Tia L. Kaneff v. DELAWARE TITLE LOANS, INC. On Appeal from the United States District Court for the…

Hon. Eugene E. Siler, Jr., Senior Circuit Judge, United*
States Court of Appeals for the Sixth Circuit, sitting by
designation.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-1007
TIA L. KANEFF,
Appellant
v.
DELAWARE TITLE LOANS, INC.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 06-cv-04703)
District Judge: Honorable Petrese B. Tucker
Argued January 15, 2009
Before: SLOVITER, BARRY, and SILER, Circuit Judges*
(Filed November 24, 2009)
Robert F. Salvin (Argued)
Community Impact Legal Services, Inc.
Chester, PA 19013
Attorney for Appellant

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We take the facts from the complaint, the contract attached1
thereto, and Kaneff’s affidavit.
2
Mark J. Levin (Argued)
Ballard, Spahr, Andrews & Ingersoll LLP
Philadelphia, PA 19103
Attorney for Appellee
OPINION OF THE COURT
SLOVITER, Circuit Judge.
Appellant asks us to confront what has become a vexing
issue in our current economy here and elsewhere – the extent to
which low income borrowers may have access to legal remedies
that they waived in a desperate attempt to borrow needed cash.
Because many of the lending contracts contain an arbitration
provision, there are often issues relating to the permissible scope
of the arbitration and the role of the arbitrator. These are the
principal issues in the appeal before us. In deciding this appeal,
we must balance the rights and legitimate expectations of the
parties, but only in terms of deciding whether the arbitration
provision should be enforced.
I.
The Operative Facts 1
The Appellant, Tia Kaneff, is representative of a low
income borrower. She separated from her husband in September
2005, and moved into an apartment in Plymouth Meeting,
Pennsylvania, with her two children. Plymouth Meeting is
approximately 30 miles from the border between Pennsylvania
and Delaware. According to the complaint, Kaneff drives a

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1994 Buick Park Avenue with 90,000 miles on it that is valued
at about $3,000. She works as a Frozen Food Manager at a
Giant Supermarket in Plymouth Meeting, Pennsylvania. Her car
is her sole means of transportation to her job.
In November 2005, Kaneff realized she would not have
enough money to pay rent for December. She tried to get a loan
from a bank but was turned down. She then sought a car title
loan from appellee Delaware Title Loans, Inc. (“DTL”), which is
located in Claymont, Delaware, less than a mile from the border
with Pennsylvania.
After driving a short distance to DTL’s office, Kaneff
sought a loan for $500. To get this amount, Kaneff was first
ordered to pay a $5 fee to the Department of Motor Vehicles for
recording the lien on her car and a $45 fee to Continental Car
Club for an unknown purpose (the contract provides that DTL
can retain a portion of these fees, and Kaneff noted in her
affidavit that she believed the car club fee was for “the purchase
of some sort of insurance”). App. at 50. These fees brought the
total amount financed to $550. DTL charged an annual interest
rate of 300.01%. The finance charge for the $550 borrowed by
Kaneff was $135.62 for the month-long term of the loan,
resulting in a total expected payment at the end of the month of
$685.62.
Kaneff claims that she did not understand that her loan
was only for a month, and instead believed that she would have
six months of $136 monthly payments (for a total payoff amount
of $816). In fact, that $136 ($135.62) was merely what she
owed in interest for one month. Her single payment of $685.62
was due on December 23, 2005. Believing that her total monthly
payment was $136, Kaneff paid as follows:
$136 on December 30, 2005 (this first payment was made
after the loan was already scheduled to be paid in full)
$136 on January 20, 2006
$145 on February 25, 2006 (made late)

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Kaneff does not explain the different payment amounts or2
how DTL reacted to the late payments.
4
$125.50 on March 31, 2006 (also made late, and for
below the payment amount, possibly because she believed
it was offset by the prior month)2
$150 on April 23, 2006
$150 on May 22, 2006
In June 2006, the month after Kaneff made the sixth
payment, she called DTL to learn what her balance was, and was
told she now owed $783. Thus, Kaneff had paid DTL a total of
$842.50 within six months of borrowing $550 and was far from
finished. Kaneff refused to pay any more, and DTL began
calling Kaneff “incessantly, one or more times a day, demanding
payment.” App. at 53. The company also called Kaneff on her
cell phone and at work, despite Kaneff telling them not to do so.
Finally, on September 21, 2006, DTL repossessed Kaneff’s car.
Kaneff received a letter on September 29, 2006, stating that she
would need to pay $1415.60 to get her car back, as otherwise it
would be sold sometime after October 8, 2006.
Kaneff filed a putative class action against DTL in
Pennsylvania state court, which included a request for a
temporary restraining order and a preliminary injunction seeking
the return of her car, which she needed to continue working.
The state court granted Kaneff’s motion for a preliminary
injunction and directed DTL to return Kaneff’s car. DTL then
removed the action to the United States District Court for the
Eastern District of Pennsylvania under the Class Action Fairness
Act of 2005, 28 U.S.C. § 1332(d)(2). The District Court granted
DTL’s motion to compel arbitration, and later dismissed the case
with prejudice. Kaneff appeals these decisions.
II.

