Thursday, January 27, 2022

FYI: 2nd Cir Upholds Dismissal of TCPA "Unsolicited Advertisement" Putative Class Action

The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of a putative class action alleging that an unsolicited faxed invitation to participate in a market research survey in exchange for money was an "unsolicited advertisement" under the federal Telephone Consumer Protection Act of 1991 ("TCPA").

 

A copy of the opinion is available at:  Link to Opinion

 

The named plaintiff, a medical services company, alleged that the defendant, a market research company, sent the plaintiff two unsolicited faxes seeking participants in market research surveys, in violation of the TCPA, as amended by the Junk Fax Prevention Act of 2005 ("JFPA").

 

Both faxes explained that the defendant was "currently conducting a market research study" and "offer[ed] an honorarium of $150 for [the recipient's] participation in a . . . telephone interview."

 

In response, the defendant filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that an unsolicited faxed invitation to participate in a market research survey in exchange for money does not constitute an "unsolicited advertisement" under 47 U.S.C. § 227(b)(1)(C). The trial court agreed and granted the motion to dismiss. This appeal followed.

 

As you may recall, the TCPA as amended by the JFPA prohibits the use of "any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement." 47 U.S.C. § 227(b)(1)(C).

 

An "unsolicited advertisement" is defined by the statute as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission." Id. § 227(a)(5). The regulations of the Federal Communications Commission ("FCC") implementing the TCPA contain an identical definition of "unsolicited advertisement."47 C.F.R. § 64.1200(f)(16).

 

The Second Circuit here agreed with the defendant and the trial court, and held that faxes that seek a recipient's participation in a survey do not advertise the availability of any one of "property, goods, or services," and therefore cannot be "advertisements" under the plain meaning of the TCPA.

 

Furthermore, the Second Circuit noted that "[t]he text's plain meaning can best be understood by looking to the statutory scheme as a whole and placing the particular provision within the context of that statute." Saks v. Franklin Covey Co., 316 F.3d 337, 345 (2d Cir. 2003); see K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988)

 

The Second Circuit held that the word "property" does not appear to include money as the word is used in the TCPA. 47 U.S.C. § 227(a)(4). The word "property" occurs twice: once in the definition of "unsolicited advertisement" and once in the definition of "telephonic solicitation." A "telephone solicitation" is defined in the TCPA as "a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services." 47 U.S.C. § 227(a)(4) (emphasis added).

 

The Second Circuit reasoned that it would be strange for the statute to speak of the "purchase or rental of, or investment in" money. The Court also noted that, although it is true that the "unsolicited advertisement" definition might allow a broader reading of the word "property" than the "telephone solicitation" definition, the Court observed that "identical words used in different parts of the same statute are generally presumed to have the same meaning." IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005).

 

The Second Circuit also concluded that the faxes could not be construed as advertising the availability of a service because the faxes only sought participation in a survey from the fax recipient. The Court noted that the statute does not prohibit communications advertising the availability of such an opportunity, even if the opportunity is commercial in character.

 

On this point, the Second Circuit disagreed with the Third Circuit's holding in Fischbein v. Olson Research Group, 959 F.3d 559 (3d Cir. 2020), which relied on an encyclopedia definition of what constitutes a "commercial transaction" to conclude that "an offer of payment . . . transforms the . . . market surveys into advertisements," rather than focusing on the definition of "advertisement" that the TCPA and FCC regulations provide. Id. at 562. In doing so, the Second Circuit held that the Third Circuit's opinion effectively rewrote the TCPA.

 

Furthermore, the Second Circuit found that the legislative history of the TCPA and the FCC's implementation of that law support the position that the faxes in this case were not advertisements.

 

Specifically, before the JFPA extended the TCPA to include faxes, the House Committee on Energy and Commerce, in its recommendation that the TCPA be enacted, noted that "the Committee does not intend the term 'telephone solicitation' to include public opinion polling, consumer or market surveys, or other survey research conducted by telephone," and explained that "such research has generated relatively few complaints" from consumers. Moreover, in regulations implementing the TCPA the year after its enactment, the FCC excluded "research, market surveys, political polling or similar activities" from liability under the statute.

 

Accordingly, the Second Circuit held that the statutory text, legislative history, and FCC implementation of the TCPA all support the conclusion that faxed invitations to participate in a survey, without more, are not advertisements under the statute. Thus, the Court affirmed the trial court's judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, January 25, 2022

FYI: 4th Cir Reverses Dismissal of Claims that Mortgage Servicer's Pay-Online and Pay-By-Phone Fees Were Illegal

The U.S. Court of Appeals for the Fourth Circuit recently reversed the dismissal of a putative class action alleging that a mortgage servicer's fee to borrowers who paid monthly mortgage bills online or by phone was illegal.

