FYI: Cal App Ct (5th Dist) Holds Borrower Entitled to Atty Fees for Successful TRO

The Court of Appeal for the Fifth District of California recently held that a court may award attorneys' fees pursuant to Civil Code § 2924.12(h) when a borrower obtains a temporary restraining order to stop a non-judicial foreclosure sale. 

 

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

 

The borrowers filed an ex parte application for a temporary restraining order ("TRO") to enjoin the trustee's sale of their home.  The application contained a request for attorneys' fees and costs.

 

The trial court granted the TRO and set a hearing to show cause for a preliminary injunction.  The order required the defendants to pay $3,500 in attorneys' fees pursuant to Civil Code § 2924.12.

 

The loan servicer brought this appeal of the attorneys' fees award.

 

As you may recall, section 2924.12(h) provides that:  "[a] court may award a prevailing borrower reasonable attorney's fees and costs in an action brought pursuant to this section.  A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section."

 

The loan servicer argued that the borrowers did not prevail for purposes of section 2924.12(h) because they merely obtained a TRO.

 

The Appellate Court considered Monterossa v. Superior Court (2015) 237 Cal. App. 4th 747, where the Third District held that section 2924.12(h) permitted an award of attorneys' fees to a borrower who had obtained preliminary injunction, as opposed to permanent, injunctive relief. 

 

The Monterossa court concluded that such fees were permitted by the plain language of the statute because "injunctive relief" incorporates "both preliminary and permanent injunctive relief."  Monterossa, 237 Cal. App. 4th at 753.

 

The Monterossa court explained that the purpose of the statutory scheme is to provide borrowers with a meaningful opportunity to obtain available loss mitigation options, and a borrower who successfully forces the lender to comply with the statutory process by obtaining a preliminary injunction has prevailed.  Monterossa, 237 Cal. App. 4th at 755.

 

The Appellate Court found this reasoning persuasive, holding that "the plain statutory language is dispositive of this appeal."  The borrowers prevailed in obtaining a TRO, which was a form of injunctive relief, and therefore the Court held that attorneys' fees were authorized under the statute. 

 

The loan servicer also argued that the fee request was procedurally defective.

 

As you may recall, a party may seek statutory attorneys' fees as costs through any of four methods: (1) on noticed motion, (2) at the time a statement of decision is rendered, (3) on application supported by affidavit made concurrently with a claim for other costs, or (4) on entry of a default judgment.  Code Civ. Proc. § 1033.5(a)(10)(B), (c)(5).

 

Rule 3.1702 of the California Rules of Court proscribes a noticed motion procedure whenever the court is required to determine whether the requested fee is reasonable or whether the requestor is a prevailing party. 

 

Civil Code § 2924.12(h) requires a determination that the plaintiff is a prevailing party and that the requested fees are reasonable, but the borrowers did not file a notice motion for the fee request.  Thus, the Appellate Court held that the grant of fees based on an ex parte application was improper.

 

Accordingly, the Appellate Court reversed the award of attorneys' fees and remanded for further proceeding. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th 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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FYI: Ill App Ct (5th Dist) Upholds Dismissal of FDCPA and State Law Claims That 4-yr UCC SOL Applied to Credit Card Purchases

The Appellate Court of Illinois Fifth District affirmed the dismissal of a borrower's alleged putative class action alleging that the successor to a credit card Issuer ("Issuer") violated various state and federal laws when it filed suit to collect the debt past the four-year statute of limitations for the sale of goods under the Illinois version of the UCC (810 ILCS 5/2-725).

 

In so ruling, the Appellate Court held that the Issuer properly filed suit within the five-year statute of limitations that applies to credit card agreements under 735 ILCS 5/13-205.  In addition, the Appellate Court ruled that advancing money to pay for merchandise constituted a loan governed by the five-year statute of limitations for credit cards.

 

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

 

In 2012, a borrower defaulted on a credit card usable only to purchase goods at one retailer. In 2017, more than four years but less than five years after the default, the Issuer filed sued against the borrower to collect the debt.

 

In response, the borrower filed a three-count class action counterclaim against the Issuer alleging that the debt was time-barred because the four-year statute governing contracts for the sale of goods under section 2-725 of the UCC applied. Based on this claim the borrower alleged the Issuer violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., and the Illinois Collection Agency Act, 225 ILCS 425/1 et seq.

 

The Issuer moved to dismiss arguing that it timely filed the complaint because the five-year statute of limitations contained in 735 ILCS 5/13-205 that governs credit card agreements controlled.

