FYI: Ill App (3rd Dist) Upholds Dismissal of Qui Tam Action Against MERS

The Appellate Court of Illinois, Third District, recently affirmed a trial court's dismissal of a qui tam action brought by a private attorney under the Illinois False Claims Act against Mortgage Electronic Registration Systems, Inc. ("MERS"), holding that the State can file a motion to dismiss at any time during the case even if the State declined to take over the action.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff the State ex rel. by a private attorney (Relator), filed a qui tam action against MERS and unnamed defendants, including entities that originated and/or serviced home loans, alleging defendants violated section 740 ILCS 175/3(a)(1)(G) of the Illinois False Claims Act by knowingly making false statements in certain mortgage documents to avoid paying millions of dollars in mortgage assignment fees to the State's counties.

 

As you may recall, a qui tam action "is an action brought by an informer, under a statute which establishes a penalty for the commission or omission of a certain act, and provides that the same shall be recoverable in a civil action, part of the penalty to go to any person who will bring such action and the remainder to the state or some other institution." Black's Law Dictionary 1251 (6th ed. 1990).

 

The State, via the Attorney General, declined to take over the Relator's action.  Subsequently, at the Relator's request, the trial court ordered the State to produce its investigative file concerning MERS's business practices for an in camera inspection.  In response, the State filed a motion for a protective order, a motion to reconsider the order compelling the State to produce records, and a motion to dismiss.

 

The Relator filed a motion to disqualify the Attorney General alleging that potential defendant banks sponsored an award dinner in honor of the Attorney General.  The Relator maintained that this created a conflict of interest that precluded the Attorney General from intervening in the case.

 

The trial court denied the Relator's motion, granted the motion to dismiss, and ruled that the State's remaining motions were moot.  This appeal followed.

 

Initially, the Appellate Court observed that a motion to dismiss a qui tam action pursuant to section 4(c)(2)(A) of the Illinois False Claims Act (740 ILCS 175/4(c)(2)(A) ("IFCA") is similar to a motion to dismiss an action pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619) because the motion asserts an affirmative defense that defeats the claim.  Thus, the Appellate Court reviews a dismissal pursuant to section 4(c)(2)(A) de novo.

 

The Appellate Court next noted that Section 3(a)(1)(G) of the IFCA creates liability for anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the State, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the State." 740 ILCS 175/3(a)(1)(G).

 

In addition, the IFCA authorizes private persons to file civil actions on the State's behalf for violations of section 3. 740 ILCS 175/4(b).  The State then has 60 days from when the private person files the complaint to intervene and prosecute the action or to inform "the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action." 740 ILCS 175/4(b)(4)(A),(B).

 

Section 4 of the IFCA, in relevant part, gives the State the following options:

 

"(c) Rights of the parties to Qui Tam actions.

 

          (1) If the State proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).

 

          (2)(A) The State may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the State of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.

 

          (3) If the State elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the State so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the State's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the State to intervene at a later date upon a showing of good cause."

 

740 ILCS 175/4(c).

 

The Relator argued that the State can only file a motion to dismiss under section 4(c) if it elects to proceed with the action. The Appellate Court disagreed.

 

The Appellate Court reasoned that the State is the real party in interest in qui tam actions and therefore qui tam plaintiffs, acting as the State's statutorily designated agents, may only proceed only with the Attorney General's consent. Scachitti v. UBS Financial Services, 215 Ill. 2d 484, 515 (2005).  Further, qui tam plaintiffs are always subordinate to the Attorney General. Id.

 

Thus, "the Attorney General possesses the authority to control the qui tam action at every stage." Id. at 510-11. The Appellate Court concluded that the trial court did not err when it granted the State's motion to dismiss because "it is clear from section 4(c) and our supreme court's interpretation in Scachitti that the State can file a motion to dismiss at any time during the life of the action, even if the State has elected not to take over the action."

 

Finally, the Appellate Court rejected the Relator's argument that the trial court should have disqualified the Attorney General because of the alleged conflict of interest.

 

Specifically, the Court held, the Attorney General only has a conflict of interest in a case in two situations: (1) where the Attorney General is interested in the case as a private person; and (2) where the Attorney General is a party to the action. Environmental Protection Agency v. Pollution Control Board, 69 Ill. 2d 394, 400-01 (1977).  The Court held that neither situation existed here, and that the trial court properly denied the Relator's motion to disqualify the Attorney General.

