Heiko Goldenstein v. Repossessors Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 14-3554

_____________

HEIKO GOLDENSTEIN,

Appellant

v.

REPOSSESSORS INC.; CHAD LATVAAHO;

SHADY OAK ENTERPRISES INC., doing business as

Premier Finance Adjusters; PHILIP J. HOURICAN;

WILLIAM MCKIBBIN

_______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(District Court No. 5-13-cv-02797)

District Judge: Honorable James Knoll Gardner

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Argued: May 20, 2015

Before: GREENAWAY, JR., KRAUSE, and GREENBERG,

Circuit Judges

(Filed: March 10, 2016)

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Robert F. Salvin, Esq. (Argued)

300 Two Bala Plaza, Suite 300

Bala Cynwyd, PA 19004

Counsel for Appellant

Neal A. Thakkar, Esq. (Argued)

Sweeney & Sheehan

216 Haddon Avenue

Suite 500

Westmont, NJ 08108

William R. Hourican, Esq.

527 Swede Street

Norristown, PA 19401

Counsel for Appellees

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OPINION OF THE COURT

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KRAUSE, Circuit Judge

After he defaulted on a $1,000 loan and his car was

repossessed, Appellant Heiko Goldenstein brought suit

against Appellees Repossessors, Inc. and Shady Oak

Enterprises, Inc., d/b/a Premier Finance Adjusters and their

individual owners, alleging the repossession was unlawful

and seeking treble damages, attorney’s fees, and costs.

2

Specifically, Goldenstein claimed violations of various state

and federal consumer protection statutes, as well as the

Racketeer Influenced and Corrupt Organizations Act

(“RICO”). Because we conclude that the District Court erred

in the basis on which it granted summary judgment against

Goldenstein on his RICO claim and two of his state law

claims, we will affirm in part and reverse and remand in part

for the District Court’s further consideration of those claims.

I. FACTUAL AND PROCEDURAL HISTORY1

In April 2012, Goldenstein, a resident of Pennsylvania,

obtained a $1,000 online loan from Sovereign Lending

Solutions, LLC, d/b/a Title Loan America. As a consumer

lending company wholly owned by the Lac Vieux Desert

Band of Lake Superior Chippewa Indians and incorporated

under Chippewa tribal law, Sovereign was authorized to issue

loans secured by vehicles at interest rates far greater than

permitted under Pennsylvania law. App. vol. 2, 123, 264.

Goldenstein pledged his car as collateral and was charged 250

percent interest for his loan.2

1

Unless otherwise noted, the background is adopted

from the facts as found by the District Court in its opinion.

See Goldenstein v. Repossessors, Inc., No. 13-cv-02797, 2014

U.S. Dist. LEXIS 97002 (E.D. Pa. July 17, 2014).

2

The Appellees do not contest Goldenstein’s

calculations of the interest rate, nor do they dispute that the

rate was in excess of what is permitted by Pennsylvania law.

Although Appellees argued before the District Court that

Goldenstein could not support his claims because he could

3

Accounting for the interest due, Sovereign, after

deducting a $50 transfer fee and wiring the remaining $950 of

the loan to Goldenstein’s bank account, withdrew monthly

installments of $207.90 from Goldenstein’s bank account in

June 2012 and again in July 2012. The District Court found

for the purposes of summary judgment that Goldenstein

removed his funds from the account because he did not

recognize the account activity on his bank statements. As a

result, when Sovereign attempted to collect a third installment

payment in August 2012, it was rejected for insufficient

funds. Sovereign then contracted with Repossessors, Inc. to

forfeit Goldenstein’s collateral, and Repossessors, Inc., in

turn, contracted with Shady Oak Enterprises, Inc., d/b/a

Premier Finance Adjusters (“Premier”), which took

possession of Goldenstein’s car. When Goldenstein

attempted to recover his car a few days later, App. vol. 2, 45,

Premier informed Goldenstein that his payment would not be

accepted nor his car returned unless he signed release

documents. After conferring with his attorney, Goldenstein

paid Premier $2,393 ($2,143 to satisfy the loan and $250 in

repossession fees) and signed the releases.

