United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
THOMAS M. DURKIN, District Judge.
Eloise Lockhart has taken a shotgun approach to this case, filing a fifteen-count amended complaint against numerous Defendants, many of whom were sued under incorrect names, alleging a variety of claims without specifying as to whom they are against. R. 6. All of the conduct relates to a mortgage loan Lockhart took out many years ago and the efforts made to foreclose on Lockhart's home in state court proceedings. The Defendants in the case are as follows: HSBC Finance Corporation and HSBC Mortgage Services, Inc. (collectively referred to as "HSBC"), Household Finance Corporation III ("HFC III"),  MERSCORP Holdings Inc. ("MERSCORP"), Mortgage Electronic Registration Systems, Inc. ("MERS"), Pilgrim Christakis LLP, f/k/a Grady Pilgrim Christakis Bell LLP ("Pilgrim Christakis"), Jeffrey Pilgrim, Brady Pilgrim, Arnold G. Kaplan, Freedman Anselmo Lindberg LLC ("FAL"), Steven C. Lindberg, and "Jane & John Does 1-10, " as agents/employees of Pilgrim Christakis and Kaplan. Certain Defendants have filed motions to dismiss Lockhart's amended complaint, contending that it fails to state a claim under Federal Rule of Civil Procedure 12(b)(6). R. 35; R. 38; R. 42. For the following reasons, those motions are granted in part and denied in part.
Lockhart resides in Texas and is licensed to practice law in Illinois and Texas. R. 6 ¶ 5. HSBC is a large bank that, among other things, offers financing to consumers looking to purchase a home. R. 6 ¶ 6. MERSCORP is the sole shareholder of MERS, which operates an electronic registry used to track mortgage loans in the United States. Id. ¶ 15. FAL is a law firm located in Naperville, Illinois, that is "engaged in the business of using the mails and telephone to collect consumer debts originally owed to others, including residential mortgage debts[.]" R. 6 ¶¶ 35-36. Pilgrim Christakis is a law firm located in Chicago, Illinois, specializing in "commercial litigation, consumer finance law[, ] and real estate business information." Id. ¶¶ 41-42. Steven Lindberg is an attorney at FAL; Jeffrey Pilgrim and Brady Pilgrim are attorneys at Pilgrim Christakis.
In October 1973, Lockhart purchased a piece of property located at 2020-22 W. 80th Street in Chicago, Illinois, to use as a residence for herself and her family. Id. ¶ 45. Lockhart estimates that in 2003 the fair market value of the property was between $150, 000 and $200, 000. Id. ¶ 46. In May 2003, Lockhart owed roughly $31, 650 on her existing mortgage with an interest rate of 5.05%, making her monthly mortgage payment about $564. Id. ¶ 47.
In May 2003, Lockhart received a flyer stating that she was pre-approved to refinance her mortgage. Id. ¶ 49. Lockhart applied for a loan from the lender (Fieldstone Mortgage) on May 19, 2003, who stated that the loan would have a fixed rate of 8.625% over thirty years and that the loan did not include a prepayment penalty. Id. ¶ 51. Lockhart executed the "Mortgage and Note" on May 29, 2003. Id. ¶ 52. The terms of the loan were as follows: "[Lockhart] promised to pay the lender $105, 000 at a fixed rate of 8.625% annual interest over a period of 30 years for monthly payments of $987.00 which included amounts to be escrowed for taxes and insurance." Id. The lender imposed a prepayment penalty along with other charges that Lockhart had to pay before obtaining the loan. Id. ¶ 53. The Escrow Account Disclosure statement revealed that $168.53 would be added to the monthly principal and interest payments to account for future county taxes and "hazard insurance" payments. Id. ¶ 55.
Sometime in 2004, Lockhart received a notice indicating that her taxes on the property were delinquent and that her property would be sold due to the unpaid taxes. Id. ¶ 56. HSBC, which was the "servicer on the loan, " had not used Lockhart's escrow payments to pay the taxes owed and insurance. Id. ¶ 57. In October 2004, HSBC raised Lockhart's monthly mortgage payment by more than $500.00 per month. Id. ¶ 58. HSBC, as the loan servicer, had the ability to "force place insurance" in order "to protect the lender's interest if [Lockhart] had allowed the insurance to lapse or was in default." Id. ¶ 59. Lockhart alleges that HSBC generated additional profits at her expenses "[b]y charging [Lockhart] unreasonably inflated insurance premiums, paid through to an affiliate[.]" Id. ¶ 60.