 

A copy of the opinion is available at:  Link to Opinion

 

The appeal arose from a class action suit brought by two borrowers ("Borrowers") against a mortgage servicer ("Servicer") for charging a $5 convenience fee for payment of monthly mortgage bills online or by phone.  Borrowers alleged that the fees supposedly violated the Maryland Consumer Debt Collection Act (MCDCA) and the Maryland Consumer Protection Act (MCPA).

 

Borrowers' mortgage loans were both transferred to Servicer for servicing.   The loans provided the method of payment of paying by mail.  In addition to the free pay-by-mail option, Servicer also gave Borrowers the choice to make payments online or by phone for a $5 convenience fee.

 

Borrowers opting to pay online had to press an "I agree" button after reviewing the terms and conditions for the service, and then select "Continue" after manually inputting the payment amount and seeing the convenience fee displayed.  Borrowers both paid their mortgages online using this method, paying the convenience fee at least 9 times each.

 

Borrowers brought a class action suit against Servicer alleging two violations of the MCDCA:  supposedly engaging in conduct that violates the federal Fair Debt Collection Practices Act (FDCPA), Md. Code Ann., Com. Law § 14-202(11), and allegedly attempting to enforce a right with knowledge that the right does not exist, id. § 14-202(8).

 

Borrowers also alleged two violations of the MCPA; an unfair-and-deceptive practices claim and a derivative claim based on the supposed MCDCA violations.

 

Servicer moved to dismiss.  The trial court granted the motion and dismissed Borrowers' claims.  This appeal followed.

 

The Fourth Circuit first looked at Borrowers' allegations under MCDCA – that is, by charging its convenience fees, Servicer engaged in conduct in violation the FDCPA.

 

The Appellate Court reversed the trial court's dismissal of this MCDCA claim, finding that Servicer was a "collector" who charged an "amount" that was not "expressly authorized by the agreement creating the debt or permitted by law" in violation of the FDCPA.  See 15 U.S.C. § 1692f(1).

 

The Fourth Circuit first found that Servicer was a collector under the MCDCA, as Servicer was "a person collecting or attempting to collect an alleged debt arising out of a consumer transaction." MD. Code. Ann., Com. Law § 14-201(b).

 

Servicer offered three arguments against this position.  First, Servicer argued that there was a difference between passively accepting payments as a servicer and enforcing payment obligations of defaulting borrowers. However, the Fourth Circuit found that "[r]eading additional exemptions into a remedial statute limits the possibility of remedies beyond what the Legislature intended," Andrews & Lawrence Pro. Servs. v. Mills, 223 A.3d 947, 968 (Md. 2020), and declined to accept this argument.

 

Servicer next argued Borrowers were required to challenge a "method of collection" and not simply the validity of the fees. However, the Fourth Circuit held that, although "it is not inaccurate to say that [the MCDCA] deals with methods of debt collection, it is more accurate to describe the statute as regulating the conduct of a person while engaged in debt collection." Chavis v. Blibaum & Assocs., P.A., 2021 WL 3828655, at *11 (Md. Aug. 27, 2021). The Appellate Court found that as Servicer was collecting a debt, the means by which they choose to do that did not make them any less of a collector.

 

Servicer also argued that even if it were a collector under the MCDCA, Borrowers must also show that it was a "debt collector" under the FDCPA to establish a Statute 14-202(11) violation. However, the Fourth Circuit found the broader definition of the MCDCA controlling, finding that it was not displaced by the federal definition. The Appellate Court relied on the fact that the Maryland legislature in enacting the MCDCA specifically chose not to incorporate the FDCPA's narrow definition of "debt collector" but chose only to include the FDCPA's "substantive provisions."

 

The Fourth Circuit next held that Servicer's convenience fees qualified as an "amount" charged under the FDCPA, 15 U.S.C. § 1692f(1). Servicer argued that the FDCPA only prohibits fees that are "incidental" to the mortgage debt, and that the convenience fees at issue arose from a separate agreement to provide an easier way for Borrowers to make payments that was not addressed in the mortgage loan agreement.

 

The Fourth Circuit disagreed, ruling that the FDCPA's use of the term "any amount" was not limited to only charges that are incidental to the principal obligation. Thus, the Court found the convenience fees at issue an "amount" under the FDCPA, 15 U.S.C. § 1692f(1).

 

Finally, the Fourth Circuit concluded that Servicer's convenience fees were not "permitted by law", because this term in the FDCPA requires affirmative sanction or approval.  Servicer argued that because Borrowers manifested assent after full disclosure and in the separate online agreements, common principles of contract law applied rendering the fees "permitted by law." However, the Fourth Circuit disagreed, ruling that this reasoning would make the prong permitting amounts "expressly authorized by the agreement creating the debt" superfluous.

 

The Fourth Circuit thus held that Servicer was a collector who charged an amount not expressly authorized by the agreement creating the debt or prohibited by law, in violation of the MCDCA.

 

The Appellate Court also reversed the dismissal of Borrowers' derivative MCPA claim and vacated the dismissal of the § 14-202(8) claim because the dismissal was predicated on the trial court's view of the MCDCA's definition of "collector" and Borrowers' voluntary assent which the Appellate Court found was in error.

