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09/14/89 Plaintiff-Appellant and v. Gary L. Clayton

September 14, 1989

APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT INTERNATIONAL BUREAU OF FRAUD CONTROL, LTD., PLAINTIFF-APPELLANT AND CROSS-APPELLEE

v.

GARY L. CLAYTON, DIRECTOR OF THE DEPARTMENT OF REGISTRATION AND EDUCATION, ET AL., DEFENDANTS-APPELLEES AND CROSS-APPELLANTS



Before we address the merits of the cause, we must first address the DRE's contention that the trial court and this court lack jurisdiction to entertain this cause as it is barred by sovereign immunity. The DRE argues the action is an action against a State agency and public official who were acting in the exercise of their official duties.

544 N.E.2d 416, 188 Ill. App. 3d 703, 135 Ill. Dec. 920 1989.IL.1423

Appeal from the Circuit Court of Sangamon County; the Hon. Simon L. Friedman, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE McCULLOUGH delivered the opinion of the court. LUND and GREEN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCCULLOUGH

Plaintiff, International Bureau of Fraud Control, Ltd. , brought a declaratory judgment action, seeking a determination that its activities in collecting bad checks were not debt collection pursuant to the Collection Agency Act (Act) (Ill. Rev. Stat. 1987, ch. 111, par. 2001 et seq.). IBFC also sought a declaration that section 3-806 of the Uniform Commercial Code-Commercial Paper (Ill. Rev. Stat. 1987, ch. 26, par. 3-806) did not limit the imposition fees and costs in excess of $10 to collections involving court proceedings. It sought a declaration that it could recover its reasonable costs from the drawer. IBFC also sought to enjoin the Illinois Department of Registration and Education and its director from seeking sanctions against IBFC's license for collecting excessive service fees.

Both parties moved for summary judgment. The trial court found no disputed issues of fact existed. It held IBFC was acting as a collection agency under the Act. It also found section 3--806 of the UCC did not limit the service fee charged to the drawer in a nonlitigation collection to $10. IBFC appeals, arguing collecting cash for bad checks is not debt collection. DRE cross-appeals, arguing the trial court erred in construing section 3--806 of the UCC. We affirm in part, reverse in part, and remand.

The facts are undisputed. IBFC is a licensed collection agency, whose sole activity is reducing to money checks which have been returned to the payee because the drawer did not have an account with the drawee bank or did not have sufficient funds to cover the check. IBFC's principal clients are retail merchants and service providers to retail merchants. Upon specific referral, IBFC contacts the drawer of the dishonored check and requests he make good the check by paying IBFC as agent for the payee. Funds thus received are sent to the payee after fees, costs, and expenses are deducted. IBFC attempts to collect money for the checks only after the drawer's

bank has notified the drawer of the dishonor and the payee has sent out one or more written notices of dishonor to the drawer and demanded payment. In addition to the written notice, according to the payee's business practice, it may have orally communicated the notice of dishonor to the drawer and orally demanded payment. In most cases, the drawer will have been contacted by an agency which collects debts and bad checks. After the drawer fails to act in response to the notices and actions of the payee's collection agency, the matter is handled by IBFC.

Approximately 90% of the checks referred to IBFC are two to six years old. IBFC incurs costs and expenses in seeking payment for the dishonored checks. It seeks reimbursement for these expenditures from the drawers. On July 16, 1986, the DRE sent IBFC a letter stating its expense recovery from the drawer in nonlitigation collections was limited to $10 pursuant to section 3-806 of the UCC. (Ill. Rev. Stat. 1987, ch. 26, par. 3-806.) The IBFC instituted the instant action.

Technically, sovereign immunity has been abolished in Illinois, except as the General Assembly may provide by law. (Ill. Const. 1970, art. XIII, § 4.) Section 1 of "An Act in relation to immunity for the State

In the instant case, the IBFC is seeking an interpretation of a statute, determination that its activities are not debt collection, and an injunction to preclude the DRE and its director from future actions in excess of their authority. Sovereign immunity concepts do not, therefore, apply. Board of Trustees, 118 Ill. 2d 465, 515 N.E.2d 1244; Robb, 147 Ill. App. 3d 710, 498 N.E.2d 267; Hernandez, 135 Ill. App. 3d 372, 481 N.E.2d 1004.

The IBFC argues its service of collecting cash for checks which have been dishonored based upon insufficient funds or lack of an account with the drawee is not "debt collection" within the meaning of the Act. It notes the Act does not specifically say a dishonored check is a debt, the legislative history of the Act does not define dishonored checks as debts, and no other statute defines a ...


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