Lockhart v. HSBC Finance Corporation et al
Filing
71
MEMORANDUM OPINION AND ORDER:For the foregoing reasons, the Defendants' motions to dismiss, R. 35, 38, 42, are granted in part and denied in part. Count I, II, III, and XV are dismissed without prejudice. Counts IV, V, VI, VII, VIII, IX, X, an d XIV are dismissed with prejudice. Count XI is dismissed with prejudice as to all Defendants except HSBC, HFC III, MERS, and MERSCORP. Counts XII and XIII are also dismissed with prejudice as to all Defendants except HSBC and HFC III. Due to the application of the Colorado River doctrine to Counts XI, XII, and XIII, the case will remain stayed until the state court litigation terminates. See Rogers, 58 F.3d at 302. At that time, any party may request the Court to lift the stay, and Lockhar t may seek leave to amend her complaint if she chooses. The case is set for a status hearing on October 1, 2014, at 9:00 a.m., at which time the parties can provide the Court with an update on the status of the state court proceedings. Signed by the Honorable Thomas M. Durkin on 8/1/2014:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ELOISE LOCKHART,
Plaintiff,
v.
HSBC FINANCE CORPORATION, et al.,
Defendants.
)
)
)
)
)
)
)
)
)
No. 13 C 9323
Judge Thomas M. Durkin
MEMORANDUM OPINION AND ORDER
Eloise Lockhart has taken a shotgun approach to this case, filing a fifteencount amended complaint against numerous Defendants, many of whom were sued
under incorrect names, alleging a variety of claims without specifying as to whom
they are against. R. 6. All of the conduct relates to a mortgage loan Lockhart took
out many years ago and the efforts made to foreclose on Lockhart’s home in state
court proceedings. The Defendants in the case are as follows: HSBC Finance
Corporation and HSBC Mortgage Services, Inc. (collectively referred to as “HSBC”),
Household Finance Corporation III (“HFC III”),
1
MERSCORP Holdings Inc.
(“MERSCORP”), Mortgage Electronic Registration Systems, Inc. (“MERS”), Pilgrim
Christakis LLP, f/k/a Grady Pilgrim Christakis Bell LLP (“Pilgrim Christakis”),
Lockhart originally sued “HSBC Mortgage Corporation (USA),” which was
dismissed from the case on April 29, 2014. R. 53. Instead, three other HSBC
affiliates, who were each named as Defendants and served, are considered proper
parties in the case. See id. The Court has not been provided with an explanation as
to the relationship between these affiliate entities—HSBC Finance Corporation,
HSBC Mortgage Services, Inc., and HFC III—and from the briefs and the amended
complaint, HSBC Finance Corporation and HSBC Mortgage Services appear to be
referred to collectively as simply “HSBC.” For clarity, the Court will do the same.
1
Jeffrey Pilgrim, Brady Pilgrim, Arnold G. Kaplan, Freedman Anselmo Lindberg
LLC
(“FAL”),
Steven
C.
Lindberg,
and
“Jane
&
John
Does
1-10,”
as
agents/employees of Pilgrim Christakis and Kaplan. Certain Defendants have filed
motions to dismiss Lockhart’s amended complaint, contending that it fails to state a
claim under Federal Rule of Civil Procedure 12(b)(6). 2 R. 35; R. 38; R. 42. For the
following reasons, those motions are granted in part and denied in part.
BACKGROUND
Lockhart resides in Texas and is licensed to practice law in Illinois and
Texas. R. 6 ¶ 5. 3 HSBC is a large bank that, among other things, offers financing to
consumers looking to purchase a home. R. 6 ¶ 6. MERSCORP is the sole
shareholder of MERS, which operates an electronic registry used to track mortgage
loans in the United States. Id. ¶ 15. FAL is a law firm located in Naperville, Illinois,
that is “engaged in the business of using the mails and telephone to collect
consumer debts originally owed to others, including residential mortgage debts[.]”
R. 6 ¶¶ 35-36. Pilgrim Christakis is a law firm located in Chicago, Illinois,
specializing in “commercial litigation, consumer finance law[,] and real estate
business information.” Id. ¶¶ 41-42. Steven Lindberg is an attorney at FAL; Jeffrey
Pilgrim and Brady Pilgrim are attorneys at Pilgrim Christakis.
No attorney has appeared on behalf of FAL or Steve Lindberg. Nonetheless,
certain arguments they might otherwise have put forth have been advanced in the
motions of the other Defendants and apply to them as well.
2
The Court notes that even though Lockhart filed this action pro se, she is a
licensed attorney.
3
2
In October 1973, Lockhart purchased a piece of property located at 2020-22
W. 80th Street in Chicago, Illinois, to use as a residence for herself and her family.
Id. ¶ 45. Lockhart estimates that in 2003 the fair market value of the property was
between $150,000 and $200,000. Id. ¶ 46. In May 2003, Lockhart owed roughly
$31,650 on her existing mortgage with an interest rate of 5.05%, making her
monthly mortgage payment about $564. Id. ¶ 47.
In May 2003, Lockhart received a flyer stating that she was pre-approved to
refinance her mortgage. Id. ¶ 49. Lockhart applied for a loan from the lender
(Fieldstone Mortgage) on May 19, 2003, who stated that the loan would have a fixed
rate of 8.625% over thirty years and that the loan did not include a prepayment
penalty. Id. ¶ 51. Lockhart executed the “Mortgage and Note” on May 29, 2003. Id.
¶ 52. The terms of the loan were as follows: “[Lockhart] promised to pay the lender
$105,000 at a fixed rate of 8.625% annual interest over a period of 30 years for
monthly payments of $987.00 which included amounts to be escrowed for taxes and
insurance.” Id. The lender imposed a prepayment penalty along with other charges
that Lockhart had to pay before obtaining the loan. 4 Id. ¶ 53. The Escrow Account
Disclosure statement revealed that $168.53 would be added to the monthly
principal and interest payments to account for future county taxes and “hazard
insurance” payments. Id. ¶ 55.
It is not exactly clear what Lockhart means when she alleges that “[t]he lender
imposed a prepayment penalty . . . before [she] could get the loan,” R. 6 ¶ 53,
because, generally, a prepayment penalty is imposed when a debtor attempts to pay
off a loan, not at a closing or when entering into a loan.
4
3
Sometime in 2004, Lockhart received a notice indicating that her taxes on the
property were delinquent and that her property would be sold due to the unpaid
taxes. Id. ¶ 56. HSBC, which was the “servicer on the loan,” had not used Lockhart’s
escrow payments to pay the taxes owed and insurance. Id. ¶ 57. In October 2004,
HSBC raised Lockhart’s monthly mortgage payment by more than $500.00 per
month. Id. ¶ 58. HSBC, as the loan servicer, had the ability to “force place
insurance” in order “to protect the lender’s interest if [Lockhart] had allowed the
insurance to lapse or was in default.” Id. ¶ 59. Lockhart alleges that HSBC
generated additional profits at her expenses “[b]y charging [Lockhart] unreasonably
inflated insurance premiums, paid through to an affiliate[.]” Id. ¶ 60.
In December 2004, Lockhart canceled the force placed insurance and
obtained replacement insurance with Allstate. Id. ¶ 61. In February 2005, HSBC
acknowledged that Lockhart’s escrow accounts were now closed and that her
monthly mortgage payment was $815.00 per month. Id. Nevertheless, “Defendant’s
(sic) continued to claim that the rightful mortgage payment was $1,350.00 per
month.” Id. ¶ 62.
In March 2005, Lockhart called a hotline number (611) that had been set up
for homeowners to call if they were in “foreclosure distress.” Id. ¶ 63. Lockhart, in a
three-way call with a counselor with the hotline and an employee of HSBC, was told
by the HSBC employee that she owed $1,350.00 for both February and March
($2,700 total) and that as of April 2005, she would be three months in arrears. Id.
¶¶ 64-65. The HSBC employee further stated that if the two payments were not
4
received by April 1, 2005, the loan would be referred to foreclosure. Id. ¶ 65.
