People ex rel. Madigan v. Wildermuth

• Decision Date: 21 September 2017
• Docket Number: Docket No. 120763
• Parties: The PEOPLE EX REL. Lisa MADIGAN, Attorney General of Illinois, Appellee, v. Matthew WILDERMUTH et al., Appellants.
• Court: Illinois Supreme Court

2017 IL 120763
91 N.E.3d 865

The PEOPLE EX REL. Lisa MADIGAN, Attorney General of Illinois, Appellee,
v.
Matthew WILDERMUTH et al., Appellants.

Docket No. 120763

Supreme Court of Illinois.

Opinion filed September 21, 2017.

91 N.E.3d 867

Robert E. Browne, Jr., and William P. Pipal, of Troutman Sanders LLP, of Chicago, and Michael T. Reagan, of Ottawa, for appellants.

Lisa Madigan Attorney General, of Springfield (David L. Franklin, Solicitor General, and John Schmidt, Assistant Attorney General, of Chicago, of counsel), for the People.

Elizabeth Shuman-Moore and Ryan Z. Cortazar, of Chicago Lawyers' Committee for Civil Rights, and William J. McKenna, Jr., and Peter J. O'Meara, of Foley & Lardner LLP, both of Chicago, for amici curiae Chicago Lawyers' Committee for Civil Rights Under Law, Inc., et al.

OPINION

JUSTICE THOMAS delivered the judgment of the court, with opinion.

¶ 1 This appeal presents a certified question involving the requirements necessary to maintain a civil rights claim for unlawful discrimination in connection with a "real estate transaction" under section 3-102 of the Illinois Human Rights Act (the Act) ( 775 ILCS 5/3-102 (West 2010) ). Specifically, the Attorney General filed a complaint alleging, inter alia , that defendants Matthew Wildermuth, George Kleanthis, and Legal Modification Network (LMN) unlawfully discriminated on the basis of race and national origin in the furnishing of services in connection with real estate transactions. The circuit court of Cook County denied defendants' motion to dismiss brought under section 2-615 of the Code of Civil Procedure ( 735 ILCS 5/2-615 (West 2010) ), but it ultimately certified the following question for interlocutory appeal to the appellate court:

"Whether the State may claim a violation under the Illinois Human Rights

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Act pursuant to a reverse redlining theory where it did not allege that the defendant acted as a mortgage lender."

The appellate court answered the certified question in the affirmative. 2016 IL App (1st) 143592, ¶ 38, 402 Ill.Dec. 650, 52 N.E.3d 571. Defendants petitioned for leave to appeal to this court, which we allowed.

¶ 2 BACKGROUND

¶ 3 The Attorney General filed a multicount, fourth amended complaint against defendants, alleging a course of conduct that violated several statutory and regulatory provisions. Count IV is the only count relevant to this appeal¹ and alleges as follows. Defendants Wildermuth, an attorney, and Kleanthis, a veteran of the real estate business and the sole managing member of LMN, engaged in acts and practices that violated section 3-102 of the Act. Defendants' actions constituted a pattern and practice of discrimination in the offering of loan modification services to Illinois consumers. Eventually, LMN ceased functioning, and Wildermuth and Kleanthis provided loan modification services through Wildermuth's law offices. According to the complaint, defendants engaged in "real estate transactions" as defined by section 3-101(B) of the Act ( 775 ILCS 5/3-101(B) (West 2010)) by claiming to negotiate loan modifications and short sales on behalf of their clients.

¶ 4 The Attorney General further alleged that defendants advertised on radio that they would succeed where other loan modification providers had failed, help consumers save their homes and obtain significant reductions on their monthly mortgage payments, and obtain modifications for consumers within a short time frame. Defendants charged consumers nonrefundable fees that ranged from $3000 to $5000, which consisted of a base charge for preparing and submitting a loan modification application for a first lien residential mortgage, and additional fees for second liens and court appearances by Wildermuth. The total fee charged often exceeded the consumer's monthly mortgage payment. The consumers paid the fees in advance of receiving services and were led to believe that a portion of their payments would be refunded if defendants failed to obtain a loan modification. Defendants routinely required and accepted advance payments from consumers defendants knew were not eligible for loan modifications. In most cases, the consumers would not interact with Wildermuth or any other licensed attorney, and when consumers contacted LMN for an update on the status of their modification, they were either ignored or falsely told that the modification had been processed. In most cases, when a consumer requested a refund, LMN refused to tender one.