 

Accordingly, the Appellate Court affirmed the trial court's dismissal order.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Fla App Ct (4th DCA) Holds Borrower Prevailing on "Lack of Standing" Cannot Obtain Attorney's Fees

The District Court of Appeal of Florida for the Fourth District recently denied a borrower's motion for appellate attorney's fees in a contested foreclosure, holding that the reciprocity provision of section 57.105(7), Florida Statutes, does not apply where the borrower prevails based on lack of standing, unless the plaintiff mortgagee was also the original lender.

 

A copy of the opinion is available at:  Link to Opinion

 

The trial court dismissed with prejudice a mortgagee's amended foreclosure complaint, and the plaintiff mortgagee appealed.

 

The mortgagee voluntarily dismissed the appeal, and the borrower moved for appellate attorney's fees and costs, arguing that she was entitled to recover her fees and costs based on a provision of the mortgage and based upon subsection 57.105, Florida Statutes, which provides that where there exists a contract with a provision for attorney's fees and costs in favor of one party, it is deemed to be reciprocal.

 

On appeal, the Fourth District explained that "the plain language of section 57.105(7) has two requirements. First, the party must have prevailed. Second, the party had to be a party to the contract containing the fee provision."

 

Because the borrower prevailed in the trial court based on her argument that the mortgagee lacked standing to sue, the Court found that "where a party prevails by arguing the plaintiff failed to establish that it had the right pursuant to the contract to bring the action, the party cannot simultaneously seek to take advantage of a fee provision in that same contract. The result is different when the plaintiff is also the originating lender [because] [i]n that situation, the lender was a party to the contract as issue."

 

The borrower's motion for appellate attorney's fees and costs was denied, albeit without prejudice as to the costs because "a request for costs is not properly presented to the appellate court" pursuant to Florida Rule of Appellate Procedure 9.400(a).

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Holds Consolidated "Bellweather-Trial" of Multiple Actions Did Not Meet CAFA's "Mass Action" Requirements

The U.S. Court of Appeals for the Ninth Circuit recently affirmed that consolidating multiple actions for pre-trial purposes and a bellweather-trial process is insufficient to justify the removal of those actions to federal court under the "mass action" provision of the Class Action Fairness Act ("CAFA"). 

 

In doing so, the Ninth Circuit rejected several arguments the removing defendant made based on language contained in the plaintiffs' motion to consolidate.  The Court concluded that even though, as consolidated, the matters satisfied the numerosity requirement of a "mass action" under CAFA, the plaintiffs did not intend a joint trial for all of the plaintiffs, which is also required under CAFA.  Therefore, according to the Ninth Circuit, the consolidated cases should not have been removed pursuant to CAFA's mass action provision. 

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, under CAFA, large multi-state class actions can be removed to federal court.  In addition, Congress made "mass actions" also removable based on similar standards as class actions.  Under CAFA, a "mass action" is defined as a civil action, other than a class action, "in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiff's claims involve common questions of law or fact."  See 28 U.S.C. § 1332(d)(11)(B)(i).

 

Here, the defendant was a manufacturer of medical devices facing eight different product liability lawsuits filed against it in state court. The plaintiffs requested that the matters be consolidated "for all pretrial purposes, including discovery and other proceedings, and the institution of a bellweather-trial process."  The plaintiffs further asserted that consolidation for a bellweather-trial process "will avoid unnecessary duplication of evidence and procedures in all of the actions, avoid the risk of inconsistent adjudications, and avoid many of the same witnesses testifying on common issues in all actions, as well as promote judicial economy and convenience." 

 

The defendant removed the matters to federal court based on the mass action provision in CAFA.  The plaintiffs challenged the removal. The trial court ruled that plaintiffs' consolidation motion did not propose a joint trial of plaintiffs' claims, as required under § 1332(d)(11)(B)(i), and remanded the matters back to state court. The Ninth Circuit accepted the defendant's immediate appeal.

 

On appeal, the Ninth Circuit first examined the language contained in the mass action provision of CAFA.  According to the Court, the fact that more than 100 plaintiffs have sued the defendant in eight separate actions, standing alone, is not sufficient to trigger the mass action removal provision under CAFA.  Second, according to the Court, even if more than 100 plaintiffs in separate actions propose to consolidate their matters for pretrial purposes, that was also insufficient to trigger the removal provision under CAFA. 