Lockhart alleges that she agreed to send two payments of $1,350 by April 1, 2005,
and “HSBC agreed to investigate [her] claim that her property payment was about
$815.00 [per month] and not $1,350.00[.]” Id. ¶ 66. Lockhart claims that she made
two payments by express mail on March 29, 2005 (which HSBC claimed on March
29, 2005, that they did not receive); and later, two additional payments through
Western Union on the eve of March 31, 2005, to avoid foreclosure proceedings. Id.
¶¶ 68-69.
Lockhart received a letter from HSBC on April 15, 2005, which stated that
her monthly mortgage payment was $815. On May 19, 2005, Steven Lindberg, an
attorney at FAL, mailed a letter to Lockhart claiming that he was a debt collector
for HFC III, who now owned Lockhart’s note. Id. ¶ 73. The letter also stated the
owner of the note was exercising its right to accelerate the note and in turn
demanding that Lockhart pay the total outstanding amount of $108,977.59. Id.
Furthermore, the letter stated that Lockhart had thirty days under federal law to
dispute the action. Id. ¶ 74. In response, Lockhart sent Lindberg a letter disputing
the debt, in part directing him to the money order number for at least one $1,000
payment in 2004 that she claims HSBC never credited to her account. Id. ¶ 75.
FAL did not respond to Lockhart’s letter or wait thirty days after it sent the
letter to initiate further proceedings. Id. ¶ 76. Instead, on May 25, 2005, FAL filed a
foreclosure complaint, 05 Ch 9047 (“Case One”), listing “Mortgage Electronic
Systems, INC [MERS] As Nominee For Household Finance Corporation III [HFC
5
III].” Id. HSBC also alleged in Case One that it “owned and held the mortgage and
note as mortgagee on the May 29, 2003 Mortgage,” id. ¶ 78, though Lockhart
claimed that was also untrue because Fieldstone Mortgage was the actual owner,
id. ¶¶ 81-82. Furthermore, the initial foreclosure complaint bears a recording
identification number of 0315726217, which identifies a different mortgage—one
covering a condominium property in Oak Park, Illinois. Id. ¶¶ 85-86. Lockhart
alleges that “Defendants” altered her mortgage “by attaching the false recording
identification to make it appear that Defendants MERS/HSBC had standing as
record lien holders when they had no such standing.” Id. ¶ 87.
On July 5, 2005, Lockhart filed a “verified answer” to Case One in which she
denied, among other allegations, that MERS/HFC III was the lender on her
mortgage and that she was in default. Id. ¶¶ 77, 91. Ten days later, on July 15,
2005, Lindberg moved to voluntarily dismiss Case One, and it was dismissed
without prejudice. Id. ¶ 92. “[O]n virtually the same day,” HSBC wrote a letter to
Lockhart claiming that she owed over $7,000 in arrears under the mortgage and
that payment was due by August 1, 2005. Id. ¶ 95.
On August 2, 2005, sixteen days after Case One was dismissed, FAL wrote to
Lockhart stating she owned $112,226.12 because her note had been accelerated
because she was in default. Id. ¶ 99. On August 5, 2005, MERS and HSBC filed a
second foreclosure action, 05-Ch-13290 (“Case Two”). Id. ¶ 100. The complaint in
Case Two included a legal description of the two lots that Lockhart owned. Id. ¶
6
101. Lockhart answered that complaint and again denied that MERS or HSBC had
standing to pursue the mortgage foreclosure action. Id. ¶ 102.
The terms of the loan allowed Lockhart to rescind the loan within three years
of the date the loan was executed (May 29, 2003). Id. ¶¶ 112-13. On May 1, 2006,
while Case Two was still pending, Lockhart informed the Defendants that she
planned to exercise her right to rescind the loan. Id. ¶ 112. In her notice of
rescission, Lockhart alleged that the Defendants violated certain laws. Id. ¶ 115.
According to Lockhart, “Defendants” received her notice on May 1, 2006, yet
“Douglas Oliver” 5 waited until June 1, 2006, to respond. Id. ¶ 113. Lockhart claims
that she was only provided “with one federal Notice of Right to Cancel in a form
that she could keep, instead of the two required under federal law.” Id. ¶ 115. On
June 11, 2007, Lockhart and Defendants each voluntarily dismissed their respective
cases. Id. ¶ 117.
On June 26, 2007, Lindberg sent Lockhart a letter stating that HSBC was
the holder of the mortgage and note, and that Lockhart owed at least $139,140.30.
Id. ¶ 118. On September 7 2007, “Defendants” filed their third foreclosure
complaint, 07-Ch-24236 (“Case Three”), which is currently pending in Illinois state
court. Id. ¶ 120. HSBC claimed that they were the mortgagee because of an
assignment from MERS to HFC, though Lockhart claims that no date was given as
to when this assignment occurred. Id. ¶¶ 125-26. In response, Lockhart retained
Lockhart refers to him as “Defendant Douglas Oliver” in her amended complaint,
e.g., R. 6 ¶¶ 113, 115, but he is not named as a defendant, and no further
information about his employer is given.
5
7
Defendant Kaplan, an Illinois attorney, to represent her in Case Three and file a
motion to dismiss on her behalf. Id. ¶ 120. Lockhart alleges that Kaplan failed to
file the motion or be present at the default summary judgment hearing in January
2008, at which a default judgment was entered against Lockhart. Id. ¶ 121.
Lockhart alleges that Kaplan did not file the motion or appear at the hearing
because of a conspiracy between FAL, MERS, and Kaplan. Id.
Lockhart was apparently able to have the default judgment against her
vacated because the case is ongoing, though she does specify when or under what
circumstances that occurred. Nevertheless, Lockhart further alleges that Kaplan
entered into a “scheme” with FAL and Pilgrim Christakis in January 2010 “wherein
he deleted material allegations in [Lockhart’s answer to the complaint in Case
Three] in an attempt to render [Lockhart’s] Answer and Counterclaim insufficient
to withstand a . . . motion to dismiss and faxed the altered pleading to Defendants.”
Id. ¶ 123. Lockhart claims FAL and Pilgrim Christakis later filed the altered
answer with the court as an attachment to a motion to dismiss a counterclaim of
fraud that she had alleged, which the state court judge granted at some point. Id.
¶¶ 123-24.
On July 8, 2010, the judge in Case Three ordered Raechelle Norman, 6 an
attorney at Pilgrim Christakis, to provide a history of the foreclosure litigation
Lockhart refers to Norman as being a defendant in this case, yet Norman is not
listed in the caption of her amended complaint, nor does her name appear on the
docket as being a defendant. All arguments discussed below that are applicable to
Jeffrey Pilgrim and Brady Pilgrim are also applicable to her, in addition to “Jane
6
8
regarding Lockhart’s property. Id. ¶ 131. On August 26, 2010, Norman filed a
motion claiming that HSBC filed their initial foreclosure complaint—in Case One—
in August 2005. Id. ¶ 132. At some point thereafter, the judge in Case Three also
gave the Defendants until December 10, 2010, to file an answer to Lockhart’s stillpending counterclaims, which had been filed in March 2008. Id. ¶ 135. According to
Lockhart, Norman ignored that order and instead sent Lockhart a letter stating
that they were not required to file an answer to Lockhart’s counterclaims. Id. ¶ 136.
Lockhart alleges that as of December 2013, the Defendants had still not filed an
answer to her counterclaims which has “prevent[ed] that litigation from going
forward.”
As a result of these events, Lockhart filed this action on December 30, 2013.
R. 1. Lockhart claims that the Defendants have continued to fraudulently file
unverified papers throughout Case Three’s pending litigation, R. 6 ¶ 139, and
despite ongoing state actions lasting over seven years, “have yet to produce any
proof that they ever had or ever believed they had any legal right to foreclose on
[Lockhart’s] property.” Id. ¶ 142. Lockhart further claims that the Defendants have
continued to send various letters and collection notices to Lockhart’s home advising
her of late fees and additional monthly mortgage fees owed. R. 6 ¶ 152. Moreover,
Lockhart alleges that FAL and HSBC’s state court filings have made it difficult for
her to sell her home. Id. ¶ 151. In sum, Lockhart claims the collective Defendants
and John Does 1-10, as agents and/or employees related to Defendants [Pilgrim
Christakis] and [Kaplan].”
