FYI: Ill App Ct Rejects Borrowers' Attempt to Void Foreclosure by Bank Affiliate Based on Lack of Registration Under Illinois Collection Agency Act

The Illinois Court of Appeals, First District, recently affirmed a trial court’s rejection of borrowers’ efforts to vacate all orders in the action and to dismiss the case on the grounds that the original plaintiff in the foreclosure action was not registered under the Illinois Collection Agency Act, 225 ILCS 425/1, et seq. (“ICAA”).

 

In so ruling, the appellate court took judicial notice of written decisions submitted by the bank supported the conclusion that the original plaintiff was a subsidiary of the substituted bank, and was therefore exempt from the ICAA.

 

A copy of the opinion is available at:  http://www.illinoiscourts.gov/Opinions/AppellateCourt/2014/1stDistrict/1132075.pdf.

 

An affiliate of a bank filed a mortgage foreclosure complaint against the borrowers.  The trial court entered a default judgment, judgment for foreclosure and sale, and the trial court subsequently entered an order approving judicial sale of the subject property.

 

Approximately eight months later, the borrowers filed a motion to vacate pursuant to section 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1401).  The bank’s affiliate filed a motion to dismiss defendant’s motion, which the trial court granted.

 

The borrowers argued that the trial court erred in granting the motion to dismiss because original plaintiff was not a subsidiary of substituted plaintiff bank, and, therefore, the original plaintiff was not exempt from the ICAA and any judgment entered was void. 

 

The borrowers argued in their motion that the original plaintiff was not a registered debt collector as shown in an attached Illinois Department of Financial and Professional Regulation (“IDFPR”) Inquiry.

 

The borrowers further argued that servicing mortgages was clearly an activity in the purview of a debt collector and the main business of a mortgage service is a debt collection activity.  The borrowers further argued that an unregistered debt collector cannot act as a Plaintiff in a lawsuit based upon LVNV v. Trice and all orders entered are void.  The borrowers’ attorney submitted an affidavit which stated that according to the Illinois Secretary of State, the original plaintiff was never registered in Illinois as a “debt collector.”

 

The bank filed a motion to dismiss the borrowers’ section 2-1401 petition. In its motion, the bank argued that borrowers’ section 2-1401 petition should be dismissed pursuant to section 2-615 of the Code of Civil Procedure because borrowers failed to allege sufficient facts to support their assertion that the complaint was void since the original plaintiff was not a registered debt collector under the ICAA. In response, borrowers argued that the bank’s motion to dismiss must fail because (1) the bank cannot refute that the original plaintiff was an unlicensed debt collector based on its unsupported statement that the original plaintiff was a subsidiary of the bank, and (2) “[b]orrowers are confused as to how a Limited Partnership (LP) can be subsidiary. A Limited Partnership requires more than one (1) partner so it is not a subsidiary.”

 

In their reply, the bank asserted that borrowers’ response was “ultimately bereft of any argument that their Petition is viable and of merit.” The bank further argued that borrowers’ petition failed to allege sufficient facts to support their allegations. The bank also attached documents setting forth that the original plaintiff was a subsidiary of the bank at the time the complaint was filed. One document was a portion of a list of bank’s direct and indirect subsidiaries as of December 31, 2009, which included the original plaintiff in the list. The second document was a corporate disclosure statement filed in district court case in the Southern District of Indiana stating that the original plaintiff is a wholly-owned subsidiary of the bank.

 

The trial court granted the bank’s motion to dismiss with prejudice.  The original plaintiff filed a motion for an order approving the report of sale and distribution as well as a motion to substitute the bank as named plaintiff because the original plaintiff had merged into the bank.  The trial court entered an order approving the report of sale and distribution, confirming the sale and order of possession. The trial court also granted the original plaintiff’s motion to substitute the bank as party plaintiff.

 

The borrowers then appealed the trial court’s ruling.

 

On appeal, borrowers argued that the bank is not exempt from the ICAA because the original plaintiff was not a subsidiary of the bank. The bank maintained that borrowers’ claim is meritless because the original plaintiff was exempt from the ICAA.

 

As you may recall, the supreme court in Sarkissian v. Chicago Board of Education, 201 Il. 2d 95 (2002) held that pursuant to paragraph (f) of section 2-1401, the general rules for filing a section 2-1401 petition do not apply to petitions challenging a judgment on voidness grounds.

 

“ ‘[A] judgment, order or decree entered by a court which lacks jurisdiction of the parties or of the subject matter, or which lacks the inherent power to make or enter the particular order involved, is void, and may be attacked at any time or in any court, either directly or collaterally.’ ” Sarkissian, 201 Ill. 2d at 103. The appellate court held that Sarkissian applied because the borrowers’ postjudgment motion argued that the original plaintiff was not a licensed debt collector under the ICAA and, thus that all orders entered by the court were void.

