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# United States Court of Appeals For the Seventh Circuit

Nos. 16-1668, 16-2051 & 16-2052

K I MT YL E R Y H E N G , et al ., Plaintiffs-Appellants ,

v.

H E A VN E R , B EY E RS & M I HL AR

, LLC, Defen dant-Appellee.

J US T I N G I E R

KE, on behalf of plainti ff and a clas s, Plaintiff-Appellant,
v.
C OD I L I S & A S S O C I AT E S

, P.C., Defen dant-Appellee.2 Nos. 16-1668, 16-2051 & 16-2052

L AUR A Z UN I G A

, et al ., Plaintiffs-Appellants ,

v.
P I E RC E and A S S O C I AT E S , Defen dant-Appellee.

Appe als fr om the U nited States Di stric t Co urt fo r the Nor thern Distri ct o f Il l i noi s, Eastern Di v i sio n. No. 15 C 0 84 54 — Cha rles R. Norgle , Judg e. No. 15 C 1 16 18 — Robert W. Get tle man , Judg e. No. 16 C 0 18 97— Milt on I. S had ur , Judg e.

A RGU E D O C T OB E R 27, 2016

— D E C I D E D F E B R UAR Y 17, 2017

Before W O OD, Chief Judge, and B AU E R and M AN I O N , Circ uit Judges.
B AU E R , Cir cui t Judge. In these three separate cases consoli

dated on appeal, appellants challenge the di smi ssal of their clai ms brought under the Fair Debt Collection Practi ces Act, 15 U.S.C. § 1692, et. seq. Appellants in Heng, et al., v
. Heavner, et al. , separately challen ge the di stric t court’s or der strik ing an exhib i t, and also challen ge the di stric t court’s deni al of their request for leav e to amend. W e affi rm.Nos. 16-1668, 16-2051 & 16-2052 3
I. BACKGRO UND W e need not di scu ss the specific s for each indi vidu al case becau se the underlyin g facts are consi sten t (t he exception to thi s is t he procedural hi stor y in Heng ). A ppellants o btai ned a Fe d e ra l H ou sing Admini strat i on-insu red resi denti al mort ga ge loan and sub se quently defaulted due to financi al hardshi p. 1 Appellees are law fi rms that re p r e sent the loan servicing agents; they fi led foreclosure complaints in Illi noi s state c ourt again st appellants. These complaints gener ally follow ed the statuto ry complaint template set fort h in Section 15-1504(a) of the Illi noi s’ Mor tgag e For eclosure Law

. See 735 Ill. Comp. St at. 5/15-1504(a)

. The template inclu des the following l a ng uage: “N a mes of defendants clai med to be personally li able for defi ci ency

, i f any[,]” and, “[a] personal judg me nt for a defi

ci ency , i f sought.” Id. at 5/1 5-1504(a) (3)( M), (3)( i i i ). Appellees inclu ded both allegations in their foreclosure c omplaints, and i denti fi ed appellants to be personally li able for any defi ci ency
. Appellants filed sui t again st appellees, alleging violati ons of the FDCP

A. Accordi ng to the complaints, the FHA does not authorize defi ci ency judgments where, as here, appellants suffered a financi al hardshi p. Att ached as a n e xhibi t to their complaints, appellants inclu ded a lette r fr o m t he FHA responding to a Fr eedom of Information Act request. In part, the FHA’s response pro vided: There hav e been zero foreclosed FHA loan s in Illi noi s in whi ch the pursui t of a d e fici ency

Feder al Housin g Administration (FHA) is part of the United S t a t e s 1 Department of Housin g and U rban Dev elopment (HUD).4 Nos. 16-1668, 16-2051 & 16-2052 judgment w as authorized. FHA i s not currently pursuing defi c i e n cy ju d gm e n ts

. ... [ T]he Department has deter mined i t i s not [in] the best inter

ests o f F HA to ro uti nely seek defi ci ency judgments in connecti on wi th [clai ms wi thout conv ey ance of title or “CWCOT”] clai ms. Therefore , FHA i s not requestin g that the mort g a g e es pursue any d efi ci ency judgments in connecti on wit h CWCOT clai ms, unles s FHA makes a speci al request pursuant to 24 C.F .R. [§] 203.369.