 

The Ninth Circuit identified another provision in CAFA that factored into whether removal was appropriate.  Specifically, the definition of a mass action under CAFA excludes any civil action in which the plaintiffs' claims "have been consolidated or coordinated solely for pretrial proceedings."  28 U.S.C. § 1332(d)(11)(B)(ii)(IV).  Thus, according to the Court, the issue presented was, based on the language contained in plaintiffs' motion to consolidate, whether the plaintiffs' proposal for a bellweather-trial process constituted a proposal to try the claims jointly. If so, the Court held, the requirements of § 1332(d)(11)(B)(i) would be satisfied.

 

The Court acknowledged that there were two types of bellweather-trials to be held in class or mass actions.  The first type is when the claims of a representative plaintiff or small group of plaintiffs are tried and the parties in the other cases agree they will be bound by the outcome of that trial, at least as to common issues. According to the Ninth Circuit, this was the least common type of the bellweather-trials.

 

The second, far more common, type of bellweather-trial is where the claims of a representative plaintiff or plaintiffs are tried, but the outcome is binding only on those parties to the trial, and not any of the other parties in other cases.  Instead, the parties in the other cases use the trial outcome for informational purposes and to aid in settlements. 

 

The Ninth Circuit determined that if plaintiffs proposed holding a bellweather-trial of the first type (i.e., the claims of a representative plaintiff or small group of plaintiffs are tried and the parties in the other cases agree they will be bound by the outcome of that trial, at least as to common issues), then the plaintiffs proposed a joint trial of their claims under § 1332(d)(11)(B)(i) because the findings in the bellweather-trial would have preclusive effect on the plaintiffs in the other cases. 

 

However, the Ninth Circuit held, if the plaintiffs proposed holding a bellweather-trial of the second type (i.e., where the claims of a representative plaintiff or plaintiffs are tried, but the outcome is binding only on those parties to the trial, and not any of the other parties in other cases), then the plaintiffs did not propose trying the plaintiffs' claims jointly under § 1332(d)(11)(B)(i).

 

The defendant argued that plaintiffs' motion to consolidate made several references that required the court to conclude plaintiffs were requesting a bellweather-trial of the first type. 

 

The first argument defendant made was that the plaintiffs moved to consolidate the matters pursuant to California Code of Civil Procedure § 1048(a).  According to the defendant, § 1048(a) did not allow consolidation for pretrial purposes only.  The Ninth Circuit rejected this argument, finding that no such language existed in that provision.  In addition, the Ninth Circuit concluded that § 1048 was amended in 1971 to mirror Fed.R.Civ.Pro. 42, which "has long been interpreted to allow for consolidation for pretrial purposes only."  The Court also found that the one case the defendant relied on in support of this argument actually acknowledged that § 1048(a) authorized two types of consolidation, one for purposes of trial and the other for all purposes, including trial.

 

The defendant's second argument in support of its assertion that plaintiffs intended for a bellweather-trial that had a preclusive effect was that one of the reasons plaintiffs gave for consolidating the matters was to "avoid the risk of inconsistent adjudications." The Ninth Circuit rejected this argument as well, finding that the plaintiffs could have been referring to several different issues related to "inconsistent adjudications," including evidentiary motions, dispositive motions and motions in limine. The Court determined that defendant did not satisfy its burden of eliminating alternative interpretations of "inconsistent adjudications," and, as a result, its second argument was not persuasive to the Court.

 

The final argument the defendant made was that plaintiffs' motion to consolidate defined "inconsistent adjudications" to mean "different results because tried before different judge and jury, etc."  The Ninth Circuit found that, when read in isolation, the plaintiffs' definition supported defendant's argument.  According to the Court, however, the defendant took the definition out of context.  The definition was given in a passage related to the general purposes of consolidation.  More importantly, the plaintiffs immediately followed the definition with a disclaimer stating they were not seeking consolidation "for purposes of a single trial to determine the outcome for all plaintiffs," and that they were seeking "a single judge to oversee and coordinate common discovery and pretrial proceedings."  The plaintiffs went on to state that the bellweather-trial "would likely prove an effective tool to resolution of the [other] cases."

 

Taken collectively, according the Ninth Circuit, the plaintiffs' motion to consolidate established plaintiffs were seeking a bellweather-trial of the limited-binding type, such that the plaintiffs did not propose trying the plaintiffs' claims jointly under § 1332(d)(11)(B)(i). 

