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Roethlein v. Portnoff Law Associates, Ltd.

Supreme Court of Pennsylvania

November 20, 2013

BEVERLY ROETHLEIN AND ROBERT ALBANESE, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED AND JERRY KONIDARIS AND THEODORA G. KONIDARIS, Appellees
v.
PORTNOFF LAW ASSOCIATES, LTD. AND MICHELLE R. PORTNOFF, ESQUIRE, Appellants

ARGUED: March 6, 2013

Appeal from the Order of Commonwealth Court entered on July 15, 2011 at No. 1573 CD 2009 affirming the Orders entered on July 8, 2009 and November 6, 2009 in the Court of Common Pleas, Philadelphia County, Civil Division, at No. 3888 November Term, 2002

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION

MADAME JUSTICE TODD

In the instant case, we consider whether Pennsylvania's Loan Interest and Protection Law ("Act 6" or "the Act")[1] provides taxpayers with a cause of action to challenge costs imposed for the collection of delinquent taxes or to seek damages and attorneys' fees for improperly-imposed costs. We also consider whether Section 7103 of the Municipal Claims and Tax Liens Act ("MCTLA")[2] authorizes a municipality to recover the administrative costs it incurs in collecting delinquent taxes. For the reasons that follow, we hold that Act 6 does not provide a cause of action for claims which do not involve the loan or use of money. We further conclude Section 7103 of the MCTLA allows a municipality to recover fees it pays to a third-party tax collector for the purpose of collecting delinquent taxes. In light of our conclusions, we reverse the decision of the Commonwealth Court, and remand the matter to the Commonwealth Court for further proceedings consistent with this opinion.

Portnoff Law Associates, Ltd., and Michelle Portnoff, Esquire, the sole shareholder thereof (hereinafter "Portnoff"), serves as a private tax collector for various municipalities and school districts (collectively, "municipalities") in the Commonwealth pursuant to the MCTLA. According to the trial court's findings of fact, between November 2000 and November 2002, Portnoff had contracts with 22 municipalities to represent them in the collection of delinquent real estate taxes. The contracts, which were prepared by Portnoff and submitted to the municipalities for execution, provided that Portnoff would be compensated for her collections by charging her legal fees to the delinquent taxpayer. Specifically, taxpayers would be charged $150 for the opening of a file and preparation of a demand letter; $150 for the filing of a lien and preparation of a second letter; and $150 for preparation and filing of a writ of scire facias.[3] The contracts further required the municipalities to enact an ordinance or resolution authorizing Portnoff to impose legal fees upon the delinquent taxpayer.

For each delinquent account, the municipalities sent Portnoff a file that contained a "placement amount." The placement amount included the delinquent real estate tax, which was referred to as the "face amount", as well as a penalty imposed by the municipality. Portnoff would then add to the placement amount a $35 fee, which she labeled an "administrative cost, " to cover the costs of opening a file and sending, by certified mail, the initial notice of delinquency on the municipalities' letterhead. The administrative cost plus the placement amount was referred to by Portnoff as "principal." From the time a file was sent to her for collection, Portnoff began charging 10% interest on the principal.

In November 2002, Appellee Beverly Roethlein, a taxpayer residing in Allentown, Pennsylvania, filed a class action complaint against Portnoff and one of her employees seeking recovery for unjust enrichment and violations of Section 502 of Act 6.[4] Section 502, entitled "Usury and excess charges recoverable, " provides:

A person who has paid a rate of interest for the loan or use of money at a rate in excess of that provided for by this act or otherwise by law or has paid charges prohibited or in excess of those allowed by this act or otherwise by law may recover triple the amount of such excess interest or charges in a suit at law against the person who has collected such excess interest or charges: Provided, [t]hat no action to recover such excess shall be sustained in any court of this Commonwealth unless the same shall have been commenced within four years from and after the time of such payment. Recovery of triple the amount of such excess interest or charges, but not the actual amount of such excess interest or charges, shall be limited to a four-year period of the contract.

41 P.S. § 502.

The complaint alleged, inter alia, that, during the class period of November 27, 2000 through November 26, 2002, Portnoff collected from Roethlein and others ("Taxpayers")[5] fees and charges in excess of those authorized by law, namely, the administrative cost fees and the interest thereon. In her answer to the complaint, Portnoff maintained that the $35 administrative cost fee was added to the delinquent principal claim amount only when the municipality opted to recoup the fee from the delinquent taxpayer; she further stated that she did not retain any part of the fee collected from Taxpayers, but remitted the full amount to the municipality. On July 8, 2009, the trial court issued an award in favor of Taxpayers in the amount of $1, 058, 697.10, which represented compensatory damages based on violations of Act 6 and unjust enrichment, plus statutory interest and attorneys' fees.[6] On November 6, 2009, the court granted Taxpayers' motion for attorneys' fees and expenses in the amount of $1, 267, 386.25 and $20, 923.11, respectively. Portnoff appealed both the July 8 and November 6 orders to the Commonwealth Court.

