FYI: Cal App Ct (4th Dist) Rejects Borrowers' Claims Arising Out of Regulator's Unlicensed Lending Action

The California Court of Appeal, Fourth District, recently held two borrowers' allegations that their lender was not properly licensed were insufficient to establish an actual economic injury, necessary for standing under California Business and Professions Code section 17200, and that there was no private right of action under California Financial Code sections 22100 and 22751.

 

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

 

In 2020, California regulators entered into a settlement agreement with a mortgage lender to address its unlicensed lending activity. Pursuant to the settlement agreement, included as exhibit B to the original complaint, the lender was ordered to "refrain from violating Financial Code section 22100, subdivision (a), by engaging in the business of a finance lender without obtaining a license" and to pay an administrative penalty of $75,000. The parties acknowledged the settlement agreement was "intended to constitute a full, final, and complete resolution of the violations." The settlement was the first public revelation of the lender's unlicensed lending activity, and the impetus for the current litigation.

 

In 2017, the borrowers applied for and obtained a loan with the lender secured by a mortgage on their residence.  In 2021, the borrowers sued the lender, individually and on behalf of a class of similarly situated persons, alleging that the lender was not licensed to engage in lending in the state of California between 2014 and 2018 and asserting violations of California Business and Professions Code section 17200 and Financial Code sections 22100 and 22751.

 

The trial court sustained the lender's demurrer to the borrowers' complaint without leave to amend, concluding that the borrowers could not establish injury in fact by alleging that they suffered an injury in fact or lost money or property as a result of the lender's licensing status. The borrowers timely appealed.

 

Business and Professions Code section 17200 (commonly referred to as the Unfair Competition Law, or the "UCL") defines unfair competition as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500)." Section 17204 further provides, in relevant part, that "[a]ctions for relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction by . . . a person who has suffered injury in fact and has lost money or property as a result of the unfair competition." Bus. & Prof. Code § 17204.

 

Proposition 64 amended Section 17204 and imposed narrower standing requirements. A party must (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim." Kwikset Corp. v. Superior Court (2011) 51 Cal. 4th 310, 320-322; accord California Medical Assn. v. Aetna Health of California Inc. (2023) 14 Cal.5th 1075, 1086.

 

The lender contended on appeal, as it did in the trial court, that the complaint failed to adequately allege that the borrowers suffered an injury in fact or lost money or property as a result of its licensing status.

 

Here, the Fourth District noted that the borrowers did not allege that the lender made an affirmative representation about its licensing status or, more importantly, that the borrowers relied on any statements the lender made about its licensing status when choosing to enter into the loan transaction.

 

Thus, even if an omission could fall into the Kwikset framework, as the borrowers asserted, the Fourth District concluded that the borrowers still had not established causation, the second element required for standing under the UCL. Kwikset noted that "a plaintiff 'proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements' " and show that " 'the misrepresentation was an immediate cause of the injury-producing conduct.' " Kwikset, supra, 51 Cal.4th at pp. 326–327.

 

Instead, the borrowers attempted to establish causation by alleging that they would not have obtained the loan had they known the lender was unlicensed, a fact they only discovered three years later because of a public settlement. The Fourth District reasoned that this subjective assertion of an intangible harm falls short of establishing the elements for standing under the UCL.

 

As the Kwikset court pointed out, whereas federal standing may be based on "intangible" injury that does not involve lost money or property, UCL standing is more stringent. Kwikset, supra, 51 Cal.4th at p. 324. The Court did not believe that the Kwikset court intended to expand Proposition 64 to include standing to plaintiffs based on their intangible distaste for a lender's failure to complete the licensing process in California.

 

Thus, the Fourth District held that the borrowers did not establish that they suffered an economic injury caused by an unfair or unlawful business practice of the lender. Therefore, they lacked standing to assert the UCL claims, and the trial court did not err in dismissing the first and second causes of action.

 

In the third cause of action in complaint, the borrowers also asserted violations of California Finance Code sections 22100 and 22751 based on the allegation that the lender lacked a license to lend money to California borrowers. They alleged that the law specifically commands that an unlicensed lender is to forfeit all interest and finance charges made on any unlicensed loan.