 

Thus, in affirming the trial court's remand of the matters to state court, the Ninth Circuit concluded that plaintiffs' request for consolidation of pretrial proceedings does not trigger the mass action removal under CAFA, and that plaintiffs' request for a bellweather-trial process did not indicate they were seeking a trial whose result would have a preclusive effect on the plaintiffs in the other cases.  In the absence of such an intent, the Court held, removal jurisdiction under the mass action provision of CAFA did not exist. 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 6th Cir Rejects FDCPA Allegations of State Procedural Violations and Misrepresentations, Citing Spokeo

Relying on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the U.S. Court of Appeals for the Sixth Circuit recently held that alleged violations of the federal Fair Debt Collection Practices Act ("FDCPA") arising out of state procedural violations were not sufficient to confer subject matter jurisdiction without any corresponding concrete harm.

 

A copy of the opinion is available at:  Link to Opinion

 

A law firm brought a collection action in Ohio against a debtor.  The law firm served the debtor with discovery requests, but allegedly did not sent a separate electronic copy as required, and also allegedly incorrectly indicated that debtor's responses to request to admit had to be sworn and notarized.  In response, debtor sued alleging that the law firm violated the FDCPA.

 

The law firm moved to dismiss arguing that the debtor did not plead any concrete injury in connection with the alleged violation of the state procedural rules.  As you may recall, standing is an issue of the court's subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).

 

The trial court, relying on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), granted the law firm's motion to dismiss concluding that it lacked subject matter jurisdiction under Rule 12(b)(1).  This appeal followed.

 

Initially, the Sixth Circuit observed that Article III of the Constitution limits federal court's jurisdiction to actual cases and controversies.  U.S. Const. art. 3, § 2. 

 

The Sixth Circuit next noted that to establish standing, the plaintiff must establish: (1) that they suffered an injury in fact that is (a) concrete and particularized and (b) actual or imminent instead of conjectural or hypothetical; (2) a causal connection between the injury and the defendant's alleged wrongdoing; and (3) that the injury can likely be redressed. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992).

 

The Sixth Circuit recounted that Spokeo concerned a plaintiff's standing to sue under the Fair Credit Reporting Act ("FCRA"). Spokeo clarified than an injury must be concrete to satisfy the injury-in-fact requirement for standing. Id. at 1549. Further, Congress may "elevat[e] to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law." Id. (alteration in original) (quoting Lujan, 504 U.S. at 578).

 

Yet, a plaintiff must still actually suffer a concrete harm. Although Congress can "identify intangible harms that meet minimum Article III requirements," id. at 1549, Congress cannot "erase Article III's standing requirements by statutorily granting the right to sue," id. at 1547–48 (quoting Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997)). Thus, although Spokeo did not decide whether the circuit court errored when it found that the plaintiff had standing, it held that "bare procedural violation[s]," like the violation alleged by the plaintiff, could not satisfy the injury-in-fact requirement if it is "divorced from any concrete harm." Id.

 

The debtor argued that, under Spokeo, the FDCPA established a concrete harm — receiving false information in connection with debt collection activities — that he suffered when the law firm's discovery requests made misstatements regarding state procedural rules. The Sixth Circuit found this view of the law untenable.

 

Initially, the Sixth Circuit observed that "a violation of a state law procedure not required under FDCPA is not the type contemplated by Spokeo, which dealt with the failure to comply with a statutory procedure that was designed to protect against the harm the statute was enacted to prevent."  Instead, the Court noted, the FDCPA's goal is to eradicate abusive debt collection practices. See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 577 (2010).

 

The Court held that the harm alleged by debtor -- i.e., that the discovery requests required him to visit a notary and to contact the law firm to obtain electronic copies of the discovery -- is "not the type of harm the FDCPA was designed to prevent."  Further, the Sixth Circuit held that the debtor did not allege that he suffered this harm or that he is at risk to suffer this harm. Therefore, the Court held that the alleged harm did not confer standing.

 

Specifically, the Sixth Circuit previously interpreted Spokeo and concluded that "a statutory violation in and of itself is insufficient to establish standing." For example in Soehnlen v. Fleet Owners Insurance Fund, the mere allegation that defendants violated ERISA was insufficient to establish standing because by itself this allegation did not "satisfy the concreteness prong of the injury-in-fact requirement." Id. at 582. Here, the Court noted that the debtor's case provides an even weaker argument for standing as the alleged procedural violations alleged are not of the FDCPA.

