Aldens, Inc. v. Packel, 74-1971

Citation524 F.2d 38
Decision Date27 August 1975
Docket NumberNos. 74-1971,No. 74-1971,74-1972,No. 74-1972,74-1971,s. 74-1971
PartiesALDENS, INC., Appellant in, v. Israel PACKEL, Attorney General for the Commonwealth of Pennsylvania, Individually and in his official capacity, Appellant in
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Bernard G. Segal, Ralph S. Snyder, James D. Crawford, Philadelphia, Pa., for appellant; Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Raymond N. Friedlander, Chicago, Ill., of counsel.

Lawrence Silver, Deputy Atty. Gen., Chief, Civ. Litigation, Harrisburg, Pa., Edward J. Weintraub, Asst. Atty. Gen., Joel Weisberg, Deputy Atty. Gen., Director, Div. of Consumer Affairs, for appellee; Bureau of Consumer Protection, Dept. of Justice, Harrisburg, Pa., of counsel.

Before SEITZ, Chief Judge, and ALDISERT and GIBBONS, Circuit Judges.


GIBBONS, Circuit Judge.

We herein consider cross-appeals from a final order of the district court granting the defendant's motion for summary judgment on plaintiff's complaint, and also granting plaintiff's motion for judgment on the pleadings on defendant's counterclaim. Aldens, Inc. v. Packel, 379 F.Supp. 521 (M.D.Pa.1974). The plaintiff Aldens, Inc. (Aldens) originally sought both injunctive and declaratory relief against the enforcement of the Pennsylvania Goods and Services Installment Sales Act, 69 P.S. §§ 1101-2303 (Supp.1975). In an amended complaint Aldens abandoned its prayer for injunctive relief and the case proceeded before a single district judge. Thus, this appeal properly comes to this court. To the amended complaint the defendant Israel Packel, the Attorney General of Pennsylvania (the Attorney General), filed an answer, and a counterclaim seeking injunctive relief enforcing the Act against the plaintiff upon a declaration of its constitutionality. The district court held that the statute was constitutional but refused to grant injunctive relief on the theory that the Attorney General could not obtain that relief in the courts of the Commonwealth. Thus it dismissed the counterclaim. While there were no disputed facts presented since a stipulation had been agreed to, the Attorney General did challenge the relevancy of certain of the submissions. Since the legal issues raised by Aldens' appeal and those raised by the Attorney General are unrelated we treat the appeals separately.


Aldens is an Illinois corporation operating a mail order business. By catalogs and flyers mailed from its headquarters in Chicago, it solicits orders in fifty states, including Pennsylvania. It has no tangible property in Pennsylvania. It employs no agents, salesmen, canvassers or solicitors in Pennsylvania. It has no Pennsylvania telephone listing and except for its mail order catalogs and flyers it does not advertise by use of any Pennsylvania media. It does not use any Pennsylvania credit verification sources to check on the credit of its Pennsylvania customers, although a Chicago credit reporting agency to which it resorts does inquire of credit bureaus in Pennsylvania for such information. All merchandise orders are filled from outside Pennsylvania and shipped F.O.B. from a point of origin in another state. The customers pay the shipping, handling and transportation costs. Aldens is neither required to collect nor to remit Pennsylvania use taxes nor to qualify nor to register to do business in Pennsylvania. It accepts or rejects all orders for merchandise in Chicago. Only the Chicago office grants credit, and all credit application forms and credit agreements are mailed by Pennsylvania residents seeking credit to Chicago. Aldens' credit agreement, which is used nationwide, provides for a monthly service charge of 1.75% On balances of $350.00 or less, which is an annual percentage rate of 21%, and for a monthly service charge of 1% (12% Annually) on that portion of the balance which exceeds $350.00. Payments are received in Chicago and credited to customers' accounts there. Aldens' credit agreements provide for the retention of a purchase money security interest in merchandise sold on credit, but it does not file any security interest document, does not enforce any security interests, and has a security interest in merchandise unpaid for only to the extent provided by law. The Aldens agreement complies with the Federal Truth in Lending Act, 15 U.S.C. §§ 1601-65 and applicable truth in lending regulations of the Board of Governors of the Federal Reserve System (Regulation Z), 12 C.F.R. §§ 226.1-.1002. The agreement also complies with applicable Illinois law. It does not comply with Pennsylvania law.