... S inc e FHA i s not currently pursuing defi

ci ency judgments, we do not maintai n a ny repo rt s tracking defi ci ency judgments. Appellees fi led a motion to di smi ss, whi ch the di stric t court gr anted under F e deral Rule of Ci vil Procedure 12(b) (6). Appellants fi led tim ely notic es of appeal. Thi s consoli dated appeal follow ed.
W e turn to certain facts pert aining only to the Heng case. As stated abov e, appellants fi led a complaint and appellee fi led a motion t o d ismi ss. Shor tly there after , appellants fi led a fi rst amended complaint on December 12, 2015. On De cember 23, 2015, appellee fi led a motion to di smiss the amended complaint. Appellants received a lette r dated December 23, 2015, from appellants’ loan servicing agent who w as repr esented by appellee. Thi s lette r prov i ded an explanation about defi ci ency judgments and an offer to w ai v e a defi ci ency judgment. On Februar y 5, 2016, appellants fi led a response to the second motion to di smi ss, whi ch includ e d the lette r as an exhib i t and alle g a t ions concerning i t. Appellee fi led both aNos. 16-1668, 16-2051 & 16-2052 5 reply and a motion to strike on February 19, 2016. Appellants

w ere not giv en an oppor tuni ty to oppose the motion to strike, whi ch the di stric t courtgr anted wi thout comment. On F e br ua ry 25, 2016, appellants fi led a motion to reconsi der the di st r ict court’s or der gr anti ng appellee’s motion to strike and, alte r nati v ely , requested leav e to amend the fi rst amended complaint to inclu de the exhib i t. On Mar ch 23, 2016, the di stric t c ourt deni ed appellants’ motion to reconsi der and the alter nati v e request for leav e to amend, and gr anted appellee’s motion to di smi ss.

II. DISCUSSION O n appeal, appellants challen ge the di smi ssal of the ir clai ms that w ere brought under the FDCP A

. Appellants in the Heng case separately challen ge the or der gr anting appellee’s motion to strike the exhib i t attached to t he ir response to appellee’s motion to di smi ss; they also challen ge the deni al of their request for leave to amend. A. FDCP

A Claim
W e rev i ew de novo a di stric t court’s de cis io n gr anting a mot io n t o di smi ss under Rule 12(b) (6), accepting all wellpleaded factual allegations in the complaint a s t r ue and drawing all reasonable inferences in fav or of the appellants. St. John v
. Cach, LLC, 822 F .3d 388, 389 (7th Ci r
. 2016). T o av oid di smi ssal, the complaint mus t “state a cla im to relief that i s plaus ible on i ts face.” Jackso n v
. Blitt & Gaines, P .C. , 833 F .3d 860, 862 (7th Ci r
. 2016) (quot ing Ashcroft v

. Iqb al , 556 U.S. 6 6 2, 678 (2009))

.6 Nos. 16-1668, 16-2051 & 16-2052
The main i ssu e i s whether appellants stated a plausibl e clai m under the FDCP

A. The FDCP

A prov i des t hat “[a] debt collector may not use any false, decepti v e, or mi sleading repr esentation or means in connecti on wi th the collect ion of any debt.” 15 U.S.C. § 1692e. Thi s broad prohibi tion i s accompani ed by a non-exhaus tiv e li st speci fyi ng si xte en potent i al violati ons, inclu ding the “threat to take any acti on that cannot l egally be take n or that i s not intended to be take n.” Id

. § 1692e(5). “[R]epresentations may violate § 1692e of the FDCP A ev en i f mad e in co urt fi lings in liti gation.” Marquez v
. W einstein , Pinson & Riley