 

The Appellate Court remanded this claim to allow the trial court's further consideration of that claim.

 

However, the Fourth Circuit affirmed the trial court's dismissal of the standalone MCPA claim alleging "unfair, abusive, or deceptive trade practices" as Borrowers claim was a "threadbare recital[] of the elements of the cause of action" rather than a "plausible claim for relief." Aschcroft v. Iqbal, 556 U.S. 662, 678, 679 (2009).

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320

Fax: (312) 284-4751

Mobile:  (312) 493-0874

Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, January 23, 2022

FYI: Wisc Sup Ct Limits 'Unconscionability' Claims Regarding Consumer Credit Transactions

The Supreme Court of Wisconsin recently held that:

 

(1) In the Wisconsin statute regarding nonjudicial enforcement for consumer transactions (§ 425.206(2)(b)), the term "dwelling used by a customer as a residence" includes a garage attached to the residential building in which the customer lives; and

 

(2) Claims of unconscionability under the Wisconsin statute regarding remedies in consumer credit transactions (§ 425.107) are available only in "actions or other proceedings" brought by a creditor to enforce rights arising from consumer credit transactions and that a non-judicial repossession is not such an action or proceeding.

 

A link to the opinion is available at:  Link to Opinion

 

The matter arose out of a consumer's ("Consumer") default on her vehicle installment purchase contract, after which the assignee opted to conduct a non-judicial repossession under Wis. Stat. §§ 425.205(1g)(a) and 425.206(1)(d).

 

The assignee hired a recovery agency to repossess the vehicle. The recovery agency entered the garage of Consumer's apartment building and took possession of the car.

 

Consumer filed suit against the assignee and recovery agent alleging that they violated the Wisconsin Consumer Act by "[e]ntering a dwelling used by a customer as a residence except at the voluntary request of a customer" during the repossession. See Wis. Stat. § 425.206(2)(b) (2017-18). Consumer also brought claims for violation of Wis. Stat. § 425.107 alleging that the defendants' conduct during and after the repossession was unconscionable.

 

The trial court granted summary judgment for the defendants concluding that entering the garage to repossess the car did not violate Wis. Stat. § 425.206(2)(b) and the unconscionability claim failed as a result.

 

The Court of Appeals reversed and remanded to give the parties and the trial court the opportunity to address the unconscionability claim.  This appeal to the Wisconsin Supreme Court followed.

 

The question addressed by the Wisconsin Supreme Court was whether the assignee and recovery agent entered "a dwelling used by [Consumer] as a residence" when they repossessed her car from the first-floor parking garage of her apartment building.

 

The Wisconsin Supreme Court first determined the meaning of "dwelling" as it is used in § 425.206(2)(b).

 

The Court noted the common definition of dwelling is a building in which at least one person lives. The Wisconsin Supreme Court observed this definition consistent with the use of dwelling elsewhere in statutes that were in force at the time the Wisconsin Consumer Act was adopted.  The Court also held that the term referred to the entire building and not just the parts where residents might eat, sleep or shower.

 

The Wisconsin Supreme Court also observed that this definition of dwelling was consistent with its use elsewhere in the Wisconsin Consumer Act. Specifically, Wis. Admin. Code §  DFI-WCA 1.392, specifies that, for purposes of Wis. Stat § 426.419(1)(a), "dwelling" includes "any garage, shed, barn or other building on the premises whether attached or unattached." The Court noted that it did not adopt the administrative definition as the statutory definition under Wis. Stat. § 425.206(2)(b) but merely relied on it as further support for the conclusion that "dwelling" in § 425.206(2)(b) meant, at a minimum, a building in which at least one person lived.

 

The Wisconsin Supreme Court therefore held that the term "dwelling" in the Wisconsin Consumer Act included the garage from which Consumer's vehicle was repossessed as it was located in the building in which she lived.

 

The Court next turned to whether the phrase "used by the customer as a residence" nevertheless excluded the garage."

 

The Wisconsin Supreme Court concluded that this phrase distinguished the customer's dwelling from all other dwellings. The Court reasoned the modifier was best understood as limiting which dwelling was protected and not which parts of the dwelling were protected. The Court further noted that its interpretation of Wis. Stat. § 425.206(2)(b) furthered one of the legislatively expressed purposes of the Wisconsin Consumer Act, to "simplify, clarify, and modernize the law governing consumer transactions." See Wis. Stat. § 421.102(2)(a), see also § 421.102(1).

 

The Wisconsin Supreme Court therefore concluded that "dwelling used by the costumer as a residence" in Wis. Stat. § 425.206(2)(b) included a garage attached to the residential building in which the customer lives and thus ruled that the defendants violated § 425.206(2)(b) when they repossessed Consumer's vehicle.

