Bermudez v. First of America Bank Champion, NA

• Decision Date: 11 August 1994
• Docket Number: No. 93 C 3653.,93 C 3653.
• Citation: 860 F. Supp. 580
• Parties: Jacinto BERMUDEZ, Christine Hood, and Rafael Pedraza, Plaintiffs, v. FIRST OF AMERICA BANK CHAMPION, N.A., formerly known as Champion Federal Savings and Loan Association, Defendant.
• Court: U.S. District Court — Northern District of Illinois

860 F. Supp. 580

Jacinto BERMUDEZ, Christine Hood, and Rafael Pedraza, Plaintiffs, v. FIRST OF AMERICA BANK CHAMPION, N.A., formerly known as Champion Federal Savings and Loan Association, Defendant.

No. 93 C 3653.

United States District Court, N.D. Illinois, Eastern Division.

August 11, 1994.

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Daniel A. Edelman, Cathleen M. Combs, Tara Goodwin Redmond, James Eric Vander Arend, Michelle Ann Weinberg, Edelman & Combs, Chicago, IL, for plaintiffs.

Christine M. Drylie, McDermott, Will & Emery, Chicago, IL, John W. Allen, Lawrence J. Murphy, Howard & Howard Attorneys, P.C., Kalamazoo, MI, Leonard W. Sachs, Howard & Howard P.C., Peoria, IL, for defendant.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

Plaintiffs Jacinto Bermudez ("Bermudez"), Christine Hood ("Hood"), and Rafael Pedraza ("Pedraza") sue First of America Bank — Champion, N.A., f/k/a Champion Federal Savings & Loan Association ("Champion") under the Racketeer Influenced and Corrupt Organizations chapter of the Organized Crime Control Act of 1970 ("RICO"), 18 U.S.C. § 1964, and the Truth in Lending Act, 15 U.S.C. § 1601 et seq. Plaintiffs have filed this action on behalf of a class of similarly situated consumers who purchased motor vehicles through contracts assigned to Champion.¹ In addition to these federal claims, plaintiffs invoke the court's supplemental jurisdiction under 28 U.S.C. § 1367 and sue Champion for breach of contract, violation of the Illinois Consumer Fraud Act, and violation of the Uniform Commercial Code. Champion moves to dismiss the federal claims for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. FED.R.CIV.P. 12(b)(1) and 12(b)(6).² In the event that the court grants Champion's motion to dismiss the two federal claims, Champion moves to dismiss the state law claims for lack of jurisdiction pursuant to Rule 12(b)(1) and 28 U.S.C. § 1367(c)(3).

BACKGROUND

Plaintiffs' first amended complaint alleges the following facts which are taken as true on a motion to dismiss. See Gillman v. Burlington N. R.R. Co., 878 F.2d 1020, 1022 (1989). Bermudez, Hood, and Pedraza each purchased an automobile and financed their purchase by means of a motor vehicle retail installment sales contract (the "Sales Contracts"). In each case, the sellers immediately assigned the Sales Contracts to Champion. The Sales Contracts were prepared on preprinted forms with Champion's name preprinted as assignee.

The Sales Contracts required plaintiffs to keep their vehicles insured against loss or damage.³ The Sales Contracts also provide that if the buyer fails to maintain insurance on the vehicle, Champion may obtain insurance protecting the collateral against loss or damage.⁴ The insurance obtained by Champion and charged to plaintiffs' balances is known as "force-placed" insurance. In addition to covering damage or loss to the vehicles, the force-placed insurance procured by Champion covered default by the plaintiffs on their payment obligations under the Sales Contracts. The Sales Contracts did not authorize Champion to procure or charge the plaintiffs for insurance against plaintiffs' default on their payment obligations.

The following well-pleaded allegations apply to the individual plaintiffs:

Mr. Bermudez

Bermudez purchased a used vehicle in August 1987. Bermudez's Sales Contract was immediately assigned to Champion. In April or May of 1988, Champion added $1,556.00 to the balance due under Bermudez's Sales Contract — ostensibly for force-placed insurance against damage or loss to his vehicle. Bermudez did not pay the $1,556.00. Subsequently, on September 28, 1990, Champion repossessed Bermudez's vehicle claiming that Bermudez owed a principal balance of $2,742.50 including $1,556.00 for the forceplaced insurance. On that same date, Champion sent Bermudez, via the United States mails, a form notice demanding payment of $3,301.78 in order to recover his vehicle. This amount included the $1,556.00 and $114.13 "unpaid interest" on the insurance premiums. Bermudez did not comply with Champion's demand and Champion sold his car. Champion also mailed Bermudez several notices in connection with attempts to collect his outstanding balance (including the amount attributable to the force-placed insurance and interest thereon) both before and after the sale of his vehicle. As a result of Champion's conduct Bermudez suffered loss of his vehicle; injury to his credit; and creation of a fictitious indebtedness purportedly owed by him.

