People ex rel. Madigan v. Wildermuth

• Decision Date: 31 March 2016
• Docket Number: No. 1–14–3592.,1–14–3592.
• Citation: 52 N.E.3d 571,402 Ill.Dec. 650
• Parties: The PEOPLE ex rel. Lisa MADIGAN, Attorney General of Illinois, Plaintiff–Appellee, v. Matthew WILDERMUTH, George Kleanthis, Individually and as Managing Member of Legal Modification Network, LLC, and Legal Modification Network, LLC, Defendants–Appellants.
• Court: United States Appellate Court of Illinois

52 N.E.3d 571

402 Ill.Dec. 650

The PEOPLE ex rel. Lisa MADIGAN, Attorney General of Illinois, Plaintiff–Appellee

v.Matthew WILDERMUTH, George Kleanthis, Individually and as Managing Member of Legal Modification Network, LLC, and Legal Modification Network, LLC, Defendants–Appellants.

No. 1–14–3592.

Appellate Court of Illinois, First District, Fifth Division.

March 31, 2016.

Troutman Sanders LLP, Chicago (Robert E. Browne, Jr., of counsel), for appellants.

Lisa Madigan, Attorney General, Chicago (Carolyn E. Shapiro, Solicitor General, and John Schmidt, Assistant Attorney General, of counsel), for appellee.

OPINION

Justice LAMPKIN delivered the judgment of the court, with opinion.

¶ 1 This appeal presents a certified question that deals with the pleading requirements for the Attorney General of Illinois for a claim under section 3–102(B) of the Illinois Human Rights Act (Act) (775 ILCS 5/3–102(B) (West 2010)). Specifically the Attorney General filed a complaint alleging, inter alia, that defendants Matthew Wildermuth, George Kleanthis, and Legal Modification Network, LLC (LMN) violated section 3–102(B) of the Act by engaging in a real estate transaction and, because of unlawful discrimination, altering the terms, conditions, or privileges of the real estate transaction or the furnishing of facilities or services in connection therewith. The Attorney General also alleged the defendants intentionally targeted their predatory practices against minorities by aiming their advertising at African–Americans and Latinos. The circuit court denied defendants' motion to dismiss this claim. After also denying defendants' motion to reconsider, the court certified the following question for interlocutory appeal under Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010):

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

¶ 2 For the reasons that follow, we answer the certified question in the affirmative.

¶ 3 I. BACKGROUND

¶ 4 The Attorney General filed its original complaint against defendants in September 2011 and subsequently filed a four - count fourth-amended complaint, which alleged the defendants had engaged in a course of conduct that violated several statutory and regulatory provisions. Count IV, (which is the only count that concerns us here) alleged that 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(B) of the Act and constituted a pattern and practice of discrimination when they partnered to offer loan modification services to Illinois consumers. Eventually, LMN ceased functioning and Wildermuth and Kleanthis provided the loan modification services through Wildermuth's law offices. The Attorney General alleged defendants engaged in “real estate transactions” as defined by section 3–101(B) of the Act by claiming to negotiate loan modifications and short sales on behalf of their clients.

¶ 5 The Attorney General alleged that after the collapse of the housing market, the federal government largely created the loan modification market through a number of programs designed to assist delinquent and underwater homeowners avoid foreclosure. However, unscrupulous private, for-profit enterprises proliferated and seized on consumer confusion and desperation, often targeted minority homeowners, and falsely offered guarantees on loan modifications and charged exorbitant and nonrefundable fees for services the enterprises could not perform.

¶ 6 The Attorney General alleged 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. Consumers who contacted defendants were scheduled for meetings with nonattorneys at defendants' Woodridge, Illinois office and given aggressive sales pitches. Defendants' intake and sales staff made unreasonable assurances about defendants' likelihood of successfully modifying the consumers' mortgage loans, including promises to reduce the consumers' monthly mortgage payments by a specific amount and in a specific period of time. However, despite their broad assurances, defendants' services consisted primarily of merely filling out and submitting the paperwork to apply for a traditional affordable home loan modification program.

