Saturday, May 20, 2023

FYI: 7th Cir Holds Allegations of "Confusion" and "Alarm" Not Enough for Article III Standing

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer's lawsuit against a debt collector, holding that the consumer lacked Article III standing to sue because his allegations of ╩║confusion" and "alarm" were not sufficiently concrete to result in an injury in fact.

 

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

 

The consumer previously leased an apartment, and when he filed for Chapter 7 bankruptcy, he listed as a debt pastdue rent he allegedly owed the property management company. The bankruptcy court proceeded to grant the consumer a discharge, including any debt owed to the property manager.

 

That bankruptcy discharge was listed on the consumer's credit reports, but the property manager was not notified of the consumer's bankruptcy. 10 weeks before the discharge, the property manager placed the consumer's account with a collection agency. Over the next 18 months, the collection agency sent the consumer two collection letters, stating that if payment was made, the collector "will update credit data it may have previously submitted regarding this debt."

 

The week before the consumer received the second letter, he filed suit under the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692e for allegedly demanding payment of a debt not owed and Section 1692c(c) for purportedly failing to cease communications and cease collections. The consumer alleged that the collection agency's continued communications "confused and alarmed" him. The collection agency did not give information to a credit reporting agency — before or after his bankruptcy discharge.

 

The trial court dismissed the consumer's complaint for lack of Article III standing, and the consumer timely appealed.

 

Article III of the U.S. Constitution limits the jurisdiction of federal courts to cases and controversies. U.S. CONST. art. III, § 2. To establish Article III standing to sue, "[a] plaintiff must have (1) a concrete and particularized injury in fact (2) that is traceable to the defendant's conduct and (3) that can be redressed by judicial relief." Pierre v. Midland Credit Mgmt., Inc., 29 F.4th 934, 937 (7th Cir. 2022).

 

On the first element, a concrete injury is "'real,' and not 'abstract.'" Spokeo, Inc. v. Robins, 578 U.S. 330, 340 (2016). "Qualifying injuries are those with a close relationship to a harm traditionally recognized as providing a basis for a lawsuit in American courts." Pierre, 29 F.4th at 938.

 

The Seventh Circuit began by noting that the ruing of the Supreme Court of United States in TransUnion LLC v. Ramirez limited the intangible harms that can be considered concrete. 141 S. Ct. 2190, 2210 (2021). Specifically, the Supreme Court held that a risk of harm qualifies as a concrete injury only for claims for "forwardlooking, injunctive relief to prevent the harm from occurring." Id.

 

The Seventh Circuit reasoned that the Supreme Court's TransUnion decision weakened the consumer's standing argument because he was only seeking monetary damages in this action. Additionally, although the consumer claimed that he was "confused and alarmed" about the status of his bankruptcy discharge and his credit score, he provided no facts showing that his emotional response led to actionable injury. Because the consumer did not "otherwise act to [his] detriment in response to anything," Pierre, 29 F.4th at 939, the Court concluded that the risk he pled of possible futility to his bankruptcy or potential harm to his credit did not satisfy the standing requirement of a concrete and particularized injury in fact.

 

Resisting this conclusion, the consumer argued that his injuries were of the same kind held actionable under common law invasion of privacy tort theories, specifically "invasion of privacy" and "intrusion upon seclusion." An intangible harm can qualify as a concrete injury in fact, but only when the harm bears a "close relationship" to a traditional harm given redress in courts at common law. Spokeo, 578 U.S. at 340–341.

 

The Seventh Circuit observed that ╩║invasion of privacy" and "intrusion upon seclusion" are actually not distinct torts. Instead, "invasion of privacy" encompasses four theories of wrongdoing, including "intrusion upon seclusion." Persinger, 20 F.4th at 1192. Intrusion upon seclusion "occurs when a person 'intrudes … upon the solitude or seclusion of another or his private affairs or concerns' and this 'intrusion would be highly offensive to a reasonable person.'" Persinger, 20 F.4th at 1192 (quoting RESTATEMENT (SECOND) OF TORTS § 652B).

 

The Seventh Circuit noted that the phrase "intrusion upon seclusion" did not appear in the consumer's complaint or his supporting declaration. Conceding that the consumer did not need to include this precise phrase in his pleadings, the Court determined that none of his allegations spoke to such a theory of injury in any way. Instead, the consumer's appellate briefing tried to shoehorn his allegations within that tort theory.

 

Furthermore, each time the consumer invoked "intrusion upon seclusion," he claimed that the collection agency's letters undermined his belief that his bankruptcy discharge created a "fresh start." However, the Court held that this specific injury was not actionable under the "intrusion upon seclusion" theory, as the potential for the consumer's bankruptcy case to be undone presented only a risk of harm.              

