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Linda M. Gaudie v. Potestivo Appraisal Services

April 18, 2011


The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

Plaintiff Linda M. Gaudie ("Gaudie") brings this suit against Potestivo Appraisal Services, Inc., and Craig John Potestivo, (together "Potestivo") based on claims arising from plaintiff's purchase of a property.*fn1 Plaintiff alleges, among other things, that the May 4, 2006 and September 6, 2006 appraisals Potestivo performed on behalf of Gaudie's lender, Countrywide, were fraudulently or negligently inflated. Gaudie brings the following four counts against Potestivo: Credit Repair Organizations Act (Count I); common law fraud (Count II); Illinois Consumer Fraud Act (Count III); and negligent misrepresentation (Count IV). Potestivo has moved to dismiss all counts. For the reasons that follow, the motion is denied.



Rule 12(b)(6) permits a court to dismiss a claim where a plaintiff fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The court must accept as true the allegations of the complaint and draw all reasonable inferences in favor of plaintiff. Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (internal citation omitted). To survive a Rule 12(b)(6) motion, "the complaint need only contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Fed. R. Civ. P. 8(a)(2)). The facts must provide the defendant with "'fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The plaintiff need not plead particularized facts, but the factual allegations in the complaint must be enough to raise a right to relief above the speculative level. Id.

Plaintiff's claims that are based on "a course of fraudulent conduct" are subject to the heightened pleading standard of Rule 9(b). Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007). Rule 9(b) requires the plaintiff to "state with particularity the circumstances constituting fraud or mistake."

Fed. R. Civ. P. 9(b). The circumstances of fraud or mistake include the "identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997).

Count I: Credit Repair Organizations Act

Potestivo moves to dismiss Gaudie's claim against it based on the federal Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679, et seq. Under § 1679b, it is a violation for any "person" to "make any statement . . . which is untrue or misleading . . . with respect to any consumer's credit worthiness, credit standing, or credit capacity to any person to whom the consumer has applied or is applying for an extension of credit. 15 U.S.C. § 1679b(a)(1)(B)(ii). Gaudie alleges that Potestivo violated § 1679b by overstating the two appraisals at the center of this case, and then forwarding those false appraisals to Countrywide. Potestivo argues for dismissal because its appraisals did not "bear[] upon" Gaudie's "credit worthiness, credit standing or credit capacity."*fn2 Specifically, Potestivo asserts that the "appraisals do not relate to any information regarding Gaudie's income, assets, debts or general financial condition. . . ." Def.'s Mem. at 6.*fn3

I do not agree that the appraisals at issue do not bear upon Gaudie's credit worthiness. Potestivo's appraisals directly determined the value Countrywide assigned plaintiff's property. The value assigned to the property determined whether or not Gaudie qualified for the loans she sought, and thus went directly to Gaudie's creditworthiness. As a result, Gaudie's CROA claim survives.*fn4 Count II: Fraud

Turning to Gaudie's common law fraud claim, she ultimately will have to prove: (1) a false statement of material fact;

(2) which defendant knew or believed to be false; (3) with the intent to induce plaintiff to act; (4) plaintiff justifiably relied upon the truth of the statement; and (5) she suffered damage from such reliance. Soules v. Gen. Motors Corp., 402 N.E.2d 599, 601 (Ill. 1980). Potestivo argues that plaintiff has failed to plead with particularity the circumstances constituting fraud as required by Rule 9(b).

The Seventh Circuit has explained that "Rule 9(b) ensures that a plaintiff [has] some basis for his accusations of fraud before making those accusations and thus discourages people from including such accusations in complaints simply to gain leverage for settlement or for other purposes." Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 924 (7th Cir. 1992). A plaintiff who provides a "general outline of the alleged fraud scheme" sufficient to "reasonably notify the defendants of their purported role in the scheme" satisfies Rule 9(b), so long as the plaintiff states the "time, place and content of the alleged communications perpetrating the fraud.". Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992). However, "the particularity requirement of Rule 9(b) must be relaxed where the plaintiff lacks access to all facts necessary to detail his claim[.]" Corley v. Rosewood Care Ctr., 142 F.3d 1041, 1051 (7th Cir. 1998). When details of the fraud are "within the defendant's exclusive knowledge," specificity requirements are less stringent, Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994), and, in that case, allegations based on information and belief may be considered, provided that the complaint includes the specific facts on which the belief is based. W. United Life Assur. Co. v. Fifth Third Bank, No. 02 C 7315, 2003 WL 444417, at *3 (N.D. Ill. Feb. 19, 2003).

Plaintiff has alleged sufficient facts which, even under Rule 9(b)'s heightened pleading standard, put Potestivo on notice of her fraud claim. She very clearly states the facts surrounding the allegedly fraudulent appraisals: In May 2006 and September 2006 Countrywide hired Potestivo to appraise the property plaintiff sought to purchase. She alleges that due to pressure from Countrywide, Potestivo inflated the value it assigned to the property in each appraisal. She also explained Potestivo's motivation, noting that Potestivo had performed thousands of appraisals for Countrywide, had been an approved appraiser for Landsafe (Countrywide's corporate unit for residential appraisals) since 2000 and personally knew many of the Countrywide branch personnel in the Chicago area. Further, in 2006, well over 50% of Potestivo's appraisals were performed for Landsafe/Countrywide, and well over 50% of Potestivo's income came from Landsafe. As a result, in 2006, Craig Potestivo was dependent for his livelihood on the work he received from Landsafe and wanted to maintain that volume of work. Plaintiff goes on to explain that Countrywide and its affiliates controlled such a large market share for home loans and appraisal management services that appraisers like Potestivo had to do work for Countrywide/Landsafe and had to give them the appraised values they desired if the appraisers wanted to work in that field. If appraisers did not give Countrywide/Landsafe the appraised values required, those appraisers were put on Countrywide's "blacklist" and did not get any further appraisal assignments. Countrywide also would ask mortgage brokers with whom it did business not to use the blacklisted appraisers.

I conclude that plaintiff has sufficiently pled a fraud claim against Potestivo based on the allegedly fraudulent appraisals. While she makes some of her allegations based "on information and belief," she has "stated the grounds for [her] suspicions[.]" Uni*Quality, 974 F.2d at 924 ("[A]llegations based on information and belief, even if the facts are inaccessible to the plaintiff, are insufficient unless plaintiff states that grounds for his ...

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