In December 2004, Lockhart canceled the force placed insurance and obtained replacement insurance with Allstate. Id. ¶ 61. In February 2005, HSBC acknowledged that Lockhart's escrow accounts were now closed and that her monthly mortgage payment was $815.00 per month. Id. Nevertheless, "Defendant's (sic) continued to claim that the rightful mortgage payment was $1, 350.00 per month." Id. ¶ 62.
In March 2005, Lockhart called a hotline number (611) that had been set up for homeowners to call if they were in "foreclosure distress." Id. ¶ 63. Lockhart, in a three-way call with a counselor with the hotline and an employee of HSBC, was told by the HSBC employee that she owed $1, 350.00 for both February and March ($2, 700 total) and that as of April 2005, she would be three months in arrears. Id. ¶¶ 64-65. The HSBC employee further stated that if the two payments were not received by April 1, 2005, the loan would be referred to foreclosure. Id. ¶ 65. Lockhart alleges that she agreed to send two payments of $1, 350 by April 1, 2005, and "HSBC agreed to investigate [her] claim that her property payment was about $815.00 [per month] and not $1, 350.00[.]" Id. ¶ 66. Lockhart claims that she made two payments by express mail on March 29, 2005 (which HSBC claimed on March 29, 2005, that they did not receive); and later, two additional payments through Western Union on the eve of March 31, 2005, to avoid foreclosure proceedings. Id. ¶¶ 68-69.
Lockhart received a letter from HSBC on April 15, 2005, which stated that her monthly mortgage payment was $815. On May 19, 2005, Steven Lindberg, an attorney at FAL, mailed a letter to Lockhart claiming that he was a debt collector for HFC III, who now owned Lockhart's note. Id. ¶ 73. The letter also stated the owner of the note was exercising its right to accelerate the note and in turn demanding that Lockhart pay the total outstanding amount of $108, 977.59. Id. Furthermore, the letter stated that Lockhart had thirty days under federal law to dispute the action. Id. ¶ 74. In response, Lockhart sent Lindberg a letter disputing the debt, in part directing him to the money order number for at least one $1, 000 payment in 2004 that she claims HSBC never credited to her account. Id. ¶ 75.
FAL did not respond to Lockhart's letter or wait thirty days after it sent the letter to initiate further proceedings. Id. ¶ 76. Instead, on May 25, 2005, FAL filed a foreclosure complaint, 05 Ch 9047 ("Case One"), listing "Mortgage Electronic Systems, INC [MERS] As Nominee For Household Finance Corporation III [HFC III]." Id. HSBC also alleged in Case One that it "owned and held the mortgage and note as mortgagee on the May 29, 2003 Mortgage, " id. ¶ 78, though Lockhart claimed that was also untrue because Fieldstone Mortgage was the actual owner, id. ¶¶ 81-82. Furthermore, the initial foreclosure complaint bears a recording identification number of XXXXXXXXXX, which identifies a different mortgage-one covering a condominium property in Oak Park, Illinois. Id. ¶¶ 85-86. Lockhart alleges that "Defendants" altered her mortgage "by attaching the false recording identification to make it appear that Defendants MERS/HSBC had standing as record lien holders when they had no such standing." Id. ¶ 87.
On July 5, 2005, Lockhart filed a "verified answer" to Case One in which she denied, among other allegations, that MERS/HFC III was the lender on her mortgage and that she was in default. Id. ¶¶ 77, 91. Ten days later, on July 15, 2005, Lindberg moved to voluntarily dismiss Case One, and it was dismissed without prejudice. Id. ¶ 92. "[O]n virtually the same day, " HSBC wrote a letter to Lockhart claiming that she owed over $7, 000 in arrears under the mortgage and that payment was due by August 1, 2005. Id. ¶ 95.
On August 2, 2005, sixteen days after Case One was dismissed, FAL wrote to Lockhart stating she owned $112, 226.12 because her note had been accelerated because she was in default. Id. ¶ 99. On August 5, 2005, MERS and HSBC filed a second foreclosure action, 05-Ch-13290 ("Case Two"). Id. ¶ 100. The complaint in Case Two included a legal description of the two lots that Lockhart owned. Id. ¶ 101. Lockhart answered that complaint and again denied that MERS or HSBC had standing to pursue the mortgage foreclosure action. Id. ¶ 102.
