On appeal from the Superior Court of New Jersey, Law Division, Union County, UNN-L-0410-04.
The opinion of the court was delivered by: Falcone, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS
Before Judges Kestin, Lefelt and Falcone.
The principal question presented in this interlocutory appeal, and one that appears to be of first impression in this State, is whether a mandatory arbitration provision in a payday loan contract is enforceable. A "payday loan" is a short term, single payment, unsecured consumer loan, so-called because payment is typically due on the borrower's next payday.
Plaintiff, Jaliyah Muhammad, contends that, because the arbitration clause is both procedurally and substantively unconscionable, the trial court erred in its determination that the clause was enforceable. She further contends that the trial court should have permitted discovery prior to making its determination that the arbitration clause is enforceable. We disagree and affirm.
Here are the pertinent facts and relevant procedural history. According to the certification of David E. Gillan, a Vice President of defendant, County Bank of Rehoboth Beach, Delaware (County Bank), County Bank is a federally insured depository institution, chartered under Delaware law, whose main office is located in Rehoboth Beach, Delaware. Since 1997, one of the products offered by County Bank is a payday loan. An applicant may be approved for a loan of up to $500. County Bank uses independent servicers, including defendant Main Street Service Corporation (Main Street) to market its consumer loans nationally.
County Bank has entered into standardized written contracts with its servicers. Under the terms of these contracts, the servicers market the loans, assist in processing loan applications, and service and collect the loans, which are made and funded exclusively by County Bank and not the servicers. In 2003, Market Street operated a telephone service center located in Pennsylvania from which it marketed, processed, serviced and collected County Bank's loans in accordance with policies and procedures established by County Bank.
According to plaintiff, she was enrolled in 2003 as a part-time student at Berkley College in Paramus. Although her tuition was financed by student loans, she had other educational expenses, such as books, which were not covered by the loans.
In April 2003, based on a need for cash to purchase books for her "next college terms", plaintiff responded to a Main Street advertisement. A loan application was faxed to her. On page two of the application, just above plaintiff's signature, were clauses entitled, "AGREEMENT TO ARBITRATE ALL DISPUTES" and "AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS." The application further advised plaintiff that County Bank had "retained Main Street . . . to assist in processing [her] Application and to service [her] loan." Plaintiff completed and returned the loan application by facsimile, seeking a $100 loan.
Plaintiff also completed and returned by fax the one-page Loan Note and Disclosure form that included above her signature a number of clauses, including the following, which are the subject of the dispute presented to us:
AGREEMENT TO ARBITRATE ALL DISPUTES:
You and we agree that any and all claims, disputes or controversies between you and us and/or the Company, any claim by either of us against the other or the Company (or the employees, officers, directors, agents or assigns of the other or the Company) and any claim arising from or relating to your application for this loan or any other loan you previously, now or may later obtain from us, this Loan Note, this agreement to arbitrate all disputes, your agreement not to bring, join or participate in class actions, regarding collection of the loan, alleging fraud or misrepresentation, whether under the common law or pursuant to federal, state or local statute, regulation or ordinance, including disputes as to the matters subject to arbitration, or otherwise, shall be resolved by binding individual (and not joint) arbitration by and under the Code of Procedure of the National Arbitration Forum ("NAF") in effect at the time the claim is filed. This agreement to arbitrate all disputes shall apply no matter by whom or against whom the claim is filed. Rules and forms of the NAF may be obtained and all claims shall be filed at any NAF office, on the World Wide Web at www.arb-forum.com, by telephone at 800-474-2371, of at "National Arbitration Forum, P.O. Box 50191, Minneapolis, Minnesota 55405." Your arbitration fees may be waived by the NAF in the event you cannot afford to pay them. The cost of any participatory, documentary or telephone hearing, if one is held at your or our request, will be paid for solely by us as provided in the NAF Rules and, if a participatory hearing is requested, it will take place at a location near your residence. This arbitration agreement is made pursuant to a transaction involving interstate commerce. It shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16. Judgment upon the award may be entered by any party in any court having jurisdiction.