 

The Appellate Court noted that the purpose of the ICAA is to“ ‘protect consumers against debt collection abuse.’ 225 ILCS 425/1a (West 2010). It provides that ‘[n]o collection agency shall operate in this State, *** engage in the business of collecting, solicit claims for others, *** exercise the right to collect, or receive payment for another of any account, bill or other indebtedness, without registering under this Act.’ 225 ILCS 425/4 (West 2010). The [ICAA] defines a ‘collection agency’ or a ‘debt collector’ as ‘any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.’ 225 ILCS 425/2 (West 2010). ‘Debt collection’ is defined as ‘any act or practice in connection with the collection of consumer debts’ and ‘ “[c]onsumer debt” *** means money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.’ Id. Finally, a ‘consumer credit transaction’ is a ‘transaction between a natural person and another person in which property, service, or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.’ Id.” Aurora Loan Services, LLC v. Kmiecik, 2013 IL App (1st) 121700, ¶ 28.

 

However, section 2.03(1) of the ICAA provides for certain exemptions:

 

“This Act does not apply to persons whose collection activities are confined to and are directly related to the operation of a business other than that of a collection agency, and specifically does not include the following:

 

1. Banks, including trust departments, affiliates, and subsidiaries thereof, fiduciaries, and financing and lending institutions (except those who own or operate collection agencies)[.]”

 

225 ILCS 425/2.03(1).

 

The Appellate Court recognized that it already held in Kmiecik that bank subsidiaries are exempt from the ICAA. Kmiecik, 2013 IL App (1st) 121700, ¶ 38. The borrowers asserted, without citation to any case law, that the original plaintiff could not be a subsidiary of the bank because under the ICAA, “only subsidiaries are exempt, not a limited partnership that is owned by Banks’ subsidiaries.”

 

As you may recall, Illinois Supreme Court Rule 41(h)(7) requires an appellant to include in its brief an “[a]rgument, which shall contain the contentions of the appellant and the reasons therefor, with citation of the authorities and the pages of the record relied on.” Ill. S. Ct. R. 341(h)(7) (eff. July 1, 2008). It is well settled that a contention that is supported by some argument but does not cite any authority does not satisfy the requirements of Supreme Court Rule 341(h)(7), and bare contentions that fail to cite any authority do not merit consideration on appeal. Wasleff v. Dever, 194 Ill. App. 3d 147, 155-56 (1990).

 

Moreover, the appellate court found that contrary to borrowers’ contention, the ICAA does not limit exemptions to first-tier subsidiaries. According to the exhibits provided in the trial court, the original plaintiff was owned by entities that were subsidiaries of the bank. The cardinal rule in construing a statute, to which all others are subordinate, is to ascertain and give effect to the intent of the legislature. Alvarez v. Pappas, 229 Ill. 2d 217, 228 (2008). To determine legislative intent, the appellate court turned to the language of the statute, which is the best indicator of its intent. Alvarez, 229 Ill. 2d at 228. “[A]ll words and phrases must be interpreted in light of other relevant provisions of the statute and must not be construed in isolation.” Brucker v. Mercola, 227 Ill. 2d 502, 514 (2007). “Each word, clause and sentence of the statute, if possible, must be given reasonable meaning and not rendered superfluous.” Brucker, 227 Ill. 2d at 514.

 

The Appellate Court concluded nothing in section 2.03(1) of the ICAA limits exemptions to first-tier subsidiaries, and it will not read into its language any additional language imposing such a limitation. Moreover, the Appellate Court also noted that the legislature included a limitation to “any first tier subsidiary of a bank” for an exemption in the Illinois Residential Mortgage License Act of 1987 (205 ILCS 635/1-4(d)(1)(ix). “It is a generally accepted canon of construction that the express inclusion of a provision in one part of a statute and its omission in a parallel section is an intentional exclusion from the latter.” People v. Olsson, 2011 IL App (2d) 091351, ¶ 9.

 

Under well-established precedent and specifically under the holding of Kmiecik, the Appellate Court took judicial notice that other judicial decisions have recognized that the original plaintiff was a subsidiary of the bank. “An appellate court may take judicial notice of readily verifiable facts if doing so ‘will “aid in the efficient disposition of a case,” ’ even if judicial notice was not sought in the trial court.” Kmiecik, 2013 IL App (1st) 121700, ¶ 37. “Specifically, a reviewing court may take judicial notice of a written decision that is part of the record of another court because these decisions are readily verifiable facts that are capable of ‘ “instant and unquestionable demonstration.” ’ ” Id.