¶ 5 The complaint further alleged that despite the broad assurances given by defendants, their services consisted primarily of filling out and submitting the paperwork to apply for a traditional home loan modification program. The modifications obtained were often either inconsistent with the promised terms or not obtained within the promised time frame. When defendants were not able to obtain a loan modification, they would suggest listing the consumer's property as a short sale. The Attorney General also alleged that defendants intentionally discriminated in the

91 N.E.3d 869

furnishing of facilities or services in connection with real estate transactions on the basis of race and national origin by targeting the African-American and Latino communities by advertising their services through radio stations known to have a predominantly Latino and African-American audience.

¶ 6 Defendants filed a section 2-615 motion to dismiss count IV, asserting that the complaint failed to state a violation of section 3-102(B) of the Act because Wildermuth rendered legal services and was not engaging in "real estate transactions" as defined by the Act. In response, the Attorney General argued that defendants engaged in "real estate transactions" within the meaning of the Act when they negotiated loan modifications and short sales on behalf of consumers. The Attorney General relied on a "reverse redlining" theory to argue that defendants engaged in discrimination.²

¶ 7 The circuit court denied defendants' motion to dismiss, concluding that defendants' conduct was covered by the Act because they acted as "mortgage brokers" in their activities. The circuit court subsequently denied defendants' motion to reconsider, but it noted that "it would be expeditious to have the appellate court determine in the first instance—can you even state a claim." The circuit court therefore certified for review the following question:

"Whether the State may claim a violation of the [Act] pursuant to a reverse redlining theory where it did not allege that the defendant acted as a mortgage lender."

¶ 8 The appellate court answered the question in the affirmative, holding that "the concept of reverse redlining is not strictly limited to situations involving mortgage lending and section 3-102(B) of the Act broadly encompasses conduct other than mortgage lending, including the loan modification services that defendant offered." 2016 IL App (1st) 143592, ¶ 38, 402 Ill.Dec. 650, 52 N.E.3d 571. The appellate court did not directly address the circuit court's ruling that defendants' alleged activities suggested they were mortgage brokers.³ In reaching its holding, the appellate court made three findings relative to the parties' arguments on the certified question. First, the appellate court found that the plain language of section 3-102 does not require a defendant alleged to have violated the statute to be a mortgage lender. To the contrary, the plain language merely requires that the entity engage in a "real estate transaction," which is defined in pertinent part to include " 'providing other financial assistance *** for maintaining a dwelling.' " Id. ¶ 25 (quoting 775 ILCS 5/3-101(B)(1) (West 2010)). Second,

91 N.E.3d 870

the appellate court turned to the question of whether defendants provided other financial assistance for maintaining a dwelling so as to bring their conduct within the definition of "real estate transaction" under the statute. The appellate court concluded that defendants' loan modification services are sufficiently connected to the financing of residential real estate so that they can be considered other financial assistance . Id. ¶ 28. For this conclusion, the appellate court looked to federal case law construing language in the federal Fair Housing Act (FHA) ( 42 U.S.C. § 3601 et seq. (2006) ) that is substantially similar to the pertinent provisions of the Illinois Act. 2016 IL App (1st) 143592, ¶ 28, 402 Ill.Dec. 650, 52 N.E.3d 571. Specifically, the appellate court discussed National Ass'n for the Advancement of Colored People v. American Family Mutual Insurance Co. , 978 F.2d 287, 297 (7th Cir. 1992) ( American Family Mutual ) (property insurance does not constitute "financial assistance" within the meaning of section 3605 of the FHA ( 42 U.S.C. § 3605 (1988) )), United States v. Massachusetts Industrial Finance Agency , 910 F.Supp. 21, 28-29 (D. Mass. 1996) (a quasi-public agency's channeling of proceeds from tax-exempt bonds to qualifying applicants was considered "financial assistance"), and Eva v. Midwest National Mortgage Ban c, Inc. , 143 F.Supp.2d 862 (N.D. Ohio 2001) (the "financial assistance" language of section 3605 of the FHA applied to an entity that marketed and managed a mortgage refinancing scheme used by other defendants to defraud the plaintiffs). Third, the appellate court rejected defendants' assertion that the reverse redlining theory for proving discrimination applies only to instances involving the extension of credit. 2016 IL App (1st) 143592, ¶ 34, 402 Ill.Dec. 650, 52 N.E.3d 571.

¶ 9 Defendants filed a petition for leave to appeal, which this court allowed.

¶ 10 ANALYSIS

¶ 11 Before this court, defendants argue that the lower courts misinterpreted the applicable statutory language to determine that defendants either engaged in "real estate transactions" or were acting as "mortgage brokers." We note that the full scope of the issues presented in this case goes beyond the narrow question certified by the...