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06/15/87 Michael B. Sweeney, v. Citicorp Person-To-Person

June 15, 1987





510 N.E.2d 93, 157 Ill. App. 3d 47, 109 Ill. Dec. 472 1987.IL.812

Appeal from the Circuit Court of Cook County; the Hon. George M. Marovich, Judge, presiding.


PRESIDING JUSTICE QUINLAN delivered the opinion of the court. CAMPBELL and BUCKLEY, JJ., concur.


Plaintiff, Michael B. Sweeney, filed the present action in the circuit court of Cook County on October 30, 1985, individually, and on behalf of a class of all those similarly situated, against Citicorp Person-to-Person Financial Center, Inc. (Citicorp Financial), and Citicorp Person-to-Person Financial Center of Illinois, Inc. (Citicorp Illinois). The plaintiff alleged that the defendants had violated the Illinois usury statute by contracting for interest payments in excess of the statutory limit through a scheme of loan splitting. This is a refiled action which had been previously dismissed pending proceedings in the United States Bankruptcy Court involving the plaintiff's Chapter 13 petition (11 U.S.C. sec. 1301 et seq. (1982)). Sweeney v. Citicorp Person-to-Person Financial Center, Inc. (1985), 137 Ill. App. 3d 1023, 485 N.E.2d 423.

In the plaintiff's complaint, he asserted that in November 1978 he sought to borrow $15,000 from one of the defendants. Subsequently, the plaintiff received two loans: one loan from Citicorp Financial in the amount of $9,980 at an interest rate of 17.99% a year, *fn1 and the other loan from Citicorp Illinois in the amount of $5,254.06 at an interest rate of 12.49% a year. *fn2 Both loans were secured by a second mortgage on plaintiff's residence. In his complaint, the plaintiff alleged in count I that the defendants had split the $15,000 he had requested into two loans to evade the interest rate limitations of the Interest Act (now recodified as Ill. Rev. Stat. 1985, ch. 17, par. 6404 et seq.); thus, the loans should be treated as a single loan, and, as such, the resulting loan exceeded the usury ceiling allowed by law at that time. In count II plaintiff claims that, even if the amount borrowed was not to be treated as a single loan, the amount of the interest on the loan from Citicorp Illinois still exceeded the amount allowed by the Interest Act.

The plaintiff's complaint sought to recover statutory penalties in both counts on behalf of himself and the plaintiff class, provided under section 6 of the Interest Act (Ill. Rev. Stat. 1985, ch. 17, par. 6413), which allows a borrower under a contract charging unlawful interest rates to recover a penalty of twice the total interest contracted for or paid, plus costs and attorney fees. Shortly after the loans herein had been made to the plaintiff, the Illinois General Assembly amended the Interest Act to exclude from the usury statute all loans secured by a mortgage on residential real estate (Pub. Act 81-1097, 1979 Ill. Laws 4207-11 ; Pub. Act 82-660, 1981 Ill. Laws 3436-57) and, ultimately, the exemption was extended to all loans secured by any kind of real estate (Pub. Act 82-951, 1982 Ill. Laws 2290-93) in August 1982 (codified as Ill. Rev. Stat. 1983, ch. 17, par. 6404).

On May 26, 1986, the defendants moved to dismiss plaintiff's complaint. The defendants' motion contended that the above amendment to the Interest Act removed any basis for the plaintiff's asserted cause of action, and, also, that the plaintiff's claims here were barred by res judicata because they had, at least indirectly, been previously ruled upon in plaintiff's bankruptcy action presently pending in the United States Bankruptcy Court.

The trial court denied the motion to dismiss but granted the defendants' motion to certify the court's order for immediate interlocutory appeal pursuant to Supreme Court Rule 308 (87 Ill. 2d R. 308). The trial court certified two questions for appeal:

"1. Whether plaintiff is barred from maintaining this usury action by reason of amendments to the Illinois usury laws modifying or eliminating the usury ceiling on various classes of loans, which amendments occurred subsequent to the time plaintiff borrowed money from defendants and prior to the institution of this action.

2. Whether plaintiff is barred by res judicata from maintaining this action as a result of prior events in his two Chapter 13 bankruptcy proceedings, the second of which is currently pending."

On September 11, 1986, we granted the defendants' petition for leave to appeal. Before addressing the defendants' issues on appeal, we believe a presentation of a short background of this litigation is necessary to an understanding of these proceedings. Plaintiff made payments on the loans involved herein until May 12, 1980, when he filed a voluntary petition for a wage-earner reorganization under chapter 13 of the Bankruptcy Code (11 U.S.C. sec. 1301 et seq. (1982)). While plaintiff initially disputed the validity of the debts owed to the defendants in that proceeding, that dispute was settled, and the parties stipulated and the court ordered that the plaintiff, Mr. Sweeney, owed defendants $13,832.57, which was substantially the full amount of the loans that were outstanding at that time plus interest. On July 1, 1980, plaintiff's chapter 13 plan of reorganization, providing for payment of defendants' claims, was confirmed by the bankruptcy court.

Thereafter, on December 21, 1982, the plaintiff moved to dismiss the chapter 13 proceeding without prejudice pursuant to the conversion or dismissal provision of the Federal Bankruptcy Code (11 U.S.C. sec. 1307(b) (1982)). Shortly after the bankruptcy court granted plaintiff's motion, plaintiff filed a second voluntary petition in bankruptcy. In this second petition the defendants' debts were not disputed, and an order confirming ...

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