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The text of the Arbitration provision, as relevant here,3
reads:
Any and all disputes, controversies or claims (collectively,
“claims” or “claim”), whether preexisting, present or future,
between the BORROWER and LENDER, or between
BORROWER and any of LENDER’s officers, directors,
employees, agents, affiliates, or shareholders, arising out of
or related to this Agreement (including LENDER’S right to
seek a money judgment against BORROWER in the event
of default, but excluding LENDER’s right to seek
possession of the Collateral in the event of default by
judicial or other process including self-help repossession.)
shall be decided by binding arbitration under the [Federal
Arbitration Act]. Any and all claims subject to arbitration
hereunder, asserted by any party, will be resolved by an
arbitration proceeding which shall be administered by the
American Arbitration Association.
App. at 38 (emphasis in original).
5
The Contract
The contract Kaneff signed with DTL states, “[t]his
agreement shall be construed, applied and governed by the laws
of the State of Delaware. The unenforceability or invalidity of
any portion of this Agreement shall not render unenforceable or
invalid the remaining portions hereof.” App. at 38. The
contract’s arbitration clause requires both parties to arbitrate any
disputes, but there is a significant exception to the parties’
requirement to arbitrate. DTL, the lender, is not required to
enter arbitration before seeking repossession of the vehicle
through judicial process or self-help.3
If the borrower seeks arbitration the borrower must pay
the first $125 of the filing fee, after which the lender agrees to
pay the remaining arbitration costs. Additionally, “[t]he parties
agree to be responsible for their own expenses, including fees for
attorneys, experts and witnesses.” App. at 38. There are block

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The relevant provision reads as follows:4
BY AGREEING TO ARBITRATE DISPUTES,
BORROWER WAIVES ANY RIGHT BORROWER MAY
OTHERWISE HAVE HAD TO LITIGATE CLAIMS
THROUGH A COURT OR TO HAVE A JURY TRIAL.
FURTHER, UNLESS A CLAIM IS ALREADY
CERTIFIED B EFO R E TH E DATE OF THIS
AGREEMENT, BORROWER HEREBY AGREES
BORROWER MAY NOT PARTICIPATE IN A CLASS
ACTION OR A CLASS-WIDE ARBITRATION, EITHER
AS A REPRESENTATIVE OR MEMBER OF ANY
CLASS OR CLAIMANTS PERTAINING TO SUCH
CLAIM AND BORROWER HEREBY EXPRESSLY
WAIVES BORROWER’S RIGHT TO JOIN OR
REPRESENT SUCH A CLASS.
App. at 38.
6
letters at the bottom of the agreement that reiterate that the
borrower has waived all rights to litigate any claim in court and
that the borrower also waives the right to participate in any class
action or class-wide arbitration unless the claim has already been
certified by the date of the agreement.4
III.
Jurisdiction and Standard of Review
The District Court had jurisdiction under 28 U.S.C. §
1332(d)(2). DTL met the $5 million threshold for jurisdiction
under the Class Action Fairness Act by claiming that, under
Kaneff’s theory of liability, it had received $3,846,481 in interest
from Pennsylvania residents over the four years prior to the suit,
and faced potential treble damage liability. This court has
jurisdiction under 28 U.S.C. § 1291.
A district court decides a motion to compel arbitration
under the same standard it applies to a motion for summary

