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Hatchett v. W2X, Inc.

Court of Appeals of Illinois, First District, First Division

June 24, 2013

HELEN HATCHETT, Plaintiff-Appellant,
W2X, INC., WARREN JACKSON, KENDRA THOMAS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC, and SAXON MORTGAGE SERVICES, INC., and UNKNOWN OWNERS AND NONRECORD CLAIMANTS, Defendants (Avalon Betts-Gaston and JP Morgan Chase Bank, N.A., a/t/f holders of Master Adjustable Rate Mortgages Trust 2005-8, Defendants-Appellees).

Appeal from the Circuit Court of Cook County, No. 06 CH 15839 Honorable William O. Maki, Judge Presiding.

JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion. Presiding Justice Hoffman and Justice Delort concurred in the judgment and opinion.



¶ 1 This appeal arises from the November 1, 2010 order entered by the circuit court of Cook County, which granted a directed finding against the plaintiff, Helen Hatchett (Helen), and in favor of the defendants, Avalon Betts-Gaston (Attorney Gaston)[1] and The Bank of New York Mellon Trust Company (BONY), and which entered a default judgment against Warren Jackson (Jackson)[2] and in favor of Helen in the amount of $121, 158.69. This appeal also arises from the circuit court's February 10, 2011 order denying Helen's motion to reconsider its November 1, 2010 ruling. On appeal, Helen argues that the circuit court erred in granting a directed finding in favor of BONY and Attorney Gaston. For the following reasons, we affirm in part and reverse in part the judgment of the circuit court of Cook County, and remand the cause for further proceedings.


¶ 3 On August 26, 2005, a foreclosure action was filed against Helen in the circuit court of Cook County[3] for a mortgage loan pertaining to her house located at 10458 South Vernon Avenue in Chicago, Illinois (the property), where she had lived since 1970. In September 2005, Helen received a solicitation flyer from W2X, Inc. (W2X), [4] a company operated by Jackson, which purportedly offered to save her home from foreclosure. Jackson's telephone number was listed on the flyer. Helen, a senior citizen with limited education, contacted Jackson for help. The next day, Jackson visited Helen's home, during which Helen signed documents and gave Jackson a copy of her driver's license. Helen did not know what documents she had signed. According to Helen, Jackson explained that his name would be on the title of her house, that Helen could "have the house back" in her name within a year, that Jackson "would deal with the other lawyer on foreclosure, " and that Helen would make no payments on her loans for one year. Jackson allegedly assured Helen that she did not need to read the forms. However, Helen knew that some of the signed documents pertained to "some kind of contract."

¶ 4 On September 26, 2005, Attorney Gaston, who owned a real estate law practice, received a facsimile of a real estate contract bearing Helen's signature as the seller of the property. Kendra Thomas (Kendra)[5] was listed on the real estate contract as the buyer of the property. Attorney Gaston then reviewed the real estate contract to "make sure that everything was filled out." According to Attorney Gaston's trial testimony, she often received client referrals from Jackson in 2005, and that either Jackson or a realtor named Shunte Thomas (Shunte) referred Helen's real estate transaction to her. Attorney Gaston then spoke with Helen by telephone, during which they discussed the broad terms of the real estate contract, and Attorney Gaston asked Helen whether she had any questions about it. However, Attorney Gaston did not make any notes contemporaneous with the telephone conversation. Attorney Gaston had an assistant at her law office whose responsibility included contacting clients, informing them of closing dates and locations, and performing other office tasks. Based on the telephone conversation, it was clear to Attorney Gaston that Helen intended to convey her property. On October 5, 2005, at approximately 10 p.m., Attorney Gaston, as counsel for Helen, prepared a warranty deed which described the terms of Helen's conveyance of the property to Kendra. Attorney Gaston also prepared other closing documents on behalf of Helen, including an affidavit of title and a bill of sale. A power of attorney was also prepared as a "backup" because Attorney Gaston's assistant had informed her that Helen would be unable to attend the closing due to illness. On October 6, 2005, Attorney Gaston gave the closing documents to her assistant to acquire Helen's signature. Later that day, on October 6, 2005, Jackson arrived at Attorney Gaston's law office with the original closing documents, which had been prepared by Attorney Gaston and given to her assistant earlier that day. Each of those closing documents bore what appeared to be Helen's signature. Jackson also physically produced Helen's driver's license. According to Attorney Gaston, Jackson informed her that Helen was waiting in the car, and that she was ill and could not climb the stairs to Attorney Gaston's third-floor office. Attorney Gaston testified at trial that she did not go downstairs to see Helen, and trusted Jackson's information to be the truth. Attorney Gaston, who was also a registered notary public in 2005, then notarized the documents after comparing the signatures on the documents with Helen's signature on her driver's license. It is stipulated by the parties that Attorney Gaston's assistant notarized the power of attorney purportedly signed by Helen.

