FYI: Ill App (1st Dist) Rejects Tenant's Challenge to Foreclosure Eviction Due to Absence of "Bona Fide Lease"

The Appellate Court of Illinois, First District, recently affirmed a trial court's order denying a tenant's emergency petition to vacate an eviction following a foreclosure action.

 

In so ruling, the First District held that both the federal Protecting Tenants at Foreclosure Act of 2009 (PTFA) and the City of Chicago "Keep Chicago Renting Ordinance" (KCRO) only apply to bona fide tenants with bona fide leases, and that the tenant failed to provide evidence of a bona fide lease.

 

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

 

A mortgagee sued to foreclose its mortgage on a two-unit apartment building. After receiving a foreclosure sale deed, the mortgagee filed a complaint for eviction and ejectment against Unknown Occupants to gain possession of the property.

 

The trial court entered a default eviction order in favor of the mortgagee. An individual who was not a party to the action ("appellant") filed an emergency petition to vacate the eviction order pursuant to Section 2-1401 (f) of the Illinois Code of Civil Procedure.

 

Appellant alleged that he received no notice of the eviction and that he had a written lease at the property. The mortgagee opposed the petition and noted that the appellant failed to intervene in the action and did not raise any meritorious defenses. The trial court held a hearing and heard testimony from the appellant. At the hearing, the trial court found that appellant's alleged lease was with a non-party entity that did not have an ownership interest in the property and that appellant also failed to provide proof of rental payments. The trial court denied the petition and an appeal ensued.

 

On appeal, the appellant argued that the 1) the mortgagee did not give him the required notice as a leaseholder; (2) the trial court erred in denying his petition to vacate the eviction order; (3) the trial court ignored the federal Protecting Tenants at Foreclosure Act of 2009 (PTFA); (4) the trial court ignored the City of Chicago "Keep Chicago Renting Ordinance" (KCRO) and the "Residential Landlord Tenant Ordinance" (RLTO); and (5) the trial court abused its discretion by denying the petition to vacate.

 

The Appellate Court first examined its jurisdiction to hear the dispute. Appellant argued that the trial court's judgment was void because the trial court lacked jurisdiction due to lack of proper notice. The Appellate Court rejected this argument and noted allegedly failing to comply with the notice requirements in eviction proceedings is not sufficient to divest a trial court's jurisdiction. Therefore, any alleged defect in the eviction notice did not deprive the trial court of jurisdiction because "the failure to comply with statutory notice requirements may serve as a defense but does not deprive the court of subject-matter jurisdiction." Prairie Mgmt. Corp. v. Bell, 289 Ill. App. 3d 746, 752 (1st Dist. 1997).

 

Next, appellant argued that the trial court's judgment was void because appellant raised a meritorious defense and due diligence with the filing of his section 2-1401 petition to vacate the eviction order. Under section 2-1401, the petitioner must set forth specific factual allegations supporting each of the following elements: (1) the existence of a meritorious defense; (2) due diligence in presenting this defense; and (3) due diligence in filing the section 2–1401 petition for relief. Warren Cnty. Soil & Water Conservation Dist. v. Walters, 2015 IL 117783, ¶ 51. (citing Smith v. Airoom, Inc., 114 Ill. 2d 209, 221, (1986)). The Appellate Court reviews the trial court's order under section 2-1401 under an abuse of discretion standard. An abuse of discretion occurs only when the trial court's ruling is "arbitrary, fanciful, unreasonable, or where no reasonable person would take the view adopted by the circuit court." Seymour v. Collins, 2015 IL 118432 ¶ 41.

 

Here, the Appellate Court held that appellant's purported lease agreement with an entity that did not own the property and failure to present adequate proof of rental payments was a failure of the appellant to present direct or circumstantial evidence to authenticate the purported lease or proof of rent payments. As a result, the Appellate Court held that the trial court did not abuse its discretion in denying the petition.

 

In examining the appellant's argument that the mortgagee's actions evicting the appellant violated the PFTA and KCRO, the Appellate Court noted that the PFTA only applies to bona fide tenants with bona fide leases. P.L. 111–22, § 702(a)(2)(A), 123 Stat. 1632, 1662 (2009). Here, the tenant's purported lease agreement with a third-party, nonowner of the property and failure to provide proof of rental payments resulted in the Appellate Court concurring with the trial court's decision that appellant did not have a bona fide lease.

 

In addition, the KCRO provides various rights to tenants of foreclosed homes and defines a qualified tenant as an individual who (1) is a tenant in a foreclosed rental property and (2) has a bona fide rental agreement to occupy the rental unit as the tenant's principal residence. See Chicago Municipal Code § 5–14–020.  Again, because the appellant was unable to prove he was a bona fide tenant or resided at the property under a bona fide lease, the Appellate Court agreed with the trial court that he was not covered by the KCRO and PFTA. As a result, the Appellate Court rejected the appellant's arguments that the mortgagee's actions violated the KCRO and PFTA.

