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PERINO v. MERCURY FIN. CO.

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


September 21, 1995

JOSEPH PERINO, Plaintiff,
v.
MERCURY FINANCE COMPANY OF ILLINOIS, Defendant.

The opinion of the court was delivered by: ANDERSEN

MEMORANDUM OPINION AND ORDER

 This case comes before the court on the 12(B)(6) motion of defendant, Mercury Finance Company of Illinois ("MFC Illinois"), to dismiss plaintiff Joseph Perino's complaint for failure to state a claim upon which relief can be granted. For the following reasons, we grant defendant's motion to dismiss.

 BACKGROUND

 Plaintiff's well-pleaded allegations, which the Court treats as true and views in a light most favorable to the plaintiff for purposes of this motion, are as follows. On May 20, 1993, the plaintiff, Joseph Perino of Burbank, Illinois, purchased a used 1990 Chevrolet Cavalier from Mancari's Chrysler Plymouth, Inc. ("Mancari Chrysler"). Amended Complaint P 20. Mancari Chrysler agreed to arrange financing for plaintiff with the defendant, MFC Illinois, a Delaware corporation with its principal place of business in Northbrook, Illinois. Id. at P 22. MFC Illinois is a "sales finance agency" whose primary business includes purchasing individual installment sales contracts from automobile dealers and retail vendors, extending installment loans directly to consumers, and selling credit insurance and related products. Id. at PP 5, 7.

 Mancari Chrysler informed plaintiff that MFC Illinois' annual percentage rate ("APR") was 41.04%. Id. at P 24. Plaintiff then executed a retail installment contract with Mancari Chrysler for the quoted APR of 41.04%. Id. at P 28; Exhibit B. In addition, plaintiff also purchased credit life and disability insurance which was included in the installment contract. Id. PP 33-34. The policy covered monthly payments on the installment contract in the event plaintiff became disabled and unable to pay. Id.

 MFC Illinois subsequently purchased the plaintiff's contract from Mancari Chrysler at a rate lower than the original 41.04% APR. Id. at PP 25-30. In addition, MFC Illinois then returned or credited part of the 41.04% rate to Mancari Chrysler. Id. at P 30. "For example, if MFC Illinois' 'buy rate' applicable to a contract was 30% and the dealer secured the consumer's signature on a contract providing for 40%, MFC Illinois and the dealer would split the 10% difference." Id. P 25. Neither MFC Illinois nor Mancari Chrysler disclosed this discounted transaction to plaintiff. Id.

 On June 17, 1994, plaintiff became disabled and was unable to make regular payments on the installment contract. Id. at P 45. Soon thereafter plaintiff informed MFC Illinois of his disability and filed a claim under the policy of disability insurance with the carrier, Crown Life. Id. at P 46. Crown Life honored plaintiff's claim and paid out the requisite benefits. Id. at PP 47-48. Unfortunately, the benefits were not paid to plaintiff until October 6, 1994. Id. As a result, plaintiff was unable to make payments on the installment contract for several months. On September 20, 1994, MFC Illinois repossessed plaintiff's car. Id. at P 50. Plaintiff again notified MFC Illinois of his disability and requested the return of his car. Id. at P 52. MFC Illinois refused to return the car unless plaintiff paid the past due amounts on the installment contract. Id.

 On January, 10, 1995, Plaintiff filed a four count amended complaint to which MFC Illinois' motion to dismiss is directed. In Count I plaintiff alleges that MFC Illinois violated the Racketeering Influenced and Corrupt Organizations Act ("RICO") and the mail fraud statute 18 U.S.C. § 1341 by paying secret "kickbacks" of finance charges to auto dealers. The remaining counts are state law claims before this Court pursuant to its supplemental jurisdiction under 28 U.S.C. § 1367. In Count II, plaintiff alleges that the same conduct violated the Illinois Consumer Fraud Act, 815 ILCS 505/2. Count III alleges that MFC Illinois violated the Illinois Consumer Fraud Act by repossessing plaintiff's car after he had become disabled and while his disability insurance claim was still pending. Finally, in Count IV plaintiff alleges that MFC Illinois' repossession notices violate § 9-504 of the Uniform Commercial Code ("UCC"). Further, plaintiff brings all four of these counts on behalf of a class pursuant to Fed.R.Civ.P. 23(a) and (b)(3).