¶ 5 On October 7, 2005, a closing was held for the property at issue during which Attorney Gaston purportedly acted as counsel on behalf of Helen. The contract sales price for the property was $145, 000. The buyer of the property, Kendra, executed two mortgage loans in the total amount of $137, 750 from mortgage lender, American Home Mortgage Corp. (AHMC), an entity doing business as American Brokers Conduit. It is stipulated by the parties that Mortgage Electronic Registration Systems, Inc. (MERS), [6] as "nominal mortgagee" of AHMC, was the record mortgagee on the subject property with the Cook County recorder of deeds. It was further stipulated by the parties that MERS later assigned its interest in the mortgage loans at issue to American Home Mortgage Servicing, Inc. (AHMS), [7] which subsequently assigned its interest in the mortgage loans to BONY in July 2010. At the time of the October 7, 2005 closing, the total payoff or redemption amount owed on Helen's home was approximately $12, 635, plus $4, 238.65 owed for a lien on the property and $1, 091.01 owed for property taxes. As a result of the sale of the property to Kendra, Helen's debt on her home was satisfied by a portion of the sale proceeds. The resultant net sale proceeds was then issued by the closing agent for Kendra's mortgage lender in the form of two checks made payable to Helen in the amounts of $117, 959.50 and $3, 199.19. Attorney Gaston gave the check made payable to Helen in the amount of $117, 959.50 to Shunte, whom Attorney Gaston knew worked with Jackson. It is undisputed, however, that both of these checks were deposited into the banking account of W2X, the company operated by Jackson, and that Helen only received $3, 000 from Jackson in connection with the sale of her home. Attorney Gaston received fees pertaining to the closing of the subject mortgage loan transaction in the amount of $1, 186, which included "title services" fees received as "issuing agent" and fees earned as the seller's attorney. Subsequently, the warranty deed transferring record title of the property from Helen to Kendra was recorded with the Cook County recorder of deeds.

¶ 6 On August 7, 2006, Helen filed a complaint for quiet title against W2X, Jackson, Kendra, MERS, American Brokers Conduit, Attorney Gaston and "unknown owners and nonrecord claimants, " alleging that the defendants engaged in fraudulent actions and seeking a declaration that the warranty deed conveying property title to Kendra was in fact an equitable mortgage and that the subsequent mortgage on the property was void. On August 22, 2006, a lis pendens relating to Helen's cause of action was recorded with the Cook County recorder of deeds.

¶ 7 On June 11, 2007, an order of default was entered against Jackson. On December 22, 2009, Helen filed an amended complaint for quiet title, which omitted American Brokers Conduit as a named defendant, but added JP Morgan Chase Bank, N.A. (Chase Bank), [8] and Saxon Mortgage Services, Inc. (Saxon), [9] as named defendants.

