Randazzo v. Harris Bank Palatine, N.A.

• Decision Date: 18 July 1997
• Citation: 262 F.3d 663
• Parties: (7th Cir. 2001) FRANK P. RANDAZZO, as Trustee for Frank P. Randazzo Declaration of Trust Dated
• Court: U.S. Court of Appeals — Seventh Circuit

Page 663

262 F.3d 663 (7th Cir. 2001)

FRANK P. RANDAZZO, as Trustee for Frank P. Randazzo Declaration of Trust Dated July 18, 1997, Plaintiff-Appellant, v. HARRIS BANK PALATINE, N.A., Defendant-Appellee.

No. 00-2915

In the United States Court of Appeals For the Seventh Circuit

ARGUED JANUARY 25, 2001

DECIDED August 21, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 6161--Ruben Castillo, Judge.

Before COFFEY, RIPPLE and DIANE P. WOOD, Circuit Judges.

RIPPLE, Circuit Judge.

Frank Randazzo, as trustee under a declaration of trust ("FPR Trust"), entered into three agreements with Harris Bank Palatine ("Harris") in April 1999 to establish a $2.8 million revolving credit line. In September 1999, Mr. Randazzo filed suit against Harris, alleging breach of contract and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS sec. 505/1 et seq. Harris moved for summary judgment, and the district court granted the motion. For the reasons set forth in the following opinion, we affirm the judgment of the district court.

I BACKGROUND

A. Facts

Mr. Randazzo, a long-standing customer of Harris, entered into three agreements with the bank in April 1999 that established a $2.8 million revolving credit line for the FPR Trust. The line was secured by Mr. Randazzo's stock in America Online ("AOL"), Cisco Systems, and Sun Microsystems. Harris required Mr. Randazzo to sign blank stock powers for those securities, giving Harris the authority to sell them.

Mr. Randazzo did not read any of the loan documents that established the credit line. In fact, he indicated in his deposition that in the past twenty-five years he had not read any of the paperwork accompanying his various loans. See R.15, Def.'s Ex.2, Randazzo Dep. at 66 ("I've never read any loan documents or any other documents ever put in front of me by a bank."); see id. at 172 ("Why would I read them then if I hadn't read them for the previous 25 years?"). Mr. Randazzo explained that John Callahan, the Harris loan officer servicing the credit line, explained the key economic terms of the credit line to him.

Between April 7, 1999, and August 5, 1999, Mr. Randazzo and Callahan never spoke concerning the Harris loan or its underlying collateral. On August 6, 1999, however, Callahan reviewed the credit line and, using the bank's loan-to-value ratio, determined that Mr. Randazzo had insufficient collateral to secure the loan because the value of the AOL stock had declined in the previous fifteen months. Callahan thus telephoned Mr. Randazzo and requested that he either reduce the loan balance or provide additional collateral. Callahan told Mr. Randazzo that Harris was making a margin call and that the bank would sell the stock if Mr. Randazzo did not comply. Mr. Randazzo responded that he was willing and able to satisfy the request for more collateral and offered a second lien on his Florida residence. He also requested that Callahan delay any action to permit Mr. Randazzo to supply Harris with an updated financial statement.

On August 10, 1999, after reviewing the updated financial statement that Mr. Randazzo supplied and meeting with Harris Bank President Thomas MacCarthy, Callahan again telephoned Mr. Randazzo. In that conversation, Callahan told Mr. Randazzo that Harris would not accept the additional collateral or the second lien on Mr. Randazzo's home. Callahan also informed him that Harris would sell the existing collateral to pay off the loan if Mr. Randazzo did not reduce the loan balance by $900,000 or provide other, acceptable collateral.

Mr. Randazzo was upset by Harris' actions. In his deposition, he recounted the ensuing conversation with Callahan as follows:

I said, "John, how in the hell can you sell me out when I've been a customer of your bank for over 25 years, never been late on one payment"--this is when I did get offended--"never late in 25 years, paid you millions of dollars? I have collateral that I'm willing to give you. . . ."

. . .

He [Callahan] just says that, "Frank, you're either going to sell out"--he says, "Let me remind you that we've got the stock; we've got the stock power." I says, "John," I says, "I can't believe you're doing this to me." I kept repeating it because I literally could not believe it.

Id. at 250-51.

