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Mortgage Still “Valid Debt” Despite Being Unenforceable

Link: Bauer v. RoundPOINT MORTGAGE SERVICING CORPORATION (N.D.Ill Oct. 29 2018).

In seeking to foreclose on Plaintiff’s home, the mortgagee violated the single refiling rule in Illinois that says you can’t re-file the same lawsuit twice. As a result, the mortgage loan became unenforceable as a matter of law. (A recent Illinois Supreme Court Decision, First Midwest v. Cobo, also found this would apply to an action on the promissory note).

The mortgage companies continued to send statements, some demanding payments. Plaintiff, represented by Rusty Payton and Marc Dann of DannLaw, filed suit to quiet title and actions under the Fair Debt Collection Practices Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, and the Illinois Consumer Fraud Act against the mortgage servicer (Roundpoint), the investor, and the foreclosure mill law firm Wirbicki Law Group, LLC.

Judge Virginia M. Kendall found that the debt was still “valid” even though it was legally unenforceable—meaning that many of the claims do not survive.

Although the single refiling rule prevents the defendants from pursuing another foreclosure action, extinguishing their legal remedy, the rule does not extinguish the right to the underlying debt—that remains. See Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1411-12 (2017)Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 684 (7th Cir. 2017), cert. denied, 138 S. Ct. 736 (2018)(explaining that Illinois treats a “debt as a debt” because “[t]he creditor retains the legal right to appeal to the debtor to honor the debt out of a sense of moral obligation even if the legal obligation can no longer be enforced in court”); Owens v. LVNV Funding, LLC, 832 F.3d 726, 731 (7th Cir. 2016) (citing Fleming v. Yeazel,40 N.E.2d 507, 508 (1942) (“[T]he statute of limitations controls the remedy for recovery of the debt, but the debt remains the same as before, excepting that the remedy for enforcement is gone.”)).
Indeed, a creditor retains some right to payment, even if its remedy is no longer a legal one but a moral one. See Buchanan v. Northland Grp., Inc., 776 F.3d 393, 396-97 (6th Cir. 2015) (recognizing that a time-barred “debt remains a debt even after the statute of limitations has run on enforcing” and “[t]here thus is nothing wrong with informing debtors that a debt remains unpaid” and “to let the debtor know what the debt is and to ask her to pay it”); HBLC, Inc. v. Egan, 2016 IL App (1st) 143922 (2016) (citing Huertas v. Galaxy Asset Management, 641 F.3d 28, 32-33 (3d Cir.2011) (noting that “the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts”).
Moreover, a debt once-unenforceable can become enforceable again under certain circumstances. 

However, the Court allowed one claim under the Fair Debt Collection Practices Act and two claims under the Illinois Consumer Fraud Act concerning Roundpoint’s threats to foreclose or legally enforce the mortgage debt.

Class Cert Denied Based on Defense to Rep’s Claim

Link: Heisler v. CONVERGENT HEALTHCARE RECOVERIES, INC. (E.D. Wisc., Sept. 27, 2018).

In an FDCPA lawsuit brought by Edelman Combs Latturner & Goodwin LLC, a district court found that because a class representative was arguably subject to a defense of judicial estoppel—and some unnamed class members were not—that he’s not an adequate class representative under Rule 23.


Again, CHRI argues that Heisler’s cause of action should be barred by judicial estoppel based on actions taken during the course of Heisler’s bankruptcy proceedings. Heisler disputes that judicial estoppel applies in his case and raises both factual and legal arguments in support of his position. This judicial estoppel argument is both legally and factually specific to Heisler and his bankruptcy proceedings. Thus, I find that CHRI has presented at least an “arguable” defense to Heisler’s claim and therefore conclude that Heisler is an inadequate representative of the class. See Randall v. Rolls-Royce Corp., 637 F.3d 818, 824 (7th Cir. 2011) (“[N]amed plaintiffs who are subject to a defense that would not defeat unnamed class members are not adequate class representatives.”); see also Boyd v. Meriter Health Servs. Employee Ret. Plan, No. 10-CV-426-WMC, 2012 WL 12995302, at *11 (W.D. Wis. Feb. 17, 2012), aff’d sub nom. Johnson v. Meriter Health Servs. Employee Ret. Plan, 702 F.3d 364 (7th Cir. 2012) (finding the court was “compelled to conclude” the named plaintiff was an inadequate class representative when defendants alleged judicial estoppel due to plaintiff’s failure to disclose cause of action during banrkutpcy proceedings).