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judgment. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd.,
636 F.2d 51, 54 (3d Cir. 1980). The party opposing arbitration is
given “the benefit of all reasonable doubts and inferences that
may arise.” Id. On appeal, a “question concerning the
applicability and scope of an arbitration agreement” is subject to
de novo review. Harris v. Green Tree Fin. Corp., 183 F.3d 173,
176 (3d Cir. 1999).
IV.
Discussion
In the case before us, Kaneff challenges both the
arbitration provision and the contract as a whole. Her challenge
to the contract is not one of alleged procedural
unconscionability, such as whether the type was too small to be
legible. Instead, her claim is one of substantive
unconscionability, similar to the one raised in Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), where the
borrowers claimed that the contract violated state lending and
consumer-protection laws and was therefore unenforceable.
In Buckeye, the borrowers brought a putative class action
against their lender in Florida state court, alleging that the lender
charged usurious interest rates. Id. at 443. The lender moved to
compel arbitration based on an arbitration clause in the contracts.
Id. at 442-43. The Court noted that there are two types of
challenges to an arbitration agreement:
One type challenges specifically the validity of the
agreement to arbitrate. The other challenges the contract
as a whole, either on a ground that directly affects the
entire agreement (e.g., the agreement was fraudulently
induced), or on the ground that the illegality of one of the
contract’s provisions renders the whole contract invalid.
Respondents’ claim is of this second type.
Id. at 444 (citation and footnote omitted). In considering the
case before it, the Court stated, that “[t]he crux of the complaint
is that the contract as a whole (including its arbitration

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provision) is rendered invalid by the usurious finance charge.”
Id. The Court explained that plaintiffs’ allegations that the
lender charged usurious interest rates and that the agreement
violated various Florida lending and consumer-protection laws
related to the entire contract, rather than specifically to the
arbitration provision. Id. at 446. As a result, the Court held that
the challenge was one that must go to the arbitrator. Id. at 446,
449.
It reiterated, referring to its prior opinions in Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and
Southland Corp. v. Keating, 465 U.S. 1 (1984), “unless the
challenge is to the arbitration clause itself, the issue of the
contract’s validity is considered by the arbitrator in the first
instance.” Buckeye, 546 U.S. at 447. It also reiterated, referring
to Howsam v. Dean Witter Reynolds, 537 U.S. 79, 84 (2002), “a
gateway dispute about whether the parties are bound by a given
arbitration clause raises a ‘question of arbitrability’ for a court to
decide.”
In making the determination of arbitrability, we must first
consider whether to apply Pennsylvania law or Delaware law.
Kaneff argues that the contract is unconscionable under
Pennsylvania law, a challenge that requires us to conduct a
choice of law analysis inasmuch as Delaware law is specified in
the contract.
We exercise plenary review over the question of which
state’s substantive law governs. Berg Chilling Sys., Inc. v. Hull
Corp., 435 F.3d 455, 462 (3d Cir. 2006). It is now black letter
law that “in an action based on diversity of citizenship
jurisdiction, we must apply the substantive law of the state in
which the District Court sat, including its choice of law rules.”
Id. (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941)). Here, that state is Pennsylvania.
Applying Pennsylvania’s choice of law rules, we must
determine whether there is a true conflict between the
application of Delaware law and Pennsylvania law. As
discussed below, a true conflict exists here. Because this is a

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contract case, the law of the state specified in the contract will be
applied unless:
(a) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable
basis for the parties’ choice, or
(b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue and which, under the
rule of § 188 [of the Restatement (Second) of Conflicts of
Law], would be the state of the applicable law in the
absence of an effective choice of law by the parties.
Berg, 435 F.3d at 463-64 (quoting Restatement (Second) of
Conflicts of Law § 187(2) (1971)). See also Gay v.
CreditInform, 511 F.3d 369, 389 (3d Cir. 2007) (“it seems
reasonable to use Pennsylvania law in evaluating the choice-of-
law question”). Inasmuch as Delaware is where the contract was
signed, we conclude that part (a) above is satisfied because there
is a substantial relationship between the state of choice and the
transaction. Therefore, our focus is on part (b) above.
Kaneff argues that applying Delaware law rather than
Pennsylvania law to the arbitration clause would violate a
fundamental policy of Pennsylvania because the arbitration
agreement would be considered unconscionable under
Pennsylvania law. She focuses primarily on the different
treatment accorded the issue of usury in Pennsylvania and in
Delaware. The annual interest provided in the DTL contract is
over 300%. Delaware has no usury law. In contrast,
Pennsylvania has a general usury statute, Act 6, 41 Pa. Cons.
Stat. Ann. §§ 101 et seq., prohibiting interest charges of over 6%
a year, id. § 201, and authorizing those charged higher rates to
sue in an action in which they may also collect attorney’s fees
and costs, id. § 503. There can be no question that there is a true
conflict between Delaware and Pennsylvania in their approach to
and treatment of usurious interest. Although we do not consider
the unconscionability of the agreement as a whole, an issue that
Buckeye teaches is for the arbitrator, we do consider the usury

