Opinion
01 C 7211
February 7, 2002
On February 5, 2002, plaintiffs Jewett Dowdy and Lew Wallace filed a motion for reconsideration of this court's dismissal of defendants Bankers Trust ("Bankers") and EMC Mortgage Company ("EMC") from count II of plaintiffs' complaint. For the following reasons, plaintiffs' motion to reconsider is DENIED.
Count II alleged a violation of § 2 of the Illinois Consumer Fraud Act ("ICFA"), 815 ILCS 505/2, against the creditor of the mortgage, First Metropolitan Mortgage Company ("First Metropolitan"), and the subsequent assignees, Bankers and EMC. Plaintiffs argue that because § 131(d) of the Truth in Lending Act ("TILA") provides that any person who purchases or is otherwise assigned a mortgage regulated by TILA "shall be subject to all claims and defenses with respect to that mortgage that the consumer could assert against the creditor of the mortgage . . .," 15 U.S.C. § 1641(d), plaintiffs' claim under ICFA against First Metropolitan can also be asserted against defendants-assignees Bankers and EMC. According to plaintiffs, the only question presented by their ICFA claim in count II is whether plaintiffs have stated a valid claim against First Metropolitan and the Illinois law governing the ICFA claims against defendants-assignees Bankers and EMC is immaterial. This court disagrees.
Plaintiffs correctly note in their motion to reconsider that § 131(d) of TILA and the relevant agency regulations provide that assignees are subject to all claims and defenses the consumer could assert under any law against the creditor of the mortgage. See Federal Reserve System Rules and Regulation, Truth in Lending Act, 12 C.F.R. part 226, Supp. I, ¶ 42(a), 66 Fed. Reg. 65604 at 65621 (Dec. 20, 2001). Essentially, as the regulations state, § 131(d) prevents assignees and purchasers from using the state law holder-in-due-course defense to escape liability. See id. In this case, while plaintiffs may state a claim under ICFA against First Metropolitan, defendants-assignees Bankers and EMC are not invoking a holder-in-due-course defense to the ICFA claims. In fact, regardless of whether the holder-in-due-course defense is raised, Illinois law is absolutely clear on the point that Bankers and EMC, as assignees of the allegedly fraudulent mortgage and not the actual perpetrators of the fraud, cannot be held liable under ICFA for First Metropolitan's alleged fraud. The Illinois Supreme Court held in Zekman v. Direct American Marketers, Inc., 182 Ill.2d 359, 695 N.E.2d 853, (1998), and recently reaffirmed in Jackson v. South Holland Dodge, Inc., 197 Ill.2d 39, 755 N.E.2d 462 (2001), that the reach of ICFA is limited to "conduct that defrauds or deceives consumers or other" and "does not provide a cause of action against those who knowingly receive benefits from the person committing the violation" Zekman, 182 Ill.2d at 369-70, 695 N.E.2d at 859. In order to have a claim against assignees of an allegedly fraudulent mortgage, plaintiffs would have to allege that "the assignee[s'] fraud is active and direct," Jackson, 197 Ill.2d at 52, 755 N.E.2d at 471, which plaintiffs in this case do not allege. Although the mortgage at issue is subject to TILA, count II is a state law claim and this court must therefore apply the state law. Allowing plaintiffs to proceed against Bankers and EMC under ICFA would, in effect, impose ICFA liability under facts which the Illinois Supreme Court has specifically considered and refused to impose liability as to assignees who were not the perpetrators of the fraud. To rule in plaintiffs favor on their count II state claim against Bankers and EMC would require this court to disregard the unambiguous Illinois law on this point. The Illinois Supreme Court is the final authority as to Illinois law. There has been no showing that federal law preempts the Illinois Supreme Court's authority.
For all the reasons stated, plaintiffs' motion to reconsidered is DENIED. All previously set dates remain.