 

Here, the bank submitted documentation from a federal case detailing the original plaintiff’s ownership by two subsidiaries of the bank and the bank’s list of its subsidiaries, which included the original plaintiff. The appellate court further observed that numerous cases from other jurisdictions have recognized that the original plaintiff was a subsidiary of the bank. See Ridenour v. Bank of America, N.A., No. 13-cv-0317-BLW, 2014 WL 2452990, at *1 (D. Idaho May 22, 2014); Pniewski v. U.S. Bank National Ass’n, No. 13 C 3638, 2014 WL 1052813, at *1 (N.D. Ill. Mar. 19, 2014).

 

The Appellate Court took judicial notice of these written decisions and held that the original plaintiff was a subsidiary of the bank and was exempt from the ICAA. As the Appellate Court previously held in Kmiecik, it need not reach the question of whether a mortgage foreclosure action qualifies as debt collection under the ICAA. Therefore, the appellate court found the trial court properly granted the bank’s motion to dismiss borrowers’ section 2-1401 petition and it need not consider borrowers’ additional arguments that the foreclosure judgment was void under the ICAA.

 

Accordingly, the Appellate Court affirmed the dismissal of the borrowers’ petition.

 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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FYI: 3rd Cir Holds Account Number Visible Through Transparent Address Window on Letter Violates FDCPA

The U.S. Court of Appeals for the Third Circuit recently vacated and remanded the district court’s order granting summary judgment in favor of a debt collector on a debtor’s claim that the disclosure of the debtor’s account number on the face of the debt collector’s envelope violated § 1962f(8) of the federal Fair Debt Collection Practices Act (“FDCPA”). 

 

Refusing to offer an opinion as to whether § 1962f(8) contains an exception for “benign language,” the Third Circuit ruled that any markings on a debt collector’s envelope that can identify the debtor and his or her status as a debtor are not benign and violate the statute’s prohibitions as a matter of law. 

 

The Third Circuit also held that § 1962f(8) is not limited to markings printed on the envelope itself, and that the statute can be violated by markings visible through the transparent window of an envelope.

 

A copy of this opinion is available at:  http://www2.ca3.uscourts.gov/opinarch/133588p.pdf

 

In this putative class action lawsuit, the sole representative plaintiff debtor alleged that the defendant debt collector, while attempting to collect a debt on behalf of a third party, violated section 1692f(8) of the FDCPA when it issued correspondence to the debtor in an envelope upon the face of which the debtor’s account number was visible.

 

As you may recall, 1962f(8) of the FDCPA contains a prohibition on “using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails … except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.”  15 U.S.C. § 1962f(8).

 

Here, the debtor was contacted by the debt collector via the mail.  The debt collector’s letter was sent in an envelope that contained a transparent address window.  Through the window, the debtor’s account number with the debt collector (not the wireless telecom provider) was visible, as was a “QR Code” that, when scanned with the appropriate device, revealed the monetary amount corresponding to the debt owed. The subject litigation ensued thereafter, and was ultimately amended to initiate a class action on behalf of similarly situated debtors in Montgomery County, Pennsylvania.

 

The district court granted summary judgment in favor of the debt collector, reasoning that a strict interpretation of the FDCPA on this point of law would contradict the intent of § 1962f(8), which was to bar markings on an envelope that could lead to the humiliation or harassment of the debtor.  In doing so, the district court adopted a “benign language” exception to the prohibitions of § 1962f(8), limiting the statute to prohibiting “language or symbols that either (1) signal the letter’s purpose of debt collection or (2) tend to humiliate, threaten, or manipulate the recipient of the letter.”

 

On appeal, the debtor contended that the language of § 1962f(8) is clear, unambiguous and applies to the disclosure of the debtor’s account number on the face of the envelope.  In response, the debt collector asserted that enforcing the plain meaning of the statute would lead to an absurd result, and that the debtor’s account number, as “benign language,” should be exempted from the prohibitions of § 1962f(8).  The debtor countered that even if there was an exception for benign language, the debtor’s account number is not benign.  Notably, on appeal, the debtor appeared to have abandoned the argument that the debt collector’s inclusion of a visible “QR Code” also violated the FDCPA.

 

In its opinion vacating and remanding the district court's grant of summary judgment in favor of the debt collector, the Third Circuit held that “§ 1962f(8)’s prohibition on language and symbols applies to markings that are visible through a transparent window of an envelope.  Strictly speaking, section § 1962f(8) applies to language “on any envelope.”  15 U.S.C. § 1962f(8) (emphasis added).

 

However, given Congress’s intent when enacting the FDCPA was to screen information from public view that is relevant to debt collection, the Third Circuit extended the reach of the statute to include information visible through a transparent window of a debt collector’s envelope.

