United States District Court, N.D. Illinois, Eastern Division
July 14, 2004.
MATILDA PULPHUS, BARBARA VANZANT, SYLVIA MANDERSON, and STEPHANIE BARNAS, Plaintiffs,
JOHN J. SULLIVAN; NEW LOOK HOME SERVICES, INC.; ERIC GOLD; MDR MORTGAGE CORPORATION; ESTHER ALFARO-GILER; HERITAGE TITLE COMPANY; HARTFORD FINANCIAL SERVICES, INC.; CITIZENS BANK; BANK ONE; PROVIDENT BANK; EQUICREDIT CORPORATION OF AMERICA; and FAIRBANKS CAPITAL CORPORATION, Defendants.
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Several Plaintiffs, including Barbara Vanzant, filed suit
against several Defendants, including EquiCredit Corporation of
America ("EquiCredit") and Fairbanks Capital Corporation
("Fairbanks"). Vanzant alleges that she was unlawfully solicited
to sign high-interest mortgages to finance poorly constructed
home improvements. EquiCredit and Fairbanks move for summary
judgment as to Counts III and V.
Vanzant alleges, in Count III, that EquiCredit and Fairbanks
failed to comply with the Truth in Lending Act, 15 U.S.C. § 1601,
et seq., by taking Vanzant's Truth in Lending Act Notice of
Right to Cancel disclosure before her three-day rescission period
ended. Vanzant alleges, in Count V, that EquiCredit and Fairbanks engaged in
common-law fraud by knowing, through its possession of loan
documents, that Vanzant was fraudulently induced into two loan
transactions. For the following reasons, EquiCredit and
Fairbanks' motion for summary judgment is granted with respect to
Count V, but EquiCredit and Fairbanks' motion is denied with
respect to Count III.
Summary judgment is appropriate when no genuine issue of
material fact exists and the moving party is entitled to judgment
as a matter of law. Fed.R.Civ.P. 56(c); Cincinnati Ins. Co. v.
Flanders Elec. Motor Serv., Inc., 40 F.3d 146, 150 (7th Cir.
1994). "One of the principal purposes of the summary judgment
rule is to isolate and dispose of factually unsupported claims or
defenses. . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Thus, although the moving party on a motion for summary
judgment is responsible for demonstrating to the court why there
is no genuine issue of material fact, the non-moving party must
go beyond the face of the pleadings, affidavits, depositions,
answers to interrogatories, and admissions on file to
demonstrate, through specific evidence, that a genuine issue of
material fact exists and to show that a rational jury could
return a verdict in the non-moving party's favor. Celotex, 477
U.S. at 322-27; Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
254-56 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586-87 (1986); Waldridge v. American
Hoechst Corp., 24 F.3d 918, 923 (7th Cir. 1994).
Disputed facts are material when they might affect the outcome
of the suit. First Ind. Bank v. Baker, 957 F.2d 506, 507-08
(7th Cir. 1992). When reviewing a motion for summary judgment, a
court must view all inferences to be drawn from the facts in the
light most favorable to the opposing party. Anderson, 477 U.S. at 247-48; Popovits
v. Circuit City Stores, Inc., 185 F.3d 726, 731 (7th Cir. 1999).
However, a metaphysical doubt will not suffice. Matsushita, 475
U.S. at 586. If the evidence is merely colorable or is not
significantly probative or is no more than a scintilla, summary
judgment may be granted. Anderson, 477 U.S. at 249-250.
The undisputed facts, for the purposes of this motion, taken
from the parties' Local Rule 56.1(a) & (b) statements of material
facts (referred to herein as "Pl.'s 56.1" and "Def's 56.1") and
exhibits, are as follows.
Vanzant owns and lives at a home on the west side of Chicago.
Def.'s 56.1 ¶ 1. John Sullivan and New Look Home Services, Inc.
("New Look") proposed to remodel Vanzant's home. Def.'s 56.1 ¶
10. Sullivan stated that he could arrange financing for the
remodeling and further stated that a person in New Look's finance
department would handle the financing. Pl.'s 56.1 ¶ 6.
In January 2001, Sullivan called Vanzant and told her someone
would pick her up and take her to complete the paperwork for the
loan. Pl.'s 56.1 ¶ 7. A man who worked for either New Look or
Sullivan drove Vanzant to complete the loan. Pl.'s 56.1 ¶ 7.
