Muhammad v. County Bank
Decision Date | 14 July 2005 |
Citation | 877 A.2d 340,379 N.J. Super. 222 |
Parties | Jaliyah MUHAMMAD, on her own and on behalf of all others similarly situated, Plaintiff-Appellant, v. COUNTY BANK OF REHOBOTH BEACH, Delaware; Easy Cash; Telecash; and Main Street Corporation, Defendants-Respondents. |
Court | New Jersey Superior Court |
Donna Siegel Moffa, Philadelphia, PA, argued the cause for appellant (Williams, Cuker and Berezofsky and Trujillo Rodriguez & Richards, attorneys; Mark R. Cuker and Ms. Moffa, on the brief).
Marc J. Zucker, Philadelphia, argued the cause for the respondent County Bank (Weir & Partners attorneys; Susan Verbonitz and Mr. Zucker, on the brief).
Claudia T. Callaway (Paul, Hastings, Janofsky & Walker)of the District of Columbia Bar, admitted pro hac vice, argued the cause for respondent Main Street Service Corp. (Sweeney & Sheehan, and Ms. Callaway, attorneys; Ms. Callaway of counsel; J. Michael Kunsch, on the brief).
Pinilis Halpern, attorneys for amicus curiae AARP Foundation and Counsel for National Association of Consumer Advocates (William J. Pinilis, of counsel and on the brief).
Before Judges KESTIN, LEFELT and FALCONE.
The opinion of the court was delivered by
FALCONE, J.A.D.
The principal question presented in this interlocutory appeal, and one that appears to be of first impression in this State, is whether a mandatory arbitration provision in a payday loan contract is enforceable. A "payday loan" is a short term, single payment, unsecured consumer loan, so-called because payment is typically due on the borrower's next payday.
Plaintiff, Jaliyah Muhammad, contends that, because the arbitration clause is both procedurally and substantively unconscionable, the trial court erred in its determination that the clause was enforceable. She further contends that the trial court should have permitted discovery prior to making its determination that the arbitration clause is enforceable. We disagree and affirm.
Here are the pertinent facts and relevant procedural history. According to the certification of David E. Gillan, a Vice President of defendant, County Bank of Rehoboth Beach, Delaware (County Bank), County Bank is a federally insured depository institution, chartered under Delaware law, whose main office is located in Rehoboth Beach, Delaware. Since 1997, one of the products offered by County Bank is a payday loan. An applicant may be approved for a loan of up to $500. County Bank uses independent servicers, including defendant Main Street Service Corporation (Main Street) to market its consumer loans nationally.
County Bank has entered into standardized written contracts with its servicers. Under the terms of these contracts, the servicers market the loans, assist in processing loan applications, and service and collect the loans, which are made and funded exclusively by County Bank and not the servicers. In 2003, Market Street operated a telephone service center located in Pennsylvania from which it marketed, processed, serviced and collected County Bank's loans in accordance with policies and procedures established by County Bank.
According to plaintiff, she was enrolled in 2003 as a part-time student at Berkley College in Paramus. Although her tuition was financed by student loans, she had other educational expenses, such as books, which were not covered by the loans. In April 2003, based on a need for cash to purchase books for her "next college terms", plaintiff responded to a Main Street advertisement. A loan application was faxed to her. On page two of the application, just above plaintiff's signature, were clauses entitled, "AGREEMENT TO ARBITRATE ALL DISPUTES" and "AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS." The application further advised plaintiff that County Bank had "retained Main Street ... to assist in processing [her] Application and to service [her] loan." Plaintiff completed and returned the loan application by facsimile, seeking a $100 loan.
Plaintiff also completed and returned by fax the one-page Loan Note and Disclosure form that included above her signature a number of clauses, including the following, which are the subject of the dispute presented to us:
After this language, and just above the signature line, the following language appears:
BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS OF THIS NOTE, INCLUDING THE AGREEMENT TO ARBITRATE ALL DISPUTES AND THE AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS. YOU ALSO ACKNOWLEDGE RECEIPT OF A FULLY COMPLETED COPY OF THIS NOTE.
The Loan Note and Disclosure form executed by plaintiff disclosed that the amount of the loan was $100, the finance charge was $30, the annual percentage rate (APR) was 644.1%, and payment of $130 from plaintiff was due on May 16, 2003.
On or about May 23, 2003, plaintiff applied for and received a payday loan of $200. The identical forms were executed by plaintiff. The Loan Note and Disclosure form for this loan disclosed that the amount of the loan was $200, the finance charge was $60, the APR was 608.33%, and payment of $260 from plaintiff was due on June 13, 2003.2
On or about June 6, 2003, plaintiff applied for and received another payday loan of $200. Again, the paperwork was identical to the forms previously executed by plaintiff. The Loan Note and Disclosure form disclosed the amount of the loan, the finance charge of $60, the APR of 782.14%, and a repayment date of June 27, 2003.
As to all three loans, the exchange of paperwork between plaintiff and Main Street took place by facsimile and, once a loan application was approved, funds were transmitted from a County Bank account directly to plaintiff's checking account.
On or about February 2, 2004, plaintiff filed a class action complaint alleging that: (1) all four defendants violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20; (2) Main Street, Easy Cash and Telecash violated the civil usury law, N.J.S.A. 31:1-1 to -9, and engaged in a pattern of racketeering in violation of N.J.S.A. 2C:41-1 to -6.2, the New Jersey Racketeering and Corrupt Organizations Act (RICO statute); and (3) County Bank conspired with the other defendants to violate the RICO statute, N.J.S.A. 2C:5-2, and aided and abetted the other defendants in conduct that violated the civil and criminal usury laws of this State. Thereafter, on or about February 23, 2004, plaintiff made a demand upon defendants for the production of documents and propounded thirty-eight interrogatories.
On or about March 11, 2004, defendants removed the case to federal court on the ground that plaintiff's claims were preempted by federal law, 12 U.S.C.A. § 1831d, because they amounted to usury claims against a state-chartered bank. Five days later, defendants filed a motion to stay the action pending arbitration and to compel arbitration or, in the alternative, to dismiss the case. On or about April 1, 2004, while defendants' motion was pending, plaintiff filed a motion to remand the action to state court.
On or about May 18, 2004, U.S. Magistrate Judge Hedges issued a report wherein he recommended that plaintiff...
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...no reasonable person not acting under compulsion or out of necessity would accept its terms.” Muhammad v. County Bank of Rehoboth Beach, 379 N.J.Super. 222, 236–37, 877 A.2d 340 (App.Div.2005), rev'd on other grounds, 189 N.J. 1, 912 A.2d 88 (2006). In determining unconscionability, courts ......
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