People Of The State Of Illinois v. CMK Investments, Inc.
Filing
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MEMORANDUM Opinion and Order. The Court grants in part and denies in part plaintiff's motion to strike defendant's amended affirmative defenses 55 . The motion is granted as to affirmative defenses 2-10 and 12-14, which are stricken, and denied as to affirmative defenses 1 and 15. Affirmative defense 11, which was not a subject of this motion, also stands. Signed by the Honorable Jorge L. Alonso on 6/30/2015. Notice mailed by judge's staff (ntf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE PEOPLE OF THE STATE OF
ILLINOIS by LISA MADIGAN,
ILLINOIS ATTORNEY GENERAL,
Plaintiff,
v.
CMK INVESTMENTS, INC. d/b/a
ALL CREDIT LENDERS, an Illinois
corporation,
Defendant.
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14 C 2783
Judge Jorge L. Alonso
MEMORANDUM OPINION AND ORDER
Plaintiff sues defendant for its alleged violations of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank”) and the Illinois Consumer Fraud and Deceptive Business
Practices Act (“ICFA”). The case is before the Court on plaintiff’s Federal Rule of Civil Procedure
(“Rule”) 12(f) motion to strike defendant’s amended affirmative defenses 1-10 and 12-15. For the
reasons set forth below, the Court grants in part and denies in part the motion.
Facts
In March 2011, defendant introduced a new credit product described as a “Revolving (openend) Credit Plan” (“RCP”). (Compl. ¶ 35.) RCPs are generally in amounts between $100.00 and
$2,000.00 and have disclosed interest rates of 18 or 24 percent. (Id. ¶¶ 39, 41-42.) The RCP
agreements require consumers to pay an account protection fee, in addition to principal and
disclosed interest. (Id. ¶ 40.) In RCP agreements with a disclosed interest rate of 18 percent, the
account protection fee is at least $10.00 for every $50.00 of the consumer’s outstanding balance.
(Id. ¶ 41.) In RCP agreements with a disclosed interest rate of 24 percent, the account protection
fee is $11.00 or $15.00 for every $50.00 of the consumer’s outstanding balance. (Id. ¶ 42.) Plaintiff
contends that this fee is, in reality, undisclosed interest, and that defendant’s failure to disclose it as
such violates state and federal law. (Id. ¶ 59.)
Discussion
“Affirmative defenses will be stricken only when they are insufficient on the face of the
pleadings.” Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989); see
Fed. R. Civ. P. 12(f). Because “[a]ffirmative defenses are pleadings,” they “are subject to all
pleading requirements of the Federal Rules of Civil Procedure.” Id. Whether they are also subject
to the “plausibility” pleading standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555-57 (2007) and Iqbal v. Ashcroft, 556 U.S. 662, 677-79 (2009) is a subject of some debate.
Compare, e.g., Shield Techs. Corp. v. Paradigm Positioning, LLC, No. 11 C 6183, 2012 WL
4120440, at *7-8 (N.D. Ill. Sept. 19, 2012) (applying Twombly and Iqbal to affirmative defenses),
with Leon v. Jacobson Transp. Co., Inc., No. 10 C 4939, 2010 WL 4810600, at *1 (N.D. Ill. Nov.
19, 2010) (concluding that the rationale underlying Twombly and Iqbal does not apply to affirmative
defenses). In the absence of guidance from the Seventh Circuit, and given that the standard set forth
in Twombly and Iqbal is among the “pleading requirements” referred to in Heller, the Court holds
that Twombly and Iqbal apply to affirmative defenses. Accordingly, to survive a motion to strike,
the challenged affirmative defenses need not contain “detailed factual allegations,” but must contain
“enough facts to state a [defense] that is plausible on its face.” Twombly, 550 U.S. at 570.
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Defendant asserts res judicata as its first affirmative defense. Specifically, defendant alleges
that plaintiff’s claims were the subject of final administrative action by the Illinois Department of
Financial and Professional Regulation (“IDFPR”), which precludes plaintiff from relitigating them
here. Plaintiff contends that Judge Ellis rejected this defense when she denied defendant’s motion
to dismiss.
It is true that Judge Ellis denied defendant’s motion to dismiss on the grounds of res judicata,
but she did so because the record before her did not establish that the IDFPR proceedings ended in
a final judgment. (See 12/9/14 Op. & Order at 8-10 & n.4.) However, the record on a motion to
dismiss is limited to the pleadings and matters of which the court can take judicial notice. See Gen.
Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080-81 (7th Cir. 1997). Thus it is
possible, as defendant contends, that it “will be able to submit evidence” supporting its res judicata
defense at summary judgment or trial. (See Am. Answer & Aff. Defenses at 51.) Accordingly, the
motion to strike the first affirmative defense is denied.
Defendant’s second affirmative defense is laches. “Where a governmental body is engaged
in a matter involving the exercise of its governmental functions, the defense of laches is not favored
and should only be invoked in extraordinary circumstances.” Schivarelli v. Chi. Transit Auth., 823
N.E.2d 158, 167 (Ill. App. Ct. 2005). Moreover, laches applies to a government entity only if the
entity took an affirmative act that induced defendant’s substantial reliance. Id. Defendant alleges
that the affirmative act here was IDFPR issuing a license to defendant after terminating the 2013
administrative proceedings concerning defendant’s RCP product. Underlying this argument is the
assumption, made without discussion or citation to authority, that IDFPR and plaintiff are
interchangeable for purposes of laches. Illinois case law suggests otherwise. See People ex rel.