Goldenstein filed suit in the United States District

Court for the Eastern District of Pennsylvania in a three-count

complaint. In the first count, Goldenstein claimed violations

of the Fair Debt Collection Practices Act (“FDCPA”), 15

U.S.C. §§ 1692–1692p, and Pennsylvania’s Fair Credit

Extension Uniformity Act (“PFCEUA”), 73 Pa. Stat. and

Cons. Stat. Ann. §§ 2270.1–2270.6 based in part on alleged

not produce a copy of his loan document, they do not renew

that argument here.

4

violations of Pennsylvania’s Uniform Commercial Code

(“UCC”), 13 Pa. Cons. Stat. §§ 1101–9710.3 The FDCPA

claim was premised on the notion that Appellees had no

present right to possession of Goldenstein’s car because the

loan was usurious under Pennsylvania law. As for the

PFCEUA and UCC claims, Goldenstein alleged that the

Appellees made “false, deceptive, or misleading

representations” and engaged in “unfair or unconscionable

means of debt collection” when, among other things, they

required Goldenstein to sign the releases before recovering

his car. App. vol. 2, 8. The second and third counts of the

complaint claimed that Repossessors, Inc. and Premier, both

individually and jointly, constituted a RICO “enterprise” and

that the repossession of Goldenstein’s car involved the

“collection of unlawful debt,” in violation of 18 U.S.C.

§ 1962(c), and gave rise to a RICO conspiracy, in violation of

18 U.S.C. § 1962(d). App. vol. 2, 9-12.

The District Court granted Appellees’ motion for

summary judgment and entered judgment against Goldenstein

on all claims. Goldenstein v. Repossessors, Inc., No. 13-cv-

02797, 2014 U.S. Dist. LEXIS 97002, at *2 (E.D. Pa. July 17,

2014). As to the FDCPA claim, the District Court held there

was no violation because the Appellees had a right to possess

the car as collateral for the unpaid loan. Id. at *19-22. As to

3

While the alleged UCC violation is not identified as a

separate claim in the complaint, it is referenced within the

allegations for violations of the PFCEUA, see App. vol. 2, 8

(Compl. ¶¶ 44(b), 45(b)), and more clearly outlined in

Goldenstein’s Memorandum of Law in Opposition to the

Motion for Summary Judgment, see Mem. Law Opp’n Mot.

Summ. J. 13-15, ECF No. 40-1.

5

the RICO claim, the District Court held that the repossession

of collateral could not constitute the “collection of unlawful

debt” as a matter of law; it therefore did not address any other

element of the RICO claim. Id. at *22-23. Nor did the

District Court address Goldenstein’s claims for violations of

the PFCEUA and the UCC relating to the releases.4 This

appeal followed.

4

The District Court reasoned erroneously that the

“FDCPA and PFCEUA claims share identical elements and

will be analyzed as one claim for purposes of this Opinion.”

Goldenstein, 2014 U.S. Dist. LEXIS 97002, at *16 n.36.

Giving the District Court the benefit of the doubt, it may have

taken this approach because both of those claims were

included in Count One of the complaint. As discussed in

more detail below, however, the PFCEUA claim is distinct

from the FDCPA claim and is predicated not on the alleged

absence of Premier’s present right to possession of the car but

on alleged misrepresentations related to the releases Premier

required Goldenstein to sign in order to recover his car. The

District Court did not engage the merits of this claim or

Appellees’ arguments that the releases barred this litigation.

Raising additional concerns in this Court’s mind about the

care with which the District Court considered Goldenstein’s

claims, the District Court granted summary judgment on the

PFCEUA and UCC claims although Appellees did not

specifically argue those claims in their motion for summary

judgment and proceeded to state in its opinion that it was

granting summary judgment as to Count One and Count Two

of the complaint without making any mention of Count

Three, the RICO conspiracy claim. Id. at *22-23.

Nonetheless, the District Court granted judgment against

6

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction pursuant to 28

U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C.

§ 1291.

We exercise plenary review of a district court’s grant

of summary judgment. Reedy v. Evanson, 615 F.3d 197, 210

(3d Cir. 2010) (citing Horn v. Thoratec Corp., 376 F.3d 163,

165 (3d Cir. 2004)). Summary judgment is appropriate “if

the movant shows that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a

matter of law.” Thomas v. Cumberland Cty., 749 F.3d 217,

222 (3d Cir. 2014) (quoting Fed. R. Civ. P. 56(a)) (internal

quotation marks omitted). When deciding a motion for

summary judgment, “[a]ll reasonable inferences from the

record must be drawn in favor of the nonmoving party” and

the court “may not weigh the evidence or assess credibility.”

MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204, 209 (3d

Cir. 2005) (citations omitted).

In a motion for summary judgment, it is initially the

moving party’s burden to “demonstrate the absence of a

genuine [dispute] of material fact.” Mathews v. Kidder,

Peabody & Co., 260 F.3d 239, 250 (3d Cir. 2001) (citing

Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986)). A

factual dispute is genuine “if the evidence is such that a

reasonable jury could return a verdict for the nonmoving

party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). Conversely, “where a non-moving party fails

sufficiently to establish the existence of an essential element

Goldenstein “on all claims” and closed the case. Id. at *23-

25.

7

of its case on which it bears the burden of proof at trial, there

is not a genuine dispute with respect to a material fact and

thus the moving party is entitled to judgment as a matter of

law.” Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 265

(3d Cir. 2014).

III. DISCUSSION

We agree with the District Court that, although the

loan may have been usurious under Pennsylvania law,

Appellees nonetheless had a present right to possession of

Goldenstein’s car and their repossession of it therefore did not

violate the FDCPA. We cannot agree, however, that

forfeiture of collateral cannot amount to the “collection of

unlawful debt” under the RICO statute. And as the District

Court did not address the merits of Goldenstein’s claims

alleging violations of the PFCEUA and the UCC, we decline

to do so in the first instance. We address these issues in turn.

A. Goldenstein’s FDCPA Claim

Goldenstein raises two challenges to the District

Court’s holding that, because Goldenstein defaulted on his

loan, Appellees had a present right to possession of his car as

collateral and therefore did not violate the FDCPA.

First, he contends that no present right to possession

could attach to his car because the loan it secured was made

at a usurious rate of interest in violation of Pennsylvania’s

Loan Interest and Protection Law (“LIPL”), 41 Pa. Stat. and

Cons. Stat. Ann. § 201. Even when the interest rate is

usurious, however, the LIPL does not void the entire loan or

the legal interest, nor does it make it illegal for a lender to

collect an unpaid debt. Instead, the LIPL only makes

8

voidable “the interest specified beyond the lawful rate,” Pa.

Dep’t of Banking v. NCAS of Del., LLC, 995 A.2d 422, 440

(Pa. Commw. Ct. 2010) (emphasis omitted) (quoting Mulcahy

v. Loftus, 267 A.2d, 872, 873 (Pa. 1970)), and Pennsylvania

law expressly permits a secured party to “take possession of

the collateral” after default, “without judicial process if it

proceeds without breach of the peace,” 13 Pa. Cons. Stat.

§ 9609. Thus, having admittedly defaulted on his loan—

including removing the funds from his bank account without

further communication with the lender and failing to make

three monthly payments before his car was repossessed—

Goldenstein cannot now contest Sovereign’s right to

repossess the collateral he posted in the event of just such a

default.

Second, Goldenstein argues that the repossession was

unlawful because his arrearage—assuming he had been

accruing interest at a six percent rate as permitted by

Pennsylvania law and deducting Sovereign’s first two

deductions from his bank account from his overall balance—

would have been a mere $9.60, and his failure to make this de

minimis payment could not constitute a material breach of the

loan contract. That argument, however, finds no support in

the LIPL. While that statute provides important protections

to borrowers who fall victim to usurious loans, it does not

empower borrowers to recalculate what they owe by

construing interest paid in excess of the legal rate as paid

principal, nor does it preclude lenders from repossessing the

collateral on a defaulted loan. See 13 Pa. Cons. Stat. § 9609;

Pa. Dep’t of Banking, 995 A.2d at 440.

The District Court thus correctly concluded that the

Appellees had a present right to possession and did not

violate the FDCPA when they repossessed Goldenstein’s car.

