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If an arbitration clause does not contain an express provision allowing for class arbitration, plaintiffs have no statutory right to bring a class action, a Delaware County, Pa., Common Pleas Court judge has ruled. The decision appears to be one of the first on the issue in the commonwealth. In the opinion, Lytle v. CitiFinancial Services Inc., Delaware County Common Pleas Court Judge Harry J. Bradley cites only federal court decisions from the 7th U.S. Circuit Court of Appeals and California as authority. Bradley also found that Pennsylvania’s usury statute, Act 6, does not allow for class action suits, sustaining the defendant’s preliminary objections. Robert M. Firkser of Media, Pa.’s DelSordo & Firkser represented the plaintiffs, Robert and Judith Lytle. Marilyn Heffley and Barbara Mishkin of Pittsburgh’s Reed Smith represented defendant CitiFinancial Services Inc. The Lytles are appealing the decision. According to the opinion, the Lytles received a loan of $123,661 from CitiFinancial in May 1997, secured by a mortgage on their home. In August 1998, the Lytles refinanced and made full prepayment to CitiFinancial. In order to satisfy a full payment, CitiFinancial requested $124,554, which included the principle balance, unearned interest, prepayment penalty and unspecified charges. The Lytles filed a complaint alleging the collection of a prepayment penalty and unearned finance charges when a mortgage is paid early violates state and federal laws and Pennsylvania common law. They filed their complaint as a class action. Bradley focused the opinion immediately on the arbitration clause in the Lytles’ loan agreement. He said that at the top and bottom of the page containing the arbitration provision, there was a bold-type warning to the signers to read the provision carefully as it “limits certain of your rights, including your right to obtain redress through court action.” The arbitration provision was broad, Bradley said, with only a few exclusions. In fact, he said, claims involving the Truth in Lending Act were even listed with claims governed by the arbitration agreement. Bradley said the Federal Arbitration Act, which the Lytles’ arbitration agreement cites as authority, also supported his ruling. “The arbitrability of a dispute is governed by the FAA if the arbitration is part of an agreement involving interstate commerce,” Bradley said. “The court agrees with [Citifinancial] that this claim is one based on a contract evidencing a transaction involving commerce. Claims arising from a mortgage loan transaction presumptively involve interstate commerce.” The Lytles also argued the agreement was not enforceable because it does not allow for cases to be arbitrated on behalf of a class. But Bradley rejected that argument stating that the agreement specifically excluded class actions. He cited a 7th Circuit case, Champ v. Siegel Trading Co. Inc. from 1995, in which the court said without an express provision allowing for class arbitration a district court does not have the authority to reform a party’s action as a class action. “Although the federal rules do not apply to the instant matter . . . the reasoning in Champ is sound and leads to the inescapable conclusion that absent an express provision allowing class arbitration, the parties are free to contract away their right to pursue a class action,” Bradley wrote. “That is exactly what occurred here, the parties consented to the prohibition on class action.” Bradley also found authority in Act 6. Section 504 of the act states: “Any person affected by a violation of the act shall have the substantive right to bring an action on behalf of himself individually for damages by reason of such conduct or violation together with costs including reasonable attorney’s fees . . . “ Bradley said there was another reason why Act 6 did not permit the Lytles’ action. “A further reason that [the Lytles'] allegation of an Act 6 violation must be dismissed is that the act’s prohibition on prepayment penalties and limitation on interest rates of not apply to the mortgage in question,” he said. “Act 6 is limited to ‘residential mortgages,’ that is, it applies, by its terms to only those mortgages for $50,000 or less.”

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