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issue as part and parcel of whether the arbitration clause should
be enforced. The choice of law analysis cannot be divorced
from that issue.
Kaneff contends that the usury statute embodies a
fundamental policy of Pennsylvania because:
[T]he statute does not allow for waiver, 41 [Pa. Cons.
Stat. Ann.] § 408, violations are punished under
Pennsylvania’s criminal law, [i]d. § 505, and plaintiffs are
granted an automatic right to collect punitive damages
without any showing of outrageous, wanton or malicious
conduct. Id. §§ 502 & 504. See Olwine v. Torrens, 236
Pa. Super. 51, 56 (1975) (“[t]he statute against usury
forms a part of the public policy of the state and cannot be
evaded by any circumvention or waived by the debtor”)
(citation omitted). The usury statute also gives a
prevailing plaintiff the right to collect attorney’s fees and
costs from the defendant. [41 Pa. Cons. Stat. Ann.] §
503. This last point is important in connection with
DTL’s arbitration clause because one of the restrictive
covenants DTL is trying to enforce makes each party
responsible for their own fees and costs.
Appellant’s Br. at 17-18.
Kaneff argues that “[s]ection 408 of Act 6, 41 [Pa. Cons.
Stat. Ann.] § 408, governs choice of law with respect to the
interest rate and liability. This is the section of the act that
invalidates waivers and states expressly that Act 6 applies, ‘[n]ot
withstanding any other law,’ which certainly includes Delaware
law.” Appellant’s Br. at 18. DTL responds that the
Pennsylvania statute is inapplicable to a loan originating in
Delaware and made by a Delaware corporation. It argues that
unconscionability should not be equated with a fundamental
policy of the state, citing a 1985 Pennsylvania Superior Court
decision for the proposition that unconscionability “was still a
novel and undefined concept in Pennsylvania’s jurisprudence.”
Appellee’s Br. at 14 (citing Germantown Mfg. Co. v. Rawlinson,
491 A.2d 138 (Pa. Super. Ct. 1985)). Of course, in the more

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than two decades since the Superior Court’s decision in
Rawlinson, there have been numerous cases that have focused on
unconscionability as a defense which is no longer a novel
concept.
The parties marshal the factors often considered in
choice-of-law determinations. Kaneff argues that Pennsylvania
has the greater interest in the transaction because it is where she
lives and, therefore, Pennsylvania has a strong interest in
applying its consumer protection laws for the benefit of its
residents. Pennsylvania is also the location of the collateral,
Kaneff’s car, and DTL was required to enter Pennsylvania in
order to repossess the car. Finally, Kaneff argues that
Pennsylvania’s interest is superior to that of Delaware “because
Pennsylvania will have to live with the aftermath of the
transaction.” Appellant’s Br. at 20 (emphasis omitted). Kaneff
posits that if her automobile were repossessed and she lost her
employment as a result, it is Pennsylvania that would be obliged
to pay unemployment and medical benefits, while deprived of
the taxes generated from her former wages.
DTL, in contrast, argues that Delaware has the greater
interest in the transaction because:
(1) the loan agreement (a) was entered into and signed in
Delaware by a Delaware corporation and a Pennsylvania
resident who drove 30 miles to Delaware to obtain the
loan, (b) requires repayment in Delaware and (c) provides
that the agreement shall be “construed, applied and
governed” by Delaware law, (2) the lender (a) is
incorporated in Delaware, (b) is licensed and regulated in
Delaware by the Delaware State Bank Commissioner and
(c) has its only offices in Delaware.
Appellee’s Br. at 18. DTL also argues that “Pennsylvania’s
Business Corporations Law provides that a foreign business
corporation is not doing business in the Commonwealth by
carrying on in the Commonwealth the acts of, inter alia, creating
or acquiring security interests in personal property or ‘[s]ecuring
or collecting debts or enforcing any rights in property securing