Vanzant signed documents that created a mortgage transaction
between Vanzant and Hartford Financial Services, Inc.
("Hartford"). Def.'s 56.1 ¶ 12. One of the documents Vanzant
signed and received was the three-day Notice of Right to Cancel
required by the Truth in Lending Act, pursuant to
15 U.S.C. § 1635. Def.'s 56.1 ¶ 13. Vanzant was unaware this was called the
closing, and she did not understand the significance of the
mortgage transaction. Pl.'s 56.1 ¶ 7. Vanzant also signed two other Truth in Lending Act Disclosure
Statements in connection with her January 2001 loan. The first
statement indicated Vanzant signed the statement on January 9,
2001. Pl.'s App., Pl.'s Ex. F. The second statement indicated
Vanzant signed the statement on January 12, 2001. Pl.'s App.,
Pl.'s Ex. E.
Two days after the closing, Sullivan came to Vanzant's house
and asked her for all of the documents she had received at the
closing, including the Notice of Right to Cancel. Def.'s 56.1 ¶
14. Vanzant gave him the requested documents. Def.'s 56.1 ¶ 14.
Plaintiff did not attempt to exercise her right to rescind the
January 2001 loan. Def.'s 56.1 ¶ 15. Thereafter, Hartford
assigned this mortgage and promissory note to EquiCredit. Def.'s
56.1 ¶ 18.
Sullivan then proposed that Vanzant obtain another loan so that
she could finance additional improvements. Def.'s 56.1 ¶ 21. In
March 2001, Sullivan called Vanzant and told her someone would
pick her up and take her to complete the paperwork for the loan.
Pl.'s 56.1 ¶ 22. The same man who drove Vanzant earlier, for the
January 2001 loan, once again drove Vanzant to complete the loan.
Pl.'s 56.1 ¶ 22. Vanzant signed documents that created a second
mortgage transaction between Vanzant and Hartford. Def.'s 56.1 ¶
23. Vanzant was unaware this was called the closing, and she did
not understand the significance of the mortgage transaction.
Pl.'s 56.1 ¶ 22. Vanzant also signed two Truth in Lending Act
Disclosure Statements in connection with her March 2001 loan. The
first statement indicated Vanzant signed the statement on March
15, 2001. Pl.'s App., Pl.'s Ex. I. The second statement indicated
Vanzant signed the statement on March 27, 2001. Pl.'s App., Pl.'s
Hartford never represented that Sullivan and New Look were its
agents. Def.'s 56.1 ¶ 29. Sullivan never represented to Vanzant
that he worked for anyone other than New Look. Def.'s 56.1 ¶ 30. Moreover, no misrepresentations are apparent on
the face of either of Vanzant's promissory notes and mortgages,
which were later assigned to EquiCredit. Def.'s 56.1 ¶¶ 19, 26.
Neither EquiCredit nor Fairbanks ever engaged in any
communications with Vanzant in order to induce her to enter into
either of the loans. Def.'s 56.1 ¶ 27.
Thereafter, Hartford assigned the second mortgage and
promissory note to EquiCredit. Def.'s 56.1 ¶ 25. Fairbanks later
became the servicer of this second loan. Def.'s 56.1 ¶ 7.
Vanzant seeks rescission in Count III based upon the alleged
unlawful taking of her Notice of Right to Cancel disclosure.
EquiCredit and Fairbanks contend that they are not liable under
the Truth in Lending Act because Vanzant voluntarily surrendered
her loan documents to Sullivan, and Sullivan did not act as
EquiCredit's and Fairbanks' agent.
The Truth in Lending Act provides that the originating lender
must clearly and conspicuously provide to the borrower in writing
notice that there is a right to rescind the lending transaction
within either (1) three days of the closing of the transaction or
(2) the delivery of the information and rescission forms,
whichever is later. 15 U.S.C. § 1635(a);
12 C.F.R. § 226.23(a)(3). This writing is otherwise known as the Notice of
Right to Cancel. If a lender fails to provide this disclosure,
the right to rescind extends for three years after the
transaction occurs. 15 U.S.C. § 1635(f);
12 C.F.R. § 226.23(a)(3); Fairbanks Capital Corp. v. Jenkins,
225 F. Supp.2d 910, 913 (N.D. Ill. 2002). The right to
rescission also applies to an assignee of a loan. 15 U.S.C. § 1641(c). The lender may also be subject to actual and statutory damages
for failure to provide the Notice of Right to Cancel.