Seventh Circuit Holds Debt Alleged by Collector Sufficient for “Consumer” under 1692a(3)

Link: LOJA v. MAIN STREET ACQUISITION CORPORATION, No. 17-2477 (7th Cir. 2018).

Basic Facts: Main Street filed a lawsuit against Mr. Loja for credit card debt in small claims court—and lost, on the basis that the debt did not belong to him. He then filed an FDCPA case against the debt collectors on the basis they sought to collect a debt that he didn’t owe. It isn’t clear if it was the wrong “Martin Loja,” and for the panel, it didn’t matter.

The district court (Judge Milton Shadur) dismissed the lawsuit sua sponte based on the requirement that an FDCPA claim be brought by a “consumer” under § 1692a(3) which defines such as “any natural person obligated or allegedly obligated to pay any debt.” The district court reasoned that since the Plaintiff didn’t allege the debt was his, he can’t be a consumer for purposes of the Act.

In an opinion authored by Judge Brennan, the panel disagreed, finding that if either the consumer or the debt collector alleges that the Plaintiff owed a debt, they satisfy the definition:


Significantly, the text of 15 U.S.C. § 1692a(3) does not limit “alleged” to obligations alleged by the consumer. The word applies generally and consequently includes obligations alleged by a debt collector as well. We therefore hold that the definition of “consumer” under the FDCPA includes consumers who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe. This interpretation conforms to the structure and text of the rest of the FDCPA, which focuses primarily on the conduct of debt collectors, not consumers. Keele v. Wexler, 149 F.3d 589, 595 (7th Cir. 1998) (noting that the language of the FDCPA “focuses primarily, if not exclusively on the conduct of debt collectors, not debtors”).

No Fees Awarded for Second or Third Fee Petition

Link: Nevins v. MED-1 SOLUTIONS, LLC, Dist. Court, (S.D. Ind. Oct. 22, 2018).

Plaintiff, represented by John Thomas Steinkamp, accepted an offer of judgment on an FDCPA claim under Rule 68 and filed a fee petition. Defendant failed to file a response and the court didn’t enter an order on the motion, so Plaintiff filed a second and then third petition for fees, increasing the amount requested each time (to include the fees for each additional motion filed).

The district court, judge Jane Magnus-Stinson, found the second and third motions were unnecessary and denied those additional fees.

The Court first turns to Ms. Nevins’ argument that Med-1 was obligated to respond to her first fee Motion in accordance with Local Rule 7-1. [Filing No. 17-2].[4] Local Rule 7-1(a)(3)(A) states: “Any response is due within 14 days after service of the motion.” S.D. Ind. LR 7-1(a)(3)(A). The Seventh Circuit empowers District Courts to interpret and enforce their local rules. Elustra v. Mineo, 595 F.3d 699, 710 (7th Cir. 2010). The meaning of Rule 7-1(a)(3)(A) is plain: it does not create an independent obligation to respond; it merely provides a timetable for response. Therefore, Ms. Nevins’ argument that the “failure to file a response in a timely fashion constitutes a violation of local rules and this court may issue a finding against Defendant as a result of its conduct” [Filing No. 17-2], mischaracterizes Local Rule 7-1.

7th Circuit Denies Debt Collector’s Bid For Arbitration

Link: Smith v. GC Services Limited Partnership, No. 18-1361 (7th Cir. 2018).

In an FDCPA case filed by Philipps & Philipps, Ltd., in July 2016, the defendants waited to demand arbitration until March of 2017—but filed nothing with the court. It wasn’t until August of 2017, once the class had been certified and another motion to dismiss denied, that the defendants brought their motion to compel arbitration.

The District Court for Southern District of Indiana held that the arbitration clause could not be invoked by GC Services based on an agency theory or equitable estoppel, and that in any event GC Services had waived its right to invoke the clause by waiting so long to bring it to the court’s attention.

The Seventh Circuit affirmed:

Smith does not contend that GC Services expressly waived any right to arbitrate. The question is whether we should infer that forfeiture occurred, which requires us to “determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate.”