, P .S. , 836 F .3d 808, 812 (7th Ci r
. 2016). W e apply the “uns ophi sti cated consu mer” standard when

ev aluat ing whether a debt collector’ s r epresentat i ons comply wi th the FDCP

A. Avila v
. Rubin , 84 F .3d 222, 226–27 (7th Ci r
. 1996). Appellants contend that appellees violated the FDCP A by allegin g in their state-court foreclosure complaints that appellants are “clai med to be personally li able fo r the defi

ciency , i f any ,” and by requestin g “[a] personal judgment fo r
a defi ci ency

, i f sought.” See 735 Ill. Comp. St at. 5/15- 1 5 0 4 ( a ) ( 3 ) ( M) , (3)( i i i ). Appellants arg ue that appellees inclu d e d these allegatio ns ev en though appellees knew that the FHA, the insu rer of appellants’ loan, had a longstan d ing poli cy of not authorizing mort gage es to pursue defi ci ency jud gments. Appellants assert that not only di d appellees p ur su e a defi

ci ency judgment wi thout FHA’s prior authoriz a t ion, but also that the FHA’s poli ci es prohibi ted appellees from taking such acti on in the fi rst place. Appellants, there fore, contend that appellees made threat s to seek a defi ci ency judgment and had

no particu larized intention of actually enforci ng thi s le g a lNos. 16-1668, 16-2051 & 16-2052 7 remedy again st appellants. A p p e llants also assert that appellees falsely repr esented that thi s legal remedy w as av ai l a ble. Based on these supp osi tions, appellants arg ue that “[b] ecaus e the request for a d efi ci ency w as not authorized, [appellants’] FDCP A complaint stated a clai m.” Appellant’s Br . at 17. As a prelim inary matter , w e note that the crux of appellants’ arg ument rests on the assu mpti on that unles s the FHA prov i des prior authorizati on to appellee s t o p ursue a defi

ci ency judgment again st appellants, appellees are pro hibi ted from engaging in the complained of conduc t. W e wi ll there fore

see i f appellants hav e any p lausi ble bas i s for this assu mpti on. First, t he reg ulati on governing defi ci ency judgments prov i des that “the Secret ary may require t he mort gage e di li gently to pursue a defi ci ency judgment in connecti on wi th any foreclosure.” 24 C.F .R. § 203.369(a)( 1) (emphas i s added);

see a lso 24 C.F .R. § 203.402(o) (reimbursement for certai n costs when C ommi ssi oner requires or requests the mort gage e to seek a defi ci ency judgment p ur suan t to § 203.369). Thi s reg ulati on giv es FHA the author i ty t o r equi re a mor tgag ee to pursue a defi ci ency judgment on a FHA-i nsu red loan, but does not prohibi t the mort gage e from seeki ng a d e fi ci ency judgment

. So the reg ulati on does not supp or t the posi tion that appellees are prohibi ted from engaging in t he complained of conduc t wi thout F HA’s pri or authorizati on. Second, app ellants prov i de refer ences to HUD Mor tgag ee Notice 1994-89, and Mor tgag ee Lette rs 2006-15, and 2013-15. How ev er

, although ne it he r party poin ted thi s out, these documents are out- of-date; the lette rs and no tic e w ere super seded b y H UD ’s FH A Sin gl e Fa mi ly Housing P olicy Handbook8 Nos. 16-1668, 16-2051 & 16-2052
4000.1 (or “Handbook”). These Mor tgag ee Lette rs and Notice 2 also do not help appellants’ posi tion. Lastly , the Handbook prov i des that “[u] nle ss speci fi cally requested by FHA, the Mor t g a g e e i s not required by FHA to pursue any defi ci ency Judgments in connecti on wi th CWCOT procedures.” Handbook at III .A.2.u.i i