 

The Court next turned to the question of unconscionability, answering the following two questions: (1) whether customers can bring claims of unconscionability under § 425.107 only in "actions or proceedings brought by a creditor to enforce rights arising from consumer credit transactions", and (2) whether a non-judicial repossession pursuant to Wis. Stat. § 425.206(1)(d) is such an action or proceeding.

 

Although the Wisconsin Supreme Court had not yet addressed the first question, it noted several federal trial court cases which held that a consumer may raise an unconscionability claim under Wis. Stat. § 425.107 only in response to an action or other proceeding brought by a creditor and not as an original action. See Riel v. Navient Sols., Inc., No. 16-CV-1191-JPS, 2017 WL 168900 (E.D. wis. Jan. 17, 2017); see also Gable v. Universal Acceptance Corp., 338 F. Supp. 3d 943, 956-57 (E.D. Wis. 2018); VanHuss v. Rausch, Sturm, Israel, Enerson &Hornik, No. 16-cv-372-slc, 2017 WL 1379402, at *10 (W.D. Wis. Apr. 14, 2017).

 

The Wisconsin Supreme Court agreed that the scope language of Wis. Stat. § 425.102 bars a customer from brining a claim of unconscionability under Wis. Stat. 425.106 except in response to "actions or other proceedings by a creditor."

 

As to the second question, the Court concluded that Wis. Stat. § 425.206(1)(d) was not one of the "actions or other proceedings brought by a creditor" contemplated by the statute.

 

The Wisconsin Supreme Court noted that  neither "actions" nor "other proceedings" are defined in the Wisconsin Consumer Act, but that the context revealed that the terms referred to creditor-initiated litigation or other legal proceedings akin to litigation pursued by a creditor.

 

The Court differentiated non-judicial repossession under Wis. Stat. § 425.206(1)(d) as it is an explicit alternative to litigation that does not require a creditor to assert its rights in court. The Court further stated that because non-judicial repossession pursuant to the statute is only available to the creditor if the customer fails to demand that the creditor file a replevin action, the non-judicial repossession is non an "action" described in § 425.102.

 

The Court found further contextual support to determine that "other proceedings" are formal processes similar to litigation that allow a creditor to enforce its rights.

 

Thus, the Wisconsin Supreme Court held that Consumer's unconscionability claim failed.

 

The Wisconsin Supreme Court therefore affirmed the Court of Appeals' ruling as modified by its conclusion on unconscionability and remanded to the trial court for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, January 19, 2022

FYI: Ill App Ct (3rd Dist) Rejects Arguments by Mortgagee to Undo Tax Sale

The Appellate Court of Illinois, Third District, recently upheld summary judgment in favor of a purchaser of delinquent real estate taxes in an action by a mortgagee for relief from a tax deed.

 

A copy of the opinion is available at:  Link to Opinion

 

The matter arose out of a special assessment tax on a single-family residence. After the 2012 special assessment installment from a municipality was not paid, the county treasurer filed an application for judgment and an order of sale for the delinquent taxes.

 

The county's filing consisted of an affidavit from the county treasurer, a form judgment and order of sale to be signed by the court, a certification signed by the circuit clerk, and 15 pages listing delinquent tax assessments due to the county. The 15 pages did not include the subject residence.

 

On the same date, the collector for the municipality filed a 7 page list of properties with delinquent special assessments, an affidavit stating the list contained the properties with delinquent assessments and attesting that the notice required by law had been given.

 

The subject residence was on the 7 page list. The filing also included an advertisement published on October 15, 2013, but the advertisement was not filed at that time.

 

The judgment and order of sale was signed in October of 2013. On November 2013, the delinquent taxes were sold to a third-party ("Purchaser").

 

In 2016, Purchaser filed a petition for a tax deed. In the interim, the mortgage on the residence had been assigned to a mortgagee and recorded in December 2014. After mortgagee was served with the tax notice in July 2016, the existing mortgagee assigned the mortgage to another party ("Current Mortgagee").

 

Neither the prior mortgagee nor Current Mortgagee redeemed the delinquent special assessments for the property and neither appeared at the December 2016 hearing.  The trial court entered an order directing the county clerk to issue a tax deed. Neither the prior mortgagee nor Current Mortgagee filed any objection to the issuance of the tax deed. The deed was executed and delivered to Purchaser and recorded in March 2017.

 

In December 2017, Current Mortgagee filed a petition for relief from the judgment.  The Current Mortgagee argued that the order granting the tax deed was void.  The trial court denied the Current Mortgagee's petition.

 

The Current Mortgagee and Purchaser then filed cross-motions for summary judgment. The Current Mortgagee's motion was denied, and Purchaser's motion was granted. The trial court found the tax sale proceedings were informal, but the October 2013 order included the municipality's delinquent special assessment taxes. The Current Mortgagee's motion to reconsider was denied, and this appeal followed.

 

On appeal, the Current Mortgagee argued that the county collector did not properly apply for a judgment for the special assessments because the county filing did not include the delinquent special assessments from the municipality. Thus, the Current Mortgagee argued, the judgment and order did not authorize the sale of the special assessments, and absent the order authorizing the sale, the order directing the issuance of the tax deed was void.