¶ 7 The Attorney General alleged defendants failed to provide any of the disclosures and notices mandated by the Illinois Mortgage Rescue Fraud Act (765 ILCS 940/1–1 et seq. (West 2010)) or the federal Mortgage Assistance Relief Services Rule (12 C.F.R. § 1015.1 et seq. (2012) ) and charged consumers nonrefundable fees that ranged from $3,000 to $5,000, which often exceeded the consumers' monthly mortgage payments. 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 whom defendants knew were not eligible for loan modifications because defendants knew the consumers did not meet the basic eligibility requirements under the affordable home loan modification program. When defendants obtained loan modifications for consumers, the modifications often were 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. When a consumer requested a refund, in most cases defendants refused to tender a refund.

¶ 8 The Attorney General alleged defendants intentionally discriminated in the 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. Defendants' actions in targeting disproportionately subjected African–American and Latino homeowners to defendants' fraudulent scheme and resulted in the loss of thousands of dollars and, in many cases, the loss of homes. Defendants' discriminatory acts involving targeting included: (1) the exclusive advertisement of their services through radio stations known to have a predominantly Latino or African–American audience; and (2) the use of a well-known radio personality in the African–American community to promote defendants' services, which were carelessly or never performed. Defendants' scheme affected African–American and Latino homeowners who, in an effort to save their homes, gave defendants thousands of dollars without receiving any of the benefits defendants claimed to be able to provide.

¶ 9 Defendants moved to dismiss count IV of the fourth-amended complaint under section 2–615 of the Code of Civil Procedure (735 ILCS 5/2–615 (West 2012) ), asserting 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 in the Act. Defendants also asserted the Attorney General failed to allege facts showing that defendants treated African–Americans or Latinos differently than other groups.

¶ 10 In response, the Attorney General asserted defendants engaged in real estate transactions within the meaning of the Act when they negotiated loan modifications and short sales on behalf of consumers. Furthermore, the Attorney General, citing reverse redlining cases involving the federal fair housing statute, asserted it was not necessary to show disparate treatment or impact because the Attorney General alleged facts showing direct evidence that defendants intentionally targeted predatory practices against minorities, specifically, radio advertising aimed at African–Americans and Latinos.

¶ 11 The trial court denied defendants' motion to dismiss, concluding they functioned as mortgage brokers when they conducted short sale negotiations and sought loan modifications. Thereafter, defendants moved the court to reconsider the denial or certify a question to this court for interlocutory review. The trial court denied the motion to reconsider but certified for review the following question:

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

Over the Attorney General's objection, this court granted defendants' application for leave to appeal.

¶ 12 II. ANALYSIS

¶ 13 Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010) allows for a permissive appeal of an interlocutory order certified by the trial court involving a question of law as to which there is substantial ground for difference of opinion and where an immediate appeal may materially advance the ultimate termination of the litigation. Brookbank v. Olson, 389 Ill.App.3d 683, 685, 329 Ill.Dec. 835, 907 N.E.2d 426 (2009). However, the rule was not intended to be a mechanism for expedited review of an order that merely applies the law to the facts of a particular case. Walker v. Carnival Cruise Lines, Inc.,

383 Ill.App.3d 129, 133, 321 Ill.Dec. 422, 889 N.E.2d 687 (2008) ; Morrissey v. City of Chicago, 334 Ill.App.3d 251, 258, 267 Ill.Dec. 587, 777 N.E.2d 390 (2002). Nor does it permit us to review the propriety of the order entered by the lower court. Walker, 383 Ill.App.3d at 133, 321 Ill.Dec. 422, 889 N.E.2d 687. Rather, we limit our review to answering the specific question certified by the trial court to which we apply a de novo standard of review. See Moore v. Chicago Park District, 2012 IL 112788, ¶ 9, 365 Ill.Dec. 547, 978 N.E.2d 1050.

¶ 14 The fundamental rule of statutory construction is to ascertain and give effect to the legislature's intent. DeLuna...