NOTICE: YOU AND WE WOULD HAVE A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH BINDING ARBITRATION.
AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS:
To the extent permitted by law, you agree that you will not bring, join or participate in any class action as to any claim, dispute or controversy you may have against us, our employees, officers, directors, servicers and assigns. You agree to the entry of injunctive relief to stop such a lawsuit or to remove you as a participant in the suit. You agree to pay the attorney's fees and court costs we incur in seeking such relief. This Agreement does not constitute a waiver of any of your rights and remedies to pursue a claim individually and not as a class action in binding arbitration as provided above.
After this language, and just above the signature line, the following language appears:
BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS OF THIS NOTE, INCLUDING THE AGREEMENT TO ARBITRATE ALL DISPUTES AND THE AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS. YOU ALSO ACKNOWLEDGE RECEIPT OF A FULLY COMPLETED COPY OF THIS NOTE.
The Loan Note and Disclosure form executed by plaintiff disclosed that the amount of the loan was $100, the finance charge was $30, the annual percentage rate (APR) was 644.1%, and payment of $130 from plaintiff was due on May 16, 2003.
On or about May 23, 2003, plaintiff applied for and received a payday loan of $200. The identical forms were executed by plaintiff. The Loan Note and Disclosure form for this loan disclosed that the amount of the loan was $200, the finance charge was $60, the APR was 608.33%, and payment of $260 from plaintiff was due on June 13, 2003.*fn2
On or about June 6, 2003, plaintiff applied for and received another payday loan of $200. Again, the paperwork was identical to the forms previously executed by plaintiff. The Loan Note and Disclosure form disclosed the amount of the loan, the finance charge of $60, the APR of 782.14%, and a repayment date of June 27, 2003.
As to all three loans, the exchange of paperwork between plaintiff and Main Street took place by facsimile and, once a loan application was approved, funds were transmitted from a County Bank account directly to plaintiff's checking account.
On or about February 2, 2004, plaintiff filed a class action complaint alleging that: (1) all four defendants violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20; (2) Main Street, Easy Cash and Telecash violated the civil usury law, N.J.S.A. 31:1-1 to -9, and engaged in a pattern of racketeering in violation of N.J.S.A. 2C:41-1 to -6.2, the New Jersey Racketeering and Corrupt Organizations Act (RICO statute); and (3) County Bank conspired with the other defendants to violate the RICO statute, N.J.S.A. 2C:5-2, and aided and abetted the other defendants in conduct that violated the civil and criminal usury laws of this State. Thereafter, on or about February 23, 2004, plaintiff made a demand upon defendants for the production of documents and propounded thirty-eight interrogatories.
On or about March 11, 2004, defendants removed the case to federal court on the ground that plaintiff's claims were preempted by federal law, 12 U.S.C.A. § 1831d, because they amounted to usury claims against a state-chartered bank. Five days later, defendants filed a motion to stay the action pending arbitration and to compel arbitration or, in the alternative, to dismiss the case. On or about April 1, 2004, while defendants' motion was pending, plaintiff filed a motion to remand the action to state court.
On or about May 18, 2004, U.S. Magistrate Judge Hedges issued a report wherein he recommended that plaintiff's remand motion should be granted. By written decision dated June 10, 2004, Federal District Court Judge Martini ordered remand of the matter to state court.
On or about July 7, 2004, defendants filed a notice of motion in state court to stay the action pending arbitration and to compel arbitration on the ground that "the parties entered into a written arbitration agreement which is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, and provides for arbitration of claims such as those asserted [in the complaint]." Defendants also filed a notice of motion for a protective order on the grounds that discovery as to plaintiff's claims was "unwarranted and inappropriate" because the claims "[were] referable to arbitration pursuant to the parties written arbitration agreement . . . ." Several weeks later, plaintiff filed a notice of cross-motion for an ...