Zhang v. Southeastern Financial Group, Inc., CIV. A. 95-2126.

• Decision Date: 03 September 1997
• Docket Number: No. CIV. A. 95-2126.,CIV. A. 95-2126.
• Parties: Sujing ZHANG, v. SOUTHEASTERN FINANCIAL GROUP, INC., Andrew J. McClure, Esq., Haven-Scott Associates, Inc., James G. Johnson, PNC Bank, N.A., Judith Lupinski, a/k/a Judy Lupinski, William E. Donnelly, Prothonotary of the Court of Common Pleas of Montgomery County, Penna, and Frank P. Lalley, Sheriff of Montgomery County, Penna.
• Court: U.S. District Court — Eastern District of Pennsylvania

980 F.Supp. 787

Sujing ZHANG, v. SOUTHEASTERN FINANCIAL GROUP, INC., Andrew J. McClure, Esq., Haven-Scott Associates, Inc., James G. Johnson, PNC Bank, N.A., Judith Lupinski, a/k/a Judy Lupinski, William E. Donnelly, Prothonotary of the Court of Common Pleas of Montgomery County, Penna, and Frank P. Lalley, Sheriff of Montgomery County, Penna.

No. CIV. A. 95-2126.

United States District Court, E.D. Pennsylvania.

September 3, 1997.

COPYRIGHT MATERIAL OMITTED

Sharon K. Wallis, Philadelphia, PA, for Plaintiff.

Andrew J. McClure, King of Prussia, PA, Richard G. Johnson, Pittsburgh, PA, Robert M. Morris, Courtney L. Yeakel, Burt M. Rublin, Philadelphia, PA, Timothy T. Myers, Blue Bell, PA, for Defendants.

MEMORANDUM

WALDMAN, District Judge.

I. BACKGROUND

In a 230 paragraph amended complaint, plaintiff essentially alleges that the various defendants respectively induced her by fraud to sign an employment services contract and promissory note with a confession of judgment clause, used unlawful means to collect the debt after she failed to pay the amount due on the note, violated her constitutional right to procedural due process by entering a confessed judgment and effecting a writ of execution against her bank account, and failed to protect her exemption of $300 from attachment. Plaintiff asserts claims against defendants Haven-Scott, Johnson, Southeastern, McClure and Lupinski ("the Haven-Scott defendants") for alleged violations of the Fair Debt Collection Practices Act ("FDCPA"), 42 U.S.C. § 1983 and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), as well as a RICO claim against defendants Johnson, McClure and Lupinski. Plaintiff also asserts a claim against defendants Haven-Scott, Johnson and Southeastern for rescission of the service agreement.

In Count I plaintiff claims that the Haven-Scott defendants engaged in illegal debt collection activities in violation of 15 U.S.C. § 1692.

In Count II, plaintiff claims that the individual Haven-Scott defendants violated the RICO statute by engaging for a substantial period in a pattern of mail and wire fraud in executing two related schemes. First, these defendants allegedly misrepresented the nature and quality of Haven-Scott's services to induce persons to sign a service agreement and promissory note. Second, defendants allegedly induced unwary persons to sign notes containing confession of judgment clauses to whom they then misrepresented the law to coerce payments or whose property they seized in violation of due process requirements.

In Count III plaintiff claims that the Haven-Scott defendants are liable under 42 U.S.C. § 1983 for confessing judgment and executing against her property in violation of due process, the FDCPA and 16 C.F.R. § 444.2.

In Count IV plaintiff seeks rescissionary relief as to the service agreement and note.

In Count V plaintiff claims that the Haven-Scott defendants' deceptive advertisements, misrepresentation of the nature of Haven-Scott's services, inducement to Ms. Zhang to execute the note with a confession of judgment clause and collection of the debt violate the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

In Count VI plaintiff seeks declaratory and injunctive relief against the Haven-Scott defendants, including a declaration that the promissory notes they use are illegal and unenforceable and an injunction against their further use of such notes.

Presently before the court are defendants' motion for partial summary judgment and plaintiffs cross-motion for summary judgment.¹ The parties respectively contend that certain of plaintiff's claims are and are not barred as a matter of law by res judicata.

Plaintiff has withdrawn Count VI, the statutory claims under 42 U.S.C. § 1983 and the claims for damages under UTPCPL for taking or threatening "non-judicial" action against plaintiff by execution on a confessed judgment. Plaintiff has also withdrawn her FDCPA claim to the extent it is based on alleged conduct prior to April 11, 1994.²

II. LEGAL STANDARDS

In considering a motion for summary judgment, the court must determine whether the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact, and whether the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); Arnold Pontiac-GMC, Inc. v. General Motors Corp., 786 F.2d 564, 568 (3d Cir.1986).