9
have caused her harm by entering into a large-scale conspiracy to illegally foreclose
on her home. See R. 6.
LEGAL STANDARD
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Additionally, “claims sounding in fraud are subject to a more stringent
pleading requirement.” Sadler v. Retail Props. of Am., Inc., No. 12 C. 5882, 2014 WL
10
2598804, at *7 (N.D. Ill. June 10, 2014). Federal Rule of Civil Procedure 9(b)
requires plaintiffs alleging fraud to state “with particularity” the circumstances
constituting fraud. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
313 (2007) (noting that plaintiffs in securities fraud cases must “state with
particularity both the facts constituting the alleged violation, and the facts
evidencing scienter, i.e., the defendant’s intention ‘to deceive, manipulate, or
defraud’” (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976))). “In other
words, Plaintiffs need[] to plead ‘the identity of the person who made the
misrepresentation, the time, place[,] and content of the misrepresentation, and the
method by which the misrepresentation was communicated to the [Plaintiffs].’”
Gandhi v. Sitara Capital Mgmt., LLC, 721 F.3d 865, 870 (7th Cir. 2013) (quoting
Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d
663, 668 (7th Cir. 2008)) (second and third alternations in Gandhi). This
encompasses the “‘who, what, when, where, and how’ of the fraud, although the
exact level of particularity that is required will necessarily differ based on the facts
of the case.” AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011) (quoting
Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d
436, 441-42 (7th Cir. 2011)).
ANALYSIS
Lockhart’s amended complaint includes fifteen claims: three claims are
brought pursuant to the Racketeering Influenced and Corrupt Organization Act
(“RICO”), 11 U.S.C. § 1962 (Counts I, II, and III); one is for wire fraud in violation of
11
18 U.S.C. § 1343 (Count IV); one is for fraud and deceit in violation of 18 U.S.C. §
1503 (Count V); one is for “false oaths” in violation of 18 U.S.C. § 1623(a) (Count
VI); one is for a violation of the Real Estate Settlement Procedures Act (“RESPA”),
12 U.S.C. § 2605 (Count VII); one is for a violation of the Fair Debt Collections
Practices Act (“FDCPA”) (Count VIII), 15 U.S.C. §§ 1692e, 1692j; two claims for
racial discrimination, one under the Civil Rights Act, 42 U.S.C. §§ 1981 and 1982
(Count IX) and the other under the Fair Housing Act (“FHA”), 42 U.S.C. §§ 3601,
3604, and 3605 (Count X); one for a violation of the Home Ownership and Equity
Protection Act (“HOEPA”), 15 U.S.C. § 1602(aa) (Count XI); two claims for a
violation of the Illinois Interest Act, 815 ILCS 205/4(2)(a), 205/5 (Counts XII and
XIII); one for a violation of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1635(f)
(Count XIV); and one generalized claim for punitive damages (Count XV).
I.
Counts I, II, III – RICO
Counts I, II, and III appear to be against all of the named Defendants. See R.
6 ¶¶ 176-196. Lockhart alleges that the Defendants, as members of an enterprise,
engaged in a conspiracy “to file false fraudulent foreclosures, false assignments,
false letters and other false documents with courts, county clerks [sic] to promote
their scheme to defraud the public, Plaintiff, and the judiciary too [sic] fictionalize
foreclosures in the name of parties without standing, and to collect unlawful debts.”
Id. ¶ 180.
The RICO statute expressly states:
It shall be unlawful for any person who has received any income,
directly or indirectly, from a pattern of racketeering activity or through
12
collection of an unlawful debt in which such person has participated as
a principal within the meaning [of 18 U.S.C. § 2] to use or invest . . .
any part of such income . . . in the establishment or operation of . . .
any enterprise[.]
18 U.S.C. § 1962(a). To state a civil claim, a RICO plaintiff must adequately allege:
(1) conduct, (2) of an enterprise, (3) through a pattern of (4) racketeering activity.
Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006). Nevertheless, civil RICO claims
exist for a very limited set of circumstances. Dremco, Inc. v. Diver, No. 12 C 8703,
2013 WL 1873917, at *3 (N.D. Ill. May 3, 2013). The Seventh Circuit has stated that
“the statute was never intended to allow plaintiffs to turn garden-variety state law
fraud claims into federal RICO actions.” Jennings v. Auto Meter Prods., Inc., 495
F.3d 466, 472 (7th Cir. 2007). Rather, “RICO ‘is a unique cause of action that is
concerned with eradicating organized, long-term, habitual criminal activity.’”
Dremco, Inc., 2014 WL 3056838, at *2 (N.D. Ill. July 7, 2014) (quoting Gamboa, 457
F.3d at 705). “Congress enacted RICO to target long-term criminal activity, not as a
means of resolving routine commercial disputes.” Kaye v. D’Amato, 357 Fed. Appx.
706, 717 (7th Cir. 2009).
Turning to Lockhart’s amended complaint, it is clear she has not alleged a
viable RICO claim against any of the Defendants. The Court addresses the most
glaring problems below, though it should not be viewed as an exhaustive list.
a. The Enterprise
“A RICO complaint must identify the enterprise,” Richmond v. Nationwide
Cassel L.P., 52 F.3d 640, 645 (7th Cir. 1995), defined as a “union or group of
individuals associated in fact although not a legal entity,” 18 U.S.C. § 1961(4). This
13
association must have “an ongoing ‘structure’ of persons associated through time,
joined in purpose, and organized in a manner amenable to hierarchial [sic] or
consensual decision making,” Stachon v. United Consumers Club, Inc., 229 F.3d
673, 675 (7th Cir. 2000) (quoting Jennings v. Emry, 910 F.2d 1434, 1440 (7th Cir.
1990)).
Lockhart makes a blanket statement that the enterprise consists of the
“Defendants Lindberg and Pilgrim acting by themselves or with other persons, or
participated in the acts or practices with Defendants FAL, [Pilgrim Christakis],
MERS and all other defendants named herein.” R. 6 ¶ 165. She further alleges that
“Defendants Lindberg and Pilgrim are the leaders, managers, organizers and
controllers who influence the enterprise consisting of all other Defendants.” R. 6 ¶
179. But these allegations do not come close to satisfying the enterprise element.
Lockhart has failed to identify with specificity the particular Defendants’ roles in
the organization, how the particular individuals are joined together, what orders
come from the “top” of the structure, or how the orders are relayed to the other
members. To put it simply, Lockhart’s complaint is lacking allegations that describe
the core of an organization—i.e., those necessary to satisfy the enterprise element.
Lockhart does identify Lindberg and Pilgrim as the enterprise’s leaders, but that
alone is not enough. This is especially true considering that Lockhart’s allegations
supporting her RICO claim sound in fraud, which requires Lockhart to satisfy the
Rule 9(b) pleading standard.
14
b. Pattern of Racketeering Activity
To show a pattern, Lockhart must allege that a defendant committed at least
two acts of racketeering activity in a ten-year period. 18 U.S.C. § 1961(5). Although
two predicate acts are necessary, that alone is not sufficient to establish a pattern of
racketeering activity. H. J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237 (1989);
Corely v. Rosewood Care Ctr., 388 F.3d 990, 1002 (7th Cir. 2004). Furthermore, a
civil RICO plaintiff must satisfy the “continuity plus relationship” test—i.e., “the
predicate acts must be related to one another (relationship prong) and pose a threat
of continued criminal activity (continuity prong).” Midwest Grinding v. Spitz, 976
F.2d 1016, 1022 (7th Cir. 1992) (citing H.J., Inc., 492 U.S. at 239); Jennings, 495
F.3d at 473.
