Lytle v. CitiFinancial Services, Inc.

• Decision Date: 24 October 2002
• Citation: Lytle v. CitiFinancial Services, Inc., 810 A.2d 643, 2002 PA Super. 327 (Pa. Super. Ct. 2002)
• Parties: Robert E. LYTLE and Judith Lytle, Appellants, v. CITIFINANCIAL SERVICES, INC., f/k/a Commercial Credit Plan Consumer Discount Company, Appellee.
• Court: Pennsylvania Superior Court

810 A.2d 643

2002 Pa. Super. 327

Robert E. LYTLE and Judith Lytle, Appellants, v. CITIFINANCIAL SERVICES, INC., f/k/a Commercial Credit Plan Consumer Discount Company, Appellee.

Superior Court of Pennsylvania.

Argued November 27, 2001.

Filed October 24, 2002.

Robert M. Firkser, Media, for appellant.

Marilyn Heffley, Philadelphia, for appellee.

BEFORE: McEWEN, P.J.E., JOHNSON, and JOYCE, JJ.

OPINION BY McEWEN, P.J.E.:

¶ 1 This appeal from an order dismissing, in response to the preliminary objections of CitiFinancial Services, Inc., f/k/a Commercial Credit Plan Consumer Discount Company (hereinafter "CitiFinancial"), the class action complaint filed by Robert and Judith Lytle, presents substantial questions concerning, inter alia, the extent to which federal law requires state courts to allow the use of a pre-dispute arbitration clause in a consumer contract to circumvent state consumer protection statutes.¹ While the contentious nature of this issue inspired us to review all of the relevant decisions in this evolving contest in order to resolve the question² presented, the procedural posture of this case requires that we vacate the order of dismissal and remand the record to permit the trial court, in the first instance, to receive and entertain evidence on certain defenses interposed by the parties.

¶ 2 Appellants, Robert and Judith Lytle, husband and wife who resided in Delaware County, Pennsylvania, applied to Appellee CitiFinancial for a loan to be secured by a mortgage on their residence. The record presently before this Court consists only of the class action complaint filed by the Lytles, the preliminary objections filed by CitiFinancial, and the Lytle's response to those objections. The record does not provide any information concerning the process by which appellants applied for and obtained approval of the loan at issue in this litigation, or any information concerning fees paid or documents exchanged prior to settlement on the loan, or what information, if any, concerning the terms of the loan, was provided to the Lytles when they applied for the loan or at any other time prior to settlement on May 28, 1997. Settlement apparently occurred on May 28, 1997, at which time the Lytles executed a mortgage, as well as a security agreement and note³ which obligated them to make 180 payments of $1,455.15 each, commencing July 2, 1997, in return for a loan in the amount of $121,236.53 at the annual percentage rate of 12%.

¶ 3 The esteemed Judge Harry J. Bradley has provided a succinct recitation of the facts contained in the pleadings:

This is a class action. Plaintiffs' complaint alleges claims against CitiFinancial for: violation of the federal Truth-in-Lending Act (Count I); violation of Pennsylvania Act of January 30, 1974 (hereinafter referred to as "Act 6") (Count II); violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (Count III); breach of contract (Count IV); unjust enrichment (Count V); and fraud (Count VI).

Plaintiffs' complaint stems from a loan arrangement plaintiffs entered into with CitiFinancial on May 28, 1997. Plaintiffs borrowed the principal amount of one hundred twenty-three thousand six hundred sixty-one dollars and twenty-six cents ($123,661.26). This loan was secured by a mortgage on plaintiffs' residence. Plaintiffs made the installment payments as provided by the loan agreement. On or about August 18, 1998, plaintiffs refinanced and made full prepayment to CitiFinancial. In order to make full payment and to cause the mortgage to be satisfied, CitiFinancial required plaintiffs pay defendant the total amount of one hundred twenty-four thousand five hundred fifty-four dollars ($124,554.00) comprised of the following charges: principal balance unearned interest [of $9,575.13]; prepayment penalty [of $7,123.75]; release fee [of $18.00]; and unspecified charges [of $1,862.19].

The complaint avers that defendant's actions in collecting a prepayment penalty and unearned finance charges when a mortgage is satisfied early violate state and federal laws as well as Pennsylvania common law. Plaintiffs filed their complaint as a class action alleging that they represented the class of persons who paid CitiFinancial a prepayment penalty and unearned finance charges when a mortgage loan was paid off early. Defendant filed preliminary objections to plaintiffs' complaint which were sustained [based on the existence of an arbitration agreement contained in the loan documents signed by the plaintiffs].

¶ 4 The preliminary objections which prompted dismissal of the complaint provided:

1. On or about August 18, 2000, Plaintiffs Robert E. Lytle and Judith Lytle ("Plaintiffs") filed a Complaint alleging claims for violations of the Truth in Lending Act, Pennsylvania Act of January 30, 1974 (P.L. 13, No. 6, hereinafter "Act 6"), the Pennsylvania Unfair Trade Practices Act, breach of contract, fraud and unjust enrichment. A true and correct copy of Plaintiffs' Complaint is attached hereto as Exhibit "A".

