FYI: Ill App Ct (3rd Dist) Rejects FCRA "Punitive Damages" Claim Due to Insufficient Supporting Allegations

The Appellate Court of Illinois, Third District, recently reversed a trial court's order dismissing a debtor's federal Fair Credit Reporting Act (FCRA) counterclaim against a bank. 

 

In so ruling, the Appellate Court held that:

 

(1)  The declaration supporting the bank's motion to dismiss improperly denied substantial allegations in Debtor's FCRA counterclaim; and

 

(2) The trial court properly rejected the debtor's motion to amend his claim to include a prayer for punitive damages, because the debtor did not allege any facts to support an allegation that the bank willfully violated the FCRA.

 

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

 

The appeal arose from a collection action filed by bank ("Creditor") against a credit card account holder ("Debtor"). Debtor asserted counterclaims against Creditor including claims for violation of the federal Truth in Lending Act (TILA) and the FCRA.  Creditor moved to dismiss the counter-claims as time barred and the trial court granted the motions. Debtor appealed (the "First Appeal") and the Appellate Court affirmed the dismissal of the TILA claim but reversed the dismissal of the FCRA claim.

 

On remand, Debtor moved to amend his FCRA claim to include a prayer for relief of punitive damages and his motion was denied.

 

Creditor moved to dismiss, arguing the FCRA claim failed as a matter of law because there was no evidence that Creditor received a dispute as alleged.  Debtor also filed a cross-motion to strike Creditor's motion to dismiss and for civil contempt.

 

The trial court denied Debtor's motions and granted Creditor's motion to dismiss the FCRA claim with prejudice. Debtor appealed the orders denying leave to amend, civil contempt relief, and to strike Creditor's motion, and the order granting Creditor's motion to dismiss.

 

Debtor argued the trial court erred in granting the motion to dismiss as Creditor did not provide any admissible affirmative matter to negate his counterclaim. Creditor argued that the trial court properly ruled that Debtor's FCRA claim failed as a matter of law.

 

As you may recall, under FCRA, a furnisher party may be subject to civil liability if it fails to comply with the requirements of the FCRA. See 15 U.S.C. §§ 1681n, 1681o (2018). The FCRA requires a consumer reporting agency ("CRA") to notify a furnisher when it receives a notification from a consumer of an alleged error in the consumer's credit report. See 15 U.S.C. §§ 1681i(a), 1681s-2(b) (2018). A furnisher's duty to investigate does not arise under the FCRA until after the CRA notifies the creditor of a dispute.

 

Debtor alleged that he notified a CRA of the alleged billing errors of Creditor, that Creditor failed to correct the errors, and that Creditor continued to issue erroneous negative credit reports based on the errors.

 

With its motion to dismiss, Creditor provided the declaration of the assistant vice president and Creditor's operations consultant in Creditor's legal order and case resolution operations group. The declaration stated that Creditor had no record of receiving an automatic consumer dispute verification ("ACDV") from any CRA in reference to Debtor's account in the subject time period.

 

Debtor argued the declaration was insufficient as it was not an affidavit and did not provide any affirmative matter sufficient to support Creditor's motion to dismiss.

 

The Appellate Court found the declaration sufficient in form as the information was based on the declarant's personal knowledge, a search of Creditor's records, and was made under penalties of perjury. See Ill. S. Ct. R. 191 (eff. Jan. 4, 2013); see also 735 ILCS 5/1-109 (West 2018).

 

However, the Appellate Court also found that despite the form being sufficient, the substance of the declaration was not "affirmative matter" but instead "evidence that refutes a well-pleaded fact of the complaint." Griffin v. Universal Casualty Co., 274 Ill. App. 3d 1056, 1063 (1995) (citing Chicago Title & Trust Co. v. Weiss, 238 Ill. App. 3d 921 (1992)).

 

The Appellate Court explained that the declaration simply identified a factual matter which was not appropriate for motion to dismiss, as it denied a substantial allegation in Debtor's FCRA counterclaim. Therefore, the Appellate Court reversed the order granting Creditor's motion to dismiss.