 

In Galaria v. Nationwide Mutual Insurance Co., plaintiffs sued under the FCRA alleging hackers stole their personal information from the defendants and that someone may use their data for fraudulent purposes.  There plaintiffs satisfied the injury-in-fact requirement because they alleged that stealing their personal information constituted "a substantial risk of harm, coupled with reasonably incurred mitigation costs." 663 F. App'x 384, 385, 388 (6th Cir. 2016). In contrast to debtor, the Galaria plaintiffs alleged a concrete harm arising out of the statutory violation instead of just a statutory violation.

 

The Sixth Circuit next turned to the debtor's argument that Church v. Accretive Health, Inc., 654 F. App'x 990 (11th Cir. 2016) (per curiam) supports his position. In Church, the Eleventh Circuit held that plaintiff's allegation that the defendant violated the FDCPA by failing to send required disclosures established standing despite no allegation that she suffered actual harm. Id. at 991, 995.

 

The Sixth Circuit declined to follow Church. 

 

First, the Court noted that Church is an unpublished decision and therefore is not binding. See U.S. Ct. of App. 11th Cir. Rule 36-2. Second, the Eleventh Circuit later rejected Church's reasoning in the published decision Nicklaw v. CitiMortgage, Inc., that concerned a mere violation of a state law procedural rule. 839 F.3d 998, 1000 (11th Cir. 2016). Specifically, Nicklaw held that no standing existed where plaintiff merely alleged that defendant did not timely record a satisfaction of the plaintiff's mortgage without alleging a concrete harm and the state-law violation had subsequently been remedied.

 

The Sixth Circuit also noted that Church is at odds with "the weight of the authority of our sister circuits." Braitberg v. Charter Commc'ns, Inc., 836 F.3d 925 (8th Cir. 2016) (claim that defendant kept personally identifiable information in violation of the Cable Communications Policy Act did not by itself establish standing because plaintiff failed to allege harm); Strubel v. Comenity Bank, 842 F.3d 181, 190 (2d Cir. 2016) (a procedural violation may establish standing if Congress conferred that procedural right to protect plaintiff's concrete interest and the violation presents a risk of material harm to plaintiff's interest, but a plaintiff lacks standing if plaintiff cannot show a risk of material harm to their interest).

 

The Sixth Circuit further observed that other circuits reached analogous results. See, e.g., Beck v. McDonald, 848 F.3d 262, 271 n.4 (4th Cir. 2017) (plaintiffs allegation of more than just statutory violations constituted an injury in fact); Van Patten v. Vertical Fitness Grp., LLC, 847 F.3d 1037, 1043 (9th Cir. 2017) ("Unlike in Spokeo, where a violation of a procedural requirement minimizing reporting inaccuracy may not cause actual harm or present any material risk of harm, the telemarketing text messages at issue here, absent consent, present the precise harm and infringe the same privacy interests Congress sought to protect in enacting the [Telephone Consumer Protection Act]." (internal citations omitted)); In re Horizon Healthcare Servs. Inc. Data Breach Litigation, 846 F.3d 625, 637–40 (3d Cir. 2017) (a mere procedural violation may fail to establish an injury in fact, but that that issue was not before the court because plaintiffs alleged that defendants disseminated their private information—"the very injury that FCRA is intended to prevent"); Meyers v. Nicolet Rest. of De Pere, LLC, 843 F.3d 724, 727 (7th Cir. 2016) (plaintiff's claim that the defendant did not truncate the expiration date on his receipt, as the Fair and Accurate Credit Transactions Act required failed to establish harm or risk of harm sufficient to confer standing); Lee v. Verizon Commc'ns, Inc., 837 F.3d 523, 530 (5th Cir. 2016) ("[B]ecause [the plaintiff's] 'concrete interest' in the plan . . . was not alleged to be at risk from the purported statutory deprivation, [the plaintiff has] not suffered any injury that was sufficiently 'concrete' to confer standing.").

 

Finally, the Sixth Circuit concluded that the debtor's "reliance on pre-Spokeo cases is misplaced" because those rulings did not address the issue of whether allegations of a procedural violation sufficiently demonstrated a concrete harm to confer standing.