 

In addition, the Third Circuit noted that the language of § 1962f(8) is unequivocal and plainly prohibits the display of an account number.  In so far as the language of the statute is plain, the Third Circuit is bound “to enforce it according to its terms [so long as] the disposition required by that text is not absurd.” Alston v. Countrywide Fin. Corp., 585 F.3d 753, 759 (3rd Cir. 2009).  Therefore, unless the literal application of the statute’s text results in an absurd result, the plain language of the statute must be enforced.

 

The debt collector asserted that the Third Circuit was required to adopt and apply a “benign language” exception that would allow “markings on an envelope so long as they do not suggest the letter’s purpose of debt collection or humiliate or threaten the debtor.”  Such an exception appears to have been accepted in the Fifth and Eight Circuits, but not yet in the Third Circuit.  See e.g., Goswami v. American Collections Enterprise, Inc., 377 F.3d 488 (5th Cir. 2004); Strand v. Diversified Collection Service, Inc., 380 F.3d 316 (8th Cir. 2004).

 

The Third Circuit declined to decide whether § 1962f(8) contains a “benign language” exception.  However, the Third Circuit held that a debtor’s account number is not benign, such an exception, even if it exists at all, would not apply here. 

 

Simply stated, the Third Circuit felt that the disclosure of the debtor’s account number “implicat[ed] a core concern animating the FDCPA – the invasion of privacy.”  Rather than, as the debt collector argued, being just a “meaningless string of numbers and letters that could not possibly hurt [debtor],” the Third Circuit held that the debtor’s account number is a “piece of information capable of [publically] identifying [the debtor] as a debtor,” and that the disclosure of same has the potential to cause the very harm that the FDCPA was enacted to prevent.

 

Accordingly, the Third Circuit vacated the summary judgment ruling in favor of the debt collector, and remanded for further proceedings consistent with the opinion.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

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FYI: 9th Cir Holds CAFA's "Local Controversy" Exception to Be Determined as of Date Action Became Removable

The U.S. Court of Appeals for the Ninth Circuit recently held that, for purpose of considering the “local controversy” exception to federal court jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d) (“CAFA”), the citizenship of a proposed plaintiff class is based on the operative complaint as of the date the case became removable

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2014/08/22/14-56075.pdf                                                                                                                                                                        

 

Two plaintiffs filed a class action complaint in the Superior Court of California asserting claims against bank (“Bank”) and several defendants.  One of the defendants removed the action to the United States District Court for the Central District of California, invoking federal jurisdiction under 28 U.S.C. § 1332(d)(2). 

 

The parties stipulated to sever one of the plaintiff’s claims and transferred them to the District of Arizona.  The District Court ordered the remaining plaintiff to amend her complaint to reflect the severance.  After filing her Second Amended Complaint, the plaintiff moved to remand the action to California state court under one of the exceptions to CAFA jurisdiction, 28 U.S.C. § 1332(d)(4).  The District Court granted the motion to remand under 28 U.S.C. § 1332(d)(3). 

 

As you may recall, the CAFA expanded federal jurisdiction over interstate class action lawsuits by, among other things, replacing the typical requirement of complete diversity with one of only minimal diversity.  Section 1332(d)(2) provides:

 

 

(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which—

 

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

 

(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

 

(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

 

 

See 28 U.S.C. § 1332(d)(2).  However, Congress provided exceptions allowing certain class actions that would otherwise satisfy CAFA’s jurisdictional requirements to be remanded to state court.

 

Specifically for purposes here, pursuant to Section 1332(d)(4), the District Court shall decline to exercise jurisdiction under paragraph (2):

 

 

(A)

(i) over a class action in which—

(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by members of the plaintiff class;

(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

(cc) who is a citizen of the State in which the action was originally filed; and

(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

 

(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

 

 

See 28 U.S.C. § 1332(d)(4).

 

In reversing the order for remand, the Ninth Circuit held that the District Court erred by determining citizenship of the plaintiff class as pled in plaintiff’s Second Amended Complaint filed in the District Court, after the action had been removed from state court and after the severance of the Arizona plaintiff’s claims.

 

Under the CAFA, “[c]itizenship of the members of the proposed plaintiff class shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint … indicating the existence of Federal Jurisdiction.”  28 U.S.C. § 1332(d)(7). 

 

Relying on Mondragon v. Capital One Auto Fin., 736 F.3d 880 (9th Cir. 2013), the Ninth Circuit explained that the District Court should have determined the proposed plaintiff class based on plaintiff’s complaint “as of the date of the case became removable” for the purpose of considering the applicability of the exceptions to CAFA jurisdiction.  See Mondragon, 736 F.3d at 883.

 

Accordingly, the Ninth Circuit vacated the order remanding the action to state court, and sent the action back to District Court for further proceedings. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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