 

California Financial Code section 22100, subdivision (a) provides, "[n]o person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner." Section 22751, subdivision (a) provides, "[i]f any amount other than or in excess of the charges permitted by this division is charged or contracted for, or received, for any reason other than a willful act of the licensee, the licensee shall forfeit all interest and charges on the loan and may collect or receive only the principal amount of the loan." And related section 22752, subdivision (a) likewise provides that the licensee shall forfeit all interest and charges on the loan "[i]f any provision of this division is violated in the making or collection of a loan."

 

However, the Fourth District observed that a violation of a state statute does not automatically give rise to a right of recovery by a private individual. Courts will allow a private right of action only where a statute allows one. Mayron v. Google LLC (2020) 54 Cal.App.5th 566, 571. The statute must contain " ' " 'clear, understandable, unmistakable terms,' " which strongly and directly' indicate a private right of action is allowed." Ibid., citing Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596–597. If the statue "does not contain an unmistakable directive," the court may consider the legislative history of the statute to determine whether the Legislature intended to create a private right of action. Mayron, supra, at p. 571.

 

As relevant here, Financial Code section 22713 specifically provides that the commissioner may bring an action or request that the Attorney General bring an action in the name of the people of the State of California. Fin. Code § 22713, subd. (a). The violator may then be liable for civil penalties, as the lender was here. (Fin. Code § 22713, subd. (b).) Moreover, "[i]f the commissioner determines that it is in the public interest," the commissioner may include "a claim for restitution, disgorgement, or damages." Fin. Code § 22713, subds. (b) & (c).

 

Here, the Fourth District reviewed the record and found it undisputable that the commissioner resolved such an action against the lender through a settlement in December 2020. Despite the final resolution of that matter, the borrowers sought to pursue damages for the lender's alleged Financial Code violations in addition to those recovered by the commissioner. But the Court held that, when regulatory statutes, like the Financial Code, " ' "provide a comprehensive scheme for enforcement by an administrative agency, the courts ordinarily conclude that the Legislature intended the administrative remedy to be exclusive unless the statutory language or legislative history clearly indicates an intent to create a private right of action." ' " See Noe v. Superior Court (2015) 237 Cal. App. 4th 316, 337.

 

Accordingly, the Fourth Appellate District also concluded that the provisions of the Financial Code do not provide "clear, understandable, unmistakable terms" for a private cause of action, but instead provide for enforcement of violations via an action by the commissioner, which is what occurred in this case. Thus, the Court affirmed the decision of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

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FYI: 8th Cir Rejects Challenge to Advertised Discounts as "Deceptive"

The U.S. Court of Appeals for the Eighth Circuit recently upheld the dismissal of a putative class action challenging an advertised discount as supposedly deceptive.

 

In so ruling, the Eighth Circuit held that the named plaintiff's allegations failed to meet the "ascertainable loss" requirement under the Missouri Merchandising Practices Act ("MMPA"). Furthermore, the Court held that an unjust enrichment claim based on the same facts as that of the MMPA claim fails for the same reasons.

 

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

 

A consumer brought a putative class action under the Class Action Fairness Act against a retailer and its wholly-owned subsidiary. The consumer alleged that she purchased numerous products at physical stores and online at discount prices that were deceptively advertised because the defendants allegedly did not sell a substantial quantity of these products at the advertised "regular" prices prior to selling them at the advertised "sale" prices. The consumer sought class-wide compensatory damages under the MMPA, along with the price she paid the defendants under the equitable doctrine of unjust enrichment.

 

The trial court granted the defendants' motion to dismiss the consumer's amended complaint with prejudice. The consumer timely appealed.

 

To recover damages under the MMPA, a private plaintiff must allege and prove that she "(1) purchased merchandise . . . from [the defendant]; (2) for personal, family, or household purposes; and (3) suffered an ascertainable loss of money or property; (4) as a result of an act declared unlawful under the [MMPA]." Goldsmith v. Lee Enter., Inc., 57 F.4th 608, 615 (8th Cir. 2023).

 

Furthermore, Missouri courts generally apply the common-law "benefit of the bargain" rule to determine whether an MMPA plaintiff has suffered an ascertainable loss. Vitello v. Natrol, LLC, 50 F.4th 689, 693 (8th Cir. 2022). "The 'benefit of the bargain rule' awards a prevailing party the difference between the value of the product as represented and the actual value of the product as received." Id. The Supreme Court of Missouri adopted the rule in Kendrick v. Ryus, 123 S.W. 937, 939-40 (Mo. 1909).