 

Debtor next argued that the trial court erred in denying his motion to amend his claim to include a prayer for punitive damages. Punitive damages are only available where a defendant acted willfully, under the FCRA. See 15 U.S.C. § 1681n (2018). Conduct that creates "'an unjustifiably high risk of harm that is either known or so obvious that it should be known'" is willful. Redman v. RadioShack Corp., 768 F.3d 622, 627 (7th Cir. 2014) (quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)).

 

The Appellate Court noted that, as the trial court correctly found, Debtor did not allege any facts to support an allegation that Creditor willfully violated the FCRA. As such, the Appellate Court found the trial court's ruling was not an abuse of discretion.

 

Finally, Debtor argued the trial court erred in denying his motion for civil contempt. Debtor argued Creditor manipulated court orders and submitted court orders without the consent of Debtor or the trial court. The Appellate Court found the record disproved this argument, and thus affirmed the denial of the motion for civil contempt.

 

Accordingly, the Appellate Court reversed the trial court's order granting Creditor's motion to dismiss and affirmed the remaining orders.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: Ill App Ct (1st Dist) Holds "Continuing" Guaranty Applied to Later Issued Note Obligation

The Illinois Court of Appeals, First District, recently affirmed a trial court's order granting summary judgment in favor of a creditor against a guarantor, finding that the guaranty was continuing and therefore applied to a later note obligation, even though the note was issued some two years after the guaranty.

 

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

 

The case arose from a note issued by a corporate borrower in 2010 ("Note") that was subsequently assigned.  In May 2008, prior to the issuance of the Note, several individual guarantors executed a "continuing" commercial guaranty ("Guaranty") as a security on a prior 2008 note by the same borrower to the same lender. 

 

Plaintiff, the current assignee if the Note and Guaranty ("Assignee"), filed a complaint against one of the guarantor ("Guarantor") alleging breach of the guaranty.  Assignee alleged that because the borrower defaulted on the Note, Guarantor owed Assignee money under the guaranty.

 

The trial court granted summary judgment in favor of Assignee and Guarantor appealed.

 

On appeal, the Appellate Court noted that, as a guaranty is a contractual obligation, a claim for breach of guaranty is governed by the same principles as a breach of contract claim. See Riley Acquisitions, Inc. v. Drexler, 408 Ill. App. 3d 397, 402-03 (2011). Thus, to recover on the guaranty, Assignee had to establish (1) that a valid and enforceable contract existed; (2) that there was performance by the plaintiff; (3) that the defendant breached the contract; and (4) that there was a resultant injury to the plaintiff. Zirp-Burnham, L.L.C. v. E. Terrell Associates, 356 Ill. App. 3d 590, 600 (2005). ¶ 34

 

Guarantor argued that summary judgment was improper as Assignee failed to establish that it was the current assignee of the guaranty, and thus failed to establish that there was a valid and enforceable contract between the parties. Guarantor further argued that even had Assignee been the current assignee of the guaranty, there were still genuine issues of material fact as to the scope of Guarantor's liability.

 

To support his arguments, Guarantor argued that neither the Note nor the two allonges which indorsed it reference or expressly assigned the Guaranty to Assignee, so as to establish that Assignee was the current owner of the guaranty. Guarantor further argued, that at the very least, in viewing the evidence in the light most favorable to Guarantor, the trial court should have ruled that there remained a genuine issue of material fact as to the scope of his liability under the guaranty.

 

Assignee responded that Guarantor's arguments were irrelevant as the trial court properly found that the plain language of the Guaranty established that it was a "continuing" guaranty, which obligated Guarantor to all future debts arising from the previous relationship established in the 2008 note.

 

The Appellate Court agreed with Assignee and found that the guaranty was "continuing", and that the trial court correctly held summary judgment was proper.