 

Accordingly, the Appellate Court affirmed the trial court's decision denying appellant's petition.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: Cal App Ct (4th Dist) Reverses Dismissal, Holds Rosenthal Act Covers Debts "Alleged to Be Due and Owing"

The Court of Appeals of California (Fourth District) recently reversed a trial court's dismissal of a putative class action alleging solar energy system provider violated the Rosenthal Act, California's parallel version of the federal Fair Debt Collection Practices Act.

 

In so ruling, the Fourth District concluded that the operative complaint stated a cause of action under the Rosenthal Act because the plaintiff properly alleged injury due to a "consumer credit transaction" that was "alleged to be due or owing", and not simply debt that is in fact due or owing. 

 

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

 

Plaintiff purchased a home with a solar energy system. At the time of plaintiff's purchase, the prior homeowner was under contract with a company (defendant) that owned the solar energy system. The contract between defendant and prior homeowner required the prior homeowner to purchase energy produced by the system by submitting monthly payments to the company. The prior homeowner and plaintiff agreed to prepayment of all remaining monthly payments and a transfer of all solar agreement rights and obligations to plaintiff, except for the monthly payment responsibility.

 

In conjunction with the sale of the house, prepayment occurred and the parties entered into a transfer of the contract. After the sale of the property, defendant began sending plaintiff monthly bills.

 

Defendant demanded plaintiff make the monthly payments under the solar agreement. Plaintiff called defendant and explained the situation. However, plaintiff continued to receive additional bills and at least one late payment notice where defendant identified itself as a debt collector. Plaintiff contacted Defendant via phone and email but was unable to resolve the issue.

 

Ultimately, plaintiff filed a putative class action lawsuit against the defendant. Plaintiff alleged the defendant's conduct violated the California's Unfair Competition Law, Consumer Legal Remedies Act (CLRA) and the Rosenthal Act. The trial court dismissed Plaintiff's complaint for failure to state a claim. Plaintiff appealed.

 

On appeal, the Court of Appeals noted that the issue presented on appeal hinged on the statutory interpretation of certain provisions of the Rosenthal Act. Plaintiff argued the trial court erred in concluding the operative complaint did not state a cause of action under the statutory scheme because Plaintiff failed to allege a consumer credit transaction, as that term is defined by statute.

 

In addition, Plaintiff contended the trial court overlooked a key aspect of the statutory definitions which encompassed debt alleged to be due or owing, not simply debt that is in fact due or owing.

 

Defendant argued that the trial court's ruling was correct and plaintiff did not acquire anything on credit and, therefore, was not party to a consumer credit transaction to which the statutory scheme applies.

 

In California, the Rosenthal Act aims "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts." (§ 1788.1, subd. (b).) A "consumer debt" is defined to be "money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." (§ 1788.2, subd. (f).)  Additionally, it requires, "debt collector[s] collecting or attempting to collect a consumer debt" to comply with the provisions of its federal counterpart, the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. § 1692 et seq.). (§ 1788.17; Davidson, supra, 21 Cal.App.5th at p. 295.)

 

The Rosenthal Act also defines a debt collector as "any person who, in the ordinary course of business, regularly, on behalf of that person or others, engages in debt collection." (§ 1788.2, subd. (c).) and a "consumer credit transaction" as "a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from the other person primarily for personal, family, or household purposes." (§ 1788.2, subd. (e).

 

Under the Rosenthal Act, for a debt collection activity concerning money to be covered it must involve money due or owing, or alleged to be due or owing, by reason of a transaction in which property, services, or money is acquired on credit primarily for personal, family, or household purposes.

 

The Court of Appeals held that the allegations in plaintiff's complaint that defendant sent plaintiff bills and late payment notices about money which defendant claimed plaintiff owed satisfied the "alleged to be due or owing" component of the Rosenthal Act. It was undisputed that the plaintiff was not the individual who owed money to the defendant, but the Court of Appeals noted that this distinction did not mean that plaintiff could not state a claim against the defendant under the Rosenthal Act.

 

Next, the Court of Appeals noted how services under the solar agreement were services covered under the Rosenthal Act because the services were acquired on credit primarily for personal, family, or household purposes and therefore constituted a consumer credit action. See Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 294. The Court further noted that it was irrelevant that all money due under the solar agreement was already paid and irrelevant that plaintiff was not a party to the solar agreement. The Court of Appeals clarified that their focus on appeal was what defendant's debt collection practices said about the supposed debt, and how defendant alleged the debt was due owing under the solar agreement.

