DEBT SETTLEMENT USA, INC. v. Kaplan
v.
Steven Kaplan, Secretary of the Department of Banking, and Department of Banking, Respondents.
Commonwealth Court of Pennsylvania.
Before: LEADBETTER, President Judge; McGinley, Judge; Smith-Ribner, Judge; Pellegrini, Judge; Jubelirer, Judge; LEAVITT, Judge; BUTLER, Judge.
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
Before this Court is the Application for Summary Relief (Application) of the Department of Banking (Department) and Secretary of the Department, Steven Kaplan (Secretary) (Collectively, Applicants). In their Application, Applicants ask this Court to grant them summary judgment and dismiss the Second Amended Petition for Review (Petition) of Debt Settlement USA (Challenger), which challenges the constitutionality of the Debt Management Services Act (Act 117).[1] Challenger is a debt settlement services provider (DSS Provider). In its Petition, which was filed in this Court's original jurisdiction, Challenger argues that Act 117 is unconstitutional on its face and as applied to DSS providers. Applicants seek summary relief pursuant to Rule 1532(b) of the Pennsylvania Rules of Appellate Procedure.[2]
Act 117 was signed into law on October 9, 2008 and became effective on February 6, 2009. Act 117 provides for the regulation and licensing of DSS providers and debt management services providers (DMS Providers). Act 117 defines "debt management services" as "[t]he service of receiving funds periodically from a consumer and then distributing those funds to creditors of the consumer in partial or full payment of the consumer's personal debts." 63 P.S. § 2402. Act 117 also defines "debt settlement services" as:
[a]n action or negotiation made on behalf of a consumer with that consumer's creditors for the purpose of the creditor forgiving part or all of the principal of the debt incurred or credit extended to that consumer. The term shall not include any action taken to convince a creditor to waive any fees or charges.
63 P.S. § 2402. Challenger describes DMS and DSS providers as follows:
7. Debt settlement companies provide a critical service to individuals, businesses, and the public by helping them to satisfy and resolve their debts efficiently and expeditiously, and in particular by providing a means for them to avoid bankruptcy by negotiating a settlement for a portion of the debt with their creditors.
8. In contrast, debt management companies typically focus on reducing their clients' monthly payments and/or securing a reduced interest rate for payment of the full amount owed over a fixed period of time, and do not focus on reducing overall debt through settlements.
9. A critical distinction in the ways in which debt settlement companies and debt management companies work is this: debt settlement companies do not hold or distribute their clients' money, whereas debt management companies receive payments from their clients and, in turn, disburse the payments to their clients' creditors.
(Petition ¶¶ 7-9.)
While Act 117 provides for the licensure and regulation by the Department of both DMS and DSS providers, Act 117 goes into far more detail with respect to DMS providers. Challenger alleges that Act 117, as originally conceived, was intended to regulate only DMS providers, and that regulation of DSS providers was included at the last minute. (Petition ¶¶ 18-21, 39-42.) Act 117 provides, among other things, that DMS and DSS providers must be licensed in order to provide services in the Commonwealth. Section 3 of Act 117, 63 P.S. § 2403. With regard to DMS providers, Section 3(a) provides that in order to operate within the Commonwealth, a DMS provider must be "licensed by the [D]epartment under this act." 63 P.S. § 2403(a). With regard to DSS providers, however, Section 3(b) states that in order to operate in the Commonwealth, a DSS provider must be "licensed by the [D]epartment under this act and . . . operating in accordance with regulations promulgated by the [D]epartment regarding the conduct of debt settlement services." 63 P.S. § 2403(b) (emphasis added). In their Petition, Challengers allege that the Department will not license DSS providers until it promulgates regulations regarding DSS. (Petition ¶ 54-55.) Challengers allege that the Department did not have regulations in place covering DSS providers by the effective date of Act 117, and that DSS providers are not, therefore, able to continue operating in the Commonwealth.[3] (Petition ¶ 55.)
Therefore, Challenger brought its Petition in this Court's original jurisdiction seeking declaratory and injunctive relief, along with attorneys' fees. Challenger asks this Court to determine that Act 117 is unconstitutional because it: (1) violates the Delegation Doctrine found at article II, section 1 of the Pennsylvania Constitution and at Article I, Section 1 and Article I, Section 8, Paragraph 18 of the United States Constitution; (2) violates article III, sections 1 and 3 of the Pennsylvania Constitution; (3) violates DSS providers' rights to equal protection under the United States and Pennsylvania Constitutions; and (4) violates DSS providers' rights to due process under the United States and Pennsylvania Constitutions. For relief on these claims, Challenger's Petition asks this Court to enjoin the Department from enforcing Act 117 against DSS providers. With regard to the claims under the United States Constitution, Challenger also seeks attorneys' fees pursuant to 42 U.S.C. § 1988.
In response to the Petition, Applicants filed an Answer and New Matter. In the New Matter, Applicants asked this Court to dismiss Challenger's Petition for failure to state a claim, among other reasons. Challenger filed an Answer to New Matter, in which it averred that some factual issues remain in dispute, and that discovery would be required to develop these issues.