The panel went on to find that GC Services did not act diligently because the company did not mention the arbitration agreement in its answer, provided an inadequate explanation for the five-month delay in seeking arbitration after learning of the agreement, and prejudiced Smith by (unsuccessfully) engaging in motions practice.

The panel also found that this would prejudice the Plaintiff since he had already obtained victory on legal points and that allowing arbitration would undo those victories:

“GC Services’ motion to dismiss framed an integral—perhaps dispositive—issue: whether 15 U.S.C. § 1692g(a)(3) requires that debts be disputed in writing. The Third Circuit has held that a written dispute is required; the Second, Fourth, and Ninth Circuits have held that no writing requirement exists. Compare Graziano v. Harrison, 950 F.2d 107, 112 (3d Cir. 1991), with Clark, 741 F.3d at 490-91Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d 282, 285-87 (2d Cir. 2013)Camacho v. Bridgeport Fin., Inc., 430 F.3d 1078, 1080-82 (9th Cir. 2005). District courts within the Seventh Circuit have decided the issue both ways. See, e.g., Jolly v. Shapiro, 237 F. Supp. 2d 888, 895 (N.D. Ill. 2002) (finding a writing requirement); Campbell v. Hall, 624 F. Supp. 2d 991, 1000 (N.D. Ind. 2009) (finding no writing requirement) . . .

“[T]he district court’s determination that Smith was prejudiced when GC Services sought arbitration after Smith had defeated a motion to dismiss, obtained class certification, and litigated several discovery issues was not erroneous. In essence, GC Services sought to erase Smith’s successes—including her victory on the pivotal legal issue of whether § 1692g(a)(3) contains a writing requirement . . . “

The Court concluded with an apt warning to defense counsel in other cases:

This attempt to “play heads I win, tails you lose” is “the worst possible reason for delay.” Cabinetree, 50 F.3d at 391

Potential For MDL Not Reason to Delay Certifying FDCPA Class

Link: Rhodes v. ENHANCED RECOVERY COMPANY, LLC, Dist. Court, SD Indiana 2018 (Oct. 19, 2018)

A class was certified in an FDCPA case brought by Philipps and Philipps, Ltd. despite Defendant’s assertions that a heightened ascertainability standard should apply and that a potential consolidation into MDL on a bona fide error defense issue should warrant a stay of that decision.

“Defendant has indicated in its response in opposition to Plaintiff’s class certification motion that it intends to apply to the Multi District Litigation Panel to have this case and four other unidentified cases joined for purposes of conducting discovery regarding a potential bona fide error defense and argues without further explanation that “it would be more appropriate to consider the issue of class certification after Defendant makes its application to the MDL Panel.” Def.’s Resp. at 2. We are not persuaded that Defendant’s potential application to the MDL Panel is an adequate basis on which to delay a ruling on Plaintiff’s motion for class certification.”

The opinion was issued by judge Sarah Barker.

No TCPA Claim for Student Loan Debt Backed by U.S.

Link: Sanford v. NAVIENT SOLUTIONS, LLC, Dist. Court, Case No. 1:17-cv-4356-WTL-DLP (S.D. Ind. Oct. 1, 2018).

Judge William T. Lawrence dismissed a complaint on the pleadings alleging that Navient violated the Telephone Consumer Protection Act when it placed calls to the plaintiff’s cell phone. The court found that contrary to Plaintiff’s position, an  August 11, 2016, Report and Order from the FCC that would have placed restrictions on the collection of debts had not yet gone into effect. Thus the language in the TCPA that “a cellular telephone service . . . unless such call is made solely to collect a debt owed to or guaranteed by the United States” is controlling. 47 U.S.C. § 227(b)(1)(A)(iii).

 

 

 

Demanding “Pre-Purchase” Interest Not Valid Under FDCPA

Link: Gomez V. Cavalry Portfolio Services, LLC, Case No. 14-cv-09420 (N.D. Ill Sept. 24, 2018).

Plaintiffs had Bank of America (“BOA”) credit cards that were delinquent and charged off in 2009. BOA did not compute or track interest on an account after it was charged off. BOA also did not send regular billing statements to holders of charged-off accounts. Two years after BOA charged off Plaintiffs’ account, BOA sold the account to Cavalry SPV, which immediately assigned it to Cavalry Portfolio Services, LLC for servicing and collection.

