Aldens, Inc. v. Packel
| Citation | 379 F. Supp. 521 |
| Decision Date | 02 August 1974 |
| Docket Number | Civ. No. 73-674. |
| Parties | ALDENS, INC., Plaintiff, v. Israel PACKEL, Attorney General of the Commonwealth of Pennsylvania, Individually and in his official capacity, Defendant. |
| Court | U.S. District Court — Middle District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Ralph S. Snyder, Gerard J. St. John, David S. Petkun, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for plaintiff.
Lawrence R. Richard, Asst. Atty. Gen., Div. of Consumer Affairs, Harrisburg, Pa., for defendant.
Plaintiff Aldens, Inc. (Aldens), an Illinois corporation engaged in the business of interstate mail order sales to purchasers who are located in all states of the Union, filed this action seeking a declaratory judgment that application of the Pennsylvania Goods and Services Installment Sales Act, 69 P.S. § 1101 et seq. (the Act), to Aldens' transactions with Pennsylvania residents is unconstitutional. Defendant, Attorney General for the Commonwealth of Pennsylvania, threatens to enforce the Act against Plaintiff. The Act provides, inter alia, for the form and content of retail installment contracts and monthly billing statements and prohibits finance charges for revolving charge accounts in excess of an annual rate of 15%.1 Aldens utilizes a standard credit agreement for all transactions involving customers throughout the United States. This credit agreement does not comply with the form and content requirements of the Act, and provides for a monthly finance charge of 1.75% on balances of $350.00 or less (annual percentage rate of 21%). Because Plaintiff deals from Illinois with its Pennsylvania customers solely through the use of the United States mails and common carriers, it contends that application of the Act to the transactions with Pennsylvania residents is prohibited by the commerce clause, the due process clause of the 14th Amendment, and the postal clause of the United States Constitution.
Defendant Packel answered the complaint denying the unconstitutionality of the Act as applied to Aldens, and asserted a counterclaim in which he seeks declaratory judgment that the Act is constitutional as applied to Aldens and requests an injunction against Aldens' future non-compliance with the Act. Before the Court are cross-motions for summary judgment and Plaintiff's motion for judgment on the pleadings as to Defendant's counterclaim. The parties have entered into a stipulation of facts which contains all facts necessary for the determination of the issues in this proceeding and the Court has ruled on Defendant's objections that certain of the stipulated facts are irrelevant in this case. The following constitutes the factual record in this case:
1. Aldens, Inc. (Aldens), is an Illinois corporation with its only physical location in Chicago, Illinois. The business was established in Chicago in 1902 and has been conducted as a general retail merchandise mail order business in Chicago ever since.
2. Aldens sells merchandise to customers who reside in all fifty states.
3. The credit agreement in use nationally by Aldens provides that it is an Illinois contract governed by Illinois law. The credit agreement provides for a monthly finance charge of 1.75 percent on balances of $350.00 or less (annual percentage rate of 21 percent) which exceeds the rate permitted by § 904 of the Act, 69 P.S. § 1904, and a monthly finance charge of 1 percent on that portion of the account balance in excess of $350.00 (annual percentage rate of 12 percent). The annual rates are expressed in conformity with Section 226.7(b)(5) of Regulation Z, promulgated by the Federal Reserve Board under the Federal Truth-in-Lending Act. The credit agreement complies with Illinois law and with the Federal Truth-in-Lending Act.
4. Aldens retains title only in the nature of a purchase money security interest in merchandise sold pursuant to the credit agreement with its customers. Aldens does not file any security interest documents, does not enforce any security interest, and has a security interest in merchandise unpaid for only to the extent provided by law.
5. Approximately 7.6 percent of Aldens' annual sales are made to Pennsylvania customers. Sales to Pennsylvania customers amount to approximately $14,900,000 per year. Approximately 27 percent of this amount is derived from cash sales and 73 percent from credit sales. Aldens has approximately 90,000 Pennsylvania credit customers; the average credit account balance is approximately $169.00.
