Salley v. Option One Mortgage Corp.

925 A.2d 115, 592 Pa. 323, 2007 Pa. LEXIS 1195
CourtSupreme Court of Pennsylvania
DecidedMay 31, 2007
Docket50 EAP 2005
StatusPublished
Cited by141 cases

This text of 925 A.2d 115 (Salley v. Option One Mortgage Corp.) is published on Counsel Stack Legal Research, covering Supreme Court of Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Salley v. Option One Mortgage Corp., 925 A.2d 115, 592 Pa. 323, 2007 Pa. LEXIS 1195 (Pa. 2007).

Opinions

OPINION

Justice SAYLOR.

This Court accepted certification from a panel of the United States Court of Appeals for the Third Circuit to consider whether an arbitration agreement, consummated in connection with a residential mortgage loan, which reserves judicial remedies related to foreclosure is presumptively unconscionable. The matter arises in the context of a federal lawsuit asserting violations of various mortgage-regulation and consumer-protection laws by a sub-prime lender, ie., a financial institution affording higher-interest loans to consumers with impaired credit histories.

Prevailing Pennsylvania law on this subject was established by a decision of a Superior Court panel in Lytle v. CitiFinancial Services, Inc., 810 A.2d 643 (Pa.Super.2002), which held that “under Pennsylvania law, the reservation by [a financial institution] of access to the courts for itself to the exclusion of the consumer creates a presumption of unconscionability, which in the absence of ‘business realities’ that compel inclusion of such a provision, renders the arbitration provision unconscionable and unenforceable under Pennsylvania law.” Id. at 665 (emphasis in original). Lytle, however, conflicts with a prior decision of the Third Circuit in Harris v. Green [327]*327Tree Financial Corporation, 183 F.3d 173 (3d Cir.1999), which, in interpreting Pennsylvania law, reasoned that “the mere fact that [the lender] retains the option to litigate some issues in court, while [the consumer] must arbitrate all claims does not make the arbitration agreement unenforceable.” Id. at 183. In requesting this Court’s consideration of the certified question, the Third Circuit observed that the Lytle/Harris conflict has created confusion and generated inconsistent results among district courts in the federal system. See Salley v. Option One Mortgage Corp., No. 04-4241, slip op., 2005 WL 3724871, at *3 n. 7 (3d Cir. Oct. 20, 2005) (citing cases).

I.

The background underlying the certification petition is as follows. The appellant, Will Salley, Jr., a low-income homeowner in Philadelphia, applied for and received a residential mortgage loan from the appellee, Option One Mortgage Corp., a sub-prime lender. As part of the application process, Mr. Salley was required to enter into a written “Agreement for the Arbitration of Disputes.” That agreement mandated arbitration of most disputes upon any party’s request, indicating that the claims were to be administered by the American Arbitration Association and governed by the Federal Arbitration Act, Title 9, U.S.C., with the arbitrator being authorized to award any remedy or relief that a court of appropriate jurisdiction could order or grant. The agreement, however, excepted some remedies from arbitration, largely, at least, creditor remedies including foreclosure, as follows:

Exceptions: The following are not disputes subject to this Agreement: (1) any judicial or non-judicial foreclosure proceeding against any real or personal property that serves as collateral for the loan, whether by the exercise of any power of sale under any deed of trust, mortgage, other security agreement or instrument under applicable law, (2) the exercise of any self-help remedies (including repossession and setoff rights) and (3) provisional or ancillary remedies with respect to the loan or any collateral for the loan such as injunctive relief, sequestration, attachment, replevin or gar[328]*328nishment, the enforcement of any assignment of rents provision in any loan documents, the obtaining of possession of any real property collateral for the loan by an action for unlawful retainer or the appointment of a receiver by a court having jurisdiction. This means that nothing in this Agreement shall limit your right or our right to take any of these actions. The institution and/or maintenance of any action or remedy described in this paragraph shall not constitute a waiver of your right or our right to arbitrate any dispute subject to this Agreement.

Mr. Salley commenced the federal action against Option One and others in the Eastern District of Pennsylvania in May 2004. He alleged, inter alia, that, through material misinformation and nondisclosures, Option One baited him with promises of debt relief through consolidation and low fixed monthly payments, then switched him into a high-cost, variable-rate refinancing, in violation of various federal and state laws, including the Truth in Lending Act, 15 U.S.C. §§ 1601, et seq., Pennsylvania Usury Law, 41 Pa.C.S. §§ 502, et seq., and Pennsylvania Unfair Trade and Consumer Protection Law, 73 P.S. §§ 201-1, et seq., and asserted common law theories including breach of contract and fraud. Further, Mr. Salley asserted that Option One failed to deliver funds to him at closing as represented on the settlement documents, and to completely pay bills and satisfy mortgages for purposes of debt consolidation as it had promised, and as a result, foreclosure proceedings were initiated by the assignee of another lender. According to the complaint, Option One’s purported conduct is an instance of predatory lending, in which unscrupulous lenders use deceptive and high-pressure marketing techniques targeting poor, elderly, and minority populations to advance secured loans carrying inflated costs and obligations, and which are made without regard to the ability to repay, in anticipation of eventual foreclosures that will strip borrowers of their equity. Mr. Salley sought rescission of the loan transaction, termination of any security interest created in his property, return of monies that he paid in connection with the transaction, forfeiture and return of the loan proceeds, actual [329]*329and statutory damages, and an award of attorneys’ fees and costs.

In response, Option One filed a motion to dismiss or, alternatively, to stay the action pending arbitration. Mr. Salley responded with the argument that, consistent with Lytle, the arbitration agreement was unconscionable and unenforceable in light of the exception for foreclosure and other creditor remedies.

The district court granted the motion to dismiss, relying upon the Third Circuit’s prediction in Harris that this Court would not find a similar arbitration clause unconscionable. Mr. Salley lodged an appeal in the Third Circuit, which, in turn and as noted, petitioned this Court for certification of the following question:

Whether the arbitration agreement under consideration in this case, which exempts from binding arbitration certain creditor remedies, while requiring the submission of other claims to arbitration, is unconscionable under Pennsylvania law, as suggested by Lytle v. CitiFinancial Services, Inc., 810 A.2d 643 ([Pa.Super.] 2002) (one-sided agreement presumptively unconscionable) (contra Harris v. Green Tree Fin. Corp., 183 F.3d 173 (3d Cir.1999)) and is therefore unenforceable?

Salley, No. 04-4241, slip op., 2005 WL 3724871, at *3. We accepted the question as certified, and thus, in essence, we are-asked to determine whether Lytle reflects the law of Pennsylvania.

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Bluebook (online)
925 A.2d 115, 592 Pa. 323, 2007 Pa. LEXIS 1195, Counsel Stack Legal Research, https://law.counselstack.com/opinion/salley-v-option-one-mortgage-corp-pa-2007.