Only facts that may affect the outcome of a case under applicable law are "material." All reasonable inferences from the record must be drawn in favor of the non-movant. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. Although the movant has the initial burden of demonstrating the absence of genuine issues of material fact, the non-movant must then establish the existence of each element on which it bears the burden of proof. J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir.1990) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986)), cert. denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991).

III. FACTS

The pertinent facts as uncontroverted or taken in a light most favorable to plaintiff are as follow.

Haven-Scott is a Pennsylvania corporation owned by defendant Johnson. It provides employment services to clients for a fee of $3,120. Defendants Johnson and Lupinski are officers and employees of Haven-Scott and work from its offices in King of Prussia, PA. These defendants routinely made misrepresentations about the nature of Haven-Scott's services and its certification or regulation by public authorities to induce unemployed persons to sign service agreements. Defendant Johnson represented to plaintiff that Haven-Scott had extensive contacts throughout the Delaware Valley and that he would "set up" ten to fifteen job interviews for her within two weeks. Plaintiff signed the service agreement in reliance upon these representations. The actual service agreement which she signed, however, does not provide for these services. It provides only that Haven-Scott will supply career counseling and a list of possible employers with their addresses. No one ever arranged any interviews for plaintiff.

When signing a service agreement, applicants must pay the $3,120 fee or pay a deposit and execute a promissory note for the balance, made payable to Southeastern and containing a warrant of attorney to confess judgment. Defendant Johnson told plaintiff that she would not have to pay the amount due until she had secured a job. Plaintiff paid $500 to Haven-Scott and executed a note on December 14, 1993, promising to pay $2620.00 to Southeastern in monthly installments of $218.33.

Southeastern is also owned by defendant Johnson and is controlled by the same officers as Haven-Scott. Mr. Johnson witnessed and signed the note executed by plaintiff. The principal activity of Southeastern is the collection of debts. Defendant McClure is an attorney and an officer of Southeastern. He has an office at Haven-Scott and regularly engages in debt collection.

Plaintiff was unable to find a job and almost immediately defaulted on her payment obligation. In March of 1994, defendant Johnson told plaintiff that Haven-Scott would not provide her with any further services and defendant McClure, under the direction of defendants Johnson and Lupinski, attempted to collect her debt. He sent plaintiff several letters which did not identify him as an employee of Southeastern or Haven-Scott. He threatened to confess and execute on a judgment against plaintiff. Copies of these letters were sent contemporaneously to defendant Johnson.

Plaintiff secured the services of Marian Nowell, Esq. who wrote to Mr. McClure on April 13, 1994 to advise him that plaintiff was now represented and that further communication should be through counsel. On at least one occasion thereafter, defendant McClure wrote directly to plaintiff regarding her debt. Ms. Nowell also demanded that Mr. McClure desist from further collection efforts because the underlying transaction "represents an unfair trade practice" and the confession of judgment clause was unconstitutional.

On April 27, 1994, Mr. McClure filed in the Court of Common Pleas of Montgomery County a complaint in confession of judgment on behalf of Southeastern and an entry of appearance for plaintiff Zhang, and confessed judgment for $3,013 including interest, fees and costs. He also filed a praecipe for a writ of execution, naming PNC as garnishee, which was issued by the prothonotary.

Mr. McClure averred in Plaintiff's Affidavit of Debtor's Waiver of Rights that Ms. Zhang earned more than $10,000 annually at the time she signed the note. At the time that she signed the service agreement, plaintiff completed a "Candidate's Qualification Questionnaire" containing information regarding the type of employment she was qualified for and was seeking. On that questionnaire plaintiff indicated that her current income was "$25,000-$35,000." Plaintiff in fact earned less than $10,000 which defendant McClure "knew or should have known." Plaintiff earlier told defendant Johnson she was earning $100 per week as a waitress.

On April 28, 1994 notice of judgment was mailed to plaintiff by the prothonotary and on May 2, 1994 the sheriff served the execution package upon PNC which froze plaintiff's funds, totaling $327.91. With a cover letter dated May 3, 1994, PNC mailed to plaintiff a copy of the writ of execution with a notice of her right to claim a $300 exemption, a claim form with instructions for doing so and an admonition to contact a lawyer "at once."³

On May 18, 1994, plaintiff's lawyer filed a claim asserting Ms. Zhang's $300.00 statutory exemption. Plaintiff's attorney, however, failed to forward the $11.00 filing fee to the...