. It fu rther states that a 3 “[m] or tgag ee may engage in Judgment collecti on acti viti es i f a clai m for FHA insu rance be ne fi ts i s not fi led.” Id. at II I. A. 2

. u
. i i i .(B). Appellees contend that the Handbook sup p or ts i ts posi tion that a mort gage e i s allow ed to pursue a defi ci ency judgment i f i t chooses not to fi le a clai m for insu rance benefi ts. In response, appellants arg ue that the deci si on to pursue a defi ci ency judgment “belongs to HUD at all relev ant tim es,” and t o accept appellees’ interpr etat i on take s that deci si onmaki ng aw ay from the FHA. Appellant’s R. Br

. a t 7. Not exactly , the Han d bo ok follows the w or ding of 24 C.F .R. § 203.369, by reiterat ing FHA’s authority to request or require

See “S ingle Fa mily Housing Notices Super seded by H a nd b oo k 40 00 .1” 2 https:// portal.hud.gov/hud p or t a l /H U D? sr c =/ p rogram_off ices/admini stration/hudclips/sfhsuperseded/notices (noting that the “documents on t hi s page shou ld be used for refe rence purposes only [,] ” including Mortgagee Letter 19 94 -8 9 ) (last visited Februa ry 17 , 2 0 1 7 ) ; se e also

“ M o r t g a g e e L e t t e r s S u p e r s e d e d b y H U D H a n d b o o k 4 0 0 0

. 1 ” https:// portal.hud.gov/hudportal/ H U D? sr c =/ p r og r a m_ of fices/ad mini stration/hudclips/sfhsuperseded/mltrs_f ull (listing Mortgagee Letter s 20 06 -1 5 and 20 13 -1 5 as supersede d by the Handbook) ( l a st visited Februa ry 17 , 2 01 7)

.
See F H A Single Family Housin g Policy Handbook 40 00 .1, p. 72 0. 3 https:// portal.hud.gov/hudportal/docume nt s/ hu d d oc ? i d =4 00 01 HSGH .pdf(la st visited Februa ry 17 , 2 01 7)

.Nos. 16-1668, 16-2051 & 16-2052 9

a mort gage e to pursue a defi ci ency judgment; i t does not prohibi t the complai ned of conduc t. Appellants hav e not i denti fi ed any law , reg ulati on, or FHA poli cy requiring a mort gage e to obtain authorizati on from the F HA p rior to inclu ding the tw o allegations at i ssu e in th e ir state-fore closure complaint. Appellants hav e fai led to distin- 4 gui sh themselv es from all other Illi noi s mort gago rs who hav e defaulted on thei r payments and had Illinoi s-s tatut or y-shortform complaints fi led again st them. Becaus e the predic a t e to appellants’ arg uments is a bsent, w e need not address them. Appellants hav e fai led to sta t e a plaus ible clai m under the FDCP A. B. Procedural Clai ms in Heng
1. Motion to Strike The Heng appellants contend that the di stric t court err ed in gr anti ng appellee’s motion to strike an exhib i t t ha t w a s inclu ded in appe l l ants’ response to appellee’s motion to d ismi ss the amended complaint. “A di stric t court’s gr ant or deni al of a motion to strike i s rev i ew ed for an abus e of di scretion.” Zuppardi v
. W

al-Mart S tores, Inc. , 770 F .3d 644, 647 (7th Ci r . 2014) (c i tation omi tte d). The di stric t co ur t gr anted appellee’s motion to strike the

e x hibi t wi thout comment, and i t di d not giv e appellants a n oppor tuni ty t o r espond. How ev er , the di stric t court’s r easoning for gr anti ng the motion to strike w as prov i ded in i ts or der