9

B. Goldenstein’s RICO Claim

1. The Collection of Unlawful Debt

RICO makes it unlawful for a person associated with a

RICO “enterprise” to participate in the conduct of such

enterprise “through a pattern of racketeering activity or

collection of unlawful debt.”5 18 U.S.C. § 1962(c). The

District Court dismissed Goldenstein’s RICO claim by

summarily stating “[i]t is well-settled by this court that the

repossession of collateral is clearly distinguishable from the

collection of unlawful debt and does not give rise to a RICO

claim,” and citing to the opinion of another District Judge in

the Eastern District of Pennsylvania who had reached that

conclusion. Goldenstein, 2014 U.S. Dist. LEXIS 97002, at

*23 (citing Collins v. Siani’s Salvage, LLC, No. 13-3044,

2014 U.S. Dist. LEXIS 39930, at *5 (E.D. Pa. Mar. 26,

2014)). Indeed, two judges in the Eastern District of

Pennsylvania, in addition to the District Judge here, have held

that when a repossession company repossesses a car as

collateral for an unpaid debt, the repossession company “[i]s

5

While ordinarily a RICO claim requires a plaintiff to

prove the defendants participated in the enterprise “through a

pattern of racketeering activity,” United States v. Console, 13

F.3d 641, 652-53 (3d Cir. 1993) (citation and internal

quotation marks omitted), the “collection of unlawful debt” is

an act native to the RICO statute and does not require a

pattern of activities to constitute a violation, see United States

v. Vastola, 899 F.2d 211, 228 n.21 (3d Cir. 1990) (holding

that a single collection satisfies the requirements for the

“collection of unlawful debt” and no further pattern or

predicate act need be shown).

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not collecting the debt that [the lender] alleged it [i]s owed

under the loan agreement. Rather, [the repossession

company] [i]s repossessing the collateral for that debt.”

Collins, 2014 U.S. Dist. LEXIS 39930, at *14 (quoting

Gonzalez v. DRS Towing, LLC, No. 12-cv-05508, at 7 (E.D.

Pa. Feb. 28, 2013)). That position, however, is far from

settled.

No Court of Appeals has yet addressed this question;

nor are the District Judges unanimous, even in the Eastern

District of Pennsylvania. On the contrary, in a thoughtful and

well-reasoned opinion in Gregoria v. Total Asset Recovery,

Inc., No. 12-4315, 2015 U.S. Dist. LEXIS 1818 (E.D. Pa. Jan.

8, 2015), Judge Lawrence F. Stengel held that the distinction

between the collection of debt and the collection of collateral

for a debt is a “distinction without a difference,” and observed

that when a lender repossesses a debtor’s car as collateral for

a loan it does so “to liquidate the collateral to satisfy the

unpaid balance of [the] loan.” Id. at *18 (internal quotation

marks omitted). Citing the “broad construction [it] must give

the RICO statute,” Judge Stengel recognized that “[w]hether

the [lender] collected the car or cash, the purpose of the

collection was to satisfy the debt.” Id. at *18 & n.11.

We agree with the reasoning in Gregoria. Nothing in

RICO suggests that Congress intended to limit its prohibition

on the “collection of unlawful debt” to the seizure of cash and

to exclude the forfeiture of collateral used to secure unlawful

debt. Quite the opposite. The statute defines “unlawful debt”

as “a debt (A) incurred . . . which is unenforceable under

State or Federal law in whole or in part as to principal or

interest because of the laws relating to usury, and (B) which

was incurred in connection with . . . the business of lending

money or a thing of value at a rate usurious under State or

11

Federal law, where the usurious rate is at least twice the

enforceable rate.” 18 U.S.C. § 1961(6). Thus, the prohibition

on the “collection of unlawful debt” under the statute

encompasses efforts to collect on a usurious loan, without

distinguishing whether the collection is cash or collateral; in

either case the defendants’ actions effect the collection of the

unlawful debt. Cf. United States v. Eufrasio, 935 F.2d 553,

576 (3d Cir. 1991) (holding that “a single act which would

tend to induce another to repay on an unlawful debt incurred

in the business of lending money” is sufficient for the

predicate act, and there need not be “[a]n actual exchange of

cash”).

Goldenstein’s is a case in point. Premier repossessed

Goldenstein’s car for one of two purposes: either Goldenstein

would pay off the loan for the return of his car or the car

would be liquidated with the proceeds used to pay off that

loan. Either way, the debt would be collected and the

usurious loan discharged. It so happens that Goldenstein

opted to pay so that Premier collected the outstanding loan

balance (and then some) in cash. Thus, the collection of

collateral and the “collection of unlawful debt” in this very

case was a “distinction without a difference.” See Gregoria,

2015 U.S. Dist. LEXIS 1818 at *18.

This practical reality, along with the Supreme Court’s

instruction that RICO should “be read broadly,” Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985), and its

clarification that Congress intended RICO to reach both

legitimate and illegitimate enterprises, id. at 499-500; United

States v. Turkette, 452 U.S. 576, 584-85 (1981), confirm that

RICO’s prohibition on the “collection of unlawful debt” can

reach even a legitimate repossession company that forfeits on

collateral for a usurious loan—assuming, that is, that the

12

plaintiff can establish the other elements of the violation. To

that subject, we now turn.