Callahan then presented Mr. Randazzo with a choice; he told him that either he had to sell the stock or that the bank would do so. Because Mr. Randazzo remembered that Harris' parent company once had charged him what he considered an exorbitant commission to sell stock, he asked Callahan what Harris would charge him for the sale. Callahan replied that he did not know. Mr. Randazzo then found a broker willing to sell the 23,000 shares for less than $2,000. Mr. Randazzo called Callahan; Callahan told him that he had not obtained commission fee information from any brokers. Mr. Randazzo then elected to sell the stock himself. He later explained that he saw no alternative and wanted, at a minimum, to avoid the inflated commission that he expected Harris would have charged for the sale of his securities. Mr. Randazzo never questioned Harris' purported right to sell the existing collateral and pay off the loan. According to Mr. Randazzo, "I never argue with a banker. . . . [W]hatever bankers want is what I give them all the time." Id. at 218, 135. He explained that, if he had "read the document beforehand, I would have told Mr. Callahan to stick it right up." Id. at 277.

The sale's proceeds were wired to Harris and deposited to close out Mr. Randazzo's credit line. Three days later, on August 15, 1999, Mr. Randazzo faxed Callahan to inform him that the stocks that Mr. Randazzo had sold had increased in value during the three-day period. He claimed that, as a result of the sale, he had lost over $400,000.

B. District Court Proceedings

Mr. Randazzo filed this diversity action against Harris in September 1999, alleging breach of contract and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS sec. 505/1 et seq. ("Consumer Fraud Act" or "the Act"). In essence, Mr. Randazzo alleged that Harris forced him to sell the stock although it had no right to do so because he was not in default under his agreement with the bank. Harris moved for summary judgment, and the district court granted the motion.

In the district court's view, the voluntary payment doctrine was dispositive of Mr. Randazzo's claims. Under this doctrine, a plaintiff who voluntarily pays money in reply to an incorrect or illegal claim of right cannot recover that payment unless he can show fraud, coercion, or mistake of fact. See Smith v. Prime Cable of Chicago, 658 N.E.2d 1325, 1329-30 (Ill. App. Ct. 1995); Jursich v. Arlington Heights Fed. Sav. & Loan Ass'n, 441 N.E.2d 864, 866 (Ill. App. Ct. 1982). The district court determined that this doctrine applied here: Harris claimed that the loan agreement gave it the right to sell Mr. Randazzo's stock held as collateral, and, because of that representation, Mr. Randazzo paid the bank.

The district court refused to permit Mr. Randazzo to escape the strictures of the voluntary payment doctrine by claiming fraud or mistake of fact. Although these factors can provide protection from the application of the doctrine, neither is available when a party to a contract relies on the interpretation of another party as to the meaning of the terms of the contract. "This is true," the district court explained, "because a party who has access to a written instrument cannot reasonably rely on representations of other contracting parties respecting the effect of the written instrument." R.23 at 4. Consequently, the court held, Mr. Randazzo cannot assert fraud or mistake of fact because he chose to rely on Harris' representations regarding the contract rather than reading the loan documents himself.

The district court also recognized that coercion can render the voluntary payment doctrine inoperative. Under Illinois law, a payment is considered coerced when it is made to avoid the loss of a necessity or to prevent an injury to a person, business, or property that is different from and disproportionately greater than the unlawful demand. In the district court's view, there was no coercion because the sale of Mr. Randazzo's stock did not involve the loss of a necessity. Moreover, Mr. Randazzo did not produce any evidence that the loss that he claimed he suffered from his sale of the stock was legally different from or disproportionately greater than what the loss would have been under Harris' allegedly unlawful demand. In the end, the district court held that this case was controlled by the fundamental principle that a mistake of law does not excuse a voluntary payment. Mr. Randazzo did not read the loan documents and instead relied on Harris' statement that it had a legal right under the contract to sell the collateral. This mistake of law, the court concluded, prevented Mr. Randazzo from recovering the monies paid.

The court also held that Mr. Randazzo failed to state a claim under the Illinois Consumer Fraud Act for two reasons. First, Harris did not make a misrepresentation of fact, as is required under the Act. Also, Mr. Randazzo failed to produce evidence of a deceptive practice, another requirement.

II DISCUSSION

A. Voluntary Payment Doctrine

1.

Illinois has recognized the ancient, common-law roots of the voluntary payment doctrine. Accordingly, we begin our analysis by recalling briefly the origins and development of that doctrine.

Although the principle that "ignorance of the law is no excuse" has been unquestioned in Anglo-American criminal jurisprudence, the development of an analogous principle in civil matters always has been subject to more limitations because of the development of equitable principles in chancery practice. See generally Stephen L. Camp, Note, The...