Terech v. First Resolution Mgmt. Corp.

• Decision Date: 12 April 2012
• Docket Number: Case No. 11 C 4076.
• Citation: 854 F.Supp.2d 537
• Parties: Mark TERECH, Plaintiff, v. FIRST RESOLUTION MANAGEMENT CORPORATION, First Resolution Investment Corporation, and the Law Office of Keith S. Shindler, Ltd., Defendants.
• Court: U.S. District Court — Northern District of Illinois

854 F.Supp.2d 537

Mark TERECH, Plaintiff,

v.FIRST RESOLUTION MANAGEMENT CORPORATION, First Resolution Investment Corporation, and the Law Office of Keith S. Shindler, Ltd., Defendants.

Case No. 11 C 4076.

United States District Court,

N.D. Illinois,

Eastern Division.

April 12, 2012.

Daniel A. Edelman, Cathleen M. Combs, Francis Richard Greene, James O. Latturner, Thomas Everett Soule, Edelman, Combs, Latturner & Goodwin, LLC, Chicago, IL, for Plaintiff.

David M. Schultz, Jennifer W. Weller, Hinshaw & Culbertson, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

HARRY D. LEINENWEBER, District Judge.

Before the Court are Defendants' Motions to Dismiss Plaintiff's Corrected First Amended Complaint. For the reasons stated herein, the Court grants both Motions to Dismiss in part and denies them in part.

I. BACKGROUND

At the Motion to Dismiss stage, the Court accepts Plaintiff's well-pleaded factual allegations as true. Before 2004, Plaintiff Mark Terech had a credit card account with U.S. Bank. After he became delinquent in his payments, the account was charged off (removed from U.S. Bank's books) on August 31, 2004. At charge-off, U.S. Bank reversed a number of accrued fees, including some late fees and interest, reducing the charge-off amount to $2,475.87. U.S. Bank sent Plaintiff no additional account statements after the account was charged off.

U.S. Bank sold the debt to Unifund CCR Partners (“Unifund”) on January 25, 2005, listing the value of the debt as $2,475.87. The Bill of Sale attached to the Complaint, which purportedly governs that sale, states that U.S. Bank assigned (as-is) its:

rights, title and interest in and to each of the assets identified in the Asset Schedule [not provided] ... together with the right to collect all principal, interest or other proceeds of any kind with respect to the Assets remaining due and owing as of the date hereof ... from and after the date of this Bill of Sale and Assignment of Assets.

Compl. Ex. C.

Defendant First Resolution Investment Corporation (with Defendant First Resolution Management Corporation, “First Resolution”) allegedly purchased the debt on July 25, 2007, at which time the debt amount was still listed as $2,475.87. (The purchase price was significantly lower, reflecting the risk of non-collection. References to “face value” are accordingly understood to describe the amount of the delinquent debt as listed in the schedule of assets in each sale.) First Resolution adjusted the amount owed by adding interest at a rate of 15.65%, dating back to the 2004 charge-off date, well before it owned the debt.

On March 11, 2009, the Law Office of Keith S. Shindler, Ltd. (“Shindler”) filed a collection action on First Resolution's behalf in the Circuit Court of Cook County, seeking $4,385.80 (which included the principal, calculated interest, and $350.00 in legal fees). Plaintiff was served on or around September 29, 2010. It appears to be undisputed that the lawsuit was barred by the statute of limitations; it was nonsuited in April 2011.

Plaintiff brings several claims on behalf of himself and putative classes of similarly situated consumers. Count I alleges that the retroactive addition of interest violated the federal Fair Debt Collection Practices Act (“FDCPA,” 15 U.S.C. § 1692 et seq.). Count II is a similar claim under the Illinois Collection Agency Act (“ICAA,” 225 Ill. Comp. Stat. 425/1 et seq.). Count III seeks declaratory and equitable relief on the same theory. Finally, Count IV is an individual ICAA claim, based on First Resolution's time-barred lawsuit. Only Count I is brought against all defendants; the remainder are against First Resolution alone. Defendants now seek to dismiss all counts. The parties focus on Plaintiff's individual claims at this stage, and this Court accordingly defers questions regarding the viability of the proposed classes.

II. LEGAL STANDARD

On a Motion to Dismiss under Rule 12(b)(6), the Court accepts as true all well-pleaded facts in Plaintiff's Complaint and draws all inferences in his favor. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir.2011). A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Plaintiffs need not allege “detailed factual allegations,” but must offer more than conclusions or “a formulaic recitation of the elements of the cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “Naked assertion[s] devoid of further factual enhancement” will not suffice—a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009).