 

A "continuing guaranty is a contract pursuant to which a person agrees to be a secondary obligor for all future obligations of the principal obligor to the obligee." TH Davidson & Co. v. Eidola Concrete, L.L.C., 2012 IL App (3d) 110641, ¶ 11 (quoting Restatement (Third) of Suretyship and Guaranty § 16 (1996)). As guaranties are construed according to general contract principles, "[w]hether a guaranty is a continuing one will depend on the language of the contract, interpreted according to the intention of the parties as manifested by their writings." 20 Ill. L. and Prac., Guaranty § 15, at 369-70 (2010); see also McLean County Bank v. Brokaw, 119 Ill. 2d 405, 412 (1988); Blackhawk Hotel Associates v. Kaufman, 85 Ill.2d 59, 64 (1981).

 

Generally, "[w]here, by the terms of written guaranty it appears that the parties look to a future course of dealing or a succession of credits," it is considered a continuing guaranty. Scovill Manufacturing Co. v. Cassidy, 275 Ill. 462, 467 (1916); Weger v. Robinson Nash Motor Co., 340 Ill. 81, 92 (1930); see also C.C.P. Ltd. Partnership v. First Source Financial, Inc., 368 Ill. App. 3d 476, 483 (2006). ¶ 40.

 

The Appellate Court ruled that a review of the guaranty in the instant matter unequivocally established that a future course of dealing was contemplated by the parties. The Court pointed to a section of the guaranty which contained a heading "CONTINUING GUARANTY" which explicitly provided the Guarantor would remain responsible for his share of the Borrowers indebtedness "now existing or hereinafter arising or acquired, on a continuing basis." The provision further stated that any payments made on the indebtedness would not discharge nor diminish Guarantor's obligations for any "remaining and succeeding indebtedness."

 

The Appellate Court further noted the Guaranty provided no limitation on the duration of the guaranty. Further, Guarantor expressly authorized the original lender, "without notice or demand" and "without lessening" the liability under the guaranty, to "make one or more additional secured or unsecured loans *** or otherwise to extend additional credit" to the corporate borrower.

Thus, the Appellate Court found there was no doubt that a future course of dealing was contemplated by the parties and that the 2008 contract was for a continuing guaranty. See e.g., Harris Bank Argo v. Midpack Corp., 151 Ill. App. 3d 293, 295-296 (1986).

 

The Appellate Court further found that Assignee's failure to attach the 2008 note to the complaint was irrelevant and the 2010 Note was proof of Borrowers' indebtedness and an obligation "hereinafter arising" under the Guaranty. Additionally, the Appellate Court found that the 2010 Note was a future obligation between the original parties referenced in the guaranty for which Guarantor was liable.

 

Guarantor further argued that Assignee should not be allowed to enforce the Guaranty as it only claimed to be the holder of the guaranty by way of assignment and that there was no assignment of the guaranty.

 

The Appellate Court disagreed, finding this was essentially an argument for lack of standing. The Appellate Court found Guarantor failed to offer any evidence to show Assignee was not the holder of the guaranty and thus failed to meet his burden of pleading and proving the affirmative defense of lack of standing.

 

The Appellate Court also held that no explicit assignment of the guaranty was needed for Assignee to enforce the Note, as it was sufficient for Assignee to show it was the holder of the Note.

 

The Appellate Court found Comment f to section 13 of the Restatement Third of law, Suretyship and Guaranty, relied on by the trial court, to be instructive here. Section 13 provides that "…It can usually be assumed that the person assigning an underlying obligation intends to assign along with it any secondary obligation supporting it. Thus, unless there is agreement to the contrary or assignment is prohibit, *** assignment of the underlying obligation also assigns the secondary obligation."  Restatement (Third) of Suretyship and Guaranty § 13, Comment f. (1996).

 

The Appellate Court ruled that the Guaranty here explicitly authorized the original lender to "assign or transfer" the Guaranty from time to time.  In addition, the Guaranty stated it "shall be binding upon and inure to the benefit of the parties, their successors and assigns." Accordingly, the Appellate Court found when the Note was assigned to Assignee, the Guaranty was assigned as well, and thus summary judgment was proper in favor of Assignee.

 

Therefore, the Appellate Court affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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