 

The trial court granted the motion to dismiss and this appeal followed.

 

The Appellate Court began its analysis by observing that Harris Trust & Savings Bank v. McCray, 21 Ill. App. 3d 605 (1974), addressed "whether a credit card issuer may commence an action based upon the holder's failure to pay for the purchase of goods more than 4 years after the issuer's cause of action accrued." 

 

The Harris Trust court determined that "money advanced to a merchant in payment for merchandise received by the defendant constitutes a loan" where the borrower "promised to repay the bank for money it paid to the merchant for her benefit." The Appellate Court characterized this three-party transaction as a "tripartite relationship," followed Harris Trust, and held that the five-year statute of limitation applied here.

 

The borrower urged the Appellate Court to follow a persuasive New Jersey case, Midland Funding LLC v. Thiel, 144 A.3d 72, 75 (N.J. Super. Ct. App. Div. 2016), which held the four-year statute of limitation governing the sale of goods applied to "claims arising from a retail customer's use of a store-issued credit cardor one issued by a financial institution on a store's behalfwhen the use of which is restricted to making purchases from the issuing retailer."  The Appellate Court declined this invitation because "on point" Illinois case law settled this issue.

 

The Appellate Court next examined the borrower's argument that Citizen's National Bank of Decatur v. Farmer, 77 Ill. App. 3d 56 (1979) demonstrates that the four-year statute of limitations applied.  The Appellate Court distinguished Citizen's because, unlike this case, the plaintiff did not loan any money to a borrower. 

 

The borrower also argued that the Appellate Court should follow Johnson v. Sears Roebuck & Co., 14 Ill. App. 3d 838 (1973) where "the court held that a store credit card was not subject to usury laws because the sale of goods on credit and allowing payments over time do not constitute a loan."  The Appellate Court distinguished this case because it did not involve a fact pattern where a bank paid a merchant for goods that a borrower purchased and the borrower agreed to repay the bank for this loan.  Instead, it only concerned the relationship between a retail merchant and a purchaser. 

 

Finally, the Appellate Court emphasized that the "type of credit card is immaterial." It does not matter whether the credit card was issued for a general purpose or may only be used at one retailer.  Instead, the "determining factor" is the "tripartite relationship and a loan of money."

 

Thus, the Appellate Court affirmed the trial court's dismissal order.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th 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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FYI: 8th Cir Rejects FDCPA Claim for Unlicensed Collection Letter Signer

The U.S Court of Appeals for the Eighth Circuit recently affirmed dismissal of a consumer's suit against a debt collector, alleging that its collection letter violated the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. ("FDCPA").

 

In so ruling, the Court concluded that the debt collector's use of the term "PROFESSIONAL DEBT COLLECTORS" and the initials of its "doing business as" name would not mislead or deceive an "unsophisticated consumer," and the letter's inclusion of a signature of an individual not registered to collect debts in Minnesota was irrelevant and did not violate section 1692f, because the collection company and two other signatories were duly licensed to engage in debt collection activities in Minnesota. 

 

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

 

In March 2017, a debt collection company ("Collector") mailed a consumer ("Consumer") a collection letter ("Collection Letter") under its 'd/b/a' name, which appeared in the top right corner of the Collection Letter, several lines above the words "PROFESSIONAL DEBT COLLECTORS." 

 

The Collection Letter warned the Consumer that if the outstanding debt was not paid and if it became necessary to file a lawsuit to collect the debt, "it could result in a judgment . . . and that judgment could include . . . pre-judgment interest."   The letter was signed by three individuals — one of whom was not registered to collect debts in Minnesota where the Consumer received the Collection Letter — above instructions for the Consumer to pay online or correspond with "CCB" (the initials of the Collector's business name) at its website.

 

The Consumer filed suit alleging that the Collection Letter's inclusion of the phrase "PROFESSIONAL DEBT COLLECTORS" and "CCB" acronym, rather than the Collector's true name violated subsection 1692e(14) of the FDCPA, which prohibits the use of false, deceptive or misleading representations, including the use of any business, company or organization name other than the true name of the debt collector.

 

The Consumer further alleged violations of subsection 1692f for the Collection Letter's inclusion of a signatory not registered to collect debts in Minnesota, and its attempt to collect prejudgment interest purportedly not recoverable under Minnesota law.