 

Accordingly, the Sixth Court affirmed the trial court's dismissal order because the plaintiff's mere allegations of state procedural violations did not result in a concrete harm sufficient to confer standing.

                                              

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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FYI: Ill App Ct (1st Dist) Rejects Borrowers' Effort to Undo Foreclosure Deficiency Judgment

The Appellate Court of Illinois, First District, recently held that the provisions of the Illinois mortgage foreclosure statute barred the borrowers from filing a post-judgment petition to vacate the entry of a personal deficiency judgment in a foreclosure action, because the borrowers' petition was not based upon the lack of personal jurisdiction and the borrowers' petition did not seek relief in the form of claiming an interest in the proceeds of the sale.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers defaulted on their mortgage loan resulting in the lender filing a complaint to foreclosure.  The borrowers were properly served with a summons and copy of the foreclosure complaint, but failed to appear or otherwise contest the foreclosure.  Consequently, the lender obtained a default judgment against the borrowers, and further petitioned  the trial court for a shorter redemption period, as allowed by statute, because the borrowers had abandoned the subject property. 

 

The trial court entered judgment in favor of the mortgagee, granted the request for a shortened redemption period, and ordered the subject property sold at auction.  Following the public auction of the subject property, the trial court entered its order approving the sale and entered a personal deficiency judgment against the borrowers.

 

Subsequently, the borrowers filed a petition to vacate the personal deficiency judgment in the foreclosure action pursuant to 735 ILCS 5/2-1401 ("Section 2-1401").  For their Section 2-1401 petition, the borrowers argued that the personal deficiency judgment entered against them was in error, because the trial court erred in shortening the redemption period as the lender misrepresented that the subject property was abandoned, and because despite obtaining a personal judgment and attempting to collect on that judgment the mortgagee also issued a form 1099-C "Cancellation of Debt" to the borrowers.

 

In response to the borrowers' Section 2-1401 petition, the mortgagee argued that the section 15-1509(c) ("Section 15-1509(c)") of the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101, et seq. ("IMFL"), was a complete bar to the claims alleged in the Section 2-1401 petition to vacate. 

 

As you may recall, Section 15-1509(c) of the IMFL provides, in part, that the vesting of title by way of consent foreclosure or judicial sales deed "shall be an entire bar of (i) all claims of parties to the foreclosure ... Any person seeking relief from any judgment or order entered in the foreclosure in accordance with subsection (g) of Section 2-1301 ... may claim only an interest in the proceeds of sale."

 

The trial court agreed with the mortgagee, and denied the borrowers' petition. 

 

The borrowers' appealed the trial court's dismissal of their Section 2-1401 petition and argued on appeal that Section 15-1509(c) is silent as to its application to Section 2-1401, and that Section 15-1509(c) is limited to protecting the transfer of title.

 

Initially, in analyzing Section 15-1509, the Appellate Court determined that the language of Section 15-1509(c) "is very clear-all claims of the parties to the foreclosure are barred."  Thus, the Court rejected the borrowers' first argument that Section 15-1509 did not apply to Section 2-1401 petitions.

 

The Appellate Court further held that the borrowers' attempt to limit Section 15-1509 to claims which affect title was contrary to the language.  The borrowers specifically argued that the title of Section 15-1509 which is captioned "Transfer of Title and Title Acquired" indicates the legislative concern in that provision was focused solely upon claims against the title.  The Court quickly rejected this contention by noting that the borrowers overlooked section 5/1-103 of the Illinois Rules of Civil Procedure which applies to the IMFL and states that "Article, Part and Section headings ... shall not be deemed to govern, limit, modify or in any manner affect the scope, meaning or intent of the provisions of any Article, Part or Section of this Act."  735 ILCS 5/1-103. 

 

Nonetheless, the Court noted that there were two exceptions to the bar provided in Section 15-1509 – (1) petitions which allege that the judgment is void for lack of personal jurisdiction, and  (2) as explicitly provided for in Section 15-1509, claims which attempt to seek relief in the form of an interest in the proceeds of the sale.  However, neither of these exceptions applied to the borrowers' claims.    

 

Specifically, the Appellate Court found that the borrowers did not challenge personal jurisdiction, and that there attempt to vacate the entry of a personal judgment was not a claim in the interest of the sales proceeds.

 

Accordingly, the Illinois Appellate Court affirmed the lower court's dismissal of the borrowers' post-judgment petition to vacate the entry of a deficiency judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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