Montgomery v. Decision One Financial Network
2005 U.S. Dist. LEXIS 3031 (E.D. Pa. Mar. 1, 2005)
A borrower brought an action against her lender in connection with the lender’s institution of foreclosure proceedings. The lender moved to dismiss the complaint and sought an order compelling plaintiff’s compliance with the claims resolution provisions contained in the parties’ arbitration agreement. Relying upon the Pennsylvania Superior Court’s decision in Lytle v. CitiFinancial Services, Inc., 2002 Pa. Super. 327, 810 A.2d 643 (2002), the borrower argued in opposition that the arbitration agreement was presumptively unconscionable because it excepted from the scope of arbitrable disputes certain remedies available only to the lender, such as foreclosure. In the Lytle case, the Pennsylvania Superior Court several years earlier declared that “under Pennsylvania law, the reservation by [the lender] of access to the courts for itself to the exclusion of the consumer creates a presumption of unconscionability.”
The lender in Montgomery responded by pointing out the absence of any decision on the issue by the Pennsylvania Supreme Court and urged the district court to follow the earlier decision of the United States Court of Appeals for the Third Circuit in Harris v. Green Tree Financial Corp., 183 F.3d 173 (3d Cir. 1999), a case involving substantially similar facts. In that case, the Third Circuit rejected the borrowers’ unconscionability arguments and held that “the mere fact that the [lender] retains the option to litigate some issues in court, while the [borrowers] must arbitrate all claims does not make the arbitration agreement unenforceable.”
The district court in Montgomery agreed with the lender and granted its motion. In reaching its decision, the district court observed that “[a]bsent a conflicting decision from the Pennsylvania Supreme Court, this Court is bound by the decisions of the United States Court of Appeals for the Third Circuit in determining state law.” The court followed Pennsylvania’s two-part test for determining whether contract provisions are legally unconscionable: (1) that there is meaningful choice on the part of the other party regarding acceptance of the provisions, and (2) that the contractual terms are unreasonably favorable to the drafter. Although acknowledging the Pennsylvania Superior Court’s contrary decision in Lytle, the district court nonetheless concluded that “[a]s we rely on Harris for our decision, Plaintiff has failed to meet the second requirement of the unconscionability test because she has not presented contractual terms that unreasonable favor Defendant. The Arbitration Agreement is, therefore, enforceable.”
In so holding, the district court’s decision was the latest in a line of cases declining to follow Lytle in favor of Harris. See, e.g., In re Brown, 311 B.R. 702, 710 (Bank. E.D. Pa. 2004); Zimmer v. Copperneff Advisors, Inc., Civ. A. No. 04-3816, 2004 WL 2933979 (E.D. Pa. Dec. 20 2004); Aames Funding Corp. v. Sharpe, No. Civ. A. 04-4337, 2004 WL 2418284 (E.D. Pa. Oct. 28, 2004); Choice v. Option One Mortgage Corp., No. Civ. A. 02-6626, 2003 WL 22097455 (E.D. Pa. May 13, 2003). It appears only one federal court has expressed a willingness to depart from Harris and “follow Pennsylvania’s rule of law concerning unconscionability as newly established by Lytle.” In re Mintze, 288 B.R. 95, 103 n.11 (Bank. E.D. Pa. 2003).