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Nixon v. Delaware Title Loans, Inc.

United States District Court, Third Circuit

May 24, 2013

DONNELL L. NIXON, Plaintiff,
v.
DELAWARE TITLE LOANS, INC., et al., Defendants.

OPINION

JOEL H. SLOMSKY, J.

I. INTRODUCTION

Between December 1, 2009 and May 20, 2011, Plaintiff Donnell L. Nixon received five loans from Defendant Delaware Title Loans, Inc. (“DTL”). DTL secured each loan in two ways. DTL would place a lien on Plaintiff’s vehicle, a 2000 Chevrolet Tahoe, and also take title to the Tahoe as collateral. In late 2011, Plaintiff defaulted on the fifth loan. After the default, he sent three letters to DTL disputing DTL’s right to maintain a lien on his vehicle and expressing his desire to arbitrate DTL’s right to collect on the defaulted loan. DTL did not respond to the letters.

On December 14, 2012, Plaintiff initiated this lawsuit by filing a Complaint against three Defendants: DTL, Community Loans of America, Inc. (“CLA”), and Robert Reich. Plaintiff contends that CLA is the parent company of DTL, and that Reich is the owner and president of DTL and CLA. In the Complaint, Plaintiff asserts two claims: (1) a violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c); and (2) usury in violation of Pennsylvania law, 41 Pa. Cons. Stat. §§ 201, 408, 501-04.

On March 1, 2013, after waiving service of the Complaint, Defendants filed a Motion to Compel Arbitration and Stay Proceedings (Doc. No. 3), which is presently before the Court. Defendants seek to compel Plaintiff to arbitrate his claims in accordance with an arbitration clause in the agreements controlling Plaintiff’s loan. Plaintiff does not dispute that arbitration is warranted as to CLA or Reich, and the Motion will be granted as to those two Defendants as unopposed.[1] For reasons that follow, the Court will also grant the Motion as to DTL.

II. FACTUAL BACKGROUND

A. Plaintiff’s Loans

DTL is a Delaware corporation that makes secured loans to consumer borrowers. (Doc. No. 1 at 1–2.) Interest rates on the loans are often in excess of 300%.[2] (Id. at 2.) DTL holds as collateral title to the borrower’s automobile. (Id.) For borrowers residing in Pennsylvania, DTL also records a lien on the vehicle with the Pennsylvania Department of Transportation. (Id.) When a Pennsylvania borrower defaults on his loan, DTL retains the right to foreclose on the collateral through self-help repossession of the borrower’s car. (Id. at 3.)

Between December 1, 2009 and May 20, 2011, Plaintiff, a Pennsylvania resident, received five loans from DTL. (Id at 16, 20, 25, 30, 36.) The first loan was made on December 1, 2009 for $1, 050 at a 299.28% Annual Percentage Rate (“APR”). (Id at 5, 16.) The second loan was made on January 28, 2010 for $1, 600 at a 357.06% APR. (Id at 5, 20.) The third loan was made on March 19, 2010 for $1, 552.03 at a 362.26% APR. (Id at 5, 25.) On this loan Plaintiff received $1, 000 and refinanced $552.03 of prior debt. (Id.) The fourth loan was made on October 21, 2010 for $1, 409.56 at a 360.32% APR. (Id at 6, 30.) This loan was used to refinance the remaining debt on the third loan. (Id.) The fifth loan was made on May 20, 2011 for $605 at a 362.6% APR. (Id at 6, 36.) Plaintiff made payments of $745 on this loan. (Id at 6.) These payments were applied to interest. (Id.) At the end of 2011, Plaintiff defaulted on the loan.[3]

For each of the five loans, Plaintiff signed a “Loan Agreement, Promissory Note and Security Agreemenf (“Loan Agreement”). (Id at 16-38.) Each contract provides as follows:

To secure the BORROWER’S obligations under this Agreement, BORROWER hereby grants to LENDER a security interest in the Motor Vehicle described above (“Vehicle”), all accessories and accessions to the Vehicle, and all proceeds related thereto, including all insurance proceeds or refunds of insurance premiums related to the Vehicle (all such property referred to as “Collateral”). BORROWER agrees to provide a valid unencumbered certificate title to the Vehicle and to pay any amounts paid by LENDER to the Department of Motor Vehicles associated with the recording of LENDER’S security interest, as itemized above, and that such amounts are non-refundable. BORROWER further agrees to reimburse LENDER upon its request for any costs incurred by LENDER in enforcing its rights against the Collateral.

(Id at 16, 20, 25, 30, 36.) To comply with this term in each contract, Plaintiff provided DTL information about the year, make, model, Vehicle Identification Number (“VIN”), and license plate number of his vehicle, a 2000 Chevrolet Tahoe. DTL used this information to record a lien on the vehicle. (Id. at 16, 20, 25, 30, 36.)

Each Loan Agreement also contains a provision entitled “Lender’s Rights in the Event of Default, ” which provides:

LENDER may, at its option, and without notice or demand, do any one or more of the following: (a) declare the whole outstanding balance due under this Agreement due and payable at once and proceed to collect it; (b) foreclose upon its lien and liquidate any Collateral securing this Agreement according to law, including by using self-help repossession; (c) exercise all other rights, powers and remedies given by law; and (d) recover from BORROWER all charges, costs and expenses, including all collection costs and reasonable attorney’s fees incurred or paid by the LENDER in exercising any right, power or remedy provided by this Agreement or by law.

(Id. at 17, 21, 26, 31, 37.) To date, DTL has not enforced its right to repossess Plaintiff’s Vehicle or taken any other action permitted in this paragraph covering “Lender’s Rights in the Event of Default.” (Id. at 6.)

B. Arbitration Provision

The Loan Agreements also have an “Arbitration Provision” which “describes when and how a Claim . . . may be arbitrated.” (Id. at 17, 21, 26, 31, 37.) A subsection of the Arbitration Provision is entitled “Governing Law” and provides:

This Arbitration Provision is governed by the Federal Arbitration Act, 9 U.S.C. §§ et seq. [sic] (the “FAA”) and not by any state arbitration law. The arbitrator must apply applicable substantive law consistent with the FAA and applicable statutes of limitations and claims of privilege recognized by law. The arbitrator is authorized to award all remedies permitted by the substantive law that would apply if the action were pending in court. At ...

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