“[I]n determining whether there is continuity, ‘[r]elevant factors include the
number and variety of predicate acts and the length of time over which they were
committed, the number of victims, the presence of separate schemes and the
occurrence of distinct injuries.’” Jennings, 495 F.3d at 473 (quoting Morgan v. Bank
of Waukegan, 804 F.2d 970, 975 (7th Cir. 1986)) (second alteration in Jennings).
However, no one factor is necessarily determinative. Jennings, 495 F.3d at 473
(quoting Morgan, 804 F.2d at 976). Courts must evaluate the allegations on a caseby-case basis, looking to “the facts and circumstances of the particular case,”
Jennings, 495 F.3d at 473, while keeping in mind the goal of “achieving a natural
and commonsense result, consistent with Congress’s concern with long-term
15
criminal conduct,” id. (quoting Roger Whitmore’s Auto. Servs., Inc. v. Lake Cnty.,
Ill., 424 F.3d 659, 673 (7th Cir. 2005)).
Lockhart alleges that “HSBC makes hundreds of billions of dollars
annually[,] some of which is earned by illegally, fraudulently and discriminatorily
foreclosing on homeowners across the United States using the same schemes used
against Plaintiff and the thousands of other homeowners whose loans were the
subject of the foreclosure review.” R. 6 ¶ 34. Lockhart further allegations that, “[t]o
[d]ate[,] the acts which are ongoing have lasted a substantial period of time and are
pervasive as Defendants intend them to last indefinitely and to continue to
victimize Plaintiff and on information and belief, thousands of other Illinois
homeowners, attorneys and the judiciary by perpetuating their frauds and
deceptions for profit.” R. 6 ¶ 182. These allegations, however, do not establish a
pattern of racketing activity.
Courts in this District have explained that “filing and prosecuting a [civil]
complaint is not considered mail or wire fraud or a predicate act under RICO.”
Carthan-Ragland v. Standard Bank & Trust, No. 11 C 5864, 2012 WL 1658244, at
*2 (N.D. Ill. May 11, 2012)); see Harris Custom Builders, Inc. v. Hoffmeyer, No. 90 C
0741, 1994 WL 329962, at *3-4 (N.D. Ill. July 7, 1994) (explaining that the “alleged
scheme of filing lawsuits to enforce an illegally obtained copyright does not
constitute a predicate act of racketeering for purposes of RICO” (citing I.S. Joseph
Co., Inc. v. J. Lauritzen A/S, 751 F.2d 265, 266-67 (8th Cir. 1984)). In foreclosure
cases, “plaintiffs cannot establish predicate acts of racketeering based on the false
16
statements
allegedly
contained
in
foreclosure
complaints
and
supporting
documents.” Drobny v. JP Morgan Chase Bank, N.A., 929 F. Supp. 2d 839, 849
(N.D. Ill. 2013). Yet, that is exactly what Lockhart alleges in support of her RICO
claims; she claims that the Defendants filed false forms supporting their mortgage
foreclosure actions. That is insufficient to satisfy the pattern of activity element. See
generally Midwest Grinding, 976 F.2d at 1024-25 (“[M]ail and wire fraud allegations
are ‘unique among predicate acts’ because multiplicity of such acts ‘may be no
indication of the requisite continuity of the underlying fraudulent activity.’
Consequently, we do ‘not look favorably on many instances of mail and wire fraud to
form a pattern.’” (quoting U.S. Textiles, Inc. v. Anheuser-Busch Cos., 911 F.2d 1261,
1266 (7th Cir. 1990); Hartz v. Friedman, 919 F.2d 469, 473 (7th Cir. 1990))).
Furthermore, the only “schemes” or “racketeering activities” Lockhart
attempts to explain in detail are those directed at her. The Seventh Circuit has
explained that “a single alleged scheme targeted at one victim is not a ‘pattern of
racketeering activity’ even if the alleged scheme requires several acts of mail and
wire fraud to inflict the injury.” Slaney v. Amateur Athletic Fed’n., 244 F.3d 580,
599 (7th Cir. 2001); see, e.g., Ashland Oil v. Arnett, 875 F.2d 1271, 1278-79 (7th Cir.
1989); Lipin Enters. v. Lee, 803 F.2d 322, 324 (7th Cir. 1986); Drobny, 929 F. Supp.
2d at 849. Lockhart’s vague, conclusory statement that the conduct she complains of
in her complaint has happened to “thousands of other homeowners,” see, e.g., R. 6 ¶
182, lacks the specificity required under Rule 9 to demonstrate that the Defendants
engaged in various schemes or activities directed at different individuals, or that
17
the alleged “racketeering acts [were] committed in a manner characterizing the
[Defendants] as . . . person[s] who regularly commit such crimes.” Lipin Enters., 803
F.2d at 324. Accordingly, Lockhart’s allegations fail to satisfy the pattern of
racketeering activity element on this ground as well.
In sum, Counts I, II, and III are dismissed without prejudice. Lockhart is
given leave to replead these counts should she be able to cure their deficiencies,
being mindful that the deficiencies discussed in detail are not the only problems
with her RICO claims. If Lockhart chooses to amend her complaint, she should be
aware of this Court’s recent order in Dremco, Inc., 2014 WL 3056838, in which the
Court granted the defendants’ motion for sanctions because of an improperly filed
RICO case.
II.
Counts IV, V, VI – Criminal Counts for Wire Fraud, Fraud & Deceit,
and False Oaths
Lockhart alleges three criminal counts consisting of wire fraud under 18
U.S.C. § 1343, fraud and deceit under 18 U.S.C. § 1503, and false oaths under 18
U.S.C. § 1623(a). These allegations may be relevant to the RICO claims in Counts I,
II, and III, but a plaintiff generally cannot bring claims for a violation of a criminal
statute in a private civil cause of action. Indeed, the Supreme Court has explained
that it “has rarely implied a private right of action under a criminal statute, and
where it has done so[,] ‘there was at least a statutory basis for inferring that a civil
cause of action of some sort lay in favor of someone.’” Chrysler Corp. v. Brown, 441
U.S. 281, 316 (1979) (quoting Cort v. Ash, 422 U.S. 66, 79 (1975)).
18
Regarding the criminal statutes at issue here, other courts have already
considered civil causes of action brought for a violation of them and in turn rejected.
As one court in this District succinctly stated, “There is no implied private right of
action for a violation of the mail and wire fraud statutes and therefore an
independent claim for violations of those statutes is not viable.” Hu v. Cantwell,
2008 WL 4200289, at *4 (N.D. Ill. Sept. 10, 2008) (citing Wisdom v. First Midwest
Bank, of Poplar Bluff, 167 F.3d 402, 407-08 (8th Cir. 1999); Mondry v. Am. Family
Mut. Ins. Co., No. 06-C-320-S, 2006 WL 2787867, at *5 (W.D. Wis. Sept.26, 2006);
Cole v. Forest Park Sch. Dist. 91, No. 06 C 1087, 2006 WL 1735252, at *1 (N.D. Ill.
June 19, 2006); Foley v. Plumbers & Steamfitters Local No. 149, 109 F. Supp. 2d
963, 970 (C.D. Ill. 2000)). The Court agrees that a private right of action does not
flow from a violation of the criminal statutes at issue here, so Lockhart’s claims in
Counts IV, V, and VI are dismissed. This dismissal is with prejudice because any
attempt to replead them would be futile. See Bogie v. Rosenberg, 705 F.3d 603, 608
(7th Cir. 2013) (“Leave to amend need not be granted . . . if it is clear that any
amendment would be futile.”).
III.