15 U.S.C. § 1640(a). However, an assignee of a loan is not subject to actual
and statutory damages unless the required disclosure statements
are invalid on their face.
EquiCredit and Fairbanks first contend that they are not liable
under the Truth in Lending Act because Vanzant voluntarily
surrendered her Notice of Right to Cancel to Sullivan. However,
Sullivan asked Vanzant to return her Notice of Right to Cancel,
and Vanzant gave Sullivan the document. Although a lender which
obtains a Notice of Right to Cancel after the rescission period
ends does not violate the Truth in Lending Act, In re Rhoades,
80 B.R. 938, 943 (Bankr. C.D. Ill. 1987), a lender which asks for
and obtains the Notice of Right to Cancel from a borrower before
the rescission period ended would violate the purpose of § 1635
and prevent the borrower from having a reasonable opportunity to
rescind the loan. It is a genuine issue of material fact as to
whether Sullivan asked and obtained Vanzant's Notice of Right to
Cancel after the rescission period ended. Accordingly, EquiCredit
and Fairbanks' motion for summary judgment on this ground is
EquiCredit and Fairbanks further contend that they cannot be
held liable for Sullivan's actions because he did not act as
their agent. While it is undisputed that Hartford never
specifically represented that Sullivan and New Look were its
agents and Sullivan never specifically said to Vanzant that he
worked for anyone other than New Look, it may have appeared to
Vanzant that Sullivan or New Look was Hartford's agent. See
Chemtool, Inc. v. Lubrication Techs., Inc., 148 F.3d 742, 745
(7th Cir. 1998) (stating test for apparent agency). Sullivan and
New Look proposed that Vanzant remodel her home; Sullivan stated
that he could arrange financing for the remodeling; and Sullivan called Vanzant
and had someone pick her up to complete the paperwork for the
Under these facts, it could have reasonably appeared to Vanzant
that Sullivan or New Look worked on behalf of Hartford, the
original lender of the loan. If Sullivan or New Look are found to
be agents of Hartford, the right to rescission could still apply
against assignees of the loan. Therefore, a genuine issue of
material fact exists as to whether Sullivan or New Look were
agents of Hartford; and EquiCredit and Fairbanks' motion for
summary judgment on this ground is denied.
In response to Vanzant's claim for common law fraud against
EquiCredit and Fairbanks, EquiCredit and Fairbanks argue that
they complied with the assignee provisions of the Truth in
Lending Act and are therefore shielded from liability. An
assignee cannot be liable for Illinois state law claims premised
on alleged Truth in Lending Act violations unless: (1) an
assignee violates the assignee liability provisions of the Truth
in Lending Act or (2) the assignee participated in "active and
direct" fraud before the assignment of the contract. Jackson v.
S. Holland Dodge, Inc., 755 N.E.2d 462, 469-71 (Ill. 2001)
(Jackson); accord Marshall v. Webb, No. 01 C 3619, 2002 WL
1628448, at *1 (N.D. Ill. Mar. 11, 2002). An assignee is liable
under the Truth in Lending Act only if a violation is apparent on
the face of the disclosure statement. 15 U.S.C. § 1641(a). "A
violation apparent on the face of the disclosure statement
includes but is not limited to (1) a disclosure which can be
determined to be incomplete or inaccurate from the face of the
disclosure statement or other documents assigned, or (2) a
disclosure statement which does not use the terms required to be
used by this subchapter." 15 U.S.C. § 1641(a). Vanzant initially argues, in paragraphs 15 and 25 of her
statement of facts, that she simultaneously signed and received
two contradictory Truth in Lending Act disclosures at each loan
closing. The simultaneous receipt of two contradictory disclosure
statements is a violation of the Truth in Lending Act. Pulphus
v. Sullivan, No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080, at
*37-39 (N.D. Ill. Apr. 28, 2003). Vanzant asserts that at the
first closing, she received multiple, contradictory disclosure
statements. These disclosure statements show that they were
signed on different dates. Vanzant further contends that either
her signature or the dates were forged on these disclosure
statements. Vanzant also argues the same practice occurred with
the disclosure statements she received at the second closing.