 

The Collector moved to dismiss the complaint.  The trial court granted the motion, concluding that the use of that the use of "PROFESSIONAL DEBT COLLECTORS" and "CCB" was not false or misleading when viewed through the eyes of an unsophisticated consumer, and was immaterial. The trial court further held that the inclusion of the signature of an individual who was not registered to collect debts in Minnesota and assertion that Collector could seek pre-judgment interest did not violate the FDCPA. The instant appeal followed.

 

On appeal, the Eighth Circuit first evaluated whether the Collection Letter's use of "PROFESSIONAL DEBT COLLECTORS" and "CCB" was false, misleading or deceptive through the eyes of an 'unsophisticated consumer.'  Peters v. Gen. Serv. Bureau, Inc., 277 F. 3d 1051, 1055 (8th Cir. 2002). 

 

The Eighth Circuit held that the trial court correctly determined that an unsophisticated consumer would understand that these terms referenced the Collector because (i) "PROFESIONAL DEBT COLLECTORS" clearly described what Collector (and its d/b/a) is, and; (ii) "CCB" is a commonsense abbreviation of the Collector's other registered name that it used in the Collection Letter.  The Court further noted that the Collection Letter included the Collector's correct registered name and contact information, and the balance due on the debt. 

 

The appellate court next considered Consumer's argument that the Collection Letter's inclusion of an individual's signature who was not licensed to engage in debt collection activities in Minnesota violated subsection § 1692f(1) of the FDCPA, because "Minnesota law requires all individual debt collectors to obtain licenses as a prerequisite to collecting consumer debts in Minnesota."  See Minn. Stat. 332.33.  As you may recall section 1692f prohibits the use of "unfair or unconscionable means to collect or attempt to collect any debt," and subsection 1692f(1) prohibits "[t]he collection of any amount . . . unless such amount is expressly authorized by the agreement creating the debt or permitted by law." 

 

Primarily, the Eighth Circuit noted that the FDCPA "was not meant to convert every violation of a state debt collection law into a federal violation."  Carlson v. First Revenue Assur., 359 F. 3d. 1015, 1018 (8th Cir. 2004).  The appellate court agreed with the trial court that the Consumer failed to state a 1692f(1) claim because the other two signatories were registered to collect debt in Minnesota, as was the Collector; thus, the inclusion of the unregistered individual's signature did not constitute an "unfair or unconscionable means to attempt to collect a debt."  15 U.S.C. 1692f.

 

Lastly, the appellate court rejected the Consumer's argument that the Collection Letter impermissibly attempted "to collect prejudgment interest" under Minn. Stat. 549.09 in violation of section 1692f, because the Collector instead sought recovery under Minn. Stat. 334.01, which "does not prohibit" recovering pre-judgment interest.  Hill v. Accounts Receivable Servs., LLC, 888 F. 3d 343, 346 (8th Cir. 2018) (affirming dismissal of consumer's 1692f claims because the text of § 334.01 does not prohibit the recovery of statutory interest in conciliation court cases, thus, debt collector did not attempt to collect amounts not permitted by law).

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th 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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FYI: Missouri Sup Ct Reverses Class Cert Due to Overbreadth and Typicality Issues

The Supreme Court of Missouri recently held that a trial court abused its discretion by certifying a an overly-broad class with a class representative whose claims against the debt collector defendant were not typical of the class.

 

More specifically, the class definition was deemed overbroad because approximately 87 percent of the class members' claims were either precluded by final deficiency judgments, or estopped by their failure to disclose the claims in bankruptcy, and the class representative failed to meet typicality requirements, because she did not suffer the same alleged injury as the class members.

 

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

 

A consumer ("Consumer") defaulted on payments owed pursuant to an auto financing installment agreement that was assigned to a collection company ("Collector"). 

 

The Collector provided Consumer written notice of the default and instructions on how to cure it, but the Consumer failed to do so, and voluntarily surrounded her vehicle to the Collector.  The Collector mailed a presale notice to the Consumer informing the Consumer that her vehicle would be sold in compliance with the Missouri Uniform Commercial Code (UCC).  The Collector sold the vehicle and mailed the Consumer a post-sale notice of her deficiency balance.

 

The Consumer filed a putative class action lawsuit in Missouri circuit court, alleging that the Collector violated statutory notice requirements relating to the repossession of collateral and collected unlawful interest following default and repossession of same, causing harm to the proposed class members' credit, character and general reputation. 

 

The complaint sought statutory and actual damages, injunctions preventing the Collector from collecting deficiency judgments against the class and compelling it to return any such collected money, and a declaration that Collector's right to cure, pre-sale and post-sale notice forms (collectively, the "UCC Notices") violate Missouri law.