 

Purchaser argued that the county and municipality followed an informal process, but the municipality's list was filed by the county collector with her affidavit and list of delinquent real estate taxes. Thus, Purchaser argued, the municipality's list was included as part of the "foregoing" list referenced by the county collector in her application.

 

The Appellate Court noted that the grounds for vacating an order for tax deed are limited to those set forth in section 22-45 of the Illinois Property Tax Code. 35 ILCS 200/22-45 (West 2016); Application of County Treasurer (Congua), 92 Ill. 2d 400 (1982).

 

The Current Mortgagee did not allege that Purchaser failed to notify and serve all interested parties nor did it allege any of the statutory grounds for vacating an order for a tax deed. However, the Court also noted, that a void tax deed can be attacked at any time.

 

Pursuant to Section 21-160 of the Illinois Property Tax Code, a collector "shall transcribe into a record prepared for that purpose, and known as the annual tax judgment, sale, redemption and forfeiture record, the list of delinquent properties." 35 ILCS 200/21-160 (West 2016).

 

The Appellate Court found that the municipality's collector provided a report in the form provided by section 9-2-85 of the Illinois Municipal Code of the properties with delinquent assessment to the county collector, and the county collector applied for the judgment against all the delinquent properties in accordance with the Illinois Property Tax Code.  The Court further found that the municipality's special assessments were included in the "foregoing list" that the county collector referenced in seeking judgment.

 

Finally, the Court found that the errors and informalities, namely, the failure to physically attach the municipality's affidavit and delinquent tax list to the county's application and the failure to attach the advertisement that the municipality's collector attested was published, did not invalidate the tax sale. See 35 ILCS 200/21-185 (West 2016); cf. People v. Jennings, 3 Ill. 2d 125 (1954) (failure to publish was a valid objection to the tax where there was no attempt to comply with the law regarding publishing the list).

 

The Current Mortgagee also argued that the trial court never acquired jurisdiction over the property since the municipality's publication notice was insufficient.

 

The Appellate Court quickly dispensed with this argument as tax proceedings are in rem in nature and the court acquires jurisdiction after the county collector makes his application for judgment and order of sale. In re Application of the 7 County Collector, 2011 IL App (3d) 100181, ¶ 13.  Because jurisdiction over the land itself grants the court power to act, thus, the notice requirements sufficiency only brings into question whether the court should order the tax deed issued. In re County Treasurer & Ex-Officio County Collector of Cook County, 386 Ill. App. 3d 906, 909 (2008).

 

In addition, the Appellate Court found that the municipality complied with the publication requirements. The affidavit filed by the county collector contained the requisite oath that the advertisement was published, and the municipality's publication notice was in the record and certified that the "attached advertisements" were published. A list of the delinquent properties was also included. Additionally, Purchaser included a certificate of the publisher, and a copy of the printed advertisement with included the property number.

 

The Appellate Court found that the failure to attach a printed copy of the advertisement the county collector's affidavit was not enough to deem the municipality had failed with the publication requirements.

 

Thus, the Appellate Court held the tax deed was authorized and as such, found no basis to find the order void and affirmed the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, January 17, 2022

FYI: Ill App Ct (1st Dist) Affirms Denial of Borrower's Evidentiary Challenge to Foreclosure Sale

The Illinois Court of Appeals, First District, recently affirmed a trial court's order granting a mortgagee's motion to confirm judicial sale of a borrower's property and denying the borrower's motion to set aside and vacate the sale.

 

In so ruling, the First District among other things held that:

 

- An evidentiary hearing may be conducted after a foreclosure sale where the defendant presents evidence that the sale did not comport with Illinois law

 

- The defendant must provide evidence at the hearing indicating the sale was unjust

 

- The trial court may deny a request for continuance of the evidentiary hearing in its discretion.

 

A copy of the opinion is available at:  Link to Opinion

 

This appeal arises from a 2010 foreclosure action. During the course of the litigation, the mortgage and note were assigned numerous times, eventually being assigned to the appellee mortgagee that was substituted as plaintiff.

 

In January 2018, the trial court entered a judgment of foreclosure and sale. The judgment provided that if redemption was not made, the property would be sold at a public sale. The trial court also entered summary judgment in favor of the mortgagee and against the borrower.

 

The judicial foreclosure sale was stayed multiple times, and finally went forward on February 8, 2019. In July 2019, mortgagee filed a motion to confirm the sale and the borrower was granted leave to file a response.

 

Borrower filed a motion to set aside the judgment of foreclosure and vacate the sale, arguing that, as he had filed a bankruptcy petition prior to the sale, the automatic bankruptcy stay provision should have prevented the selling office from holding the sale. In support of his motion, Borrower submitted an alleged visitor pass to the judicial sale office dated February 8, 2019 at 11:59 p.m., a notice of bankruptcy case filing indicating that his bankruptcy petition was filed on February 8, 2019 at 11:29 a.m., and notice of the automatic stay with his signature.