Count VII – RESPA Violations
Count VII is a claim under RESPA, 12 U.S.C. § 2605(f), for damages arising
from a lender’s failure to comply with the statute. Section 2605(b)(1) provides that
“each servicer of any federally related mortgage loan shall notify the borrower in
writing of any assignment, sale, or transfer of the servicing of the loan to any other
person.” 12 U.S.C. § 2605(b)(1). As particularly relevant here, Section 2605(b)(2)(A)
19
requires a “transferor of loan servicing” to give notice of any assignment of a loan to
the borrower on the loan “not less than 15 days before the effective date of transfer
of the servicing of the mortgage loan.” Lockhart alleges in her amended complaint
that she received legal documents stating that her mortgage had been assigned to a
different entity but never received notice of the transfer. R. 6 ¶¶ 204-07. However,
Lockhart concedes in her response brief that she did receive notice in August 2003
“that an assignment had been made and that the loan would be serviced by a new
servicer, HFC.” R. 54 at 15. Accordingly, Lockhart’s claim is not that she did not
receive any notice of the assignment; rather, she claims that she did not receive
notice from the transferor, “Fieldstone Mortgage.” Because Lockhart acknowledges
that she received notice of the assignment from HFC III, see R. 61 at 9, Fieldstone
Mortgage (as the transferor) is the only entity that could thus be liable for the
alleged failure to provide notice. Fieldstone Mortgage is not a party to this action, so
Lockhart’s claim fails.
Even if Lockhart were given leave to replead the claim naming Fieldstone
Mortgage as the liable party, her claim is time-barred. As the Defendants point out,
Lockhart’s claim in Count VII is subject to the three-year statute of limitations in
12 U.S.C. § 2614. If any party failed to provide Lockhart sufficient notice, that
would have occurred in August 2003 when the party was required to provide notice
as required by § 2605(b)(2)(A). The statute of limitations would have begun to run
at that time, and Lockhart was thus required to file any failure to provide notice
20
claim by August 2006. That time has long since passed, so Count VII is dismissed
with prejudice.
IV.
Count VIII – Fair Debt Collections Practices Act
Lockhart seeks relief in Count VIII for a violation of the FDCPA, 15 U.S.C. §§
1692e and 1692j. Section 1692e states that a “debt collector may not use any false,
deceptive, or misleading representation or means in connection with the collection
of any debt.” Similarly, Section 1692j(a) provides as follows:
It is unlawful to design, compile, and furnish any form knowing that
such form would be used to create the false belief in a consumer that a
person other than the creditor of such consumer is participating in the
collection of or in an attempt to collect a debt such consumer allegedly
owes such creditor, when in fact such person is not so participating.
Lockhart alleges that the “Defendants served collection letters for debts they had no
right to collect and deceived her into believing she owed a debt due to legal
documents that were unlawful.” R. 6 ¶ 212. More specifically, she alleges that FAL
created:
the false belief in [her] as a consumer of mortgage products that a debt
was owed to an entity when in fact that entity was not owed money in
violation of § 1692e including by threatening foreclosure action for a
party when a debt was not owed to that party and threatening to take
and taking legal action on behalf of that party that was fraudulent:
and § 1692j by filing complaints and serving other papers falsely
indicating a party is owed a debt that is not a real party in interest.
Id. ¶ 214.
The Defendants contend that Count VIII is time-barred. 15 U.S.C. § 1692k(d)
requires any action seeking to enforce any liability must be brought “within one
year from the date on which the violation occurs.” The Court looks to “the specific
21
violations alleged” when determining “the date on which the violation occurs.” Jones
v. U.S. Bank Nat. Ass’n, No. 10 C 0008, 2011 WL 814901, at *3 (N.D. Ill. Feb 25,
2011) (citing 15 U.S.C. § 1692k(d)). However, “[w]here an [alleged] FDCPA violation
arises out of a collections lawsuit, the Seventh Circuit has not decided when the
FDCPA’s statute of limitations begins to run, though the circuit courts have ruled
on the issue agree that the clock starts when the allegedly wrongful litigation
begins.” Judy v. Blatt, Hasenmiller, Leibsker & Moore, LLC, No. 09 C 1226, 2010
WL 431484, at *3 (N.D. Ill. Jan. 29, 2010) (citing Johnson v. Riddle, 305 F.3d 1107,
1113 (10th Cir. 2002); Naas v. Stolman, 130 F.3d 892, 893 (9th Cir. 1997)).
It is unquestioned that each of the three underlying state lawsuits was filed
many years before Lockhart filed this suit. Based on that, all the claims in Count
VIII against every Defendant, regardless of whether other elements are properly
pled or whether the particular Defendants are even subject to the FDCPA, are
barred. 7 To the extent Lockhart contends that the statute of limitation has not run
Parties can only be liable for a violation of the FDCPA if they are “debt collectors.”
See 15 U.S.C. §§ 1692e and 1692f. Lockhart’s amended complaint must therefore
contain allegations that the Defendants “are in the business of collecting debt, that
they regularly collect debts owed to others, or that they used names other than their
own in attempting to collect a debt.” Cocroft v. HSBC Bank USA, N.A., No. 10 C
3408, 2012 WL 1378645, at *10 (N.D. Ill. Apr. 20, 2012) (citing Goodloe v. Nat’l
Wholesale Co., No. 03 C 7176, 2004 WL 1631728, at *13 (N.D. Ill. July 19, 2004).
Even if the statute of limitations did not bar Lockhart’s FDCPA claim, Lockhart’s
allegations make clear that HSBC, HFC III, MERS, MERSCORP, and Kaplan are
not debt collectors, so they could not be liable under the FDCPA. See Schlosser v.
Fairbanks Capital Corp., 323 F.3d 534, 537 (7th Cir. 2003) (distinguishing between
debt collectors, who are subject to the FDCPA, and creditors, who are not). Whether
the other law firms, Pilgrim Christakis and FAL, and their attorneys or employees
could be considered debt collectors is not clear from the pleadings.
7
22
because of an ongoing, continuous pattern and course of conduct—e.g., sending
erroneous collection letters and monthly statements—that argument is unavailing.
It is difficult for the Court to precisely identify each and every “act” that Lockhart
alleges to be a violation of the FDCPA due to Lockhart’s generalized allegations and
broad-sweeping conclusory statements. However, other courts addressing this issue
have highlighted the “split of authority on the question of whether a continuing
violation might extend the statute of limitations in a FDCPA case.” Woltring v.
Specialized Loan Servicing, LLC, No. 14-CV-222, 2014 WL 2708581, at *5 (E.D.
Wis. June 16, 2014) (citing Devlin v. Law Offices Howard Lee Schiff, P.C., No. 1111902-JGD, 2012 WL 4469139, at *5 (D. Mass. Sept. 25, 2012)). Indeed, as the
Woltring court recently noted, the only courts that have found that argument
persuasive are located in districts outside the Seventh Circuit. Woltring, 2014 WL
2708581, at *5; see also Grant v. Vision Fin. Servs., Inc., No. 11 C 8854, 2013 WL
1499004, at *3 (N.D. Ill. Apr. 11, 2013) (‘[P]laintiff cites no authority for the
proposition that an ongoing debt collection effort or an ongoing failure to validate
the debt qualifies as a ‘continuing violation’ that would enable plaintiff to revive his
time-barred claims, and we agree with our colleagues in this district who have ruled
it does not.”). That fact did not, however, prevent the Woltring court from
acknowledging that the “continuing violation doctrine” may be viable as a “narrow
and limited exception.” Id.
This Court disagrees with the approach taken in Woltring and will instead
follow the analysis as laid out in Hill v. Wells Fargo Bank, N.A., 946 F. Supp. 2d 817
23
(N.D. Ill. 2013), a case in which Judge Feinerman rejected outright a plaintiff’s
reliance on the continuing violation doctrine in an FDCPA case. In determining
whether the doctrine should apply, the court in Hill looked to the Seventh Circuit’s
interpretation of the continuing violation doctrine and applied it to the effect the
doctrine would have on an FDCPA case:
The Seventh Circuit has held with respect to that doctrine that “[t]he
statute of limitations begins to run upon injury . . . and is not tolled by
subsequent injuries” and that “[t]he office of the [continuing violation
doctrine] is to allow suit to be delayed until a series of wrongful acts
blossoms into an injury on which suit can be brought.” Limestone Dev.
Corp. v. Vill. of Lemont, 520 F.3d 797, 801 (7th Cir. 2008). “It is thus a
doctrine not about a continuing, but about a cumulative, violation.” Id.