6. Were Aldens to comply with the Pennsylvania Goods and Services Installment Act, it would incur additional annual costs and expenses, and would sustain revenue losses directly attributable to the burden imposed by that Act in excess of the following:
a. Approximate additional cost of
preparing catalogs, advertising
materials, and credit agreements
containing Pennsylvania credit
terms; special computer processing
and handling costs for Pennsylvania
customers in setting up
accounts and producing monthly
ing statements. $ 53,000
b. Approximate loss of finance and
service charge revenue from Pennsylvania
customers 750,000
________
Total $803,000
7. Were Aldens to comply with the provisions of the varying statutes in those states which presently regulate revolving charge agreements, Aldens would incur additional costs and expenses, aside from the effect of revenue losses due to the reductions in service and finance charges, in an amount in excess of $320,000, annually.
8. Aldens does not have in Pennsylvania any office, distribution house, sales house, warehouse or any other place of business.
9. Aldens does not have in Pennsylvania any agent, salesman, canvasser, solicitor or any other type of representative to sell or take orders, to deliver merchandise, to accept payments or to service merchandise it sells.
10. Subject to the security interest described in paragraph 4 hereof, Aldens does not own any tangible property, real or personal, in Pennsylvania.
11. Aldens has no telephone listing in Pennsylvania.
12. Pennsylvania customers are solicited solely by mail from outside Pennsylvania. They order primarily by mail, or occasionally by telephone, to Chicago, Illinois.
13. Aldens does not advertise its merchandise for sale in Pennsylvania newspapers, on billboards in Pennsylvania, or by placing advertisements with Pennsylvania redio or television stations.
14. Aldens is not required to collect and remit the Pennsylvania Use Tax.
15. Aldens mails catalogs to certain Pennsylvania residents about 4 times per year and in addition, mails to them "flyers," which are supplemental advertisements of merchandise, approximately 6 to 8 times per year. Aldens includes advertising material with the customer's monthly billing statement. The catalogs and "flyers" are mailed to persons on Aldens' active Pennsylvania customer list, comprising about 149,000 names. In addition, Aldens rents mailing lists from mailing list brokers (not Pennsylvania firms). Catalogs and "flyers" will be mailed in the year of 1974 to about 2,100,000 Pennsylvania residents on those lists. There may be some duplication between the mailings to names on the rented lists and the mailings to those on Aldens' customer lists. All Aldens' mailings are to named individuals and none are to "resident" or "occupant."
16. Aldens' procedures used in determining credit-worthiness involve the weighing of answers to the items of information called for in the Charge Application. In addition, about 22 percent of the applications are checked against a national credit index service located in New Jersey, and about 23 percent are checked by arrangement with a Chicago, Illinois credit reporting agency, by phoning credit bureaus in Pennsylvania for in-file checks of their records.
17. Application forms for credit accounts with Aldens and credit agreement forms are among the materials mailed by Aldens from its office in Chicago, Illinois to persons within the Commonwealth of Pennsylvania; credit application forms are completed and credit agreements are signed by Pennsylvania residents and are mailed from Pennsylvania to Aldens at its offices in Chicago.
18. Credit is granted only in Chicago and orders are accepted only in Chicago.
19. Merchandise sold to Pennsylvania customers is delivered to these customers by mail or by common carrier, all of the shipments originating outside of Pennsylvania. Merchandise is sent of an f. o. b. point of origin basis and the customer pays the shipping, handling and transportation costs.
20. Aldens is not required to qualify or register to do business in Pennsylvania.
21. Monthly statements are mailed in Chicago by Aldens to Pennsylvania credit customers following the receipt and acceptance of customers' orders. These statements set forth the charges to the customers' accounts and require payment thereof by stated dates to avoid assessments of finance charges.
22. Monthly payments by Pennsylvania customers for merchandise purchased and finance charges assessed under Aldens' credit plan are mailed from Pennsylvania to Aldens in Chicago, and, when received in Chicago, are credited to customers' accounts.
23. In the event that a Pennsylvania customer becomes delinquent in the payment of his or her account, Aldens attempts to collect the account by mailing letters and other communications from Chicago to the customer in Pennsylvania and, when appropriate, by telephoning the Pennsylvania customer, from Chicago, to discuss the account and request payment.
24. After an account has been delinquent for 6 months, Aldens writes it off as a bad debt. Aldens turns over approximately one half of the Pennsylvania accounts which have been written off (about 2.5 percent of its Pennsylvania receivables) to independent collection agencies located outside of Pennsylvania.
DISCUSSION.
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