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them.’” Appellee’s Br. at 23 (quoting 15 Pa. Cons. Stat. Ann. §
4122(a)(8)).
A recent decision of the Pennsylvania Commonwealth
Court, Cash America Net of Nevada, LLC v. Pennsylvania
Department of Banking, 978 A.2d 1028, 1030 (Pa. Commw. Ct.
2009), could shed some light on this issue. In the course of that
court’s decision, which dealt with the policy of the Pennsylvania
Department of Banking “that engaging in nonmortgage
consumer lending to Pennsylvania residents by any means . . .
constitutes engaging in such business ‘in this Commonwealth’ as
contemplated by section 3.A of the Consumer Discount
Company Act (CDCA),” id. at 1031, the court commented on the
Department’s “special knowledge of how such loans can affect
the social life of the community,” id. at 1037. It referred to a
prior opinion of the Pennsylvania Supreme Court, Pennsylvania
Department of Banking v. NCAS of Delaware, LLC, 948 A.2d
752, 754 (2008), as stating:
[T]he methods used by usurious lenders, often involv[e]
subterfuge, to attempt to circumvent fundamental public
policy. The Supreme Court noted the well-established
principle articulated over 100 years ago in Earnest v.
Hoskins, 100 Pa. 551 (1882), that the Commonwealth’s
public policy prohibits usurious lending, and it cited a
decision entered almost 70 years ago in [Equitable Credit
& Discount Co. v. Geier, 342 Pa. 445 (1941)], holding
that it is well settled in constitutional law that the
regulation of interest rates is a subject within the police
power of the state particularly when it comes to cases
involving small loans, which profoundly affect the social
life of the community.
Id. at 1038.
Under all of the circumstances set forth above,
Pennsylvania has a materially greater interest than Delaware in
the determination of whether the arbitration clause is
unconscionable. Although the issue is not free from doubt, we
conclude that Pennsylvania’s interest in the dispute, particularly

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its antipathy to high interest rates such as the 300.01 percent
interest charged in the contract at issue, represents such a
fundamental policy that we must apply Pennsylvania law.
In doing so, we note that Pennsylvania law, like federal
law, favors the enforcement of arbitration agreements. Salley v.
Option One Mortgage Corp., 925 A.2d 115, 119 n.2 (Pa. 2007).
Both require that arbitration agreements be enforced as written
and allow an arbitration provision to be set aside only for
generally recognized contract defenses, such as
unconscionability. Thibodeau v. Comcast Corp., 912 A.2d 874,
880 (Pa. Super. Ct. 2006), appeal denied sub nom. Afroilan v.
AT&T Wireless & Panosonic Telecomm. Sys. Co., 937 A.2d 442
(Pa. 2007)). We have little difficulty concluding that Kaneff’s
agreement to arbitrate would not be considered unconscionable
under Pennsylvania law.
Our choice of law determination may not necessarily
apply to each challenged provision. The Buckeye Court held, “as
a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract.”
Buckeye, 546 U.S. at 445. As this court stated in Berg, an
opinion authored by then-judge (now Justice) Alito, “[b]ecause
choice of law analysis is issue-specific, different states’ laws may
apply to different issues in a single case.” Berg, 435 F.3d at 462.
In addition to her challenge to the usurious interest rate,
Kaneff argues that the arbitration clause is unconscionable
because:
(a). DTL’s one-way arbitration clause is unconscionable
because it prevents borrowers from defending
against repossessions.
(b). The class action waiver in DTL’s arbitration
agreement is unconscionable because it shields DTL
from prospective injunctive relief so that an
arbitrator is powerless to order DTL to cease
engaging in on-going illegal conduct.

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(c). The cost sharing clause in DTL’s arbitration clause is
unconscionable because it denies a plaintiff statutory
attorney’s fees, making arbitration too expensive for
a plaintiff to pursue.
(d). The mandatory $125 filing fee is unconscionable
because it is an additional impediment to bringing a
small claim against DTL and does not allow for
waiver for a low income litigant.
(e). The provisions are not susceptible to severance
because they are included in the arbitration clause as
part of a scheme to protect potentially illegal conduct
from legal scrutiny.
We, of course, are only deciding the validity of the
arbitration clause and consider Kaneff’s claims in that context
only, just as the arbitrator will consider those claims when s/he
decides the validity of the agreement as a whole. Suffice it to say
that, with one exception, we find for our purposes that those
challenges are wanting. The exception is the provision that
“[t]he parties agree to be responsible for their own expenses,
including fees for attorneys, experts and witnesses.” App. at 38.
That provision is likely unconscionable. See Parilla v. IAP
Worldwide Servs., VI, Inc., 368 F.3d 269, 278-79 (3d Cir. 2004);
cf. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90
(2000) (noting that prohibitively expensive arbitration may
render a clause unenforceable). The provision, however, is
severable pursuant to the severability clause of the agreement.
See App. 38. For the reasons set forth above, we will affirm the
District Court’s order compelling arbitration and reject Kaneff’s
arguments without further discussion.

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