 

In response, the mortgagee argued that the sale occurred prior to Borrower's filing his bankruptcy petition and therefore the sale was not held in violation of an automatic bankruptcy stay. In support of the motion, the mortgagee attached an electronic message which reflected the sale occurred at 10:41 a.m. on February 8, 2019.

 

The trial court granted both parties leave to present evidence of when the sale occurred.  The mortgagee submitted an affidavit of the President and CEO of the selling office, averring that the sale occurred at 10:41 a.m.  Borrower filed a copy of a summons and subpoena for the front desk secretary/clerk ("Clerk") from the selling office and a copy of the affidavit which Borrower prepared for Clerk to sign. On the affidavit was written: "need lawyer permission to sign 10/18/2019 2:48."

 

A hearing was held on the motions at which Borrower stated that he had gone to the selling office after filing his bankruptcy petition and spoke with Clerk who indicated that a bid had not yet been entered and thus, the property had not been sold before he filed his petition.

 

Borrower requested a continuance to produce Clerk as a witness. The trial court denied this request and confirmed the judicial foreclosure sale. The trial court ruled that Borrower's statements about his conversation with Clerk were inadmissible hearsay and Borrower had failed to produce sufficient admissible evidence to prove he had filed for bankruptcy prior to the sale.

 

Borrower filed numerous post-judgment motions including a motion to stay possession, motion for reconsideration, emergency motion and temporary restraining order to stay eviction. Borrower attached to his motion to reconsider, an email from the selling office which indicated that the affidavit prepared by Borrower could not be executed as the staff had no independent recollection of the conversation or that the bankruptcy documents were delivered on February 8, 2019. The email further confirmed the sale occurred at 10:41 a.m.

 

The trial court denied Borrower's motions but entered an order continuing Borrower's second emergency motion to stay possession until December 31, 2019.  On December 31, 2019, the trial court denied Borrower's motion for lack of jurisdiction based on a filed notice of appeal.

 

On appeal, Borrower argued that the trial court abused its discretion in approving the judicial sale that was unjust under section 1508(b) of the Illinois Mortgage Foreclosure Law and erred by denying his request for a continuance to hold an evidentiary hearing before confirming the sale.

 

As to his first argument, Borrower contended the foreclosure sale was unjust as it occurred after he filed for bankruptcy. He further asserted that he submitted sufficient allegations and evidence that he filed for bankruptcy before the foreclosure sale to warrant an evidentiary hearing. Borrower alleged the hearing held was not an evidentiary hearing as Clerk failed to appear and the mortgagee did not present any witnesses.

 

The First District found that the trial court's confirmation of the foreclosure sale was not an abuse of discretion. The Appellate Court held the record supported the trial court's decision to confirm the sale after the hearing at which both the mortgagee and Borrower presented arguments and evidence in support of when the sale took place.

 

As to Borrower's argument that the trial court erred in denying his request for continuance and that he presented sufficient allegations and evidence to warrant an evidentiary hearing, the Appellate Court disagreed. The First District stated that absence an abuse of discretion, it would not disturb the trial court's decision, as granting or denying a motion for a continuance is within the trial court's sound discretion. ICD Publications, Inc. v. Gittlitz, 2014 IL App (1st) 133277, ¶ 88.

 

As to the evidentiary hearing, the First District held that an evidentiary hearing may be conducted after a foreclosure sale where the defendant presents evidence that the sale did not comport with section 15-1508(b). The Appellate Court clarified that this meant the defendant should already have evidence indicating the sale was unjust. See Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 115 (1993).

 

Because Borrower was unable to produce any new evidence except the alleged conversation with Clerk and the email which did not support his assertion that the sale occurred later than 11:29 a.m., the Appellate Court found the trial court reasonably questioned whether granting another continuance would be fruitful. Thus, the First District found the trial court did not abuse its discretion in denying Borrower's further request for continuance.

 

Therefore, the Appellate Court affirmed the trial court's orders confirming the foreclosure sale and denying Borrower's request for a continuance.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Saturday, January 15, 2022

FYI: 9th Cir Reverses Dismissal of Loan Officer's Putative Class Claims Pursuant to Arbitration Agreement

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's order dismissing a putative class action complaint and granting the defendant lender's motion to compel arbitration pursuant to an arbitration agreement with the plaintiff loan officer.

 

The Ninth Circuit agreed with its sister circuits and held that parties cannot delegate issues of formation to the arbitrator.

 

The Court further held that the agreement at issue did not constitute a properly formed contract between the lender's former employee (the plaintiff loan officer) and the lender's parent company, with which the former employee had no employment relationship.

 

A copy of the opinion is available at:  Link to Opinion

 

When the plaintiff was hired as a loan officer by a lender, he signed a Mutual Arbitration Agreement ("MAA") with the parent company of the lender. The MAA included a delegation clause providing that the arbitrator would have "exclusive authority to resolve any dispute relating to the formation, enforceability, applicability, or interpretation" of the MAA.