The FDCPA governs when and how debt collectors (those who buy delinquent debts) may endeavor to collect from indebted consumers. See15 U.S.C. § 1692a. The statute broadly prohibits unfair or deceptive conduct in debt collections. For example, debt collectors may not use harassing or abusive conduct, 15 U.S.C. § 1692d, or unfair or unconscionable means, 15 U.S.C. § 1692f, to collect a debt. Unconscionable means include collecting any amount not authorized by law or the original debt agreement. The Act also prohibits false, deceptive, or misleading representations in connection with collecting a debt, including misrepresentations about “the character, amount, or legal status of any debt,” threats to take any unlawful action, or empty threats. 15 U.S.C. § 1692e. Under the statute, a “communication” to consumers is broadly defined to include “the conveying of information regarding a debt directly or indirectly to any person through any medium.” 15 U.S.C. § 1692a(2).

A debt collector who fails to comply with the FDCPA with regard to a consumer is liable to that consumer for the sum of: (1) any actual damages; (2) statutory damages up to $1000 (or up to $500,000 or 1% of the debt collector's net worth in a class action); and (3) attorneys' fees and costs. 15 U.S.C. § 1692k.

III. DISCUSSION

Both Defendants have moved to dismiss the Complaint, strenuously arguing that Plaintiff has alleged no unlawful conduct because First Resolution was entitled to collect interest dating back to 2004. Because both Motions largely hinge on whether Plaintiff has adequately alleged that U.S. Bank and Unifund waived their rights to collect interest, the Court turns first to that question.

A. Retroactive Addition of Interest

Unifund and then First Resolution undisputedly stepped into the shoes of their respective assignors when they purchased Mr. Terech's debt, taking that debt subject to any existing waivers or defenses. See Olvera v. Blitt & Gaines, P.C., 431 F.3d 285, 288 (7th Cir.2005); Community Bank of Greater Peoria v. Carter, 283 Ill.App.3d 505, 218 Ill.Dec. 791, 669 N.E.2d 1317, 1319 (Ill.App.Ct.1996). Under Illinois law, waiver is the intentional relinquishment of a known right, and can be implied if the party seeking to prove waiver shows that the waiving party took a “clear, unequivocal, and decisive act ... manifesting an intention to waive its rights.” Pielet v. Hiffman, 407 Ill.App.3d 788, 350 Ill.Dec. 18, 948 N.E.2d 87, 96 (Ill.App.Ct.2011).

Plaintiff argues that First Resolution unlawfully sought to collect interest that U.S. Bank and Unifund had knowingly waived, which was both deceptive (§ 1692e) and unfair (§ 1692f). Accordingly, Plaintiff's allegations are based on the FDCPA's standards and do not, as Defendants argue, seek impermissibly to convert a state-court defense into a federal claim. Cf. Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 480 F.3d 470, 473–74 (7th Cir.2007) (Plaintiff sought to enforce other statutes through the FDCPA); Washington v. North Star Capital Acquisition, LLC, No. 08 C 2823, 2008 WL 4280139, at *2 (N.D.Ill. Sept. 15, 2008) (no FDCPA violation for failing to meet state court procedural requirements).

Contrary to Plaintiff's assertions, however, merely pleading that “U.S. Bank waived” is, at this stage, essentially a legal conclusion that this Court need not accept. Accordingly, the critical question is whether Plaintiff has alleged sufficient facts, taken as true, to show that U.S. Bank and Unifund waived interest that otherwise would have accrued after charge-off, such that First Resolution likewise cannot collect that interest. Plaintiff presses two facts relating to waiver: (1) that the “face value” of the debt each time it was sold was the same as the amount at charge-off, and therefore that no interest had been added to it; and (2) that U.S. Bank sent Plaintiff no periodic statements after charge-off, which it should have done if interest was accruing.

Defendants object that Plaintiff's claims are insufficient to prove waiver, and that the right to collect interest was specifically preserved in the Bill of Sale. As set forth above, however, the Bill of Sale only assigns the right to collect amounts “due and owing” arguably either at or after the transfer. Construing the facts and circumstances most favorably to Plaintiff, that assignment did not preserve the right to collect any interest waived by U.S. Bank, as such interest would not have been “due and owing.” The Court therefore considers whether Plaintiff has adequately alleged waiver under Rule 8.

1. Face Value of Loan

Plaintiff alleges that the face value of the debt remained the same from the date of charge-off until First Resolution acquired it, which necessarily means that neither U.S. Bank nor Unifund added interest to the amount due. (First Resolution's argument that U.S. Bank would have zeroed out any interest on its accounting books when U.S. Bank sold the debt is irrelevant—the question is whether it added the interest in the first place, not how its accountants handled the sale.) Plaintiff offers detailed allegations about what banks commonly do—waiving interest on charged-off...