Ms. Hood

In April or May of 1987⁵, Hood purchased a new automobile. Hood's Sales Contract was immediately assigned to Champion. Champion added sums⁶ for forced-placed insurance to the balance due under Hood's Sales Contract. Hood did not pay the premiums. Champion mailed Hood several letters in connection with its attempts to collect payment for the force-placed insurance. In 1992, Champion demanded, by letters placed in the U.S. mail, that Hood refinance the amount of $7,850 including the force-placed insurance premiums and interest or finance charges on the premiums. Champion also threatened to retain its security interest in the vehicle until it was paid off. Champion mailed notices to Hood stating:

THIS LETTER IS TO REMIND YOU THAT DURING THE COURSE OF THIS LOAN, A PREMIUM FOR PHYSICAL DAMAGE INSURANCE WAS PAID FOR BY CHAMPION FEDERAL SAVINGS AND LOAN ASSOCIATION. THE COST FOR THIS PREMIUM WAS CHARGED TO YOUR LOAN.... WHEN YOUR LOAN MATURES YOU WILL HAVE AN OUTSTANDING BALANCE OF THE INSURANCE PREMIUM PLUS ACCRUED INTEREST. YOUR VEHICLE TITLE WILL NOT BE RELEASED, AND YOUR LOAN PAPERS WILL NOT BE CANCELLED UNTIL THIS AMOUNT HAS BEEN PAID IN FULL.

Unaware that the force-placed insurance premiums for which she was being charged included coverage other than that for damage or loss to her vehicle, Hood agreed to Champion's demand that she refinance her account. Subsequently, Hood missed several payments and Champion repossessed Hood's car. Champion also sent Hood notices through the U.S. mail in connection with its attempts to collect the outstanding balance on Hood's vehicle after repossessing it. As a result of Champion's conduct, Hood suffered pecuniary loss including the payment of money that was not owed. In addition, she was induced to refinance the premiums for the unauthorized force-placed insurance resulting in additional cost. She was also injured by the loss of her vehicle, injury to her credit, and the creation of a fictitious indebtedness purportedly owed by her.

Mr. Pedraza

Like Bermudez and Hood, Pedraza purchased a vehicle under a Sales Contract that was immediately assigned to Champion. Champion added substantial sums, ostensibly for force-placed insurance, to the balance due under Pedraza's Sales Contract. Pedraza did not pay the premiums. Champion subsequently repossessed Pedraza's vehicle. Champion mailed several notices to Pedraza in connection with the repossession of his vehicle and in an effort to collect on Pedraza's outstanding balance — including amounts attributable to the force-placed insurance. As a result of Champion's conduct Pedraza suffered loss of his vehicle, injury to his credit, and creation of a fictitious indebtedness purportedly owed by him.

Additional Common Allegations

Champion did not provide copies of the force-placed insurance policies to plaintiffs. Champion sent, or authorized the sending via the United States mail, of a "Certificate of Insurance" to the plaintiffs. The contents of the certificate were agreed upon between Champion and the insurer (Transamerica). The certificate states: "This certificate covers direct and accidental loss or damage to the collateral as set forth on the following page." Nothing in the certificate suggests that the insurance policy covered default by the plaintiffs; however, in fact, the policy insured the policyholder against acts of default by the plaintiffs. The policy also provided insurance against mechanic's liens being placed on the vehicle as a result of work requested but not paid for by the plaintiffs and provided insurance against the cost of repossessing and storing the vehicles. The policy also insured against the plaintiffs absconding with or secreting the collateral.

Plaintiffs allege that it was the policy and practice of Champion:

a. To demand payment for force-placed insurance that is not authorized by the Sales Contract;

b. To misrepresent to consumers that the payment is solely demanded for insurance protecting the insured vehicle against loss or damage;

c. To use the United States mails to transmit the payment demand notices;

d. To refinance the consumers' purported obligations to pay for the force-placed insurance;

e. To use the United States mails in connection with the refinancing of the consumers' purported obligations;

f. To repossess vehicles from consumers who decline to pay for the force-placed insurance, or to refinance their purported obligations;

g. To use the United States mails to transmit the notices that must be issued in order to transfer title to repossessed vehicles to Champion.

Champion moves to dismiss the RICO count (Count I) arguing that plaintiffs lack standing to maintain a RICO action because they have not incurred injury to their business or property. More precisely, Champion contends that its conduct did not proximately cause plaintiffs' alleged injuries. Champion also argues that the RICO count is barred by the statute of limitations. Additionally, Champion contends that plaintiffs fail to state a cause of action under RICO because they fail to allege adequately that Champion engaged in a scheme to defraud and they fail to allege adequately that Champion engaged in a pattern of racketeering activity. Champion moves to dismiss the TILA count (Count II) arguing that it is barred by the statute of limitations and arguing that...