The Illinois Appellate Court, First District, recently reversed a lower court's denial of a petition to vacate a collection judgment after trial where the debtor failed to answer or appear, based upon the collection agency's alleged failure to comply with the account assignment requirements under Section 8b of the Illinois Collection Agency Act.
The Court ruled that the debtor's meritorious defense to the collection claim was "more important" than whether the debtor exercised the due diligence required by the Illinois Code of Civil Procedure.
A copy of the opinion is available at: http://www.state.il.us/court/Opinions/AppellateCourt/2012/1stDistrict/1111690.pdf.
Plaintiff, a debt collection agency ("Collection Agency") that had been assigned a credit account, filed a breach of contract action against defendant debtor ("Debtor") for failure to make payments on the account. The complaint alleged that Collection Agency was the last assignee in a series of assignments. To support this assertion, Collection Agency attached to the complaint account statements allegedly documenting the transfer of Debtor's account as well as letters supposedly showing assignments of various unspecified accounts to Collection Agency.
Both parties later appeared, and the matter was scheduled for trial a few months later. However, due to a purported calendaring error on the part of Debtor's attorney, Debtor failed to file an answer to the complaint or otherwise plead, and neither Debtor nor his counsel appeared at the scheduled trial. The trial court thus entered a judgment "after trial" against Debtor for the amount owed on the credit account.
Debtor filed a petition to vacate the judgment, indicating that Debtor had first became aware of the judgment several months after the order was entered, that Debtor had a meritorious defense that Collection Agency supposedly lacked standing under section 8b of the Illinois Collection Agency Act, and that Debtor acted with due diligence in contesting the judgment by filing the petition as soon as he learned of the judgment. Debtor also attached to the petition his affidavit stating among other things that he had not incurred the alleged debt and that he was never shown any documents transferring his account to Collection Agency.
The lower court denied the Petition without a hearing. Debtor appealed.
As you may recall, a petitioner is entitled to relief under section 2-1401 of the Illinois Code of Civil Procedure if he has a meritorious defense or claim and shows due diligence in presenting the defense in the original action, as well as due diligence in filing the petition. See Fiala v. Schulenberg, 256 Ill. App. 3d 922, 929, 628 N.E.2d 660, 665 (1993); 735 ILCS 5/2-1401.
In addition, Section 8b of the Illinois Collection Agency Act provides: "An account may be assigned to a collection agency for collection with title passing to the collection agency . . . as assignee for the creditor provided: (a) The assignment is manifested by a written agreement, separate from and in addition to any document intended for the purpose of listing a debt with a collection agency. The document manifesting the assignment shall specifically state and include: (i) the effective date of the assignment; and (ii) the consideration for the assignment. . . . (e) No litigation shall commence in the name of the licensee as plaintiff unless: (i) there is an assignment of the account that satisfies the requirements of the Section and (ii) the licensee is represented by a licensed attorney . . . ." 225 ILCS 425/8b(a),(e).
The Appellate Court held that a de novo review standard applied to the issue of whether Debtor had a meritorious defense, and an abuse of discretion standard applies as to the due diligence requirements. Applying these standards, the Appellate Court ruled that Debtor's section 2-1401 petition presented a meritorious defense in part because the assignments failed to comply with section 8b of the Collection Agency Act. In so ruling, the Court pointed out that its review of the letters of assignment showed that the letters failed to specify the consideration and the account number of the assignor, assignee, or Debtor, and also failed to identify Debtor by name.
Moreover, the Appellate Court rejected Collection Agency's assertions that Debtor's failure to answer the complaint or appear at trial caused him to forfeit his standing argument and simply to admit the allegations in the complaint. See Mortgage Electronic Registration Systems, Inc., v. Barnes, 406 Ill. App. 3d 1, 940 NE.2d 118 (2010)(ruling in part that defendant in default admitted to allegations in complaint and thus admitted that foreclosing plaintiff had standing).
In ruling that Debtor had not forfeited his argument that Collection Agency lacked standing, the Court observed that Collection Agency was simultaneously arguing that there had been a trial for purposes of the validity of the judgment, but that there was a default for purposes of raising a defense. The Court stressed that, unlike the defendant in Barnes, Debtor had not in fact defaulted in this case. As the Court explained, "[a]lthough [Debtor] failed to appear at trial, the record . . . explicitly states: '[j]udgment for plaintiff after trial' . . . Therefore, the record does not support [Collection Agency's] assertion that the judgment against Debtor was entered by default, as that term is commonly understood."
Turning to whether Debtor had exercised due diligence both in contesting the original action and in presenting a defense, the Court observed that, although Debtor had failed to file an answer to the complaint and to appear at trial, a judgment may be vacated even in the absence of due diligence where the defendant has a meritorious defense and actively seeks to vacate the judgment. See Fiala v. Schulenberg, 256 Ill. App. 3d 922, 628 N.E.2d 660 (1993).
Significantly, citing the equitable nature of a section 2-1401 petition, the Court stressed that "[m]ore important than the due diligence requirement is the requirement that substantial justice be achieved."
Accordingly, the Appellate Court ruled that the lower court abused its discretion in denying Debtor's petition and that, in light of Debtor's defense that none of the assignments attached to the complaint complied with section 8b of the Collection Agency Act, "justice and good conscience require" that the judgment be reversed and the case remanded.
Ralph T. Wutscher
McGinnis Wutscher LLP
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Chicago, Illinois 60602
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Email: RWutscher@mtwllp.com
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