                                                                                                                                                                                                                            

Accordingly, the Seventh Circuit concluded that the trial court correctly found that the consumer had not alleged a concrete and particularized injury in fact, and that there was no Article III standing. Therefore, the Court affirmed the dismissal of the case for lack of standing.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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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Thursday, May 18, 2023

FYI: Ill App Ct (1st Dist) Holds Trial Court Improperly Denied Borrower's Estate Opportunity to Show Lack of Capacity

The Appellate Court of Illinois, First District, recently reversed a trial court's order striking an affirmative defense to a foreclosure, vacated the foreclosure rulings, and remanded the matter for further proceedings.

 

Specifically, the Appellate Court held that an estate administrator's affirmative defense alleging that the deceased mortgagor's dementia denied her the requisite mental capacity to execute the mortgage loan documents was sufficient to withstand the reverse mortgage lender's motion to strike and that the administrator should have been granted the opportunity to amend his affirmative defense prior to the entry of summary judgment.

 

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

 

In response to a foreclosure action brought by a reverse mortgage mortgagee, the administrator of the mortgagor's estate raised an affirmative defense that the mortgagor was mentally incompetent to execute the mortgage documents due to her dementia.

 

The mortgagee moved to strike the affirmative defense arguing that, because the mortgagor had never been adjudicated incompetent by a court, nor had a court-appointed guardian administering her affairs, the defense was insufficient at law. The mortgagee also moved for summary judgment.

 

In his responses to both of the mortgagee's motions, the administrator presented new factual materials as exhibits, including an affidavit from the mortgagor's son stating that, when he lived at the subject property with his mother, she was approached by an individual who worked for the mortgagee's predecessor in interest and was urged to sign a reverse mortgage to help pay her debts and obtain money to rehabilitate the property. Although the mortgagor's son purportedly told the individual that his mother was not competent to sign any contracts because she was diagnosed with "severe dementia," she signed the mortgage documents anyway at the individual's behest.

 

After briefing on the motion to strike, the trial court expressed concern about whether a deceased contracting party could be retroactively proven to have been incompetent at the time of signing a contract. Therefore, the court entered a judgment of foreclosure and sale and struck the affirmative defense.

 

The mortgagee then purchased the foreclosed property at a judicial sale for a full credit bid. The administrator made similar arguments in opposition to the lender's motion for confirmation of the sale as he had against summary judgment, but the trial court again rejected these arguments and entered a final judgment confirming the sale. The administrator timely appealed.

 

On appeal, the administrator contended that the trial court erred in striking the affirmative defense and that the materials he submitted in opposition to the mortgagee's motions were sufficient to create a genuine issue of material fact.

 

An affirmative defense admits the legal sufficiency of the cause of action but "asserts new matter by which the plaintiff's apparent right to recovery is defeated." Vroegh v. J&M Forklift, 165 Ill. 2d 523, 530 (1995). A defendant must state the facts establishing an affirmative defense with the same degree of specificity that is required of a plaintiff stating a cause of action. International Insurance Co. v. Sargent & Lundy, 242 Ill. App. 3d 614, 630 (1993). Moreover, under 735 ILCS 5/2-612(b), "[n]o pleading is bad in substance which contains such information as reasonably informs the opposite party of the nature of the claim or defense which he or she is called upon to meet."

 

The First District noted that section 11a-22 of the Probate Act of 1975 (755 ILCS 5/11a-22) provides that a contract entered into by a person who has been adjudicated as incompetent is void against that person and her estate. Additionally, the Appellate Court found that there was no dispute that, at the time she signed the mortgage, the mortgagor had not been adjudicated as incompetent, and nothing in the record on appeal suggested that she was later so adjudicated.

 

However, the Appellate Court also recognized that incapacity due to mental impairment is a valid defense to a contract claim under Illinois common law. Campbell v. Freeman, 296 Ill. 536, 539 (1921) (citing Bordner v. Kelso, 293 Ill. 175 (1920), Crosby v. Dorward, 248 Ill. 471 (1911), McLaughlin v. McLaughlin, 241 Ill. 366 (1909), Baker v. Baker, 239 Ill. 82 (1909), and Sears v. Vaughan, 230 Ill. 572 (1907)). Additionally, "mental weakness of one party to a transaction, even if it is of itself insufficient to destroy a contract will, if accompanied by undue influence, inadequacy of price, ignorance and want of advice, misrepresentation or concealment be a basis for setting aside the agreement." Freiders v. Dayton, 61 Ill. App. 3d 873, 880 (1978) (citing Fewkes v. Borah, 376 Ill. 596, 601 (1941)).

 

Thus, the First District concluded that the allegations in the administrator's affirmative defense were sufficient to withstand the mortgagee's motion to strike because they contained the basic elements set forth in Illinois case law regarding incapacity of mentally impaired persons to contract. Furthermore, the Appellate Court determined that the affirmative defense contained such information as reasonably necessary to inform the mortgagee of the nature of the defense which it was called upon to meet. Therefore, the Appellate Court held that the trial court erred in striking the affirmative defense.