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Brown v. Ill. State Troopers Lodge No. 41, 286 N.E.2d 524, 528-29 (Ill. App. Ct. 1972) (holding that
Attorney General’s registration of defendant under the Solicitation Act did not bar Director of State
Department of Law Enforcement from suing defendant to enjoin its unlawful solicitation activities);
cf. Rhoads v. Bd. of Trs. of the City of Calumet City Policemen’s Pension Fund, 689 N.E.2d 266,
270 (Ill. App. Ct. 1997) (holding that Calumet City and the Calumet City Pension Board were not
in privity for collateral estoppel “merely because they are both public entities”); Hannigan v.
Hoffmeister, 608 N.E.2d 396, 404 (Ill. App. Ct. 1992) (holding that the University of Illinois and
the State Universities Retirement System of Illinois were not in privity for res judicata). Because
defendant does not offer, and the Court has not found, any authority for the notion that IDFPR’s
actions can be imputed to plaintiff for laches purposes, the Court grants the motion to strike the
second affirmative defense.
Defendant’s third affirmative defense is that its compliance with the federal Truth In Lending
Act (“TILA”) and its implementing regulation bars plaintiff’s claims. Once again, plaintiff contends
that Judge Ellis has already rejected this defense. This time, the Court agrees. Judge Ellis expressly
stated that: (1) “[c]ompliance with TILA’s disclosure requirements does not absolve All Credit
Lenders from liability under ICFA or the Dodd-Frank Act if its account protection fee is otherwise
unfair, deceptive, or abusive,” which is precisely what plaintiff alleges; and (2) “TILA’s distinction
between interest and debt suspension coverage [does not] control[] [whether] . . . the account
protection fee can[] be classified as interest” for purposes of state law. (See 12/9/14 Mem. Op. &
Order at 15-16.) The third affirmative defense is, therefore, stricken.
Affirmative defenses 4-10 are payment, release, accord and satisfaction, election of remedies,
setoff, mitigation of damages, and lack of injury, respectively. In each, defendant alleges that “[a]s
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the Illinois Attorney General, Plaintiff need not prove individual damages to individual borrowers
to bring an action under the Consumer Fraud Act,” but cannot obtain rescission and restitution for
individual borrowers if the borrowers have been paid for, released, or otherwise resolved their
claims with defendant, failed to mitigate their damages, or did not suffer damages. (See Am. Aff.
Defenses 4-10.) The Court disagrees. First, as defendant admits, proof of damages is not an element
of an ICFA claim brought by plaintiff. See 815 Ill. Comp. Stat. 505/7 (stating that the Attorney
General can bring an ICFA claim whenever she “has reason to believe that any person is using, has
used, or is about to use any method, act or practice declared by th[e] Act to be unlawful”). Thus,
these damages-based defenses are inapt. Second, any monetary recovery by plaintiff is more in the
nature of disgorgement than damages:
Even though the transactions underlying this action arose between individual
consumers and defendant, the action stems from the Attorney General’s duty to
enforce the Consumer Fraud Act. An action filed by the Attorney General under the
Act is essentially a law enforcement action designed to protect the public, not to
benefit private parties. The statute expressly authorizes the Attorney General to
enjoin illegal practices and to collect actual damages. Both remedies serve to
prevent continued violations of the Act, and may promote enforcement of the law.
Although restitution may benefit aggrieved consumers, the remedy flows from the
basic policy that those who engage in proscribed conduct or practices surrender all
profits flowing therefrom.
People ex rel. Hartigan v. Lann, 587 N.E.2d 521, 524 (Ill. App. Ct. 1992) (citation omitted).
Accordingly, the Court strikes affirmative defenses 4-10.
In affirmative defenses 12-14, defendant alleges that Dodd-Frank is unconstitutional because
it is vague, violates separation-of-powers principles, and vests excessive power in a single official.
These allegations have been thoroughly analyzed and rejected by two other district courts. See
Consumer Fin. Prot. Bureau v. ITT Educ. Servs., Inc., No. 1:14-CV-00292-SEB, __ F. Supp. 3d __,
2015 WL 1013508 (S.D. Ind. Mar. 6, 2015); Illinois v. Alta Coll., Inc., No. 14 C 3786, 2014 WL
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4377579 (N.D. Ill. Sept. 4, 2014). The Court agrees with the reasoning of these decisions, and thus
strikes defenses 12-14 as insufficient as a matter of law.
In affirmative defense 15, defendant alleges that the civil penalties and forfeitures sought by
plaintiff violate the Eighth Amendment. Plaintiff argues that “rais[ing] the propriety of the
proportionality of an award not yet made by the Court as an affirmative defense here is speculative,
unfounded, and does not defeat Plaintiff’s claims.” (Pl.’s Mot. Strike Am. Aff. Defenses at 9.)
However, all defenses to damages are in some sense “speculative” and “unfounded” until an award
is made, and none fully defeats a claim. Cf. Carter v. United States, 333 F.3d 791, 796 (7th Cir.
2003) (“A cap on damages is only a partial defense, but that is true of any defense that is limited to
the amount of damages, and in that respect it is no different from comparative negligence, which
clearly is an affirmative defense.”). Thus, plaintiff’s argument is not a basis for striking defense
15.
Conclusion
For the reasons stated above, the Court grants in part and denies in part plaintiff’s motion
to strike defendant’s amended affirmative defenses [55]. The motion is granted as to affirmative
defenses 2-10 and 12-14, which are stricken, and denied as to affirmative defenses 1 and 15.
Affirmative defense 11, which was not a subject of this motion, also stands.
SO ORDERED.
ENTERED:
June 30, 2015
__________________________________
HON. JORGE ALONSO
United States District Judge
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