On appeal, the Commonwealth Court affirmed. Roethlein v. Portnoff Law Assoc., Ltd., 25 A.3d 1274 (Pa. Cmwlth. 2011). Relevant to this appeal, and as discussed in detail below, the court first rejected Portnoff's argument that Act 6 cannot be used as a basis to recover charges paid in connection with delinquent tax payments. Second, the Court concluded the language of Section 504, which provides that "[a]ny person affected by a violation of the act shall have the substantive right to bring an action on behalf of himself individually, " 41 P.S. § 504, "does not preclude such individuals from complaining collectively in the form of a class action." 25 A.3d at 1278. Finally, the court determined that the expenses incurred by Portnoff in providing the initial notice to Taxpayers on the municipalities' letterhead were not costs that could be recouped under the MCTLA.

The Honorable Mary Hannah Leavitt authored a dissenting opinion, wherein she concluded that "Act 6, a usury statute, has zero application to a municipality's collection of delinquent taxes." Id. at 1282. In support of her position, Judge Leavitt first explained that Section 504, not Section 502, creates a cause of action for a violation of Act 6, and that Section 502 simply specifies the damages available under the Act. As "nothing in Act 6 makes it unlawful to over-charge a taxpayer for costs associated with the collection of his delinquent taxes, " Judge Leavitt opined there was no violation of Act 6 in the instant case. Id. at 1285. Judge Leavitt stressed that "the operative language in Section 502 is 'for the loan or use of money, '" and that Taxpayers disregarded that language. Id. Further, Judge Leavitt suggested that an action for overpayment of tax collection charges "cannot be reconciled with Section 503 of Act 6, " because Section 503 authorizes a borrower or debtor to recover attorneys' fees, and a delinquent taxpayer is neither a borrower nor a debtor. Id. Finally, Judge Leavitt noted that the MCTLA expressly authorizes the recovery by a municipality of a charge, expense, or fee incurred in its collection of delinquent taxes, provided they are reasonable, and concluded Taxpayers "presented no evidence whatsoever to prove that the $35 charge was unreasonable." Id. at 1286.

Portnoff filed a petition for allowance of appeal with this Court, which we granted, limited to the following issues:

a. Did the Commonwealth Court err as a matter of law in holding that Pennsylvania's usury statute, [Act 6], provides a cause of action to challenge costs charged in the collection of delinquent taxes and to impose statutory penalties of treble damages and attorneys' fees, when the costs did not arise from a transaction involving the loan or use of money?
b. Did the Commonwealth Court err as a matter of law in allowing claims under [Act 6] to be pursued by way of a class action suit?
c. Did the Commonwealth [Court] err as a matter of law in ruling that amounts paid by a municipality to a third party tax collector in order to collect delinquent taxes were not "charges, expenses or fees" under the MCTLA which could be added to the delinquent taxes?

Roethlein v. Portnoff Law Assoc., Ltd., 53 A.3d 1317 (Pa. 2012) (order). As these issues raise questions of law, our standard of review is de novo and our scope of review is plenary. Dechert LLP v. Commonwealth, 606 Pa. 334, 340, 998 A.2d 575, 579 (2010).

We begin with Portnoff's argument that the Commonwealth Court erred in holding that Act 6 provides a separate cause of action by which delinquent taxpayers may recover administrative fees, as well as damages and attorneys' fees. Count II of Taxpayers' Complaint was brought pursuant to Section 502 (Usury and excess charges recoverable) and Section 503 (Reasonable attorney's fees recoverable) of the Act. As noted above, Section 502 provides, in part:

A person who has paid a rate of interest for the loan or use of money at a rate in excess of that provided for by this act or otherwise by law or has paid charges prohibited or in excess of those allowed by this act or otherwise by law may recover triple the amount of such excess interest or charges in a suit at law against the person who has collected such excess interest or charges

41 P.S. § 502. Section 503 provides, in part:

(a) If a borrower or debtor, including but not limited to a residential mortgage debtor, prevails in an action arising under this act, he shall recover the aggregate amount of costs and expenses determined by the court to have been reasonably incurred on his behalf in connection with the ...

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