Financial Services Law Developments: 9/23/12

Friday, September 28, 2012

FYI: Ill App Ct Rules Mech Lien Claim Untimely Against Commercial Mortgagee, Where Pleading Not Separately Filed w/in Time Allowed

The Illinois Appellate Court, First District, recently held that a development company's attempt to enforce its mechanic's lien was time-barred as against a mortgagee, where the development company attached -- but did not separately file -- a pleading asserting its lien to a motion to vacate a default judgment within the statutory time period.

A copy of the opinion is available at http://www.state.il.us/court/Opinions/AppellateCourt/2012/1stDistrict/1112116.pdf.

A bank filed a complaint to foreclose a mortgage in 2007. A development company with a mechanic's lien on the subject property was named as a defendant. The bank then filed a motion for an order of default, alleging that the development company was properly served, but did not answer or appear. The lower court found the development company in default, and entered an order for judgment of foreclosure and sale.

The development company filed a motion to vacate the default for judgment, and for leave to intervene and file a counterclaim instanter. A copy of the development company's proposed counterclaim was attached to the motion to vacate.

The lower court found that the individual who was served on the part of the development company did not have authority to serve as that company's registered agent, and accordingly vacated the default judgment as to the development company. The lower court also gave the development company leave to file its answer and counterclaim, which the development company did shortly thereafter.

The bank then filed a motion for summary judgment, alleging that the development company failed to enforce its mechanic's lien within the time period required by the relevant statute. The lower court granted the bank's motion, and the development company appealed.

The Illinois mechanics lien statute provides that a suit or counterclaim to enforce a mechanic's lien must be filed within two years of the completion of the contract. 770 ILCS 60/9 (the "Act").

Here, the bank alleged that the work was completed on June 14, 2006, such that the development company's deadline to enforce its mechanic's lien was June 14, 2008. The development company attached a proposed counterclaim to its motion to vacate on April 10, 2008. However, the court did not rule on that motion to vacate until August 4, 2008, and the counterclaim was not actually filed until August 25, 2008. Therefore, the case turned on whether the development company's proposed counterclaim was sufficient to meet the statutory requirements.

On appeal, the development company contended that it provided its proposed counterclaim to the lower court, along with a request for leave to file the same, prior to the expiration of the statutory deadline, and that it should not be penalized for the lower court's delay in granting that request, or for delay related to the fact that the bank opposed the motion.

The Appellate Court disagreed. It noted that both parties agree that the counterclaim was not filed until August 25, 2008, "which was after the two-year limitations period expired." Further, the Appellate Court observed that "there is no indication in the record that after [the development company] filed its motion to vacate on April 10, 2008, that [the development company] ever informed the trial court that its two-year deadline was approaching...or that an expedited hearing was needed."

The Appellate Court also rejected the development company's contention that the only course of action open to it was to file a motion to vacate. Because the development company had reason to believe that the judgment of foreclosure was void, the Appellate Court noted that it "could have filed its own case to foreclose the lien before the [statutory deadline] elapsed because a void judgment could be attacked directly or collaterally."

Therefore, the Appellate Court held that the Illinois mechanics lien statute "provides that the counterclaim must be filed within two years of the completion of work, not merely presented as an attachment." Accordingly, it affirmed the judgment of the lower court.

Ralph T. Wutscher
McGinnis 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
Email: RWutscher@mtwllp.com

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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com

Monday, September 24, 2012

FYI: 9th Cir Upholds Rejection of California False Claims Act Allegations Against MERS

The U.S. Court of Appeals for the Ninth Circuit recently rejected a lawsuit brought under the California False Claims Act alleging that MERS and its member entities made false representations by naming MERS as a beneficiary to avoid paying recording fees. The Ninth Circuit's decision was based on its holding that the substance of the plaintiff's allegations was already in the public domain, such that the lower court did not have jurisdiction over the matter under the CFCA.

A copy of the opinion is available at http://www.ca9.uscourts.gov/datastore/opinions/2012/09/17/11-15894.pdf.

The plaintiff, a realtor, filed a lawsuit against MERS and various of its members (the "defendants"), on behalf of the Counties of California. He alleged that the MERS system was fraudulent in that it was designed to deprive California Counties of recording fees, purportedly in violation of the California False Claims Act ("CFCA").

MERS removed the matter to federal court, asserting diversity jurisdiction. The plaintiff filed a motion to remand the matter to state court, on the grounds that the State of California was a real party in interest, thus defeating diversity jurisdiction. The lower court denied the plaintiff's motion.

The defendants filed motions to dismiss the plaintiff's complaint, arguing that his claims were substantially similar to information already in the public domain, and accordingly were barred by the CFCA. The lower court agreed, and ruled in favor of the defendants. The plaintiff appealed.

On appeal, the plaintiff challenged the lower court's decision to deny his motion to remand, as well as the lower court's CFCA ruling. The Ninth Circuit considered each matter in turn.

The Ninth Circuit had little difficulty in determining that the lower court did not err in denying the borrower's motion to remand. It held that the plaintiff's pleadings did not disclose any grounds for treating California as a real party in interest, and further noted that if if the plaintiff's suit was successful, "the State would not realize any benefit as a result."

Next, the Court considered the plaintiff's CFCA claim. As you may recall, the CFCA is a "whistleblower" statute that allows individuals to sue on behalf of the State or Counties. However, the CFCA provides that "no court shall have jurisdiction" over such claims where the action is "based upon the public disclosure" of the substance of the allegations. Cal Gov't Code Sec. 12652(d)(3)(A). Thus, where prior public disclosures adequately put the government on notice of allegations brought under the CFCA, the suit is barred.

With that standard in place, the Ninth Circuit affirmed the lower court's rejection of the plaintiff's CFCA claim. Because "substantially similar information to [the plaintiff's] allegations already existed in the public domain at the time he filed suit," the Court held that "the district court properly dismissed the action as jurisdictionally barred."

The plaintiff attempted to avoid this result by arguing that he was the original source of the allegations in the complaint, and that prior to his lawsuit, no one had adequately alerted the government of MERS' behavior. The Ninth Circuit disagreed, observing that the plaintiff's alleged discovery of fraud on the part of MERS postdated numerous public disclosures describing the MERS system. Therefore, the Ninth Circuit observed that it was "temporally impossible" for the plaintiff to have been the original source of the allegations.

Accordingly, the Ninth Circuit affirmed the judgment of the lower court.

Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com

PLEASE NOTE:

The editor and sponsoring law firm of this blog represent and serve banks, lenders, loan buyers, loan servicers, debt collectors, and other financial services companies. We do not represent consumers.

Any communications or information obtained may be provided to our clients, including for the purpose of debt collection.

The information in this blog and related updates is general in nature, and should not be considered legal advice.

Legal advice requires a full and complete understanding of a particular situation. Your situation may involve material facts that prevent the direct application of the information in this blog and related updates.

You will not become a client of the editor or sponsoring law firm simply by reading this blog.

In order to become a client of the editor or sponsoring law firm, the editor or sponsoring law firm must agree to represent you in writing.

Until we agree to represent you in writing, we are not prevented from representing any other party.

Until you are a client of the editor or sponsoring law firm, any communications with us will not be confidential.

The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.