We note that Appe llants do not claim that Appe llees violated any Illino is 4 state la w.10 Nos. 16-1668, 16-2051 & 16-2052 denyi ng appellants’ motion to reconsi der the or der gr anti ng the motion to st r ike. The di stric t court noted that the exhib i t
w as sent by a non-party and t hat i t w as no t ment i oned in t he comp l a int. The di stric t court also found that the exhib i t w as not mat erial to the complaint, and that the exhib i t “di d not comply wi th Rule 12(b) ’s requirement that the Court ’s consi de r a tion of motions to di smi ss i s li mi ted to the facts alleged in the complaint.” The di stric t court reasoned that becau se i t di d not construe the motion as one for sum mary judgment, i t w as required to di sregar d outsi de material sub mi tte d by appellants. Appellants arg ue that they w ere entitled to offer the exhib i t in response to appellee’s motion to di smi ss in li ght of our deci si ons in Defen der Secu rity Co. v
. First Mercury Insuranc e Co. , 803 F .3d 327 (7th Ci r
. 2015), and Early v
. Bankers Life & Casualty Co. , 959 F .2d 75, 79 (7th Ci r . 1992). In Defen der Sec urity Co. , w e noted that “no t hin g prev ents a plainti ff opposing di smi ssal from elaborat ing on the complaint or ev en attachi ng materials to an opposi tion bri ef i llus tr atin g the facts the plainti ff expects to be able to prove.” 803 F .3d at 335. Appellants clai m that the exhib i t w as pr obativ e of how t he non-party ’s r epr esentations base d o n the foreclosure complaint may be used to the detr i

ment of the consumer

. Whi le our precedent makes i t clear that appellants ha ve “much more flexibility in opposi ng a Rule 12(b) (6) motion,” Geinosky v
. City of Chi. , 675 F .3d 743, 745 n.1 (7th Ci r
. 2012), the flexibi li ty i s not wi thout li mi tations. Mate rials or elaborat i ons in appellants’ bri ef opposi ng d i smi ssal may be consi dered, so long as those materials or elaborat i ons are “consi stent wi th theNos. 16-1668, 16-2051 & 16-2052 11 pleadings.” Geinosky, 675 F .3d at 745 n.1; see also Early , 959 F .2d at 79 (“[A] plainti ff i s free

... to allege wit hout evidenti ary supp or t any fac t s he pleases that are consi stent wi th the complaint ... [.]”). The di stric t court di d not abus e it s di screti on when i t gr anted appellee’s mo t ion to strike the exhib i t. The di stric t court found that the exhib i t w as not material to the complaint and w as a lette r sent by a non-party ; in o ther w or ds, those materials and elaborat i ons w ere not consi stent wi th the complaint. Whi le the di stric t court w as inc or rect in r easoning that i t w as r e quir ed to di sregar d the outsi de material if i t di d not conv ert appellants’ response t o a motion for sum mary judgment, i t does not negate the ov erall finding that the exhib i t
w as not mater i al. Furt hermor e, as w e hav e consi dered appellants’ exhib i t and elaborat i ons as part of our de novo rev i ew of the di stric t court’s futi li ty-based d eni al of appellants’ r equest for leav e to amend, “w e are all the more at ease in holding that the di stric t court proper ly exer ci sed i ts di screti on in st r ikin g [the exhib i t].” McLeod v
. Arrow Mari ne T ransp., Inc. , 258 F .3d 608, 617 (7th Ci r . 2001).
2. Leave to Amend As a gener al rule, a di stric t court “should freely giv e leav e [to amend] when justic e so requires.” Fed. R. Ci v
. P

. 15(a)( 2). “[D] i stric t courts hav e broad di screti on to deny leav e to amend where t he r e i s undu e delay , bad fai th, di lator y motiv e, repeated fai lure to cure defi ci enci es, undu e prej udi ce to the defendants, or where the amendmen t w ould be futi le.” Arreola

v
. Godinez , 5 4 6 F .3d 788, 796 (7th Ci r
. 2008). Generally , w e
rev i ew a d ist ric t court’s deni al of leav e to amend for an12 Nos. 16-1668, 16-2051 & 16-2052
abus e of di screti on. Run nion v
. Girl Scouts of Gr eater Chi. & Nw