 

Therefore, as the consumer had not alleged a deficiency in the quality of the clothing she purchased compared to the quality the retailers' advertising represented, the Eighth Circuit held that the consumer has the right to sue for rescission in a common law fraud action, but there was no ascertainable loss under the MMPA. Goldsmith v. Lee Enter., Inc., 57 F.4th 608, 610 (8th Cir. 2023).

 

Thus, the Court agreed with the trial court's decision to "join[] a growing number of courts, in finding that complaints based solely on a plaintiff's disappointment over not receiving an advertised discount at the time of purchase has not suffered an ascertainable loss." Robey v. PVH Corp., 495 F. Supp. 3d 311, 321 (S.D.N.Y. 2020).

 

Regarding the consumer's second cause of action, a claim for unjust enrichment under Missouri law requires the plaintiff to plead and prove three elements, "a benefit conferred by a plaintiff on a defendant; the defendant's appreciation of the fact of that benefit; and the acceptance and retention of the benefit by the defendant in circumstances that would render that retention inequitable." Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843, 854 (8th Cir. 2014). Only the third element was in dispute here on appeal.

 

The Eighth Circuit found that the consumer's unjust enrichment claim was based on the same facts as her MMPA claim and that it failed for the same reason -- she received the products she intended to purchase and paid the advertised sale price. "[T]here can be no unjust enrichment if the parties receive what they intended to obtain." Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. App. 2010). Moreover, the Court concluded that the existence of an express contract precluded a claim of unjust enrichment. Topchian, 760 F.3d at 854. "[A] contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Dean Mach. Co. v. Union Bank, 106 S.W.3d 510, 520 (Mo. App. 2003).

 

Accordingly, the Eighth Circuit affirmed the judgment of the trial court and held that the trial court did not err in dismissing the customer's MMPA and unjust enrichment claims.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

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FYI: CFPB's Annual Report on FDCPA Spotlights 'Continued Concerns' About Medical Debt

The Consumer Financial Protection Bureau on Nov. 16, 2023 released its annual report regarding its activities taken in 2023 to administer the Fair Debt Collection Practices Act, spotlighting, among other topics, the collection of medical debt.

 

A copy of the Report is available at:  Link to Report

 

Emphasizing the "significant actions" taken by the CFPB concerning the collection of medical debt, the Report highlights the CFPB's "continued concerns" about the "medical collection ecosystem." The Report specifies that the collection of medical debt that is either inaccurate or not owed raises significant concerns under the FDCPA and the Fair Credit Reporting Act, statutes that are enforced by the CFPB.

 

Specifically, the Report notes that roughly 15% of all collection complaints the CFBP sent to industry members for review and response involved medical debt, with consumers primarily complaining of the inaccuracy of medical debt being sought and the quality of information being provided during the medical debt collection process.

 

The Report goes on to note the "commonly" reported complaints as:

 

    - The medical bill being collected has already been paid or should have been paid by someone else.

    - Medical bills are collected long after services are provided.

    - Medical bills that patients have no prior knowledge of appear on their credit reports.

 

The Report includes concerns the CFPB had with debt collector's responses to complaints. It notes many medical debt collectors were quick to cut bait by closing the account in issue and deleting the account from a consumer credit report in response to a dispute of the accuracy of the information being reported. The CFPB suggests that this behavior raises questions as to whether there are deficiencies in the quality and quantity of information medical collectors receive at placement or at sale of the medical debt. The CFPB also said it suggests that medical debt collectors may not have confidence in the data and information provided to them regarding a medical debt's accuracy.

 

Citing the challenging nature of medical billing, including consumers being faced with "multiple bills from different providers, confusing procedure codes, opaque pricing, and uncertain insurance coverage" as well as emergency medical services that fail to provide up-front service costs, the CFPB concludes that many medical debts sought for collection may not be owed or may be seeking to collect the wrong amount due to:

 

    - Prior payment of the bill.

    - Insurance or financial assistance being responsible for the bill.

    - The services provided are being billed at a higher billing code.

    - State laws may provide for a bill to not be owed or to be owed in an amount different from that which is billed and sought for collection.

    - Federal laws may provide that the bill is not owed.

 

In this regard, the Report reminds the industry that collection of debts, medical or otherwise, that are not owed or are in the wrong amount may violate the FDCPA, specifically under 1692f(1), which the CFPB explains permits the collection of a debt only where (1) expressly permitted by the underlying agreement creating the debt and no law prohibits its collection or (2) where a law expressly permits the charge.

