Wednesday, July 18, 2012

FYI: Ill App Ct Rules on Pleading Requirements for Collecting on Credit Card Debts

The Illinois Appellate Court, Second District, recently held that credit card debt purchaser's complaint failed to state a cause of action based on an unwritten credit card agreement, but that the trial court improperly dismissed the complaint with prejudice, because the trial court itself had expressed uncertainty as to pleading requirements.  The Appellate Court ruled that, on remand, the re-pleaded complaint must contain allegations or documents showing that the credit card agreement was communicated to the card holder, and that the card holder accepted those terms through use of the card or otherwise.
A copy of the opinion is available at:
Plaintiff, a debt purchaser ("Debt Purchaser"), filed suit against a credit card holder ("Card Holder") to collect on an alleged credit card debt.    The Debt Purchaser ultimately filed a second amended complaint, seeking the unpaid principal, attorney fees, costs, and interest based on breach of an unwritten contract and benefit conferred. 
Attached to the second amended complaint were: (1) an affidavit signed by an agent of Debt Purchaser indicating  among other things that the original credit card issuer had made an offer of credit to Card Holder in the form of a credit card with terms and conditions governing the use of the card and that Card Holder accepted the credit offer by using the card; (2) a chain of title reflecting assignment of the debt; and (3) a copy of an undated Customer Agreement and Disclosure Statement ("Customer Agreement"), providing in part that the account holder promised to pay the total amount of purchases as well as any finance charges. 
Card Holder moved to dismiss, arguing that Debt Purchaser lacked standing, and failed to attach a copy of the written credit agreement to the complaint as required by the Illinois Code of Civil Procedure.  In response, Debt Purchaser argued that because it was pursuing a cause of action based on an unwritten contract, it was not necessary to attach any agreement to the complaint.
Eventually, after holding hearings in which the trial court expressed uncertainty as to the actual pleading requirements for the claims at issue, the lower court ruled that, although there was a potential cause of action in the case, Debt Purchaser had repeatedly failed to plead a proper cause of action based on an unwritten contract. 
Specifically, the lower court ruled that the generic Customer Agreement was not sufficient evidence of Card Holder's consent to comply with the terms in effect at the time of each use of the credit card, and that the complaint failed to allege that Card Holder had actually used the credit card and thus received benefits from it.   The trial court further ruled that, because the Debt Purchaser was not seeking to enforce a written agreement, attorney fees and interest were not recoverable. 
The trial court dismissed with prejudice.  Debt Purchaser appealed.  The Appellate Court reversed and remanded, allowing Debt Purchaser to re-plead in accordance with the parameters set forth in its opinion.
Although the Appellate Court agreed with the trial court that the complaint failed to state a cause of action, the Appellate Court concluded that dismissal with prejudice was unwarranted in light of the trial court's expressed uncertainty as to the specific pleading requirements in an action based on an unwritten credit card agreement.
In so ruling, the Appellate Court reviewed the elements of a breach-of-contract cause of action, observing that a complaint must include facts sufficient to indicate the terms of the contract, regardless of whether the alleged contract is written, oral, or unwritten.
In this case, the Court noted, the complaint failed to allege that there was a contract between the parties or that Debt Purchaser had performed under the contract.  The Appellate Court also pointed out that if the generic Customer Agreement attached to the complaint was intended to reflect the terms of the contract with Card Holder, Debt Purchaser had failed to plead that it applied to Card Holder's credit card account.
Moreover, the Appellate Court specified that, in order to plead that the generic Customer Agreement applied to Card Holder's account when Card holder used the card, the complaint must allege facts showing that the terms therein were communicated to Card holder and that Card Holder accepted those terms by subsequently using the card or otherwise.  See Garber v. Harris Trust & Savings Bank, 104 Ill. App. 3d 675 (1982)(concluding that a separate credit contract is created each time the credit card is used according to the terms of the cardholder agreement in effect at the time of such use).
Importantly, the Court also noted that to the extent Debt Purchaser sought to recover for charges incurred under different versions of the unwritten Customer Agreement, those terms, the communication of those terms to Card holder, and Card holder's subsequent use of the card must be pleaded for each version of the terms under which Debt Purchaser sought recovery.
Finally, the Appellate Court also disagreed with the trial court's conclusion that recovery of attorney fees or interest were precluded because a copy of a written agreement was not attached to the complaint.  Stressing that whichever terms are in effect at the time a credit card is used are the terms that determine the extent of recovery, and that such terms may include provisions for attorney fees or interest, the Court ruled that as long as the above pleading requirements are satisfied, a plaintiff may seek recovery of attorney fees or interest in accordance with those terms.

Ralph T. Wutscher
McGinnis Tessitore 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

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