The terms of the loan allowed Lockhart to rescind the loan within three years of the date the loan was executed (May 29, 2003). Id. ¶¶ 112-13. On May 1, 2006, while Case Two was still pending, Lockhart informed the Defendants that she planned to exercise her right to rescind the loan. Id. ¶ 112. In her notice of rescission, Lockhart alleged that the Defendants violated certain laws. Id. ¶ 115. According to Lockhart, "Defendants" received her notice on May 1, 2006, yet "Douglas Oliver" waited until June 1, 2006, to respond. Id. ¶ 113. Lockhart claims that she was only provided "with one federal Notice of Right to Cancel in a form that she could keep, instead of the two required under federal law." Id. ¶ 115. On June 11, 2007, Lockhart and Defendants each voluntarily dismissed their respective cases. Id. ¶ 117.
On June 26, 2007, Lindberg sent Lockhart a letter stating that HSBC was the holder of the mortgage and note, and that Lockhart owed at least $139, 140.30. Id. ¶ 118. On September 7, 2007, "Defendants" filed their third foreclosure complaint, 07-Ch-24236 ("Case Three"), which is currently pending in Illinois state court. Id. ¶ 120. HSBC claimed that they were the mortgagee because of an assignment from MERS to HFC, though Lockhart claims that no date was given as to when this assignment occurred. Id. ¶¶ 125-26. In response, Lockhart retained Defendant Kaplan, an Illinois attorney, to represent her in Case Three and file a motion to dismiss on her behalf. Id. ¶ 120. Lockhart alleges that Kaplan failed to file the motion or be present at the default summary judgment hearing in January 2008, at which a default judgment was entered against Lockhart. Id. ¶ 121. Lockhart alleges that Kaplan did not file the motion or appear at the hearing because of a conspiracy between FAL, MERS, and Kaplan. Id.
Lockhart was apparently able to have the default judgment against her vacated because the case is ongoing, though she does specify when or under what circumstances that occurred. Nevertheless, Lockhart further alleges that Kaplan entered into a "scheme" with FAL and Pilgrim Christakis in January 2010 "wherein he deleted material allegations in [Lockhart's answer to the complaint in Case Three] in an attempt to render [Lockhart's] Answer and Counterclaim insufficient to withstand a... motion to dismiss and faxed the altered pleading to Defendants." Id. ¶ 123. Lockhart claims FAL and Pilgrim Christakis later filed the altered answer with the court as an attachment to a motion to dismiss a counterclaim of fraud that she had alleged, which the state court judge granted at some point. Id. ¶¶ 123-24.
On July 8, 2010, the judge in Case Three ordered Raechelle Norman,  an attorney at Pilgrim Christakis, to provide a history of the foreclosure litigation regarding Lockhart's property. Id. ¶ 131. On August 26, 2010, Norman filed a motion claiming that HSBC filed their initial foreclosure complaint-in Case One- in August 2005. Id. ¶ 132. At some point thereafter, the judge in Case Three also gave the Defendants until December 10, 2010, to file an answer to Lockhart's still-pending counterclaims, which had been filed in March 2008. Id. ¶ 135. According to Lockhart, Norman ignored that order and instead sent Lockhart a letter stating that they were not required to file an answer to Lockhart's counterclaims. Id. ¶ 136. Lockhart alleges that as of December 2013, the Defendants had still not filed an answer to her counterclaims which has "prevent[ed] that litigation from going forward."
As a result of these events, Lockhart filed this action on December 30, 2013. R. 1. Lockhart claims that the Defendants have continued to fraudulently file unverified papers throughout Case Three's pending litigation, R. 6 ¶ 139, and despite ongoing state actions lasting over seven years, "have yet to produce any proof that they ever had or ever believed they had any legal right to foreclose on [Lockhart's] property." Id. ¶ 142. Lockhart further claims that the Defendants have continued to send various letters and collection notices to Lockhart's home advising her of late fees and additional monthly mortgage fees owed. R. 6 ¶ 152. Moreover, Lockhart alleges that FAL and HSBC's state court filings have made it difficult for her to sell her home. Id. ¶ 151. In sum, Lockhart claims the collective Defendants have caused her harm by entering into a large-scale conspiracy to illegally foreclose on her home. See R. 6.