 

The CFPB's Report highlights "contexts" where the collection of medical debt runs afoul of certain federal or state laws:

 

    - The bill may be prohibited by the federal No Surprises Act.

    - The bill may be prohibited under the federal Nursing Home Reform Act.

    - State law may prohibit recovery of a medical bill above a "reasonable amount" for the medical services provided.

 

Considering this, the Report advises state and federal regulators, as well as private litigants, to pay careful attention to whether medical debt collectors are collecting debts not owed or are in the wrong amount and, if state law provides, whether the bills sought do not reflect "reasonable" amounts for the medical services provided.

 

The Report also suggests that a debt may be invalid or inaccurate for any number of reasons and invites consumers and regulators to routinely challenge medical debt collectors on the accuracy of the debts they collect only on the assumption that the debt may be invalid or inaccurate. 

 

The Report concludes with the CFPB's stated intention of taking further action regarding medical debt collection and working with states to further consumer protection. Given the CFPB's posture towards medical debt, the accuracy and propriety of medical debt balances being collected will continue to face heightened scrutiny from state and federal regulators.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
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: 11th Cir Holds "Actual Damages" Not Required for "Willful" Violations of FCRA

The U.S. Court of Appeals for the Eleventh Circuit recently held that a trial court's denial of a motion for class certification was an abuse of discretion because the trial court's analysis of Rule 23(b)(3)'s predominance requirement was based on its erroneous interpretation of the second option in section 1681n(a)(1)(A) of the federal Fair Credit Reporting Act ("FCRA") as requiring a showing of actual damages.

 

In so ruling, the Eleventh Circuit concluded that a consumer alleging a willful violation of the FCRA does not need to prove actual damages to recover "damages of not less than $100 and not more than $1,000."

 

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

 

A group of consumers filed a putative class action complaint, seeking to represent a class of individuals whose tradelines reported by a specific debt collector had been wrongly "re-aged" by a credit reporting agency. They alleged that the credit reporting agency "willfully" violated its obligation under the FCRA to "follow reasonable procedures" to ensure consumer credit reports were prepared with "maximum possible accuracy" when it allowed credit reports to reflect allegedly inaccurate status dates.

 

The trial court denied the credit reporting agency's summary judgment motion. After the close of discovery, the consumers moved to certify a class of all consumers whose credit reports had an account or accounts reported by the debt collector with an inaccurately displayed "Date of Status" and were viewed by one or more third parties. The trial court adopted the magistrate judge's recommendation and denied class certification. The consumers then petitioned for permission to appeal the trial court's class certification order under Rule 23(f), which was granted.

 

As you may recall, where a consumer reporting agency willfully fails to comply with the requirements imposed on it under the FCRA, a consumer has two options to recover damages. The first option allows a consumer to recover "any actual damages sustained by the consumer as a result of the failure." 15 U.S.C. § 1681n(a)(1)(A). And the second option allows a consumer to recover "damages of not less than $100 and not more than $1,000." Id. The issue in this case was whether, under the second option, the consumer could recover "damages of not less than $100 and not more than $1,000" without proving actual damages caused by the agency's willful violation of the FCRA.

 

To answer this question, the Eleventh Circuit decided that it must determine the "ordinary meaning" of "damages" as used in the second option. See Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070 (2018). Ultimately, the Court reasoned that the FCRA caselaw led to the conclusion that the second option does not require a consumer to prove they suffered actual damages.

 

For instance, in Levine v. World Financial Network National Bank, the plaintiff sued a consumer reporting agency for willfully violating the FCRA. 437 F.3d 1118, 1123 (11th Cir. 2006). The trial court dismissed the suit because the plaintiff's complaint hadn't sought damages under the second option and his claimed injuries were "too amorphous" to recover actual damages under the first option. Id. at 1120. The Eleventh Circuit reversed, determining that, contrary to the trial court's reading, the plaintiff's complaint had sought "damages of not less than $100 and not more than $1,000." Id. at 1123–25. And because the plaintiff stated a prima facie claim under section 1681n(a)(1)(A) and sought damages under the second option, there was no need to examine the plaintiff's alleged injuries since the plaintiff's allegation of willful noncompliance with the FCRA was itself an injury that section 1681n "clearly recognize[d] as compensable." Id. at 1124– 25; see also Harris v. Mexican Specialty Foods, Inc., 564 F.3d 1301, 1309 (11th Cir. 2009).