Plaintiffs, through his counsel Edelman, Combs, Latturner & Goodwin LLC, filed a class action lawsuit under the Fair Debt Collection Practices Act alleging that defendants computed and added post-charge-off, pre-purchase interest to the account—basically, that it added two years’ worth of interest that BOA had not computed or tracked while it held the debt.  Plaintiffs alleged that Defendants violated the FDCPA by adding interest to credit card debts after the assignor bank had waived that interest. Both parties filed cross motions for summary judgment.

Plaintiffs argued that (1) BOA waived its right to collect post-charge-off, pre-sale interest, (2) this waiver barred Defendants from imposing post-charge-off, pre-sale interest, and (3) Cavalry violated the FDCPA by adding post-charge-off, pre-sale interest, thereby misrepresenting the amount Plaintiff owed.

Defendants argued that (1) Cavalry SPV is not a debt collector, (2) Plaintiffs’ claim is barred by the statute of limitations, and (3) the response letter is not a collection communication.

Judge Andrea R. Wood entered summary judgment in favor of defendant because it was not filed within the one-year statute of limitations period for FDCPA claims. The court also held, somewhat ironically, that Defendant waived its argument regarding choice-of-law analysis as to the waiver issue (Defendant didn’t want Illinois law to apply). Under that analysis, judge Wood found that:

the fact that BOA chose not to charge interest for two years (and it consciously made that decision as part of a broader policy) indicates that it intended to waive its right to collect this post-charge-off interest retroactively. BOA’s implied waiver of the right to charge interest on Plaintiffs’ account retroactively is further evidenced by the fact that BOA did not send periodic account statements to Plaintiffs.

It thus appears the merits of the suit would likely have supported summary judgment had the statute of limitations been met.

 

FDCPA Claim for Failure to ID “Current Creditor” Tossed Out

Link: Smith v. Simm Associates, Inc., Case No. 17-C-769 (E.D. Wisc., Sept. 30, 2018).

A class action case brought by Edelman Combs Latturner & Goodwin LLC was thrown at at summary judgment by judge William C. Griesbach. The plaintiff alleged that the collection letters sent out by the defendant violated  § 1692g(a) by:

Smith alleges that Simm violated §§ 1692g(a)(2) and 1692e of the FDCPA by failing to identify Comenity as the “current creditor” in its letter, instead of as the “original creditor.” Although Comenity was both the original and the current creditor, Smith claims that the letter nevertheless violated § 1692g(a)(2) by failing to also expressly identify Comenity as the “current creditor.”

The court found that:

There was nothing abusive, unfair, or deceptive about Simm’s notice to Smith about her outstanding debt. The letter contained the name of the creditor to whom the debt was owed, and offered payment arrangements authorized by PayPal Credit, the name Smith was most likely to recognize as the source of the debt. I therefore conclude that Simm did not violate § 1692g.

Failure to ID Creditor Suffices Spokeo Standard

Link: Heisler v. Convergent Healthcare Recoveries, Inc., Case No. 16-CV-1344 (E.D. Wisc., Sept. 27, 2018).

Plaintiff filed suit alleging that the dunning letters sent by CHRI did not identify the original creditor in violation of the Fair Debt Collection Practices Act, 15 U.S.C. 1692g.

The court provides a great analysis of the FDCPA for purposes of Article III standing analysis post-Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).

Heisler alleges that CHRI violated his rights under the FDCPA by failing to identify the creditor to whom the debt was owed and by using false, deceptive, and misleading representations or means in connection with the collection of the debt. (Compl. ¶ 46.) As in Pogorzelski, Heisler’s allegations that the debt collection letter sent by CHRI failed to identify the creditor of the debt in violation of his rights under the FDCPA sufficiently pleads a concrete injury-in-fact for purposes of standing. As to CHRI’s allegation that Heisler never opened the letter, this fact is irrelevant as Heisler seeks statutory damages, “a penalty that does not depend on proof that the recipient of the letter was misled.” See Bartlett v. Heibl, 128 F.3d 497, 499 (7th Cir. 1997). Thus, I find that Heisler has standing to sue in this case.

Unfortunately for Plaintiffs represented by Edelman, Combs, Latturner & Goodwin, judge Nancy Joseph also denied class certification because there is a unique defense that Plaintiff’s cause of action should be barred by judicial estoppel based on actions taken during the course of Plaintiff’s bankruptcy proceedings.