¶ 8 On March 16, 2010, Helen filed an 11-count second amended complaint for quiet title and other relief (second amended complaint) against W2X, Jackson, Kendra, MERS, Attorney Gaston, Chase Bank, Saxon, and "unknown owners and nonrecord claimaints." Count I of the second amended complaint alleged quiet title against Kendra and "unknown owners and nonrecord claimants, " arguing that the warranty deed transferring title of the property from Helen to Kendra should be properly construed as the granting of an equitable mortgage. Count II alleged quiet title against Kendra, and mortgagees Chase Bank and Saxon, arguing that Kendra's attempt to encumber the property with a mortgage loan was void and that Chase Bank and Saxon had notice that Kendra held only an equitable mortgage interest in the property. Count III alleged that Jackson, W2X and Kendra violated the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2008)). Count IV alleged common law fraud against Jackson, W2X and Kendra, arguing that their fraudulent misrepresentations and omissions induced Helen to enter into the subject transaction. Count V alleged that the terms of the transaction were unconscionable and that Jackson, W2X and Kendra wrongfully exploited the large disparity in bargaining power over Helen. Count VI alleged that Jackson and W2X breached a fiduciary duty to perform the duties they had advertised to Helen by engaging in deceptive acts, practices, misrepresentations, and omissions. Count VII alleged that Attorney Gaston engaged in official misconduct under the Illinois Notary Public Act (5 ILCS 312/1-101 et seq. (West 2008)) in notarizing the closing documents. Counts VIII and IX alleged that Kendra violated the Truth in Lending Act (TILA) (15 U.S.C § 1602(h) (2006)) and the Home Ownership and Equity Protection Act of 1994 (HOEPA) (15 U.S.C. § 1602(aa) (2006)), respectively, in engaging in the subject transaction with Helen. Counts XI[10] and XII, respectively, alleged that Attorney Gaston fraudulently breached her fiduciary duty to Helen, and committed negligence and attorney malpractice in representing Helen. In sum, the complaint presents an example of "equity stripping" in the context of a mortgage rescue fraud scheme.

¶ 9 On March 26, 2010, BONY filed an appearance before the trial court as a "successor-in- interest" to Chase Bank and took assignment of the subject mortgage in July 2010. On July 26, 2010, pursuant to settlement, MERS and Saxon were dismissed from the lawsuit with prejudice.

¶ 10 On June 10, 2010, pursuant to leave of the trial court, BONY filed a third-party complaint for declaratory judgment against First American Title Insurance Company (First American). On July 29, 2010, BONY filed a motion for default order (motion for default) against First American for its failure to appear or respond to BONY's third-party complaint. On August 19, 2010, the trial court entered an order stating that BONY's motion for default is withdrawn and that First American is granted leave to appear instanter and to file a responsive pleading. On October 26, 2010, the trial court entered an agreed order to stay the third-party action pending resolution of Helen's quiet title claims in the case.

¶ 11 On October 28, 2010, a bench trial commenced during which Helen, Helen's daughter Deborah Hatchett (Deborah), Attorney Gaston, Kendra and bank representative Jose Colon (Colon) testified. At trial, over the objections by Helen's counsel, the trial court found that a 2008 Attorney Registration and Disciplinary Commission (ARDC) complaint against Attorney Gaston was inadmissible because it was "more prejudicial than probative." Further, all counts against Kendra were dismissed with prejudice pursuant to a settlement agreement (counts VIII and IX in which she was solely named; counts I to V in which she was named in conjunction with other defendants).[11]

¶ 12 On November 1, 2010, at the close of Helen's case-in-chief, BONY and Attorney Gaston made an oral motion for a directed finding against Helen. The trial court[12] granted Attorney Gaston's motion for a directed finding and dismissed counts VII, XI and XII, noting that Helen had offered no testimony regarding "the prevailing standard of care in determining whether [Attorney Gaston] under the circumstances deviated from the professional standard." In granting BONY's motion for a directed finding and dismissing counts I and II, [13] the trial court found that, based on the testimony regarding Helen's conduct and the conduct of her family members, "the understanding was that [Helen] was to receive value for the equity in her house, " and that neither the purchase price of $145, 000, nor the fact that "the debts that were paid off as a result of that closing, " were unconscionable. Specifically, the trial court found that Helen did not meet the elements for her claim under count II, which pled an action to quiet title against Kendra, Saxon, and BONY, as successor-in-interest to Chase Bank, and that, in reviewing the totality of the evidence, there was no conduct on the part of the lender that would warrant requiring BONY to relinquish its interest in the property. As a result of the June 11, 2007 default order entered against Jackson, the trial court entered judgment against Jackson and W2X on counts III and IV in the amounts of $117, 959.50 and $3, 199.19–the exact amount of net sale proceeds deposited into W2X's account in 2005 after the closing for the property. The court also struck counts V and VI against Jackson and W2X.