On February 27, 2009, Applicants filed their Application asking this Court to dismiss Challenger's Petition with prejudice on the grounds that: (1) Challenger has failed to state a claim under 42 U.S.C. § 1983 because the Department is not an entity which is amenable to suit under Section 1983, and Challenger has failed to allege personal involvement by the Secretary; (2) Act 117 does not violate Challenger's right to equal protection; (3) Act 117 does not violate Challenger's right to due process; (4) Act 117 does not violate article III, sections 1 or 3 of the Pennsylvania Constitution; and (5) Act 117 is not an invalid delegation of legislative authority under article II, section 1 of the Pennsylvania Constitution or Article I, Section 1 of the United States Constitution.
The issues raised in Challenger's Petition, and in Applicants' Application, and the arguments the parties marshal in support of their positions on these issues, are substantially the same as those dealt with by this Court in The Association of Debt Settlement Companies v. Department of Banking, ___ A.2d ___, No. 11 M.D. 2009 (Pa. Cmwlth. July 24, 2009) (en banc). The current case does raise two issues, however, which this Court did not address in Association of Debt Settlement Companies: (1) whether the pleadings show that the Secretary is entitled to summary judgment on Challenger's claims under Section 1983; and (2) whether Applicants are entitled to summary judgment on the issue of whether Act 117 violates article III, section 1 of the Pennsylvania Constitution.
Applicants, in their Application, ask this Court to dismiss Challenger's Petition on the grounds that the Department is not a person for purposes of Section 1983 and that Challenger does not allege personal involvement by the Secretary in the alleged violations of Challenger's constitutional rights. (Application at 4.) However, in their brief in support of their Application, Applicants ask only that the Court clarify that any claims against the Secretary, under Section 1983, are claims against him in his official capacity. (Applicants' Br. at 14.) Challenger concedes that it is not seeking relief under Section 1983 from the Department, and is only seeking relief from the Secretary in his official capacity pursuant to Section 1983. (Challenger's Br. at 17.) Therefore, the parties do not appear to differ on this matter, and the Department has not shown why the Secretary should not be subject to Challenger's claims under Section 1983 in his official capacity. We must, therefore, deny partial summary judgment on this point.
Next, we address Applicants' argument that the pleadings in this case show that Act 117 does not violate article III, section 1 of the Pennsylvania Constitution. Article III, section 1 of the Pennsylvania Constitution requires that "[n]o law shall be passed except by bill, and no bill shall be so altered or amended, on its passage through either House, as to change its original purpose." Pa. Const. art III § 1. In determining whether a bill violates article III, section 1, this Court must "consider the original purpose of the legislation and compare it to the final purpose and determine whether there has been an alteration or amendment so as to change the original purpose," and then "consider, whether in its final form, the title and contents of the bill are deceptive." Pennsylvanians Against Gambling Expansion (P.A.G.E.) Fund, Inc. v. Commonwealth, 583 Pa. 275, 317, 877 A.2d 383, 408-09 (2005). The original purpose of legislation "must be viewed in reasonably broad terms." Id. at 318, 877 A.2d at 409. However, we have held that the title of Act 117 may have been deceptive with respect to its contents. Association of Debt Settlement Companies, ___ A.2d at ___ (slip op. at 29-30.) Therefore, even if the late addition of the provisions attempting to regulate debt settlement services did not alter the original purpose of Act 117, we would still be compelled to deny the Department summary judgment because Act 117 may violate article III, section 1.
For these reasons, and for the reasons articulated in Association of Debt Settlement Companies, we deny Applicants' Application.
President Judge Leadbetter dissents.
ORDER
NOW, July 24, 2009, the Application for Summary Relief of the Respondents in the above-captioned matter is hereby DENIED.
DISSENTING OPINION BY JUDGE SMITH-RIBNER
I dissent from the majority's decision to deny Respondents' application for summary relief and stand by the position advanced in my dissent to the opinion filed in The Association of Debt Settlement Companies v. Department of Banking, ___ A.2d ___, No. 11 M.D. 2009 (Pa. Cmwlth. July 24, 2009) (en banc). Inasmuch as there has been no unlawful delegation of legislative authority in violation of Article II, Section 1 of the Pennsylvania Constitution, I would grant summary relief to Respondents and dismiss the amended petition for review.
[1] Act of October 9, 2008, P.L. 1421, No. 2008-117, 63 P.S. §§ 2401-2449.
[2] Rule 1532(b) states that "[a]t any time after the filing of a petition for review in an appellate or original jurisdiction matter the court may on application enter judgment if the right of the applicant thereto is clear." Pa. R.A.P. 1532(b). In response to an application for summary relief:
[p]ursuant to Pa. R.A.P. 1532(b) the Court may grant summary relief where the moving party establishes that the case is clear and free from doubt, that there exist no genuine issues of material fact to be tried and that the moving party is entitled to relief as a matter of law.
[3] By order dated January 23, 2009, this Court issued a preliminary injunction enjoining the Department from enforcing Act 117 against Challenger.