 

Over the Collector's objections, the trial court certified two classes with Consumer as the sole class representative. 

 

The first class included the all named Missouri borrowers or buyers whose loan was owned by Collector and who had the possession of their collateral taken by Collector voluntarily or involuntarily, and the second class was comprised of "all persons from Class 1 who had the possession of their collateral taken by [Collector] involuntarily."

 

The Collector petitioned for permission to appeal the certification order, which was denied by the court of appeals.  The Collector then filed the underlying petition for writ of prohibition to the Supreme Court (the "Petition"), arguing that the trial court abused its discretion by certifying the class because individual issues predominated. 

 

A preliminary writ of prohibition was issued, and this opinion followed. 

 

Initially, as to the claims concerning the sufficiency of the Collector's UCC Notices, the Missouri Supreme Court noted that the Collector failed to establish that the trial court abused its discretion by concluding that common liability issues predominate, because the class claims are based upon interpretation of form contracts—the Collector's UCC Notices—and determination of whether they violated any statutory provisions, a "classic case for treatment as a class action."  McKeage v. TMBC, LLC 847 F. 3d 992, 999 (8th Cir. 2017). 

 

However, the Missouri Supreme Court declined to opine as to whether the issue of damages will be suitable for class treatment if a class is certified consistent with its opinion.

 

Next, the Missouri Supreme Court considered whether the certified class was overbroad and encompassed "more than a relatively small number of uninjured putative members."  State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861-62 (Mo. banc 2008). 

 

Noting that the "nature and extent" of prior litigation involving individual class members is necessary to determine whether the Rule 52.08 class certification requirements are satisfied, the Court was tasked with considering the preclusive effect of class members' prior deficiency judgments and bankruptcy proceedings.

 

First examining the effect of the prior deficiency judgments, the Missouri Supreme Court noted that although the class action suit was "not instituted for the express purpose of annulling the judgment," its requested relief would serve to nullify and undermine the deficiency judgment previously entered against approximately 60 percent of class members, raising issues of res judicata and collateral estoppel.  

 

Thus, because a portion of the relief sought in the putative class action suit was to nullify deficiency judgments in Collector's favor, the Court concluded that those claims were precluded as impermissible collateral attacks on final deficiency judgments entered against them, and barred by res judicata.  Flanary v. Rowlett, 612 S.W.2d 47, 50 (Mo. App. 1981) (declaratory judgment action constituted an impermissible collateral attack upon final decree of dissolution); Wright v. Bartimus Frickleton Robertson & Gorny PC, 364 S.W.3d 558, 564 (Mo. App. 2011) (Res judicata "includes within its ambit… a prohibition against collateral attack on a judgment.").

 

Next, the Court turned to the effect of the approximately 27 percent of the class members whose debts owed to the Collector were discharged in bankruptcy following repossession of their vehicles. 

 

The Missouri Supreme Court's statistical sampling indicated that few, if any, class members disclosed the claims they now assert against Collector in their schedule of assets filed with the bankruptcy court, as required under section 11 U.S.C. 521 of the Bankruptcy Code.  Therefore, the Court held, those class members were estopped from asserting their claims against the Collector in the class action.  Strable at 422-423, 426.

 

In sum, because approximately 87 percent of the individual class members had no unresolved claim against the Collector, as their claims were either precluded by deficiency judgments or were extinguished in bankruptcy, the Missouri Supreme Court concluded that the current class definition was overly broad, but "may be modified consistent with the precepts of .. Rule 52.08 in order to remove the uninjured putative members."  Coca-Cola, 249 S.W. 3d at 861-862. 

 

The Court further held that the class failed to satisfy the typicality requirement, as the Consumer did not suffer the same alleged injury as the class members, because (i) unlike the second class, which consisted of consumers whose vehicles were repossessed involuntarily, the Consumer voluntarily surrendered her vehicle to the Collector, and; (ii) Consumer requested damages in the amount of any wrongfully obtained judgment and injunctive relief to return money collected for deficiency judgments and associated charges, yet Collector did not obtain a deficiency judgment against her.  Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982) ("To satisfy the typicality requirement, the class representative "must be a part of the class and possess the same interest and suffer the same injury as the class members."

 

Accordingly, the Missouri Supreme Court held that the trial court abused its discretion by certifying an overly broad class with a class representative whose claims were not typical of the class.  Accordingly, the preliminary writ of prohibition was made permanent, and the trial court was directed to withdraw its certification of the class as presently defined and take no further action inconsistent with the Supreme Court's instant opinion.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th 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   |   Georgia  |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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