2. The Existence of a RICO Enterprise

Here, Appellees urge that Goldenstein cannot satisfy

other RICO elements, specifically that he cannot prove the

existence of an “enterprise” because Appellees consisted of

an “ad hoc group of entities that were connected solely for the

purpose of repossessing plaintiff’s vehicle,” Appellees’ Br.

27, and that he cannot establish that Appellees possessed the

mens rea they argue is required by RICO. The District Court

did not address these arguments, which is unsurprising, given

that, as Appellees conceded at oral argument, they did not

raise them in their motion for summary judgment. See Oral

Argument at 31:17–32:10 (argued May 20, 2015).

As a general rule, “a federal appellate court does not

consider an issue not passed upon below.” Singleton v. Wulff,

428 U.S. 106, 120 (1976). While we may make exceptions

“when the factual record is developed and the issues provide

purely legal questions, upon which an appellate court

exercises plenary review,” we will remand “when the issue to

be addressed is not a purely legal question,” requiring either

“the exercise of discretion or fact finding.” Hudson United

Bank v. LiTenda Mort. Corp., 142 F.3d 151, 159 (3d Cir.

1998).

Here, the record is not sufficiently developed for us to

consider the merits of the parties’ arguments as to the alleged

enterprise or mens rea. In light of Appellees’ failure to raise

these arguments until their responsive brief on appeal,

Goldenstein did not have the opportunity to supplement the

factual record on those points, nor to fully brief them for us or

13

the District Court. Under these circumstances, we will leave

these issues for the District Court to consider in the first

instance on remand.

C. Goldenstein’s PFCEUA and UCC Claim

The District Court granted summary judgment against

Goldenstein on his PFCEUA and UCC claims without

addressing the substance of the PFCEUA claim, without even

mentioning the UCC claim, and despite the fact that

Appellees did not argue those claims in their motion for

summary judgment.6 This too, we conclude, was error.

As to the PFCEUA, the District Court granted

summary judgment on the ground that there was no FDCPA

violation based on the Appellees’ present right to possession.

In so doing, the District Court appears to have

misapprehended the substance of Goldenstein’s PFCEUA

claim. Consistent with his argument on appeal, Goldenstein

urged before the District Court that the PFCEUA’s broad

definition of “debt collector” encompasses repossession

companies, see 73 Pa. Stat. and Cons. Stat. Ann. § 2270.3;

that the PFCEUA states that “[i]t shall constitute an unfair or

6

A district court, of course, may grant summary

judgment sua sponte on claims not raised by the moving party

where, as here, the non-moving party is on notice and given

an opportunity to respond. See Celotex Corp., 477 U.S. at

326; Gibson v. Mayor & Council of City of Wilmington, 355

F.3d 215, 224 (3d Cir. 2004). Where it does so without

acknowledging or addressing the claims in question, however,

the court creates uncertainty as to whether it considered the

claims on the merits and hinders our ability to conduct

meaningful appellate review.

14

deceptive debt collection act or practice under this act if a

debt collector violates any of the provisions of the [FDCPA],”

73 Pa. Stat. and Cons. Stat. Ann. § 2270.4; and that the

FDCPA, in turn, prohibits debt collectors from using any

“false, deceptive, or misleading representation or means in

connection with the collection of any debt,” 15 U.S.C.

§ 1692e. See Mem. Law Opp’n Mot. Summ. J. 15, ECF No.

40-1. Thus, according to Goldenstein, Premier’s use of

“false, deceptive, or misleading representation[s]” to coerce

Goldenstein to sign the releases to recover his car violated the

PFCEUA through the § 1692e provision of the FDCPA. As

the District Court did not engage this argument or the alleged

UCC violation, these claims should also be addressed by the

District Court on remand.

IV. CONCLUSION

For the foregoing reasons, the District Court erred in

granting summary judgment in favor of the Appellees for

alleged violations of RICO, the PFCEUA, and the UCC, and

its judgment, to that extent, will be vacated and the case

remanded for proceedings consistent with this opinion.

15