 

The First District next addressed the trial court's entry of judgment of foreclosure and sale. Summary judgment is appropriate "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c).

 

The First District found that the mortgagor's son's affidavit, attached to the administrator's responses to the motion to strike and motion for summary judgment, did not present a genuine issue of material fact sufficient to overcome the mortgagee's summary judgment motion. However, the Appellate Court also held that the trial court erred by striking the administrator's affirmative defense, which was properly pleaded, while simultaneously granting summary judgment to the mortgagee. because this deprived the administrator of a fair opportunity to properly frame his defense of incapacity. As pointed out by the Appellate Court, 735 ILCS 5/2-1005(g) requires: "[b]efore or after the entry of a summary judgment, the court shall permit pleadings to be amended upon just and reasonable terms." An affirmative defense is a "pleading" within the scope of the Code. Id. §§ 2-603(a), 2-613(a).

 

Accordingly, the First District (1) reversed the trial court's order striking the administrator's affirmative defense; (2) vacated the order of foreclosure and sale; (3) vacated

the order confirming sale; and (4) remanded for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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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Monday, May 15, 2023

FYI: 6th Cir Holds Mortgagee's Foreclosure Action Time-Barred Under Tennessee Law

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a trial court's decision granting summary judgment and dismissing a mortgagee's foreclosure action as time-barred under Tennessee law, and rejecting the mortgagee's arguments of oral modification, partial payment, and equitable estoppel, as well as its request for an equitable lien.

 

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

 

In 1997, a borrower executed a Deed of Trust (DOT) and a home equity line of credit agreement (collectively, the "Loan") in the amount of $200,000, in favor of a mortgagee, and secured by real property in Tennessee. The DOT was properly recorded and the terms of the Loan provided for monthly interest payments until the maturity date in May 10, 2007.  On that date, a final balloon payment of the entire outstanding balance would become due.

 

The Loan contained a provision that stated the mortgagee generally "may not change the terms of this agreement," with certain exceptions, including that the mortgagee "may make changes that unequivocally benefit" the borrower.

 

May 2007 passed, the mortgagee took no action, and the borrower continued making monthly interest payments until he passed away in 2009. The borrower's heirs ("heirs") continued operate a business at the property and the company's bookkeeper continued to make payments to the mortgagee. The heirs did not initiate probate proceedings and the mortgagee did not find out about the borrower's death until 2011. However, the mortgagee continued to accept over $100,000.00 total in monthly payments from 2011 until 2017.

 

The mortgagee alleged that the company's bookkeeper orally modified the maturity date until 2017. The company's bookkeeper and the heirs disputed this fact.  After the disputed 2017 maturity date, the mortgagee initiated foreclosure proceedings. In October of 2018, the mortgagee filed a foreclosure action and requested a declaration that the loan's maturity date had been extended and that it be granted the right to foreclose. The mortgagee later amended its complaint, adding a request that the court grant the mortgagee an equitable lien against the property.

 

The heirs moved for summary judgment and the trial court granted their motion holding that the statute of limitations had expired because Tennessee law provides that "liens of mortgages, deeds of trust, and assignments of realty executed to secure debts, shall be barred, and the liens discharged, unless suits to enforce the same be brought within ten (10) years from the maturity of the debt." Tenn. Code Ann. § 28- 2-111(a). Thus, the trial court held the statute of limitations expired on May 10, 2017, ten years beyond the Loan's maturity date because the heirs alleged oral extension of the maturity date was not a duly executed and acknowledged written instrument as required by Tenn. Code Ann. § 28-2-111(c).

 

In addition, the trial court disagreed that heirs were estopped from raising the statute of limitations as a defense and refused to establish an equitable lien on the property in favor of the mortgagee. Therefore, the trial court summary judgment in favor of the heirs. The mortgagee appealed.

 

On appeal, the Sixth Circuit first determined whether the Loan's maturity date was in May 2007, making the mortgagee's foreclosure suit untimely under Tennessee law, or whether the Loan's maturity date was extended to April 2017.

 

The Court of Appeals examined Tenn. Code Ann. § 28-2- 111(a) which states: "[l]iens on realty, equitable or retained in favor of vendor on the face of the deed, also liens of mortgages, deeds of trust, and assignments of realty executed to secure debts, shall be barred, and the liens discharged, unless suits to enforce the same be brought within ten (10) years from the maturity of the debt." Unless the maturity date was extended, the mortgagee's foreclosure action would not have been timely because the mortgagee's foreclosure action was brought more than ten (10) years after the 2007 maturity date.