So understood, the doctrine does not render LPS’s alleged prelimitations violations actionable. Those violations had already given
rise to “an injury on which [a § 1692f(6)] suit can be brought” at the
time they occurred, and to allow an FDCPA claim to proceed on those
violations would effectively hold that the statute of limitations on those
acts had been tolled by the later wrongs, contrary to the Seventh
Circuit’s understanding of the doctrine. See Kovacs v. United States,
614 F.3d 666, 676 (7th Cir. 2010) (“The continuing violation doctrine . .
. does not apply to a series of discrete acts, each of which is
independently actionable, even if those acts form an overall pattern of
wrongdoing.”) (internal quotation marks omitted).
Hill, 946 F. Supp. 2d at 825 (alterations in Hill). The same analysis applies here.
The purpose of the continuing violation doctrine is not to reset the statute of
limitations every time an individual act occurs. Applying the continuing violation
doctrine to an FDCPA claim like the one at issue here would not alter the
significance of Lockhart’s claimed injury nor would it affect the date on which
Lockhart’s underlying claim became ripe for adjudication. Instead, it would simply
toll the statute of limitations through alleged later wrongs, which would not be a
24
proper basis for applying the doctrine. See id. Thus, the continuing violation
doctrine is not applicable in this case.
In short, there is no dispute here that every named Defendant had
participated in some respect in the events described in Lockhart’s amended
complaint by the time the third foreclosure action (Case Three) was filed in state
court on September 7, 2007. Accordingly, at the absolute latest, the statute of
limitations came and went on September 7, 2008, a year after Case Three was filed.
Lockhart did not file this lawsuit until December 2013, so Lockhart’s FDCPA claims
are barred by 15 U.S.C. § 1692k(d).
V.
Counts IX and X – Racial Discrimination
Lockhart alleges two counts of racial discrimination: one for a violation of the
Civil Rights Act, 42 U.S.C. §§ 1981 and 1982; the other for a violation of the FHA,
42 U.S.C. § 3601.
A.
Claims pursuant to 42 U.S.C. §§ 1981 and 1982
Section 1981 provides, in pertinent part:
All persons within the jurisdiction of the United States shall have the
same right in every State and Territory to make and enforce contracts,
to sue, be parties, give evidence, and to the full and equal benefit of all
laws and proceedings for the security of persons and property as is
enjoyed by white citizens, and shall be subject to like punishment,
pains, penalties, taxes, licenses, and exactions of every kind, and to no
other.
42 U.S.C. § 1981(a). The Supreme Court has interpreted the section “as providing a
broad-based prohibition (and federal remedy) against racial discrimination in the
making and enforcing of contracts.” Humphries v. CBOCS W., Inc., 474 F.3d 387,
25
393 (7th Cir. 2007) (citing Runyon v. McCrary, 427 U.S. 160 (1976); Johnson v. Ry.
Express Agency, Inc., 421 U.S. 454, 459-62 (1975)). Other portions of that section are
also codified in Section 1982: “All citizens of the United States shall have the same
right, in every State and Territory, as is enjoyed by white citizens thereof to inherit,
purchase, lease, sell, hold, and convey real and personal property.” “Section 1982
was enacted to enable Congress to enforce the Thirteenth Amendment and,
particularly, to prohibit all racial discrimination, private and public, in the sale and
rental of property. Morris v. Office Max, 89 F.3d 411, 413 (7th Cir. 1996) (citing
Jones v. Alfred H. Mayer Co., 392 U.S. 409, 437 (1968)). Lockhart alleges that the
Defendants violated Sections 1981 and 1982 and “intentionally discriminated
against [her] by charging her higher interest rates than those charged to similarly
situated Caucasian mortgagees.” R. 6 ¶ 218.
The Defendants contend that Lockhart’s Civil Rights Act claims are barred
by the applicable statute of limitations regardless of whether Lockhart has
adequately pled the claims’ required elements. The Seventh Circuit recently
addressed the issue of Section 1981 claims brought against private actors and
explained that they are “governed by [28 U.S.C. § 1658’s] four-year statute of
limitations.” Campbell v. Forest Preserve Dist., 752 F.3d 665, 668 (7th Cir. 2014)
(citing Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369, 382 (2004)). Conversely,
there is a two-year statute of limitations for a violation of Section 1982. Brown v.
Cnty. of Will, No. 02 C 3165, 2005 WL 1138642, at *3 (N.D. Ill. May 9, 2005) (citing
Smith v. City of Chi. Heights, 951 F.2d 834, 836-37 n.1 (7th Cir. 1992)). The clock
26
generally begins to run on a claim under either section “when the plaintiff[] knew or
should have known of actionable discriminatory acts.” Honorable v. The Easy Life
Real Estate Sys., 182 F.R.D. 553, 563 (N.D. Ill. 1998) (quoting Burkes v. McDonald’s
Corp., No. 96 C 7093, 1997 WL 28300, at *4 (N.D. Ill. Jan. 21, 1997) (quoting Bailey
v. Northern Ind. Pub. Serv. Co., 910 F.2d 406, 412 (7th Cir. 1990))). An exception to
that rule exists, however. A plaintiff may argue that the “continuing violation
doctrine” applies, which would allow the plaintiff to “get relief for a time-barred act
by linking it with an act that is within the limitations period,” since the
“discriminatory nature of an act may only become apparent in light of subsequent
events.” Honorable, 182 F.R.D. at 594.
In Lockhart’s response to the Defendants’ motions to dismiss, she does not
address the Defendants’ statute of limitations argument regarding Count IX. Even
if she had, and further argued that the continuing violation doctrine applied, the
same analysis as discussed above regarding her FDCPA claims would apply here. In
sum, the continuing violation is inapplicable to this case, and the statute of
limitations clock would have begun on September 7, 2007, the date on which Case
Three was filed. Two years from that date is September 7, 2009; four years from
that date is September 7, 2012. This case was not filed until December 2013, so
Lockhart’s claims in Count IX are time-barred.
B.
Fair Housing Act Claim
The purpose of the FHA is “to provide, within constitutional limits, for fair
housing throughout the United States.” 42 U.S.C. § 3601. Lockhart alleges that the
27
Defendants violated the FHA by imposing different terms and conditions on her
loan as a result of her race. R. 6 ¶ 222-23. The problem for Lockhart is that the
claims for a violation of the FHA are also subject to a two-year statute of
limitations. See 42 U.S.C. § 3613(a)(1)(A) (“An aggrieved person may commence a
civil action in an appropriate United States District Court or State Court not later
than 2 years after the occurrence or the termination of an allegedly discriminatory
housing practice.”). Accordingly, for the same reasons Counts VIII and IX of
Lockhart’s amended complaint are time-barred, Lockhart’s claims in Count X are
time-barred as well.
VI.
Count XI – HOEPA; Count XIV – TILA
“TILA was intended to ensure that consumers are given ‘meaningful
disclosure of credit terms’ and to protect consumers from unfair credit practices.”
Marr v. Bank of Am., N.A., 662 F.3d 963, 966 (7th Cir. 2011) (quoting 15 U.S.C. §
1601(a)). In combination with HOEPA, “which was passed in 1994 as an
amendment to TILA,” TILA “requires creditors to provide certain financial
disclosures, and failure to provide the required disclosures could give the borrower
an extended right to rescind the transaction and/or the right to damages.” Green v.
Chase Bank USA, NA, No. 11 C 6345, 2012 WL 3961230, at *3 (N.D. Ill. Sept. 7,
2012) (citations omitted).
Lockhart’s claims in Counts XI and XIV are similar. Count XI is a claim for a
violation of HOEPA in which it appears Lockhart is only seeking rescission of the
mortgage loan. R. 6 ¶¶ 225-30. Count XIV is a claim for damages under TILA
28
because, according to Lockhart, the Defendants received Lockhart’s rescission notice
but nevertheless ignored it, did not cancel the loan, and “failed to properly disclose
the actual amount financed in violation of 15 U.S.C. § 1605, 12 C.F.R. § 226.4 and
12 C.F.R. § 226.18(d) and had misstated the ‘Finance Charge’ in violation of 15
U.S.C. § 1638(a)(4) and 12 C.F.R. 226.18(e) and 12 C.F.R. § 226.18(d).” Id. ¶ 249-50.