Aldens' annual sales to Pennsylvania customers approximate $14,900,000, which represents about 7.6% Of its annual sales. Approximately 73% Of the $14,900,000 represents credit sales to some 90,000 Pennsylvania credit customers whose average balance is about $169.00. Were Aldens to comply with the Pennsylvania Goods and Services Installment Sales Act it would incur additional annual costs and expenses and would sustain annual revenue losses attributable to such compliance as follows:

The $53,000 in additional cost would be incurred in part because the Pennsylvania Act not only regulates credit rates but also requires specific disclosures and the use of specific forms of contracts and billing statements. Were Aldens to comply similarly with the provisions of varying statutes of other states which regulate revolving charge agreements in manners different from the Federal Truth in Lending Act and Illinois law, it would incur comparable additional expenses and revenue losses.

Pennsylvania contends that its Goods and Services Installment Sales Act applies to Aldens' credit sales to Pennsylvania residents because 69 P.S. § 1103 provides:

"For the purposes of this act a retail installment contract, contract, retail installment account, installment account, or revolving account is made in Pennsylvania and, therefore, subject to the provisions of this act if either the seller offers or agrees in Pennsylvania to sell to a resident buyer of Pennsylvania or if such resident Pennsylvania buyer accepts or makes the offer in Pennsylvania to buy, regardless of the situs of the contract as specified therein.

Any solicitation or communication to sell, verbal or written, originating outside the Commonwealth of Pennsylvania but forwarded to and received in Pennsylvania by a resident buyer of Pennsylvania shall be construed as an offer or agreement to sell in Pennsylvania.

Any solicitation or communication to buy, verbal or written, originating within the Commonwealth of Pennsylvania from a resident buyer of Pennsylvania, but forwarded to and received by a retail seller outside the Commonwealth of Pennsylvania shall be construed as an acceptance or offer to buy in Pennsylvania."

Aldens contends that Pennsylvania cannot, consistent with the federal constitution, apply its consumer credit law to the transactions in question, which, it says, are Illinois contracts performed entirely outside Pennsylvania and in interstate commerce. Aldens contends, in other words, that § 1103 is a Pennsylvania choice of law rule setting forth a choice of law which that state cannot constitutionally make.

There are well recognized constitutional limitations upon state choice of law rules. As a framework for analysis of Aldens' challenge to § 1103 a review of those limitations is appropriate.

A. The Due Process Limitation.

The due process clause of the fourteenth amendment limits the power of a state to export its sovereign decisional authority, including its authority to make choices of law, to transactions with which it has an insufficient minimum interest. The contours of this limitation have been defined for the most part in cases involving attempts at extraterritorial service of process, 1 but it has been applied in contexts outside the extraterritorial service of process area as well. 2 The "long arm" cases are the more recent, and in these the Supreme Court made an interest analysis which focused upon the interest of the state which would or would not suffice to justify Any exercise of its sovereignty in connection with the transaction in dispute. 3 Since McGee v. International Life Insurance Co.,355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), it has been clear that the due process clause defines a rather low threshold of state interest sufficient to justify exercise of the state's sovereign decisional authority with respect to a given transaction. Aldens urges that Pennsylvania's interest in the Illinois contracts with Pennsylvania residents is insufficient to meet the due process threshold bar. We disagree. We think it clear beyond question that Pennsylvania has a substantial interest in the rates paid by its residents to foreign companies for the use of money and in the contracts setting those rates. The stipulated facts establish that Aldens would obtain $750,000 a year more in interest than a Pennsylvania seller could lawfully obtain on identical transactions if it did not comply with the Pennsylvania Act. Aldens suggests that the result of applying Pennsylvania law to its Illinois-centered activities may not be that Pennsylvania residents will pay less interest, but that those residents, in order to purchase the merchandise which Aldens sells, will have to borrow from small loan companies in order to buy for cash. (See Reply Brief for Appellant at 2 n. 2.) The small loan company rates are said to be substantially higher than the 12% And 21% Rates charged by Aldens. See 7 P.S. § 6152. But this argument goes to the wisdom or social utility of Pennsylvania's choice of law, not to its constitutional power to make that choice. Aldens also conjures up extreme possible applications of the statute. It posits, for example, a case of a Philadelphia resident who mails an unsolicited order to a merchant in Atlantic City, New Jersey, for delivery to the...

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