 

As the trial court noted in granting summary judgment, Tenn. Code Ann  § 28-2- 111(c) further provides that liens on realty "may be extended without their priority or legal effectiveness being in any way impaired, for any period of time agreed upon and beyond the ten-year period from the maturity of the obligation or debt" provided that the extension is "evidenced by a written instrument . . . [that is] duly executed and acknowledged," and "filed for record with the register of the county in which the realty affected is located" and the written instrument must "contain a brief recital of the facts with reference to the original lien and shall provide that the lien shall continue, for a definite period of time in the future" Id.

 

The mortgagee did not argue that there was a written instrument that extended the maturity date. Instead, it argued that (a) that there was an oral modification to the Loan or it had the unilateral right to extend the Loan; (b) that the Loan contained a future advances provision that could extend the maturity date for up to twenty years; (c) that partial performance -- the heir's continued monthly interest payments —- excused any writing requirement; and (d) that the heirs are equitably estopped from raising the statute of limitations as a defense or the mortgagee is entitled to an equitable lien.

 

The Sixth Circuit disagreed with all of these arguments. First, the Court of Appeals rejected the argument that there was an oral modification to the loan because any extension must be in writing to satisfy the Statute of Frauds.

 

Next, the Court of Appeals also disagreed that Loan contained a future advances provision that could extend the maturity date for up to twenty years. The future advances provisions in the original DOT allowed for the borrower to receive additional loans from the mortgagee to be secured by the property, provided that the due date of any new debt "not be more than twenty years after" the original maturity date of May 10, 2007. The Sixth Circuit held that the mortgagee did not adequately address the clause in the DOT that provided that "any such commitment must be agreed to in a separate writing."

 

Regarding the mortgagee's argument that the heir's continued monthly payments constituted partial performance and excused any writing requirement, the Sixth Circuit also disagreed because "payment of principal or interest" will not "toll the statute of limitations placed on deeds of trust" under § 28- 2-111. See Slaughter v. Slaughter, 922 S.W.2d 115, 118 (Tenn. Ct. App. 1995). Although there is Tennessee case law that recognizes partial performance as an exception to the Statute of Frauds, this exception did not apply to real property. See Buice v. Scruggs Equipment Co., 250 S.W.2d 44, 47-48 (Tenn. 1952). Accordingly, the Sixth Circuit agreed with the trial court that the mortgagee could not show as a matter of law that the maturity date of the original Loan was extended, its suit is untimely under Tenn. Code Ann. § 28-2-111(a).

 

Next, the mortgagee argued that the heirs should be equitably estopped from asserting the statute of limitations as a defense based on their inequitable conduct. The mortgagee argued the inequitable conduct of the heirs resulted from the heirs not initiating probate proceedings, not timely informing the mortgagee of the borrower's death, and for claiming under oath in 2017 there were no outstanding debts on the property.

 

In Tennessee, a defendant is equitably estopped from asserting the statute of limitations as a defense "when the defendant has misled the plaintiff into failing to file suit within the statutory limitations period." Redwing v. Cath. Bishop for Diocese of Memphis, 363 S.W.3d 436, 460 (Tenn. 2012).  In addition, an equitable estoppel inquiry "is on the defendant's conduct and the reasonableness of the plaintiff's reliance on that conduct.'" Id. at 461 (quoting Hardcastle v. Harris, 170 S.W.3d 67, 85 (Tenn. Ct. App. 2004). A plaintiff must also demonstrate that its delay in filing suit was not attributable to its "own lack of diligence." Id. (quoting Hardcastle, 170 S.W.3d at 85).

 

The Sixth Circuit noted that although the mortgagee raised numerous issues concerning the heirs inequitable conduct, it was still unclear how any of these actions specifically misled the mortgagee into failing to file a timely foreclosure suit. The Court of Appeals went on the further state any delay was due to the mortgagee's own lack of diligence and failure to comply with Tennessee law requiring that lien extensions and contracts involving interests in real property be in writing. As a result, the mortgagee did not show that the heirs misled it into failing to file a suit before the limitations period had run.

 

Lastly, the Sixth Circuit examined whether the trial court erred in refusing to impose an equitable lien on the property.  Under Tennessee Law, in order to create an equitable lien, there must be "proof (1) that the parties intended to make the particular property a security for the obligation, (2) that valuable consideration passed between the parties, and (3) there is an equitable reason for imposing the lien." Ewing v. Smith, No. 85-294-II, 1986 WL 2582, at *5 (Tenn. Ct. App. Feb. 26, 1986).

 

Again, the mortgagee argued that that the evidence established that the Loan's maturity date had been extended to April 11, 2017, and that equity requires a finding that the ten-year period for enforcement did not begin to run until that date. However, the Sixth Circuit disagreed because based on the facts in the record it found there was no equitable reason to impose a lien.

 

Accordingly, the trial court's decision granting summary judgment in favor of the heirs was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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 and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

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and

 

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