¶ 13 On November 29, 2010, Helen filed a "motion to reconsider and for clarification" (motion to reconsider) of the trial court's November 1, 2010 ruling, and, in the alternative, requested that the trial court "clarify that it has made no findings with respect to the ownership and chain of title to the Note secured by the subject mortgage, or the knowledge of the original lender, and that such matters remain to be decided by the foreclosure court." On January 5, 2011, pursuant to leave of the trial court, Helen filed a supplemental memorandum in support of her motion to reconsider. On February 10, 2011, the trial court[14] denied Helen's motion to reconsider in its entirety, "with respect to both the separate requests to reconsider and request for clarification."

¶ 14 On March 9, 2011, Helen filed a notice of appeal (case No. 1-11-0751). On May 8, 2012, this court dismissed Helen's appeal for lack of jurisdiction, holding that Helen may not prematurely appeal the cause of action while BONY's third-party action against First American was still pending in the trial court, absent an express written finding under Illinois Supreme Court Rule 304(a). Ill. S.Ct. R. 304(a) (eff. Jan. 1, 2006). Hatchett v. W2X, Inc., 2012 IL App (1st) 110751-U.

¶ 15 On May 25, 2012, the trial court entered an order dismissing without prejudice BONY's third- party action against First American. On June 18, 2012, Helen filed the instant notice of appeal (case No. 1-12-1758).


¶ 17 The relevant inquiry on appeal before us is whether the trial court erred in granting a directed finding in favor of BONY and Attorney Gaston.

¶ 18 As a preliminary matter, Helen argues that the trial court improperly excluded evidence of a 2008 ARDC complaint against Attorney Gaston, which contained allegations of misconduct resembling those leveled against Attorney Gaston in the instant case. Specifically, Helen contends that the 2008 ARDC complaint was relevant to demonstrate Attorney Gaston's fraudulent intent in the case at bar.

¶ 19 BONY and Attorney Gaston assert that the trial court acted within its discretion to exclude the 2008 ARDC complaint from the evidence at trial. Specifically, BONY contends that Helen failed to establish how the court's ruling substantially prejudiced her case, that she failed to address the trial court's reasoning for not admitting it into evidence, and that the 2008 ARDC complaint had minimal potential relevance but a high potential prejudicial effect upon the instant case.

¶ 20 The decision to admit or exclude evidence rests within the sound discretion of the trial court, and that decision will not be disturbed absent an abuse of that discretion. Law Offices of Colleen M. McLaughlin v. First Star Financial Corp., 2011 IL App (1st) 101849, ¶ 28. "Even when evidence is relevant, a trial court may exclude it, if the prejudicial effect of the evidence substantially outweighs its probative value." LaSalle Bank, N.A. v. C/HCA Development Corp., 384 Ill.App.3d 806, 821-22, 893 N.E.2d 949, 964 (2008). Prejudice is "undue tendency to suggest a decision on an improper basis." Id. at 822, 893 N.E.2d at 964-65.

¶ 21 In the case at bar, over objections by Helen's counsel at trial, the trial court found the 2008 ARDC complaint against Attorney Gaston to be inadmissible because it was "more prejudicial than probative." The record shows that the 2008 ARDC complaint contained six counts of misconduct against Attorney Gaston, and alleged, in detail, that Attorney Gaston was contemporaneously involved in very similar "foreclosure rescue" schemes, with often overlapping co-participants, against owners of five other properties. As Helen points out in her brief, although evidence of other bad acts is generally inadmissible to show bad character, such evidence "is admissible for other purposes, such as proof of intent, knowledge, or absence of mistake or accident." Ill. R. Evid. 404(b) (eff. Jan. 1, 2011). Through the so-called doctrine of chances (see People v. Brown, 199 Ill.App.3d 860, 875, 557 N.E.2d 611, 621 (1990)), the ARDC complaint serves as strong proof of Attorney Gaston's intent, knowledge, and absence of mistake relating to her participation in the alleged scheme against Helen. Attorney Gaston claimed to have been an unwitting participant in any fraud perpetrated against Helen. With the ARDC complaint properly admitted, Attorney Gaston would be left to claim that she was repeatedly duped in the same way, by the same people, in a manner that consistently inured to her and her associates' financial benefit. With all ...

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