 

Following termination of the employment relationship, the former employee brought employment-related claims against the lender. The lender moved to compel arbitration and to dismiss the putative class claims. The former employee opposed the motion, contending that the MAA was never properly formed due to a failure to satisfy a condition precedent in the MAA.

 

The trial court granted the lender's motion. Citing the delegation clause, the trial court concluded that formation issues, including the former employee's condition precedent argument, could not be decided by the court, and were instead delegated to the arbitrator. The former employee timely appealed.

 

The Ninth Circuit began by noting that "t[t]he cardinal precept of arbitration is that it is 'simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.'" Local Joint Exec. Bd. v. Mirage Casino-Hotel, Inc., 911 F.3d 588, 595 (9th Cir. 2018) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). Thus, "[w]here a party contests either or both matters, the court must resolve the disagreement." Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299 (2010).

 

It is well-established that some "gateway" issues pertaining to an arbitration agreement, such as issues of validity and arbitrability, can be delegated to an arbitrator by agreement. See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003). The issue before the Ninth Circuit was whether parties may also agree to delegate issues of formation to an arbitrator.

 

The lender argued that the trial court did not have the authority to decide whether an agreement to arbitrate existed when the parties delegated the arbitrability issues to the arbitrator. However, the Ninth Circuit disagreed, pointing out that the Fifth and Tenth Circuits have rejected that very argument. See, e.g., Edwards v. Doordash, Inc., 888 F.3d 738, 744 (5th Cir. 2018); Fedor v. United Healthcare, Inc., 976 F.3d 1100, 1104 (10th Cir. 2020).

 

Thus, the Ninth Circuit held that parties cannot delegate issues of formation to the arbitrator, even where a delegation clause exists. Here, where the former employee challenged the very existence of an agreement to arbitrate, the trial court was required to address the former employee's challenge and determine whether an agreement existed. See Granite Rock, 561 U.S. at 299–300. If no agreement to arbitrate was formed, then there was no basis upon which to compel arbitration.

 

The Ninth Circuit then analyzed whether the MAA constituted a properly formed agreement between the former employee and the parent company.

 

The Ninth Circuit reasoned that, on its face, the MAA was plainly drafted to govern an employer-employee relationship. For example, in Paragraph 1, the MAA stated that "Employee and the Company both agree all legal disputes and claims between them, including without limitation those relating to Employee's employment with the Company or any separation therefrom . . . shall be determined exclusively by final and binding arbitration."

 

However, the Ninth Circuit found that none of the MAA's provisions had any relevance to any relationship between the former employee and the parent company. All parties appeared to agree that the former employee's only employer was the lender, but, in its introductory sentence, the MAA defined the former employee's employer as the parent company alone. In fact, the Court observed that nowhere in the MAA was there any specific reference to the former employee's actual employer, the lender.

 

To the extent the lender suggested that the definition of the parent company as the employer also encompassed its subsidiaries, such as the lender, the Ninth Circuit was unconvinced. The Court instead affirmed its adherence to the fundamental principle that corporations, including parent companies and their subsidiaries, are treated as distinct entities. See Dole Food Co. v. Patrickson, 538 U.S. 468, 474 (2003).

 

Therefore, the Ninth Circuit held that the MAA, as drafted, described and governed a relationship between the former employee and the parent company that did not exist, and thus did not constitute a properly formed agreement to arbitrate.

 

Accordingly, the Ninth Circuit reversed the trial court's judgment and remanded for further proceedings consistent with this opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, January 11, 2022

FYI: NY App Ct Holds Strict Compliance Required for "Separate Envelope" for Pre-Foreclosure Notice

The New York Appellate Division, Second Department, recently affirmed a lower court's order granting summary judgment in favor of a borrower in a foreclosure action due to the mortgagee's failure to comply with the "separate envelope" requirement of New York's Real Property Actions and Proceedings Law 1304(2).

 

In so ruling, the Court held that strict compliance with the "separate envelope" provision of RPAPL 1304(2) is required in mortgage foreclosure actions.

 

A copy of the opinion is available at:  Link to Opinion

 

This appeal arose out of a foreclosure action brought by the owner and holder of a note and mortgage ("Mortgagee") against a defaulting borrower ("Borrower").

 

Mortgagee moved for summary judgment on the complaint as asserted against Borrower, summary judgment in favor of Mortgagee Borrower's affirmative defenses, and for an order of reference. Borrower opposed the motion and cross-moved for summary judgment against Mortgagee for failure to comply with RPAPL 1304.

 

The trial court denied Mortgagee's motion and granted Borrower's cross-motion. Mortgagee appealed.

 

On appeal, the Appellate Division determined how to construe the "separate envelope" requirement of RPAPL 1304(2).  As you may recall, this provision mandates that "notices required by this section shall be sent…in a separate envelope from any other mailing or notice."