A Rule 12(b)(6) motion challenges the sufficiency of the complaint . See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with "fair notice" of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. The complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Additionally, "claims sounding in fraud are subject to a more stringent pleading requirement." Sadler v. Retail Props. of Am., Inc., No. 12 C. 5882, 2014 WL 2598804, at *7 (N.D. Ill. June 10, 2014). Federal Rule of Civil Procedure 9(b) requires plaintiffs alleging fraud to state "with particularity" the circumstances constituting fraud. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007) (noting that plaintiffs in securities fraud cases must "state with particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e., the defendant's intention to deceive, manipulate, or defraud'" (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976))). "In other words, Plaintiffs need to plead 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 [Plaintiffs].'" Gandhi v. Sitara Capital Mgmt., LLC, 721 F.3d 865, 870 (7th Cir. 2013) (quoting Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir. 2008)) (second and third alternations in Gandhi ). This encompasses the "who, what, when, where, and how' of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011) (quoting Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011)).
Lockhart's amended complaint includes fifteen claims: three claims are brought pursuant to the Racketeering Influenced and Corrupt Organization Act ("RICO"), 11 U.S.C. § 1962 (Counts I, II, and III); one is for wire fraud in violation of 18 U.S.C. § 1343 (Count IV); one is for fraud and deceit in violation of 18 U.S.C. § 1503 (Count V); one is for "false oaths" in violation of 18 U.S.C. § 1623(a) (Count VI); one is for a violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605 (Count VII); one is for a violation of the Fair Debt Collections Practices Act ("FDCPA") (Count VIII), 15 U.S.C. §§ 1692e, 1692j; two claims for racial discrimination, one under the Civil Rights Act, 42 U.S.C. §§ 1981 and 1982 (Count IX) and the other under the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601, 3604, and 3605 (Count X); one for a violation of the Home Ownership and Equity Protection Act ("HOEPA"), 15 U.S.C. § 1602(aa) (Count XI); two claims for a violation of the Illinois Interest Act, 815 ILCS 205/4(2)(a), 205/5 (Counts XII and XIII); one for a violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1635(f) (Count XIV); and one generalized claim for punitive damages (Count XV).
I. Counts I, II, III - RICO
Counts I, II, and III appear to be against all of the named Defendants. See R. 6 ¶¶ 176-196. Lockhart alleges that the Defendants, as members of an enterprise, engaged in a conspiracy "to file false fraudulent foreclosures, false assignments, false letters and other false documents with courts, county clerks [sic] to promote their scheme to defraud the public, Plaintiff, and the judiciary too [sic] fictionalize foreclosures in the name of parties without standing, and to collect unlawful debts." Id. ¶ 180.
The RICO statute expressly states:
It shall be unlawful for any person who has received any income, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning [of 18 U.S.C. § 2] to use or invest... any part of such income... in the establishment or operation of... any enterprise[.]
18 U.S.C. § 1962(a). To state a civil claim, a RICO plaintiff must adequately allege: (1) conduct, (2) of an enterprise, (3) through a pattern of (4) racketeering activity. Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006). Nevertheless, civil RICO claims exist for a very limited set of circumstances. Dremco, Inc. v. Diver, No. 12 C 8703, 2013 WL 1873917, at *3 (N.D. Ill. May 3, 2013). The Seventh Circuit has stated that "the statute was never intended to allow plaintiffs to turn garden-variety state law fraud claims into federal RICO actions." Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 472 (7th Cir. 2007). Rather, "RICO is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity.'" Dremco, Inc., 2014 WL 3056838, at *2 (N.D. Ill. July 7, 2014) (quoting Gamboa, 457 F.3d at 705). "Congress enacted RICO to target long-term criminal activity, not as a means of resolving routine commercial disputes." Kaye v. D'Amato, 357 Fed.Appx. 706, 717 (7th Cir. 2009).
Turning to Lockhart's amended complaint, it is clear she has not alleged a viable RICO claim against any of the Defendants. The Court addresses the most glaring problems below, ...