2. Plaintiffs' Complaint stems from a loan transaction entered into between Plaintiffs and CitiFinancial on May 28, 1997. See Complaint ¶ 15, Ex. A.

3. Plaintiffs seek to bring this action on behalf of "the entire class of persons similarly situated." See Complaint ¶¶ 5-13, Ex. A.

PRELIMINARY OBJECTION TO ALL COUNTS OF THE COMPLAINT PURSUANT TO PA.R.CIV.P. 1028(6)

4. On May 28, 1997, Plaintiffs executed and delivered to CitiFinancial a Disclosure Statement, Note and Security Agreement (the "Agreement"). See Complaint ¶ 15, Ex. A. A true and correct copy of the Agreement is attached hereto and incorporated herein as Exhibit "B."

5. Inherent in this Agreement, is an Arbitration Provision which mandates that all claims, subject to two exceptions which are inapplicable here, shall be resolved by binding arbitration. A true and correct copy of the Arbitration Provision is attached hereto as Exhibit "C."

6. The binding Arbitration Provision precludes Plaintiffs from litigating this matter in this Court. See Arbitration Provision, ¶ 3, Ex. C.

DEMURRER TO COMPLAINT: ACT 6 PRECLUDES CERTIFICATION OF A CLASS

7. Plaintiffs seek to bring this action on behalf of a class of people. See Complaint, ¶¶ 5-13, Ex.A.

8. Act 6 prohibits class certification of this action. See 41 P.S. § 504 (1999).

DEMURRER TO COUNT II: PLAINTIFFS' MORTGAGE IS NOT A "RESIDENTIAL MORTGAGE" PURSUANT TO PENNSYLVANIA ACT OF JANUARY 30, 1974 (ACT 6)

9. Plaintiffs allege that CitiFinancial violated Pennsylvania Act of January 30, 1974 (hereinafter referred to as "Act 6"). See Complaint, ¶¶ 34-43, Ex.A.

10. Plaintiffs aver that the mortgage at issue is a "residential mortgage" under Act 6. See Complaint, ¶ 37, Ex. A.

11. Act 6 defines a "residential mortgage" as an "obligation to pay a sum of money in an original bona fide principal amount of fifty thousand dollars ($50,000) or less ..." 41 P.S. § 101 (1999).

12. Plaintiffs assert in their Complaint that the principal amount of the obligation was One hundred twenty-three thousand six hundred sixty-one dollars and twenty-six cents ($123,661.26), which clearly exceeds the statutory limit. See Complaint, ¶ 15, Ex. A.

13. Because the amount of the loan far exceeds the statutory limit of Act 6, the Second Count of Plaintiffs' Complaint is legally insufficient and must be dismissed.

WHEREFORE, Defendant CitiFinancial Services, Inc., f/k/a Commercial Credit Plan Consumer Discount Company respectfully requests that its Preliminary Objections be sustained and that the Complaint be dismissed in its entirety. In the alternative, Defendant requests that Count II of the Complaint be dismissed because it is legally insufficient.

¶ 5 The trial court, in direct response to the preliminary objections, dismissed the complaint with prejudice and directed the parties to proceed to arbitration. Appellants claimed in their response to the preliminary objections, and now argue on appeal to this Court that this ruling was error as the arbitration provisions of the loan contract are unenforceable under Pennsylvania law.

¶ 6 The relevant portions of the Note executed by the Lytles on May 28, 1997, provided, inter alia:

DEFAULT: Borrower will be in default if he does not make any scheduled payment on time or fails to comply with the provisions of any mortgage or the real property which secures this loan. If Borrower defaults, Lender may require Borrower to repay the entire unpaid Principal balance and any accrued interest at once. Lender's failure to exercise or delay in exercising any of its rights when default occurs does not constitute a waiver of those or any other rights under this agreement. As permitted by Pennsylvania Law, Borrower agrees to pay actual and reasonable attorney's fees, court costs and other actual and reasonable costs incurred in foreclosing on the real property securing this loan. Borrower will receive written notice at least 3 days prior to foreclosure. [emphasis supplied]

LAW THAT APPLIES: Pennsylvania law and federal law, as applicable govern this Disclosure Statement, Note and Security Agreement. If any part is unenforceable, this will not make any other part unenforceable. In no event will Borrower be required to pay interest or charges in excess of those permitted by law.

* * * *

ARBITRATION PROVISION:

READ THE FOLLOWING ARBITRATION PROVISION CAREFULLY. IT LIMITS CERTAIN OF YOUR RIGHTS, INCLUDING YOUR RIGHT TO OBTAIN REDRESS THROUGH COURT ACTION.

In consideration of Lender making the extension of credit described above and other good and valuable considerations, the receipt and sufficiency which is acknowledged by both parties, it is further agreed as follows:

Definitions for Arbitration Provision. As used in this Arbitration Provision ("Provision"), the following definitions will apply:

"You" or "Your" means any or all of Borrower(s) who execute this Provision, and their heirs, survivors, assigns, and representatives.

"We" or "Us" means Lender,

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