However, EquiCredit and Fairbanks would not be able to discover
from the face of the disclosure statements if Vanzant's signature
or the date were forged on the disclosure statements.
Furthermore, it is undisputed that no misrepresentations are
apparent from the face of Vanzant's promissory notes and
mortgages which were assigned to EquiCredit and later serviced by
Fairbanks. Therefore, no genuine issue of material fact exists as
to whether EquiCredit and Fairbanks fulfilled their duties under
the Truth in Lending Act.
Vanzant next contends that "the evidence adduced by [Vanzant]
clearly supports an inference that EquiCredit participated,
accepted, and approved the misconduct." Pl.'s Resp. at 7. She
argues the fraud claims are not based on a Truth in Lending Act
disclosure, and the assignee protection provision thus does not
apply. Instead, Vanzant states EquiCredit knowingly accepted the
fruits of the fraud and willfully ignored information that would
have demonstrated Vanzant's loans were fraudulently procured. However, the Illinois Supreme Court stated that:
As we noted in Lanier, there is a consistent policy
through Illinois law against extending disclosure
requirements beyond what is mandated by federal law.
If an assignee were liable under the Consumer Fraud
Act, though exempt from the liability under [the
Truth in Lending Act], it would impose disclosure
requirements on assignees beyond those mandated by
federal law. . . . Thus, we conclude that an assignee
is not responsible for the misrepresentations made by
the dealer to the consumer outside of reviewing the
face of the assigned document for apparent defects.
Jackson, 755 N.E.2d at 469 (internal citations omitted).
The Illinois Supreme Court, though, recognized that a plaintiff
could bring a state law claim for preassignment fraud that was
"active and direct." Jackson, 755 N.E.2d at 470. This type of
fraud would be separate from the Truth-in Lending Act assignee
exemption. Jackson, 755 N.E.2d at 470. "For example, if a
plaintiff could allege specific facts showing that the assignee
met with the car dealer and concocted a scheme to put false
statements on the financing statement, an assignee would not be
exempt from a state fraud action from a duped buyer." Jackson,
755 N.E.2d at 470-71.
Here, Vanzant claims EquiCredit and Fairbanks chose to accept
the assignment of her loans although EquiCredit and Fairbanks
should have recognized the loans were fraudulently obtained.
According to Vanzant, EquiCredit has policies and procedures to
review loan files before accepting an assignment of a loan; but
EquiCredit excused certain requirements, knew Hartford violated
industry standards, and ignored critical documents, other than
the Truth in Lending Act disclosures, in the loan files. However,
it is undisputed that neither EquiCredit nor Fairbanks ever
engaged in any communication with Vanzant in order to induce her
to enter into either loan. Moreover, upon the assignment of a
loan, EquiCredit and Fairbanks have no duty under the law regarding these requirements, industry standards,
and critical documents. Holding EquiCredit and Fairbanks liable
for fraud in this situation would "impose disclosure requirements
on assignees beyond those mandated by federal law." Jackson,
755 N.E.2d at 469.
Vanzant further contends that EquiCredit and Fairbanks
participated in the fraud. Vanzant asserts that there was a close
relationship between EquiCredit and Hartford because of the high
volume of dealings completed between these two parties. However,
Vanzant has not produced any affidavits, depositions, answers to
interrogatories, and admissions on file to demonstrate that
EquiCredit and Hartford "concocted a scheme" to defraud Vanzant.
Vanzant has also failed to produce any affidavits, depositions,
answers to interrogatories, and admissions on file to demonstrate
that Fairbanks was involved in a scheme to defraud Vanzant.
Therefore, no genuine issue of material fact exists as to whether
EquiCredit and Fairbanks actively and directly participated in a
preassignment fraud of Vanzant.
Lastly, Vanzant argues that EquiCredit is not a holder in due
course of the loans and is, thus, liable for all borrower claims
against the originating lender. However, the holder in due course
rule operates only as a limitation upon a creditor's "right to
enforce the obligation of a party to pay an instrument." 810 ILCS
5/3-305(a). Thus, while the holder in due course rule may affect
EquiCredit's ability to enforce Vanzant's obligation, it does not
create a basis for her to sue for damages. CONCLUSION
For the foregoing reasons, EquiCredit and Fairbanks' Motion for
Summary Judgment is denied as to Count III; and EquiCredit and
Fairbanks' Motion for Summary Judgment is granted as to Count V.
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