A. Applicability of TILA & HOEPA
“As a threshold matter, TILA and HOEPA only apply to creditors and the
assignees of that credit.” Davis v. Wilmington Fin., Inc., No. PJM 09-1505, 2010 WL
1375363, at *4 (D. Md. March 26, 2010). TILA defines “creditor” as follows: one who
“(1) regularly extends . . . consumer credit which is payable agreement in more than
four installments or for which the payment of a finance charge is or may be
required, and (2) is the person to whom the debt arising from the consumer credit
transaction is initially payable on the face of indebtedness.” 15 U.S.C. § 1602(g).
The Defendant law firms (Pilgrim Christakis and FAL) and the Defendant
attorneys or their employees (Jeffrey Pilgrim, Brady Pilgrim, Arnold G. Kaplan, and
Steven C. Lindberg), do not fall under the definition of “creditors,” nor could they
based on their alleged conduct and roles in Lockhart’s amended complaint. Thus,
Lockhart cannot proceed with her TILA and HOEPA claims against them.
To the extent MERS and MERSCORP argue they should be dismissed
because they are not creditors or assignees, the Court agrees in part, and the
damage claim in Count XIV is dismissed against them. See Stewart v. BAC Home
Loans Servicing, LP, No. 10 C 2033, 2011 WL 862938, at *3 (N.D. Ill. Mar. 10, 2011)
29
(citing 15 U.S.C. §§ 1640, 1641(a); Horton v. Country Mortg. Servs., Inc., No. 07 C
6530, 2010 WL 55902 (N.D. Ill. Jan. 4, 2010). As the Stewart court noted, however,
if rescission unwinds the entire transaction and the parties are to be returned to the
status quo, MERS and MERSCORP may be necessary parties for that to occur. See
Stewart, 2011 WL 862938, at *3. MERS and MERSCORP must therefore remain in
the case in the event Lockhart is able to prove she is entitled to rescission, as she
alleges in Count XI. 8
B.
Statute of Limitations
HSBC, HFC III, MERS, and MERSCORP contend that the claims should be
dismissed because they are barred by the applicable statute of limitations. The
TILA damage claim in Count XIV is subject to the one-year statute of limitations in
15 U.S.C. § 1640(e) while Lockhart’s rescission request in Count XI is governed by
the three-year statute of repose in 15 U.S.C. § 1635(f). See Estate of Davis v. Wells
Fargo Bank, 633 F.3d 529, 532 (7th Cir. 2011). Lockhart’s response to the motions
to dismiss does not address the statute of limitations argument directed at her
The Court is unsure as to whether Lockhart can actually satisfy her tender
obligations should she demonstrate she is entitled to rescission. For purposes of the
motion to dismiss, Lockhart is not required to plead her ability to tender to the
value of the loan in the complaint. Merritt v. Countrywide Fin. Corp., ___ F.3d ___,
No. 09-17678, 2014 WL 3451299, at *15 (9th Cir. July 16, 2014) (explaining that
“plaintiffs can state a claim for rescission under TILA without pleading that they
have tendered, or that they have the ability to tender, the value of their loan”).
Nevertheless, that issue will need to be promptly addressed if Lockhart wishes to
rescind the loan because rescission is only possible if Lockhart can pay back the
money she received. Otherwise, the relief she seeks in Count XI is impossible. See
Iroanyah v. Bank of Am., 753 F.3d 686, 692 (7th Cir. 2014) (explaining that “a
borrower’s inability to satisfy his tender obligations may make rescission, even if
based on a TILA violation, impossible”).
8
30
HOEPA and TILA claims. Nevertheless, it is clear that her TILA damage claim is
time-barred. Section 1640(e) provides:
Except as provided in the subsequent sentence, any action under this
section may be brought in any United States district court, or in any
other court of competent jurisdiction, within one year from the date of
the occurrence of the violation or, in the case of a violation involving a
private education loan (as that term is defined in section 140(a) [15
USCS § 1650(a)]), 1 year from the date on which the first regular
payment of principal is due under the loan.
In the event HSBC or HFC III failed to provide proper disclosure documents or act
properly in the face of Lockhart’s rescission request, which she claims was sent on
May 1, 2006, R. 6. ¶ 230, the statute of limitations would have started to run at
least in May 2006, if not earlier. Lockhart would have needed to file her TILA
damage claims by May 2007, yet she did not file suit until 2013. Count XIV is
dismissed in its entirety.
The rescission request pursuant to 15 U.S.C. § 1635(a) in Count XI is a
different story. Section 1635(a) “provides that a consumer may rescind . . . a
consumer credit transaction in which the creditor retains a security interest on the
consumer’s home.” Carmichael v. The Payment Crt, Inc., 336 F.3d 636, 643 (7th Cir.
2003) (citing 15 U.S.C. § 1635(a)). Generally, rescission must be requested within
(1) three days of the date the parties consummated the transaction or (2) three days
of the date the consumer received the required disclosure and rescission forms. Id.
However, if the consumer is not provided with the required documents, a borrower
may rescind the loan up to three years from the date the parties entered into the
transaction. 15 U.S.C. § 1635(f); see Carmichael, Inc., 336 F.3d at 643.
31
Lockhart contends she “never received notice required by law three or more
days before closing, including cautionary language and specified information on the
loan terms,” R. 6 ¶ 229 (citing 12 C.F.R. § 226.32), so therefore, she had three years
to give notice of her rescission request and to follow the procedures outlined in the
statute. Taking Lockhart’s allegations as true, she had three years to seek
rescission of the loan (until May 29, 2003)—which she did on May 1, 2006—not
necessarily three years to file suit to force the Defendants to rescind the loan.
Indeed, the statute does not set forth a deadline for filing suit to enforce an obligor’s
right of rescission; it only provides a timeframe for pursuing rescission under 15
U.S.C. § 1635—i.e., the steps to provide notice of one’s intent to seek rescission. See
Stewart, 2011 WL 862938, at *3 (“[T]he Court is persuaded by the authority finding
that a borrower may assert his rescission rights under § 1635(f) through notice to
the creditor.”); In re Hunter, 400 B.R. 651, 661-62 (N.D. Ill. 2009) (explaining that
“[t]he three-year period limits only the consumer’s right to rescind, not the
consumer’s right to seek judicial enforcement of the rescission”) (internal citation
omitted). Accordingly, Lockhart’s claim for this Court to enforce her request to
rescind the loan is not subject to the three-year statute of limitations (only her
initial rescission request was), so Count XI is not time-barred. 9
It seems odd that any civil cause of action would not have a statute of limitations,
but the parties have not pointed the Court to one governing actions to enforce one’s
rescission right in 15 U.S.C. § 1635(a)—provided, proper notice was previously
given pursuant to § 1635(f)—and the Court has not found one.
9
32
C. Colorado River Doctrine
Alternatively, the Defendants argue that the Court should dismiss the claim
under the Colorado River doctrine. The Colorado River doctrine allows “a federal
court [to] stay or dismiss a suit in exceptional circumstances where there is a
concurrent state proceeding and the stay or dismissal would promote ‘wise judicial
administration.’” Freed v. Weiss, 974 F. Supp. 2d 1135, 1137-38 (N.D. Ill. 2013)
(quoting Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700
(7th Cir. 1992)). The primary purpose of the doctrine is to “conserve both state and
federal judicial resources and prevent inconsistent results.” Freed v. J.P. Morgan
Chase Bank, N.A., ___ F.3d ___, Nos. 13-2339 & 13-2340, 2014 WL 2853551, at *3
(7th Cir. June 14, 2014). The first step in the inquiry is determining whether “the
concurrent state and federal actions are actually parallel. Then, once it is
established that the suits are parallel, the court must consider a number of nonexclusive
factors
that
might
demonstrate
the
existence
of
‘exceptional
circumstances.’” Tyrer v. City of S. Beloit, 456 F.3d 744, 751 (7th Cir. 2006) (quoting
Clark v. Lacy, 376 F.3d 682, 685 (7th Cir. 2004)).
