitrate, evidenced by signed loan agreements, each containing an arbitration provision. See Defs.' Mot. to Compel Arbitration & Stay, Ex. 1 attached to Ex. A. Plaintiff's claims are within the scope of the arbitration provisions; each loan agreement states that "all federal and state law claims, disputes or controversies, arising from or directly relating to this Agreement . . ." and "all claims based upon a violation of any state or federal constitution, statute or regulation" are subject to arbitration. Id. ¶ 1. The only issue is the validity of the arbitration agreements.

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., "establishes a strong federal policy in favor of the resolution of disputes through arbitration." Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir. 2003). The FAA "creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983). The FAA provides that a "written provision in . . . a contract evidencing a transaction involving commerce*fn3 to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . 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 (emphasis added). "This saving clause permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011) (citations omitted).

Plaintiff argues that the arbitration provision is unenforceable because it contains a class action waiver that is unconscionable under Pennsylvania law. It is not necessary to consider whether or not Pennsylvania law applies to determine the validity of the arbitration provision, and whether or not the arbitration provision would be unconscionable under Pennsylvania law; under the Supreme Court's recent decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), the FAA ...

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