. Ind. , 786 F .3d 510, 524 (7th Ci r
. 2015). How ev er , “our rev i ew for abus e of discret i on of futi li ty-based deni als inclu des de novo
rev i ew of the legal basi s for the futi li ty .” Id

. ; s e e also Cohen v
. Am. Sec. Ins. Co. , 735 F

. 3 d 6 0 1, 607 (7th Ci r
. 2013). (notin g “[t]here i s no p ractic al di fference, in ter ms of rev i ew , betw een
a deni al of a motion t o amend based o n futili ty a nd the gr ant of a motion to dis mi ss for fai lure to state a clai m”). At fi rst glance, t he di strict court’s deci si on on thi s po int i s fuzzy . The dis tr i ct court menti oned only the “fai l[ure] to cure the pleading’s defi ci ency” catego ry of deni als. There i s, how ev er , no indi cati on in the recor d that the di stric t court ev er poin ted out a ny d efi ci enci es to appellants. Appellants also appear to hav e fi led the fi rst amended complaint as a matter of

course. See Fed. R. Ci v
. P

. 15(a)( 1)(B) (a party has a right to amend its pleadi ng once as a matter of cour se wi thi n 21 days after service o f defendant’s motion to di smi ss under Rule 12(b) ). The deni al of appellant s’ r equest for leav e to further amend w as based on the reason ing t ha t ev en i f “the Court allow ed Plainti ffs to amend their complaint and allege that the lette r – not the Mor tgag e Li tigati on Complaint – w as the actual false or mis l e ading statement, Plainti ffs w ould not be able to state a clai m.” In other w or ds, allowing appellant s t o fi le a second amended complaint w o ul d be futi le. W e hav e no qualms wi th consi dering the di stric t court’s deni al as a futi li tybased den i al. Appellants conten d that the exhib i t shows how the false repr esentations made in the foreclosure complaint may be mi sus ed to the detr iment of an uns ophi sti cated consu mer
.Nos. 16-1668, 16-2051 & 16-2052 13 Appellants clai m that thi s detr i ment w ould not hav e other wi se
o cc ur red had appellee accu rat ely stated the need for FHA’s authorizati on prior to seeki ng a defi ci ency judgment in the foreclosure comp l a int. In other w or ds, appellee’s false repr esent ations in the foreclosure complaint allow ed the l o a n servicing agentto capitali ze on tho se fals e repr esentations

. Appellants’ arg ument i s wi thout mer i t. The propo sed si gni fi canc e of the exhib i t i s premi sed on appellants’ fai led

assu mpti on that a mort gage e of an Illi noi s, FHA-i nsu red loan

mus t hav e FHA autho r i zation prior to inclu ding the tw o allegations at i ssu e in their state-for e clo sure complaint. Mor eov er

, not o nly w as the exhib i t sent by a non-party to appellants, but i t w as sent ov er a y ear a ft e r the foreclosure complaint w as fi led. There i s no basi s in law for a ppellants’ theor y on how a non-party ’s repr esentations may be probat i v e
as to how an unsophi sti cated consu mer percei v es appellee’s y ear -o ld foreclosure complaint. Becaus e what appellants sought to inclu de in an addi tional amended complaint w ould not make their FDCP

A clai m plaus ible, w e co nc l ude that an amendmen t w ould be fu tile.

III. CONCLUSION For the foreg oin g reasons, w e AFF IRM each di stric t courts’ gr ant of a p p e l lees’ motion to di smi ss the appellants’ complaints. W

e AFF IRM the di stric t court’s gr a nt of appellee’s motion to strike a n e x hibi t that w as inclu ded in appellants’ response to appellee’s motion to di smi ss the amended co mplaint. W

e AFF IRM the di stric t court’s deni al o f appellants’ request for leav e to amend.