1. Parallel Actions
As the Defendants point out, Lockhart asserted similar counterclaims in the
state court case, including claims under HOEPA, the Illinois Interest Act, and
TILA. See R. 43 at 13-14. Moreover, the underlying state court action involves
essentially the same parties who the Court has not yet dismissed Count XI against
(i.e., HSBC and HFC III), the same property in Illinois, the same mortgage
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agreement, the same conduct regarding that mortgage agreement, the same
interest in the litigation, and the same remedies sought. See generally Freed, 2014
WL 2014 WL 2853551, at *4-6 (describing the relevant considerations in
determining whether the federal action is parallel to those at issue in state court
court). Lockhart’s only counter argument to these facts is this case has race
discrimination and RICO claims. The Court has already determined those claims
are insufficiently pled, however, so there is no need to factor them into its decision
at this time. Also, “paralleism under Colorado River requires only that there be ‘a
substantial likelihood,’ not a certainty, ‘that the [state court] litigation will dispose
of all claims presented in the federal case.’” Freed v. Weiss, 974 F. Supp. 2d at 1145
(quoting AAR Int’l., Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 518 (7th Cir. 2001)).
The Court is therefore convinced the ongoing state court action is parallel to
Lockhart’s desired rescission relief in Count XI.
2. Exceptional Circumstances
The second issue requires the Court to determine whether exceptional
circumstances justify the doctrine’s application. The Seventh Circuit has set forth
ten factors to consider in making that determination:
1) whether the state has assumed jurisdiction over property; 2) the
inconvenience of the federal forum; 3) the desirability of avoiding
piecemeal litigation; 4) the order in which jurisdiction was obtained by
the concurrent forums; 5) the source of governing law, state or federal;
6) the adequacy of state-court action to protect the federal plaintiff's
rights; 7) the relative progress of state and federal proceedings; 8) the
presence or absence of concurrent jurisdiction; 9) the availability of
removal; and 10) the vexatious or contrived nature of the federal claim.
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Tyrer, 456 F.3d at 754 (quoting Caminiti & Iatarola, Ltd., 962 F.2d at 701). Certain
factors are overwhelmingly in favor of abstention in this case. For example: the
Court here would be reviewing the exact same issues and conduct that the state
court is reviewing (factor 3); state court jurisdiction was obtained many years ago
(factor 4); the state court proceeding directly implicates and can protect Lockhart’s
asserted rights because Lockhart had the opportunity to file counterclaims and
assert the same arguments there that she is making here (factor 6); the state court
action has been ongoing for many years and has included amended complaints,
summary judgment motions, and an appeal, see R. 6 ¶¶ 143-147 (factor 7); and
finally, the claims are “vexatious or contrived” for purposes of the Colorado River
doctrine because they closely track the state court claims and the majority have
significant legal deficiencies that require them to be dismissed with prejudice
(factor 10). Although the state has not assumed jurisdiction over the property
(factor 1) and the federal forum will not inconvenience the parties (factor 2), these
two factors alone do not carry much weight in light of the factors in favor of
abstention. See, e.g., Huon v. Johnson & Bell, Ltd., 657 F.3d 641, 648 (7th Cir. 2011)
(“The question whether the state litigation has reached an advanced stage turns not
on the amount of discovery completed but on how far the state court has progressed
toward a final resolution. And this court has held that, although the pendency of a
state-court suit cannot alone justify abstention, that factor should be given more
weight if the state case is already on appeal.”) (internal citations omitted). The
other factors (5, 8 and 9) also do not altogether favor either forum. Accordingly, the
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“exceptional circumstances” necessary for abstention are present here with respect
to Count XI.
The Defendants ask the Court to dismiss Count XI after determining the
doctrine is applicable instead of imposing a stay, but the Seventh Circuit does not
favor that approach. See Mulholland v. Marion Cnty. Election Bd., 746 F.3d 811,
815 (7th Cir. 2014) (explaining that the Colorado River doctrine “ordinarily calls for
a stay rather than dismissal when it applies”). This is especially true in this case
because Lockhart should be provided with at least one opportunity to amend her
RICO claim, though the Court is skeptical as to whether she can cure the
deficiencies identified. The proper procedure is thus to stay the case in light of the
fact no federal claims aside from Count XI currently remain and to allow Lockhart
the opportunity to amend her complaint (should she seek to do so) once the
underlying state proceedings have concluded. See Rogers v. Desiderio, 58 F.3d 299,
302 (7th Cir. 1995) (“It is sensible to stay proceedings until an earlier-filed state
case has reached a conclusion, and then (but only then) to dismiss the suit outright
on grounds of claim preclusion.”).
VII.
Counts XII and XIII – Illinois Interest Act
Lockhart further alleges two claims in violation of the Illinois Interest Act
under 815 ILCS 205/4(2)(a) and 815 ILCS 205/5. R. 6 ¶¶ 231-46. 815 ILCS
205/4(2)(a) provides:
Whenever the rate of interest exceeds 8% per annum on any written
contract, agreement or bond for deed providing for the installment
purchase of residential real estate, or on any loan secured by a
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mortgage on residential real estate, it shall be unlawful to provide for a
prepayment penalty or other charge for prepayment.
815 ILCS 205/5 provides:
No person or corporation shall directly or indirectly accept or receive,
in money, goods, discounts or thing in action, or in any other way, any
greater sum or greater value for the loan, forbearance or discount of
any money, goods or thing in action, than is expressly authorized by
this Act or other laws of this State.
As was the case with the HOEPA and TILA claims, these two sections directly
relate to Lockhart’s mortgage loan. The Defendant law firms (Pilgrim Christakis
and FAL) and the Defendant attorneys and their employees (Jeffrey Pilgrim, Brady
Pilgrim, Arnold G. Kaplan, and Steven C. Lindberg) had no role in Lockhart
procuring the mortgage, did not lend Lockhart any money, and did not accept
anything in return for any mortgage loan. It follows that they cannot be liable for
Lockhart’s claimed violations of the Illinois Interest Act. The same goes for MERS
and MERSCORP, which are not required to be a part of the case regarding any
claimed damages in Counts XII and XIII.
HSBC and HFC III are different. Based on Lockhart’s allegations, they could
be liable for a violation of the Illinois Interest Act. However, in the state court
action, Lockhart sought and received leave to amend her complaint to file the exact
same claims she sets forth in Counts XII and XIII. Those claims remain pending in
the state court action, see R. 43 at 13-14, so any action this Court might take in
regards to them would contravene the rationale behind the Colorado River doctrine.
Accordingly, the same analysis for why the Colorado River doctrine applies to Count
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XI with respect to HSBC and HFC III also applies to the claims against them in
Counts XII and XIII.
IX. Count XV – Punitive Damages
Count XV is a general claim for punitive damages. Lockhart provides no
statutory or common law basis for this claim in her amended complaint, simply
alleging she is entitled to punitive damages. The Court has dismissed each of the
claims that could arguably support a claim for punitive damages, so Count XV is
likewise dismissed.
CONCLUSION
For the foregoing reasons, the Defendants’ motions to dismiss, R. 35, 38, 42,
are granted in part and denied in part. Counts I, II, III, and XV are dismissed
without prejudice. Counts IV, V, VI, VII, VIII, IX, X, and XIV are dismissed with
prejudice. Count XI is dismissed with prejudice as to all Defendants except HSBC,
HFC III, MERS, and MERSCORP. Counts XII and XIII are also dismissed with
prejudice as to all Defendants except HSBC and HFC III. Due to the application of
the Colorado River doctrine to Counts XI, XII, and XIII, the case will remain stayed
until the state court litigation terminates. See Rogers, 58 F.3d at 302. At that time,
any party may request the Court to lift the stay, and Lockhart may seek leave to
amend her complaint if she chooses. The case is set for a status hearing on October
1, 2014, at 9:00 a.m., at which time the parties can provide the Court with an
update on the status of the state court proceedings.
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ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: August 1, 2014
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