 

Furthermore, the Eleventh Circuit noted that its reading was consistent with how the other circuits have read section 1681n(a)(1)(A). Specifically, the Court determined that every circuit to address the same issue has agreed that "the plain language of the provision permits recovery of statutory damages in the absence of actual damages." Hammer v. Sam's E., Inc., 754 F.3d 492, 499–500 (8th Cir. 2014); see also Beaudry, 579 F.3d at 705–06.

 

Accordingly, the Eleventh Circuit held that the denial of the consumers' motion for class certification was an abuse of discretion because the trial court's analysis of Rule 23(b)(3)'s predominance requirement was based on its contrary interpretation of the second option in section 1681n(a)(1)(A). Thus, the Appellate Court vacated the trial court's denial of the motion for class certification and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
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: FTC Amends Safeguards Rule; Nonbank Financial Institutions Must Report Data Breaches to the FTC

The Federal Trade Commission recently announced approval of an amendment to the federal Gramm-Leach-Bliley Act Safeguards Rule to require nonbank financial institutions to report to the FTC the unauthorized acquisition of unencrypted customer information involving at least 500 consumers (a "notification event"). The amendment becomes effective May 13, 2024.

 

A copy of the Final Rule is available at:  Link to Final Rule

 

The amendment also provides:

 

• Notification must be made as soon as possible, and no later than 30 days after discovery of the event.
• Notice must be provided through an online form that will be available on the FTC's website.
• The notice will include:

+        the name and contact information of the reporting financial institution;

                     +        a description of the types of information that were involved in the notification event;

                     +        if the information is possible to determine, the date or date range of the notification event;

                     +        the number of consumers affected or potentially affected by the notification event;

                     +        a general description of the notification event; and

                     +        whether any law enforcement official provided a written determination that notifying the public of the breach would impede a criminal investigation or cause damage to national security, and a means for the Federal Trade Commission to contact the law enforcement official.

 

The three remaining FTC commissioners voted unanimously in favor of the amendment.

 

"Companies that are trusted with sensitive financial information need to be transparent if that information has been compromised. The addition of this disclosure requirement to the Safeguards Rule should provide companies with additional incentive to safeguard consumers' data," the Director of the FTC's Bureau of Consumer Protection said.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
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 (1st Dist) Upholds Dismissal of Putative Class Action for Lack of Standing

The Appellate Court of Illinois, First Judicial District, recently affirmed the dismissal of a putative class action for lack of standing because the named plaintiffs suffered no injury in fact to a legally cognizable interest.

 

In so ruling, the First District acknowledged that, in Illinois, a plaintiff need not allege actual injury from a violation a statute in order to have standing to sue under the statute, and need not prove actual damages if the plaintiff suffered the injury sought to be redressed by the statute. 

 

Nevertheless, the Appellate Court held that providing the required disclosure at issue here would in essence force the defendant to perform a "useless act," because the required disclosure related to matters that did not apply under the circumstances alleged.

 

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

 

Tenants entered into rental agreements with a landlord and were not required to pay a security deposit. The rental agreements included a general summary of the tenants' rights and obligations but did not include a summary of rights regarding security deposits or their relevant interest rates.

 

One of the tenants filed a class action complaint on behalf of himself and others similarly situated, alleging that the landlord failed to attach the summaries required by Chicago's Residential Landlord and Tenant Ordinance (RTLO), Chicago Municipal Code § 5-12- 170, including both the general summary and the summary regarding the security deposit interest rates. The tenant then filed an amended class action complaint to add additional plaintiffs.

 

The landlord moved to dismiss, arguing that the tenants failed to state a claim for an RLTO violation because the leases contained the RLTO summary, which had an express section entitled "SECURITY DEPOSITS AND PREPAID RENT {MUN. CODE CH. 5-12-080 AND 5-12-081}." In response, the tenants argued that the RLTO requires landlords to include the general RLTO summary and security deposit summary with all rental agreements, even if no security deposit is required.

 

The trial court dismissed the tenants' complaint for lack of standing because it concluded the tenants suffered no injury. The tenants timely appealed.

 

On appeal, the tenants argued that the language of the RLTO does not require tenants to allege actual damages beyond the violation of the statute and, thus, the violation alone confers standing. In response, the landlord argued that the RLTO general summary was attached to the leases, as required, and the only additional information not included was the separate security deposit summary regarding the interest rates. The landlord contended that, because the tenants were not required to pay a security deposit, the failure to attach the security deposit summary was immaterial.