 

The Appellate Court found that the language of the status was clear, precise and unambiguous. The Court continued that RPAPL 1304 "contains specific, mandatory language in keeping with the underlying purpose of [the Home Equity Theft Prevention Act] to afford greater protections to homeowners confronted with foreclosure" (Aurora Loan Servs., LLC v Weisblum, 85 AD3d 95, 103), and the language in RPAPL 1304(2) with regard to the manner of service of the required notices "in a separate envelope from any other mailing or notice" "is equally precise" (Aurora Loan Servs., LLC v Weisblum, 85 AD3d at 104.

 

As RPAPL 1304(2) requires the notice must be sent "in a separate envelope from any other mailing or notice," the Appellate Court held that the inclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in the provisions constituted a violation of the separate envelope requirement.

 

The Appellate Court reasoned that a strict approach precluding any additional material in the same envelope as the requisite notices both comported with the statutory language and also provide clarity as a bright-line rule to plaintiff lenders and "promote[d] stability and predictability" (Freedom Mtge. Corp. v Engel, 37 NY3d 1, 20) in foreclosure proceedings.

 

The Court further noted that strict interpretation of the "separate envelope" requirement was consistent with the Legislature's intent.

 

The statute, originally enacted in 2008, was amended in 2009 to include a new sentence to RPAPL 1304(2) to include the requirement that the requisite notices shall be sent in "a separate envelope from any other mailing or notice." (§ 1304[2]; see L 2009, ch 507, § 1-a [eff Jan. 14, 2010]). The "separate envelope" requirement is exclusive to that section and not found in the other notice provisions applicable to mortgage foreclosure proceedings.  See e.g. RPAPL 1303, 1305; see also UCC 9-611). 

 

Though RPAPL 1304 has been amended since its adoption, the "separate envelope" provision has consistently remained. (see e.g. L 2009, ch 507, § 1-a [eff Jan. 14, 2010]; L 2011, ch 62, part A, § 104 [eff Oct. 3, 2011]; L 2012, ch 155, § 84 [eff July 18, 2012]; L 2012, ch 155, § 85; L 2016, ch 73, part Q, §§ 6, 7 [eff Dec. 20, 2016]; L 2017, ch 58 part FF, § 1 [eff Dec. 20, 2016]; L 2018, ch 58, part HH, §§ 1, 5 [eff Apr. 12, 2018, deemed eff Apr. 20, 2017]; L 2018, ch 58, part HH, §§ 3, 4 [eff May 12, 2018]). 

 

Mortgagee argued that the Court should enact a flexible standard, evaluating whether the additional material obtained in the envelope prejudiced or assisted the borrower when ascertaining the lender's compliance with the "separate envelope" requirement. See e.g. Deutsche Bank Natl. Trust Co. v Delisser, Sup Ct, Suffolk County, Sept. 14, 2017, Heckman, J., Index No. 8685/13 [no violation of RPAPL 1304 where defendant failed to show prejudice from lender's inclusion of notice to veterans and notice regarding consumer rights]).

 

Mortgagee further argued that the Court should follow the determination of some trial courts and conclude that the inclusion of additional notice in the envelope is a de minimis deviation from the requirements of the statute and therefore, didn't constitute a failure to comply with the separate envelope requirement.

 

Finally, the dissent argued that "clarifying language" that a plaintiff includes in the envelope with the requisite notice, falls within the prescriptions of RPAPL 1304 and does not require a separate envelope.

 

However, the majority of the Appellate Court justices found that such approaches could vitiate the unambiguous requirement imposed by the Legislature of a "separate envelope" for the purposes of mailing the requisite notices or could place the burden on defendant to show a lack of prejudice or that the information was not relevant to the mandated notices.

 

The Court further held that these types of analysis would require courts to engage in the type of judicial scrutiny that New York's highest court recently rejected in mortgage foreclosure cases. (see Freedom Mtge. Corp. v Engel, 37 NY3d at 30-31). 

 

In Freedom Mtge. Corp. v. Engel, the Court of Appeals determined that an exploration of the lender's intent and scrutinization of "the course of the parties' post-discontinuance conduct and correspondence" was "unworkable from a practical standpoint" and would require a court to engage in an "exhaustive examination" of the parties' conduct (id. at 30). The Court found that determining if the additional information included in the envelope constituted information relevant, helpful, or prejudicial to the borrower would be the same sort of unworkable exercise.

 

As Mortgagee acknowledged that the envelope it sent to Borrower which contained the requisite notices, and also included other information in two notices.  Thus, the Appellate Court held, Mortgagee failed to establish, prima facia, that it strictly complied with the requirements of RPAPL 1304 and the lower court properly denied Mortgagee's motion for summary judgment. The Court further held that Borrower established prima facie his entitlement to judgment as a matter of law dismissing the complaint showing that Mortgagee failed to comply with RPAPL 1304.

 

Therefore, the Appellate Court affirmed the trial court's ruling.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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and

 

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and

 

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