 

Accordingly, the Fourth District held that the plaintiff stated a cause of action under the Rosenthal Act, ordered the trial court's judgment reversed with instructions for the trial court to vacate the judgment with instructions to enter a new order overruling the demurrer as to the plaintiff's Rosenthal Act cause of action.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 7th Cir Holds Disgorgement to U.S. Treasury Exceeds Relief Authority Under FTC Act

The U.S. Court of Appeals for the Seventh Circuit previously held that Section 13(b) of the Federal Trade Commission Act ("FTC Act") does not authorize restitution or disgorgement awards and overruled a $5 million restitution award entered in the trial court.

 

After the Supreme Court of the United States agreed with the Seventh Circuit's interpretation of the FTC Act in AMG Capital Management, LLC v. FTC, 141 S. Ct. 1341, 1344 (2021), the case was remanded back to the trial court, which reinstated the restitution award under the federal Restore Online Shoppers' Confidence Act ("ROSCA") and section 19 of the FTCA.

 

In this appeal, the Seventh Circuit affirmed the award but removed the direction that any excess funds should be deposited "to the U.S. Treasury as disgorgement," finding that instruction exceeded the remedial scope of section 19.

 

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

 

An individual owned a credit-monitoring business that used a "negative option feature" on its websites, offering visitors a free credit report but automatically enrolling them in a $29.94 monthly subscription when they applied for that report. Information about the monthly membership was not clearly and prominently displayed. The business owner's contractors created website traffic by posting internet advertisements for fake rental properties and directing applicants to the websites for a "free" credit score.

 

The Federal Trade Commission ("Commission") sued the business owner under FTC Act section 13(b), which authorizes restraining orders and permanent injunctions to enjoin conduct that violates its prohibition of unfair or deceptive trade practices. 15 U.S.C. § 53(b). On its face, section 13(b) authorizes only injunctive relief, but the Commission long interpreted it to permit restitution awards —- an interpretation previously adopted by the Seventh Circuit and others.

The trial court entered a permanent injunction and ordered the business owner to pay more than $5 million in restitution. However, in the prior appeal, the Seventh Circuit overruled its precedent and held that section 13(b) does not authorize restitution awards. The SCOTUS granted certiorari and agreed that section 13(b) does not authorize equitable monetary relief.

 

On remand to the trial court, the Commission argued that the Supreme Court's decision had significantly changed the law and requested the reimposition of the restitution award under ROSCA and section 19 of the FTCA.

 

The business owner's liability for violating ROSCA had already been established by the Seventh Circuit in the first appeal.  The Commission now pointed to section 5 of ROSCA, which treats a statutory violation as a rule violation under the FTC Act and permits the Commission to seek relief under section 19 of the FTC Act. 15 U.S.C. § 8404(a).

 

Section 19 of the FTC Act, in turn, permits the court to "grant such relief as the court finds necessary to redress injury to consumers," including "the refund of money" and "the payment of damages." 15 U.S.C. §§ 57b(a)–(b).

 

The trial court reimposed the restitution award under section 5 of ROSCA and section 19 of the FTC Act, and entered the requested amended judgment. The business owner appealed.

 

On appeal, the business owner claimed that the Commission waived reliance on section 19 by not raising it in the first round of litigation.

 

However, the Seventh Circuit observed that the Commission's original complaint did allege that the business owner violated section 5 of ROSCA. Because that provision incorporates section 19 of the FTC Act by reference, treating a statutory violation under ROSCA as a rule violation under section 18 of the FTC Act, the Court held that the Commission could seek redress under section 19. Furthermore, the Court noted that the ROSCA violation was established in the trial court's first judgment, and the Seventh Circuit affirmed that liability finding in the first appeal.

 

Next, the business owner argued that because the Commission chose to rely on section 13(b) of the FTC Act over ROSCA and section 19 in the first appeal, it could not shift course in the second appeal. The Seventh Circuit countered by pointing out that the Commission relied on an established interpretation of section 13(b), long endorsed by the appellate courts. In the Seventh Circuit's view, pursuing the same monetary relief under ROSCA and section 19 in the first appeal, before the section 13(b) precedent was overturned, would have been unnecessary and redundant.

 

The Seventh Circuit also concluded that section 19 permits all forms of redress to make consumers whole, including "the refund of money." Accordingly, the amended restitution award appropriately refunded to consumers the amount that had not yet been returned by the business owner or his contractors.

 

However, the Seventh Circuit did modify the judgment to remove the direction to the Commission to deposit any excess money not used for consumer redress and administrative expenses "to the U.S. Treasury as disgorgement" because this part of the judgment swept beyond section 19 of the FTC Act. As modified, the Appellate Court affirmed the trial court's judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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

 

 

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