 

The RLTO requires the Commissioner of the Chicago Department of Planning and Development to prepare a summary of the Chicago Municipal Code "describing the respective rights, obligations, and remedies of landlords and tenants" and then distribute the summary for public inspection and copying. Chicago Municipal Code § 5-12-170. The Commissioner must also prepare a separate summary of landlords' and tenants' respective rights, obligations, and remedies concerning security deposits, as well as the applicable interest rate to be paid thereon, and then disseminate the summary through radio and television outlets broadcasting in Chicago. Id. Based on these requirements, section 5-12-170 imposes an additional duty on landlords to attach "[a] copy of such summary *** to each written rental agreement." Id. Landlords must include both the general RLTO summary and the security deposit summary. Kopnick v. JL Woode Management Co., LLC, 2017 IL App (1st) 152054, ¶ 28.

 

Although the RLTO is to be "liberally construed and applied to promote its purposes and policies," Chicago Municipal Code § 5-12-010, the First District determined that reading it as broadly as the tenants urged strains the text and purpose of the ordinance. Specifically, the Court reasoned that holding a defendant liable for statutory damages ($100 per violation) for failing to provide a summary regarding security deposit interest rates with a rental agreement that does not require a security deposit would in essence require a defendant to perform a "useless act." Sylva, LLC v. Baldwin Court Condominium Ass'n, 2018 IL App (1st) 170520, ¶ 22.

 

Furthermore, under Illinois law, in order to establish standing, a plaintiff must "demonstrate some injury in fact to a legally cognizable interest." Flynn v. Ryan, 199 Ill. 2d 430, 436 (2002). The First District concluded that the tenants could never allege an injury here because they never paid security deposits. The landlord's failure to provide the interest rate information could in no way harm the tenants.

 

Accordingly, the First Judicial District held that permitting a party to prevail on a claim absent an injury allows a "regulation designed as a shield to be used as a sword." PNC Bank, National Ass'n v. Wilson, 2017 IL App (2d) 151189, ¶ 26. Thus, the Court affirmed the trial court's dismissal of the complaint for lack of standing.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

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FYI: 8th Cir Rejects Conversion Claims by Decedent's Estate Against Bank for Lack of Standing

The U.S. Court of Appeals for the Eighth Circuit recently affirmed the dismissal of several conversion claims brought by the estate of a deceased account holder against a bank, holding that one of the conversion claims was time-barred, and that the estate did not have standing to pursue the remaining conversion claims as the alleged injury was not fairly traceable to the bank.

 

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

 

After the death of his wife, the wife's son began to take care of his stepfather ("decedent"). The stepson began taking care of his elderly stepfather by managing the decedent's personal affairs. In doing so, the stepson initiated a scheme to defraud the decedent of his life savings.

 

Decedent maintained numerous bank accounts including two individual accounts, a business account, and a farm account. The decedent also owned an IRA. Ultimately, the stepson stole over $280,000 from decedent's IRA and also fraudulently endorsed checks from the business and farm accounts at other banks then transferred the funds into accounts that he controlled. All told, the step son stole over $770,000 from the decedent.

 

In 2018, the decedent's family notified the bank about the potentially fraudulent activity. The bank placed a hold on the relevant accounts. Ultimately, the stepson pled guilty to fraud and was sentenced to serve over 10 years in prison and ordered to pay restitution.

 

In December 2020, decedent's estate filed a lawsuit in Iowa state court, asserting three common-law conversion claims against the bank. The first claim asserted a theory of conversion based on the stepson's use of forged endorsements of the IRA checks that were deposited into decedent mother and father's account at the bank. The second claim asserted a theory of conversion based on decedent's fraudulent transfer of funds from the business and farm accounts into the stepsons control. The third claim asserted a theory of conversion based on the stepson/decedent mother's account at the bank.

 

The bank removed the case to federal court. The Estate unsuccessfully moved for leave to amend their complaint twice. The bank moved for summary judgment.  For the first claim, the trial court held that the claim was barred by the statute of limitations. For the second claim, the trial court held the estate lacked standing to bring this claim against the bank because the Estate admitted the accounts were located at different banks. For the third claim, the trial court held that since fact that stepson and decedent mother held the account in joint tenancy with a right of survivorship, any rights of decedent husband were extinguished upon the death of decedent wife and the Estate lacked standing.

