Tuesday, November 20, 2012

FYI: Ill App Ct Holds Post-Collection UDAP Lawsuit Against Lender Barred by Res Judicata, State UDAP Statute Does Not Apply to Attorneys

The Illinois Court of Appeals, Fifth District, recently held that:  (1) that a plaintiff's lawsuit alleging misconduct in connection with a lender's attempt to collect on a judgment was barred by res judicata, despite the plaintiff's argument that the lender intended to collect against another party who was a relative of the plaintiff; and (2) the Illinois Consumer Fraud Act does not apply to attorneys representing clients in the practice of law, even where the action is brought by a third party.   
A lender obtained a judgment against an individual, Ron Kosydor ("Kosydor"), and engaged a law firm to enforce that judgment.  Kosydor sued the lender and the law firm (collectively, the "defendants"), arguing that both entities had violated the Illinois Consumer Fraud and Deceptive Practices Act (the "Act") because both knew that Kosydor did not owe them any money. 
The defendants filed a motion to dismiss Kosydor's complaint, arguing (1) that the claim against the law firm must be dismissed because the Act does not apply to attorneys; and (2) that the claim against lender must be dismissed because it was barred by res judicata.  More specifically, the lender argued that the plaintiff was actually attacking the validity of the underlying judgment, which had already been litigated. 
Kosydor responded to the defendants'' motion to dismiss by arguing that the judgment obtained against "Ron Kosydor" had actually been entered against his father, Ron L. Kosydor (the "father").  Therefore, he argued, there was no identity of parties between the two actions, such that res judicata did not apply.  Kosydor also argued that he had not been a party to the original action.  In support of his argument, Kosydor stated that his social security number does not match the number listed on the citation to discover assets filed in connection with enforcing the judgment.  He further claimed that none of the business credit cards on which the action was based were in his name. 
The defendants filed a reply to Kosydor's response, who then filed an additional response.  Therein, Kosydor stated that he was a registered agent of a corporation, and was served with the summons and complaint in the original action only in that capacity.  He further stated that only the business and his father were liable for the relevant credit card debt.
The lower court agreed with the defendants' arguments, and dismissed Kosydor's complaint with prejudice.  Kosydor appealed. 
As you may recall, the doctrine of res judicata bars suits based on facts that would have constituted a counterclaim or defense in an earlier proceeding, where successful prosecution of the later action would either nullify an earlier judgment or impair the rights established in an earlier action.  See, e.g., Cabrera v. First National Bank of Wheaton, 324 Ill. App. 3d 85, 92 (2001).  For res judicata to apply, there must be an identity of both parties and causes of action. 
The Court began by examining the proceedings in the original action.  It noted that the lender filed a verified complaint against "Ron Kosydor" and the corporation.  The address listed in the complaint for "Ron Kosydor" was in fact Kosydor's address.  An alias summons was served on Kosydor, who neither filed a responsive pleading in the original action nor disputed service in the present matter.  A judgment was entered against "Defendant, Ron Kosydor," but no judgment was entered against the corporation. 
A notice of citation to discover assets was filed, which included a partial social security number.  That citation was served on a resident of Kosydor's home.
The Court then considered Kosydor's argument that the lower court never acquired personal jurisdiction over him.  It cited case law providing that in cases of misnomer - where the correct party is called by the wrong name - that party is still subject to the court's jurisdiction upon receiving notice of the action, whereas in cases of mistaken identity - where the wrong person is joined and served - the court does not acquire jurisdiction over the person served.  See Capital One Bank, N.A. v. Czekala, 379 Ill. App. 3d 737, 742-43 (2008).  The intent of the plaintiff is "pivotal" to determine whether a case involves misnomer or mistaken identity.  Id. 
The Court agreed with Kosydor's contention that, if he was named and served by mistake, then the lower court would not have obtained personal jurisdiction over him, and res judicata would not bar the instant action.  However, the Court "found no objective manifestations of the creditor's intent to name and serve someone other than [Kosydor]."  Specifically, the Court noted that the address listed on the summons were Kosydor's, not his father's, and further that Kosydor's name appeared on the credit card accounts in question. 
Similarly, the Court found "no evidence in the record" that Kosydor's father was connected with the corporation, or with the relevant credit card accounts. 
Kosydor asserted that he believed (but did not know) that the social security number listed on a citation to discover assets was that of his father. The Court did not find this argument persuasive, holding that "[t]he listing of an incorrect social security number on a citation to discover assets issued months after judgment does not constitute persuasive evidence of the defendants' intent to sue someone other than [Kosydor]..."
Therefore, because "all the requirements for res judicata to apply are present here," the Court found that Kosydor's action was barred. 
Next, the Court turned to Kosydor's claim against the law firm.  It noted the well-established principal that the Act does not apply to an attorney representing a client, because the attorney-client relationship is already subject to extensive regulation by the Court.  Kosydor argued that the Act should apply here, because he was not a client of the law firm, but rather a third party. 
The Court again disagreed, finding that Kosydor "does not point to a single case" establishing that third parties may sue attorneys representing clients where the cause of action is based on the Act.  For that reason, the Court held that "the Act does not apply to the conduct of attorneys when representing any client in the practice of law, even against a third party." 
Accordingly, the Court affirmed the lower court's judgment. 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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