 DISCUSSION

 In considering a motion to dismiss, the court must accept as true all the well-pleaded material facts in the complaint and must draw all reasonable inferences from those facts in the light most favorable to the plaintiff. Perkins v. Silverstein, 939 F.2d 463, 466 (7th Cir. 1991). If fraud is alleged, Rule 9(b) of the Federal Rules of Civil Procedure requires the underlying facts of the lawsuit to be set out with particularity. Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 122 L. Ed. 2d 517, 113 S. Ct. 1160, 1163 (1993). Further, the complaint should not be dismissed unless it appears, beyond a doubt, that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 I. RICO

 Count I alleges that MFC Illinois, an enterprise as defined by 18 U.S.C. § 1961(4), violated RICO by paying secret "kickbacks" of finance charges to auto dealers. Further, plaintiff alleges that this scheme to conceal the "kickbacks" to the dealers constituted a scheme or artifice to defraud within the meaning of the mail fraud statute, 18 U.S.C. § 1341. Defendant moves to dismiss Count I of the complaint for failure to state a claim for a RICO violation or mail fraud. Specifically, defendant contends that plaintiff has alleged no illegal acts by MFC Illinois.

 The heart of plaintiff's RICO and mail fraud claims concerns allegations that MFC Illinois had a policy of entering into "secret agreements" with Mancari Chrysler and other dealers in which: 1) MFC Illinois would purchase retail installment contracts at a specific rate of less than (in plaintiff's case) 41.04%: 2) MFC Illinois allowed the dealers to charge their customers more than MFC Illinois' interest rates the the dealers; 3) MFC Illinois and the dealers would "split the difference," and; 4) the dealer's customers would not be told that the dealers kept their part of the difference. Id. at PP 25, 57. Plaintiff alleges that this discounted transaction represents some type of "kickback" to the dealer for misrepresenting MFC Illinois' rate to the consumer.

 Defendant's conduct is neither fraudulent nor is it an illegal "kickback". The plaintiff's "kickback" allegations focus on nondisclosure of the transaction or discount between MFC Illinois and Mancari Chrysler which resembles a typical commission. The Truth-in-Lending Act does not require disclosures of this kind. The Act requires only that a consumer be informed of the name of the creditor, the amount financed, and the APR. See 12 C.F.R. § 226.17 et seq. MFC Illinois made all required disclosures to plaintiff. Repeated allegations of "secret agreements" and "kickbacks" do not transform this perfectly legal conduct into actionable fraud under RICO.

 Judge Leinenweber addressed a similar issue in Balentine v. Union Mortgage Company, 1994 U.S. Dist. LEXIS 1113, No. 91 C 8213, 1994 WL 34256 (N.D.Ill. Feb. 2, 1994). In Balentine, the plaintiff brought an action for fraud under the Illinois Consumer Fraud and Deceptive Business Practices Act alleging that the defendant unlawfully engaged in the purchase of retail installment contracts from a home improvement dealer at 15 to 40 percent less than face value. 1994 U.S. Dist. LEXIS 1113, No. 91 C 8213, 1994 WL 34256, at *1 (N.D.Ill. Feb. 2, 1994). Similar to the instant case, the discounted price was not disclosed to the consumer. Id. Judge Leinenweber held that the alleged failure to disclose this discount to the consumer is specifically authorized by, and in compliance with, the federal Truth-in-Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. (1993). Id. at *2. Specifically, section 1605(a) of TILA only requires disclosure of finance charges. Id. The Court explained that the discount in this case was not a finance charge but a "cost of doing business." Id. "Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such charges into consideration in determining the interest rate to be charged or the cash price of the property or services sold." Id. (quoting 12 C.F.R. § 226.4(a)(2)). Likewise, in April v. Union Mortgage Co., Inc., the Court held that the difference between the cash price of the work and the price at which the contract is sold is not required to be disclosed. 709 F. Supp. 809, 813-14 (N.D.Ill. 1989).

 Accordingly, plaintiff has alleged only legal acts by MFC Illinois. Therefore, the defendant's motion to dismiss for failure to state a claim for RICO violations or mail fraud is granted. Because Count I is dismissed, the Court does not reach the issue of class certification pursuant to Fed.R.Civ.P. 23(a) and (b)(3).

 II. State Law Claims

 Since Count I is dismissed, the Court has no independent jurisdiction over the pendent state law claims for violations of the Illinois Consumer Fraud Act and the Uniform Commercial Code. Accordingly, Counts II, III, and IV are also dismissed. Again, because Counts II, III, and IV are dismissed, the Court does not reach the issue of class certification pursuant to Fed.R.Civ.P. 23(a) and (b)(3).

 CONCLUSION

 For all of the foregoing reasons, defendant's motion to dismiss the complaint is granted.

 IT IS SO ORDERED.

 Wayne R. Andersen

 United States District Judge

 Dated: September 21, 1995

19950921

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