 

Thus, the trial court granted the bank summary judgment on all claims.

 

The Estate appealed. The Eighth Circuit first held that the trial court did not abuse its discretion in denying the Estate leave to amend its Complaint because the Estate did not comply with the local rules by attaching a proposed amended complaint to its motion for leave. The Court of Appeals next reviewed the trial court's summary judgment rulings in favor of the bank.

 

Initially, the trial court rejected the conversion claim based on the forged IRA checks deposited by stepson into the decedent husband and wife's joint account at the bank because it failed to state a claim, was barred by the statute of limitation and barred by the language of the account agreement. The Eighth Circuit concurred that this claim was barred by the statute of limitations.

 

Iowa law imposes a three-year statute of limitations for all actions brought "to enforce an obligation, duty, or right arising under" Article 4 of Iowa's UCC. The Estate attempted to argue that the discovery rule applied and should extend the statute of limitations. However, the Iowa Supreme Court already addressed this issue and in a prior ruling by holding that the discovery rule does not apply to commercial conversion actions based on forged endorsements under the UCC. See Husker News Co. v. Mahaska State Bank, 460 N.W.2d 476, 476-77 (Iowa 1990).

 

Because the stepson deposited the last IRA check at the Bank on September 8, 2017 and the lawsuit was not filed until December 17, 2020 the statute of limitations barred this claim.

 

The Eighth Circuit held that the second claim was also fatally flawed because the business and farm account were accounts located at different banks than defendant bank. Because the business and farm accounts were not controlled by the defendant bank, the Appellate Court held that any injury to those accounts under a theory of conversion was not traceable to the bank. See Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). Thus, the Eighth Circuit held, the Estate did not have standing the bring this claim, and the Appellate Court noted that the claim should have been dismissed for lack of jurisdiction and not on summary judgment.

 

For the third claim, the Estate argued that its interest in the joint account of decedent-mother was not extinguished on the death of the mother. Specifically, the Estate argued that the death of the mother resulted in a constructive trust and that stepson's fraud violated the fiduciary duty he owed to his mother under this arrangement. The Eighth Circuit disagreed and held the Estate had no interest or claim in the property. As a result, the Court of Appeals held that this claim should have also been dismissed for lack of standing because any alleged injury was not traceable to the bank.

 

Accordingly, the Eighth Circuit affirmed the dismissal as to claim 1 and vacated the summary judgment as to claims 2 and 3 with instructions to dismiss Counts 2 and 3 without prejudice for lack of jurisdiction.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
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.

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FYI: Indiana Sup Ct Rules Silence and Inaction Not Enough for Enforceable Arbitration Agreement

The Indiana Supreme Court recently reversed the judgment of a trial court granting a credit union's motion to compel individual arbitration and finding an enforceable agreement to arbitrate between the parties.

 

In so ruling, the Indiana Supreme Court held that a consumer's silence and inaction did not amount to acceptance of the arbitration agreement.

 

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

 

When the consumer, who maintained at least two checking accounts with the credit union, registered for online banking for one of her accounts, she received by email an agreement permitting the credit union to modify the terms and conditions to its services and send any notice to the consumer via email. Under the terms of the notice, the consumer was deemed to have received any such notice three days after it was sent.

 

The credit union later sent to its customers a proposed modification to the agreement, the addendum. The terms of this addendum (1) permitted either party to require arbitration to resolve disputes without the other party's consent and (2) prohibited members from initiating or joining a class-action lawsuit. The addendum also specified, under a heading in bold and in all-capital letters, the member's "right to opt out" of the arbitration addendum if he or she so informed the credit union within 30 days of receiving notice. Otherwise, according to its terms, the addendum became binding on the member.

 

The consumer received the addendum by email and regular U.S. mail. The subject line of the email indicated only that a "New eStatement" was available "in Online Banking," and the body mentioned nothing about the addendum. But a link in the email would have directed the consumer to her five-page monthly account statement, the first page of which referenced the addendum in bold, all-capital letters and directed her to review the updated terms "at the end of [the] statement."

 

The document the consumer received by regular U.S. mail consisted of a two-page monthly account statement, the first page of which likewise noted the addendum in bold, all-capital letters and directed her to review the updated terms "included in this mailing." The consumer claimed to have seen neither version of the addendum, and she never notified the credit union of her preference to opt out.

 

The consumer later filed a putative class action complaint alleging breach of contract and other related claims. The credit union moved to compel individual arbitration, which the trial court granted.

 

On discretionary interlocutory appeal, the appellate court reversed, holding that the credit union failed to provide reasonable notice to the consumer by either email or regular mail. The credit union petitioned for transfer, which the Indiana Supreme Court granted, thus vacating the appellate court's opinion.

 

The credit union first argued on appeal that the appellate court unjustifiably adopted a heightened standard for what constitutes sufficient notice under a contract. The Indiana Supreme Court disagreed and held that the question was not whether a pure reasonableness standard always governs notice. Instead, a court will "defend the freedom of contract by enforcing parties' agreed terms," whether those terms call for notice by email, regular U.S. mail, or other means. See Care Grp. Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 758 (Ind. 2018). Thus, insofar as the contracting parties agreed on what constitutes effective notice, their agreement controls. But to the extent an agreement fails to define notice, the court will apply a reasonableness standard as an exercise in contract interpretation.

 

Here, the Indiana Supreme Court held that the agreement did not define what constitutes "written notice," other than saying it is effective once properly mailed. Therefore, in analyzing whether the credit union complied with the agreement's terms of notice by mail, the Court applied an "objective theory" of contract interpretation. See Akin v. Simons, 180 N.E.3d 366, 377 (Ind. Ct. App. 2021). In other words, it became a question of reasonableness for the courts to decide as a matter of law. See Indiana Farm Bureau Ins. Co. v. Harleysville Ins. Co., 965 N.E.2d 62, 68 (Ind. Ct. App. 2012).

 

The consumer received two notices of the addendum in the account statements sent to her from the credit union—one by email and one by regular U.S. mail. The email notice contained an inconspicuous subject line, and the body of the email itself said nothing of the addendum. However, even if the email notice did not qualify as effective notice as defined in the agreement, the Indiana Supreme Court concluded that the notice sent to her by regular U.S. mail did constitute reasonable notice.

 

In addition to providing the consumer with a detailed list of account transactions (both debits and credits), the Court determined that a monthly account statement provides important contact information for member service, the account's beginning and ending balance, the total number of withdrawals, the amount of fees she incurred (including overdraft fees and returned-item fees), the total dividends paid to her (if any), her balance due on any outstanding loans, the annual percentage rate for those loans, and the payments she's made toward those loans. Additionally, it may help a customer discover unauthorized transactions that require further action. Thus, the Court concluded that it made sense for the credit union to have included its proposed modification to the agreement among this information.

 

Turning next to the question of acceptance, the Indiana Supreme Court observed that the credit union explicitly notified the consumer that the failure to opt out of the arbitration addendum within 30 days of receiving notice would bind her to the addendum.

 

However, the Court held that the "mere fact that an offeror states that silence will constitute acceptance does not deprive the offeree of his privilege to remain silent without accepting." Restatement (Second) of Contracts § 69 cmt. c. Instead, the credit union must have shown that the consumer "in remaining silent and inactive intend[ed] to accept the offer." See id. § 69(1)(b). Under the Restatement, the "case for acceptance is strongest" when the offeree's "reliance is definite and substantial" or when the offeree's "intent to accept is objectively manifested though not communicated to the offeror." Id. § 69 cmt. c.

 

Here, even assuming the consumer was aware of the offer to arbitrate, the Indiana Supreme Court found no evidence of her "definite and substantial" reliance on the arbitration addendum. Furthermore, the Court saw no objective manifestation of intent to accept through the consumer's continued use of her checking accounts.

 

First, nothing in the agreement or the disclosure suggested that silence and continued use of the accounts would result in acceptance of any future modification to those original contracts. Cf. Heiges v. JP Morgan Chase Bank, N.A., 521 F. Supp. 2d 641, 647 (N.D. Ohio 2007). Second, nothing in the credit union's offer to amend those original contracts conditioned continued use of the accounts on acceptance of the addendum.

 

Accordingly, the Indiana Supreme Court held that, although the credit union provided the consumer with reasonable notice of its offer to amend the agreement, the consumer's subsequent silence and inaction did not amount to acceptance of the addendum. Thus, with no enforceable agreement to arbitrate, the Court reversed the trial court and remanded for further proceedings.

 

 

 

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

 

 

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:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars